SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-KSB

                 ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1999

                         Commission file number 0-24159

                     INDEPENDENT COMMUNITY BANKSHARES, INC.
                 (Name of Small Business Issuer in its Charter)

                 Virginia                            54-1696103
       (State or Other Jurisdiction               (I.R.S. Employer
            of Incorporation)                   Identification No.)

        111 West Washington Street                     20117
           Middleburg, Virginia                      (Zip Code)
 (Address of Principal Executive Offices)

                                 (703) 777-6327
                (Issuer's Telephone Number, Including Area Code)

         Securities registered under Section 12(b) of the Exchange Act:

                                                 Name of Each Exchange
           Title of Each Class                    on Which Registered
           -------------------                    -------------------

                   None                                   n/a

         Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $5.00 per share
                                (Title of Class)

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for past 90 days.

                                                          Yes   X    No
                                                              -----     -----

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

         The  issuer's  gross  income  for  its  most  recent  fiscal  year  was
$18,468,000.



<PAGE>

         The aggregate  market value of the voting stock held by  non-affiliates
computed by reference to the average of the closing bid and asked prices of such
stock as of February 17, 2000 was approximately $28,103,826. (The exclusion from
such amount of the market  value of the shares  owned by any person shall not be
deemed an  admission by the  registrant  that such person is an affiliate of the
registrant.)

         The number of  outstanding  shares of Common  Stock as of February  17,
2000 was 1,778,994.

         (This  report  also covers  276,600  Contractual  Rights to  Contingent
Merger Consideration,  which are registered under the Securities Act of 1933, as
amended,  pursuant to a registration  statement  declared  effective on June 27,
1997.)

                       DOCUMENTS INCORPORATED BY REFERENCE

     Proxy Statement for the 2000 Annual Meeting of Shareholders - Part III



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                                TABLE OF CONTENTS

                                     PART I

                                                                          Page

ITEM 1.  DESCRIPTION OF BUSINESS........................................... 4

ITEM 2.  DESCRIPTION OF PROPERTY........................................... 9

ITEM 3.  LEGAL PROCEEDINGS................................................ 10

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE
                      OF SECURITY HOLDERS................................. 10

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED
                       STOCKHOLDER MATTERS................................ 10

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATION.................. 11

ITEM 7.  FINANCIAL STATEMENTS............................................. 30

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                      ON ACCOUNTING AND FINANCIAL DISCLOSURE.............. 30

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
                      CONTROL PERSONS; COMPLIANCE WITH SECTION
                      16(a) OF THE EXCHANGE ACT........................... 30

ITEM 10. EXECUTIVE COMPENSATION........................................... 30

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                      OWNERS AND MANAGEMENT............................... 30

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 31

ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K............................31





                                      -3-
<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

General

         Independent Community  Bankshares,  Inc. ("ICBI" or the "Company") is a
bank  holding  company that was  incorporated  under  Virginia law in 1993.  The
Company  owns all of the stock of its  subsidiaries,  The  Middleburg  Bank (the
"Bank") and The Tredegar Trust Company ("Tredegar"), both of which are chartered
under Virginia law.

         The  Bank  has four  full  service  branches  and one  limited  service
facility.  The  Bank  has  its  main  office  at  111  West  Washington  Street,
Middleburg,  Virginia  20117,  and has  offices in  Purcellville,  Leesburg  and
Ashburn, Virginia. The Bank opened for business on July 1, 1924.

         Tredegar has its main office at Riverfront  Plaza,  901 E. Byrd Street,
Suite  190,  Richmond,  Virginia  23219,  and a  branch  office  in  Middleburg,
Virginia. Tredegar opened for business in January 1994.

         The  Bank's  market is western  Loudoun  County.  Loudoun  County is in
northwestern  Virginia  and  included in the  Washington-Baltimore  Metropolitan
statistical  area.  Loudoun County's  population is  approximately  150,000 with
slightly over one-third of the  population  located in the markets served by the
Bank and Tredegar. The local economy is driven by service industries requiring a
higher  skill  level,  self-employed  individuals,  the equine  industry and the
independently  wealthy.  Tredegar  serves  primarily  the greater  Richmond area
including the counties of Henrico, Chesterfield, Hanover, Goochland and Powhatan
as well as Loudoun County. However,  Tredegar does have customers outside of its
primary market.  Richmond is the capital of Virginia,  and the greater  Richmond
area has a population in excess of 800,000 people.

         The Company, through its subsidiaries,  offers a wide range of banking,
fiduciary  and  investment   management   services  to  individuals   and  small
businesses.  The banking  services include various types of checking and savings
accounts,  and  business,  real  estate,  development,  mortgage,  home  equity,
automobile and other  installment,  demand and term loans.  The Bank also offers
ATMs at all locations,  internet banking,  travelers' checks, money orders, safe
deposit rentals, collections, notary public, wire services and other traditional
bank  services  to its  customers.  Tredegar  provides a variety  of  investment
management  and  fiduciary  services  including  trust  and  estate  settlement.
Tredegar can also serve as escrow agent, attorney-in-fact,  guardian of property
or trustee of an IRA.

         The Bank has one  wholly  owned  subsidiary,  Middleburg  Bank  Service
Corporation.  Middleburg  Bank  Service  Corporation  is a partner  in a limited
liability company, Bankers Title Shenandoah, LLC, which sells title insurance to
its members. It has also invested in another limited liability company, Virginia
Bankers  Insurance  Center,  LLC, which acts as a broker for insurance sales for
its member banks.

         At  December  31,  1999,  ICBI had a total of 95 full  time  equivalent
employees.  The Company considers  relations with its employees to be excellent.
The Company's employees are not represented by a collective bargaining unit.

Competition

         ICBI  faces  significant  competition  for  both  loans  and  deposits.
Competition for loans comes from commercial banks, savings and loan associations
and savings banks,  mortgage banking  subsidiaries


                                      -4-
<PAGE>

of  regional  commercial  banks,   subsidiariesof   national  mortgage  bankers,
insurance   companies,   and  other  institutional   lenders.  Its  most  direct
competition   for  deposits  has   historically   come  from  savings  and  loan
associations  and  savings  banks,  commercial  banks,  credit  unions and other
financial institutions. Based upon total assets at June 30, 1999, the Company is
the  largest  banking  organization  in terms of deposits  operating  in Loudoun
County,  Virginia.  The Company faces  competition  for deposits from short-term
money market mutual funds and other corporate and government securities funds.

         Tredegar  competes  for  customers  and  accounts  with  banks,   other
financial   institutions   and  money  managers.   Even  though  many  of  these
institutions  have been engaged in the trust or investment  management  business
for a  considerably  longer period of time than Tredegar and have  significantly
greater  resources,  Tredegar has grown through its  commitment to quality trust
services and a local community approach to business.

Supervision and Regulation

         Banks and their holding companies are extensively regulated.  ICBI is a
bank holding  company  subject to  supervision  and  regulation  by the Board of
Governors of the Federal Reserve System (the "Federal Reserve") and the Virginia
State Corporation  Commission (the "SCC"). ICBI's sole banking subsidiary is the
Bank, a Virginia chartered bank that is subject to supervision and regulation by
the Federal Reserve and the SCC. Tredegar is a Virginia  chartered trust company
also regulated by the SCC and the Federal Reserve.

         The regulatory discussion is divided into two major subject areas, each
of which has three  subsections.  First,  the  discussion  addresses the general
regulatory considerations governing holding companies and focuses on the primary
regulatory  considerations applicable to ICBI as a bank holding company. Second,
the discussion  addresses the general regulatory  provisions governing financial
institutions  and  focuses  on the  regulatory  considerations  of the  Bank and
Tredegar.

         The  discussion  below  is only a  summary  of the  principal  laws and
regulations  that comprise the regulatory  framework.  The descriptions of these
laws and regulations,  as well as descriptions of laws and regulations contained
elsewhere  herein,  do not purport to be  complete  and are  qualified  in their
entirety by reference to applicable laws and regulations.

Bank Holding Companies

         General.  The Federal Reserve has  jurisdiction  under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"),  to approve any bank or nonbank
acquisition, merger or consolidation proposed by a bank holding company. The BHC
Act  generally  limits  the  activities  of  a  bank  holding  company  and  its
subsidiaries  to that of banking,  managing or controlling  banks,  or any other
activity  which is so closely  related to banking or to managing or  controlling
banks as to be a proper incident thereto.

         The  activities   permissible  to  bank  holding  companies  and  their
affiliates were substantially expanded by the Gramm-Leach-Bliley  Act, which the
President   signed  on  November  12,  1999.   Gramm-Leach-Bliley   repeals  the
anti-affiliation  provisions  of the  Glass-Steagall  Act to permit  the  common
ownership of commercial banks,  investment banks and insurance companies.  Under
Gramm-Leach-Bliley,  a  bank  holding  company  can  elect  to be  treated  as a
financial  holding  company.  A  financial  holding  company  may  engage in any
activity and acquire and retain any company that the Federal Reserve  determines
to be financial in nature.  A financial  holding  company also may engage in any
activity  that is  complementary  to a  financial  activity  and does not pose a
substantial  risk to the safety and soundness of depository  institutions or the
financial system generally.  The Federal Reserve must consult


                                      -5-
<PAGE>

with the  Secretary  of the  Treasury  in  determining  whether an  activity  is
financial in nature or incidental to a financial activity.

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

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

         Regulatory  Capital  Requirements.   All  financial   institutions  are
required to maintain  minimum  levels of  regulatory  capital.  The federal bank
regulatory  agencies have  established  substantially  similar  risked based and
leverage  capital  standards for financial  institutions  they  regulate.  These
regulatory  agencies  also may impose  capital  requirements  in excess of these
standards  on a  case-by-case  basis for various  reasons,  including  financial
condition  or  actual  or  anticipated  growth.  Under  the  risk-based  capital
requirements  of these  regulatory  agencies,  ICBI is  required  to  maintain a
minimum ratio of total capital to risk-weighted  assets of at least 8%. At least
half of the total  capital is  required  to be "Tier 1 capital"  which  consists
principally of common and certain  qualifying  preferred  stockholders'  equity,
less certain intangibles and other adjustments. The remainder ("Tier 2 capital")
consists  of  a  limited  amount  of  subordinated  and  other  qualifying  debt
(including  certain  hybrid  capital  instruments)  and a limited  amount of the
general  loan  loss  allowance.   Based  upon  the  applicable  Federal  Reserve
regulations, at December 31, 1999, ICBI would be considered "well capitalized."

         In addition, the federal regulatory agencies have established a minimum
leverage  capital ratio (Tier 1 capital to tangible  assets).  These  guidelines
provide  for a  minimum  leverage  capital  ratio  of 4%  for  banks  and  their
respective  holding  companies that meet certain specified  criteria,  including
that  they  have  the  highest   regulatory   examination  rating  and  are  not
contemplating  significant  growth  or  expansion.  All other  institutions  are
expected to maintain a leverage  ratio of at least 100 to 200 basis points above
that  minimum.   The   guidelines   also  provide  that  banking   organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions  substantially  above the minimum  supervisory  levels,
without significant reliance on intangible assets.

         Each  federal  regulatory  agency is required to revise its  risk-based
capital  standards  to ensure  that those  standards  take  adequate  account of
interest rate risk, concentration of credit risk and the risks of nontraditional
activities,  as well as reflect the actual performance and expected risk of loss
on  multifamily


                                      -6-
<PAGE>

mortgages. The Federal Reserve and the FDIC have jointly solicited comments on a
proposed  framework for  implementing  the interest  rate risk  component of the
risk-based  capital  guidelines.  Under the proposal,  an institution's  assets,
liabilities,  and  off-balance  sheet positions would be weighed by risk factors
that approximate the instruments'  price sensitivity to a 100 basis point change
in interest rates.  Institutions with interest rate risk exposure in excess of a
threshold  level would be required to hold  additional  capital  proportional to
that risk. In 1994, the federal bank regulatory agencies solicited comments on a
proposed  revision  to the  risk-based  capital  guidelines  to take  account of
concentration  of credit  risk and the risk of  nontraditional  activities.  The
revision  proposed  to amend  each  agency's  risk-based  capital  standards  by
explicitly  identifying  concentration  of credit risk and the risk arising from
nontraditional  activities,  as well as an institution's ability to manage those
risks, as important  factors to be taken into account by the agency in assessing
an institution's  overall capital adequacy.  The proposal was adopted as a final
rule by the federal bank regulatory  agencies and subsequently  became effective
on January 17, 1995.

         Limits on Dividends and Other Payments.  Certain state law restrictions
are  imposed  on  distributions  of  dividends  to  shareholders  of ICBI.  ICBI
shareholders are entitled to receive  dividends as declared by the ICBI Board of
Directors.  However, no such distribution may be made if, after giving effect to
the  distribution,  it would not be able to pay its debts as they  became due in
the usual  course of business or its total  assets  would be less than its total
liabilities.  There are similar  restrictions  with respect to stock repurchases
and redemptions.

         The Bank is  subject  to legal  limitations  on  capital  distributions
including  the payment of  dividends,  if, after making such  distribution,  the
institution  would  become  "undercapitalized"  (as  such  term  is  used in the
statute).  For all state  member  banks of the  Federal  Reserve  seeking to pay
dividends, the prior approval of the applicable Federal Reserve Bank is required
if the total of all dividends  declared in any calendar year will exceed the sum
of the bank's net  profits  for that year and its  retained  net profits for the
preceding two calendar years.

         Federal law also  generally  prohibits a  depository  institution  from
making any capital distribution (including payment of a dividend or payment of a
management  fee to its holding  company)  if the  depository  institution  would
thereafter fail to maintain capital above regulatory  minimums.  Federal Reserve
Banks are also  authorized to limit the payment of dividends by any state member
bank if such payment may be deemed to constitute an unsafe or unsound  practice.
In addition,  under  Virginia law no dividend may be declared or paid that would
impair  a  Virginia  chartered  bank's  paid-in  capital.  The SCC  has  general
authority to prohibit  payment of dividends by a Virginia  chartered  bank if it
determines  that the  limitation  is in the public  interest and is necessary to
ensure the bank's financial soundness.

The Bank

         General.  In addition to the regulatory  provisions  regarding  holding
companies addressed above, the Bank is subject to extensive  regulation as well.
The following  discussion  addresses certain primary  regulatory  considerations
affecting the Bank.

         The Bank is regulated extensively under both federal and state law. The
Bank is organized as a Virginia  chartered banking  corporation and is regulated
and supervised by the Bureau of Financial  Institutions  of the SCC. As a member
of the Federal  Reserve  System as well, the Bank is regulated and supervised by
the Federal  Reserve Bank of Richmond.  The SCC and the Federal  Reserve Bank of
Richmond conduct regular examinations of the Bank, reviewing such matters as the
adequacy of loan loss  reserves,  quality of loans and  investments,  management
practices,  compliance  with laws,  and other  aspects of their  operations.  In
addition to these  regular  examinations,  the Bank must furnish the SCC and the
Federal Reserve with periodic reports  containing a full and accurate  statement
of its  affairs.


                                      -7-
<PAGE>

Supervision,  regulation and examination of banks by these agencies are intended
primarily for the protection of depositors rather than shareholders.

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

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

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

         In addition,  FDIC  regulations  require that management  report on the
institution's  responsibility to prepare financial statements,  and to establish
and to maintain an internal  control  structure  and  procedures  for  financial
reporting and compliance with designated laws and regulations  concerning safety
and soundness;  and that independent auditors attest to and report separately on
assertions in  management's  reports  concerning  compliance  with such laws and
regulations, using FDIC-approved audit procedures.

         Each of the federal  banking  agencies  also must  develop  regulations
addressing  certain  safety  and  soundness  standards  for  insured  depository
institutions   and   depository   institution   holding   companies,   including
compensation  standards,  operational and managerial  standards,  asset quality,
earnings and stock  valuation.  The federal banking agencies have issued a joint
notice of proposed rulemaking,  which requested comment on the implementation of
these standards. The proposed rule sets forth general operational and managerial
standards in the areas of internal  controls,  information  systems and internal
audit systems, loan documentation,  credit underwriting, interest rate exposure,
asset growth and compensation, fees and benefits. The proposal contemplates that
each federal agency would determine  compliance with these standards through the
examination  process,  and  if  necessary  to  correct  weaknesses,  require  an
institution to file a written safety and soundness compliance plan. ICBI has not
yet  determined  the effect that the proposed rule would have on its  operations
and the  operations of its  depository  institution  subsidiary if it is enacted
substantially as proposed.

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<PAGE>

         Community Reinvestment.  The requirements of the Community Reinvestment
Act  ("CRA")  affect the Bank.  The CRA  imposes on  financial  institutions  an
affirmative  and  ongoing  obligation  to meet the credit  needs of their  local
communities,  including low and moderate income  neighborhoods,  consistent with
the safe and sound operation of those institutions. Each financial institution's
efforts in meeting community credit needs currently are evaluated as part of the
examination  process pursuant to twelve assessment  factors.  These factors also
are considered in evaluating  mergers,  acquisitions  and applications to open a
branch or facility. The Bank is meeting its obligations under the CRA.

         Tredegar  operates  as a  subsidiary  trust  company  pursuant  to  the
Virginia  Banking Act. As such, it is subject to  supervision  and regulation by
the  Federal  Reserve and by the SCC and its Bureau of  Financial  Institutions,
which have  authority  over Virginia  banks and savings  institutions  and other
financial  institutions,  including independent trust companies. As a subsidiary
trust company, it is subject to periodic  investigations and examinations by the
SCC and the Federal Reserve.

ITEM 2.  DESCRIPTION OF PROPERTY

         The  headquarters  building  of the  Company  and the Bank,  which also
serves as a branch office for Tredegar, was completed in 1981 and is a two-story
building of brick construction,  with approximately  18,000 square feet of floor
space located at 111 West Washington  Street,  Middleburg,  Virginia 20117.  The
office operates nine teller windows, including three drive-up facilities and one
stand-alone automatic teller machine. The Bank owns the headquarters building.

         The  Purcellville  bank branch was purchased in 1994 and is a one-story
building with a basement of brick construction,  with approximately 3,000 square
feet of floor  space  located at 431 East Main  Street,  Purcellville,  Virginia
20132.  The office  operates  four  teller  windows,  including  three  drive-up
facilities and one drive-up automatic teller machine.  The Bank owns this branch
building.

         The  Leesburg  bank  branch was  completed  in 1997 and is a  two-story
building of brick  construction,  with approximately  6,000 square feet of floor
space located at 102 Catoctin Circle, S.E., Leesburg, Virginia 20175. The office
operates  five teller  windows,  including  three  drive-up  facilities  and one
drive-up automatic teller machine. The Bank also owns this branch building.

         The  Leesburg  limited  service  facility,  located  at 200 North  King
Street, was leased beginning April 1999. The leased space consists of 200 square
feet  with  one  teller  window  and a  stand-alone  automated  teller  machine.
Transactions  in  this  branch  are  limited  to  paying  and  receiving  teller
functions.  The  initial  term of this lease is five  years with two  additional
renewal  periods of five years each.  The annual lease expense  associated  with
this location is $5,400.

         The Ashburn bank branch was leased beginning  January 1999 and consists
of 24,969 rentable square feet at 20955 Professional  Plaza, Suite 100, Ashburn,
Virginia  20147.  The office is a full service branch with five teller  windows,
three drive-up  facilities and a drive-up automated teller machine.  The initial
term of the lease is 15 years with two  five-year  renewal  options.  The annual
lease expense associated with this location is $68,000.

         The mortgage  banking  department of The Middleburg  Bank leased office
space in June 1999. The space includes 1,822 rentable square feet used primarily
for mortgage  banking  operations and loan originator  office space. The initial
term of the lease is for five years with no renewal  options.  The annual  lease
expense associated with this location is $35,000.


                                      -9-
<PAGE>

         Tredegar  has  leased its main  office in  Richmond,  Virginia.  Rental
expense for this location  totaled $44,000 in the fiscal year ended December 31,
1999.

         All of the Company's properties are in good operating condition and are
adequate for the Company's present and anticipated future needs.

ITEM 3.  LEGAL PROCEEDINGS

         There are no material pending legal proceedings to which the company is
a party or of which the property of the Company is subject.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted  during the fourth quarter of the fiscal year
covered by this report to a vote of security holders of the Company.


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Since  October 1997,  the Company's  common stock has traded on the OTC
Bulletin Board under the symbol "ICBX." The following table sets forth,  for the
quarters  indicated,  the high and low sales prices for the common stock and per
share dividends for the periods indicated.

                           Market Price and Dividends

                                             Sales Price ($)       Dividends ($)
                                             ---------------       -------------
                                            High           Low
                                            ----           ---
1998:

     1st quarter........................    28.50         21.00           .15
     2nd quarter........................    29.00         27.75           .15
     3rd quarter........................    29.50         25.50           .15
     4th quarter........................    25.50         22.00           .15

1999:

     1st quarter........................    23.88         20.00           .17
     2nd quarter........................    24.00         23.25           .17
     3rd quarter........................    29.25         22.00           .17
     4th quarter........................    26.25         21.75           .17


         ICBI  historically  has paid cash dividends on a quarterly  basis.  The
final determination of the timing, amount and payment of dividends on the Common
Stock is at the discretion of ICBI's Board of Directors and will depend upon the
earnings of ICBI and its  subsidiaries,  principally,  its subsidiary  bank, the
financial  condition  of ICBI and  other  factors,  including  general  economic
conditions and applicable  governmental  regulations  and policies.  ICBI or the
Bank has paid regular cash dividends for over 200 consecutive quarters.

                                      -10-
<PAGE>

         As of March 1, 2000, ICBI had 950 shareholders of record.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATION

         The  following   discussion   provides   information  about  the  major
components of the results of operations and financial condition,  liquidity, and
capital  resources  of ICBI.  This  discussion  and  analysis  should be read in
conjunction with the Company's  Consolidated  Financial  Statements and Notes to
Consolidated Financial Statements.

Overview

         ICBI is headquartered in Middleburg,  Virginia and has two wholly owned
subsidiaries,  the  Bank and  Tredegar.  The Bank is a  community  bank  serving
Western Loudoun County, Virginia with four full service branches and one limited
service  facility.  Tredegar  is a trust  company  subsidiary  headquartered  in
Richmond,  Virginia with a branch office in Middleburg,  Virginia.  Tredegar was
acquired by ICBI in August 1997 and accounted  for using the purchase  method of
accounting.

         In 1999, ICBI realized growth in assets and net earnings exceeding that
of the  previous  two years.  Results  for 1999 were  favorably  affected by the
growth in revenues from Tredegar and the Bank's mortgage banking  operation,  as
well as significant  branch banking growth.  By December 31, 1999,  total assets
were $243.9  million,  an increase  of 18.7% over total  assets at December  31,
1998,  which were $205.4  million.  Net loans grew 17.9% from $120.3  million at
December  31,  1998 to $141.8  million at  December  31,  1999.  Total  deposits
experienced  the same  growth  rate as  assets  and loans  with a $31.2  million
increase from $172.7  million at December 31, 1998 to $203.8 million at December
31,  1999.  In light  of the  growth  experienced  in 1999,  ICBI  remains  well
capitalized with  risk-adjusted core capital and total capital ratios well above
the regulatory minimums.  Asset quality measures also remained strong throughout
the year.

         On August 9,  1999,  ICBI  purchased  one  percent  of the  issued  and
outstanding  capital  stock of  Gilkison  Patterson  Investment  Advisors,  Inc.
("GPIA"),  an  investment  advisory  firm  based  in  Alexandria,  Virginia.  In
connection  with this  purchase,  ICBI acquired the right to purchase all of the
remaining authorized,  issued and outstanding shares of GPIA capital stock on or
after July 1, 2001.  The  consideration  for these shares and the merger  option
consisted of $1.2 million in cash. Upon exercise of the merger option, ICBI will
purchase all the remaining  issued and outstanding  shares of GPIA capital stock
for an additional $4.8 million in cash and shares of the Company's common stock.

         ICBI is not  aware of any  current  recommendations  by any  regulatory
authorities that, if they were implemented,  would have a material effect on the
registrant's liquidity, capital resources or results of operations.

Results of Operations

Net Income

         Net income for 1999 was $3.6 million,  an increase of 19.9% over 1998's
net income of $3.0 million.  Net income for 1998 increased 13.0% over 1997's net
income of $2.6 million.  For 1999 earnings per diluted share were $1.99 compared
to $1.63 and $1.51 for 1998 and 1997, respectively.


                                      -11-
<PAGE>

         Return on average assets ("ROA")  measures how effectively ICBI employs
its assets to produce net income.  ICBI  increased its ROA to 1.60% for the year
ended December 31, 1999 from 1.54% for the same period in 1998. An increased net
interest  margin,  growth  in  earning  assets  as well as a 35.8%  increase  in
non-interest  income  contributed to the growth in the ROA. The ROA for 1997 was
1.52%.   Return  on  average  equity   ("ROE"),   another  measure  of  earnings
performance,  indicates the amount of net income earned in relation to the total
equity capital invested. ROE increased to 15.48% for the year ended December 31,
1999.  ROE was 13.24% and 13.54% for the years ended December 31, 1998 and 1997,
respectively.


                                      -12-
<PAGE>


             Average Balances, Income and Expenses, Yields and Rates
<TABLE>
<CAPTION>

                               ----------------------------------------------------------------------------------------
                                                              Years Ended December 31,

                               ----------------------------------------------------------------------------------------
                                            1999                          1998                        1997
                                  Average    Income/  Yield/    Average    Income/ Yield/    Average   Income/ Yield/
                                  Balance    Expense   Rate     Balance    Expense  Rate     Balance   Expense  Rate
                               ----------------------------------------------------------------------------------------
                                                                   (In thousands)
<S>                                <C>        <C>       <C>      <C>        <C>      <C>     <C>         <C>     <C>
Assets:
Securities:

   Taxable                         $ 30,368   $ 1,937   6.38%    $ 31,657   $ 1,804  5.70%   $ 41,242    $2,469  5.99%
   Tax-exempt (1) (2)                30,291     2,264   7.47%      28,931     2,204  7.62%     19,721     1,574  7.98%
                               -----------------------        ----------------------       ---------------------
       Total securities              60,659     4,201   6.93%      60,588     4,008  6.62%     60,963     4,043  6.63%
Loans
   Taxable                          135,735    11,677   8.60%     112,281    10,181  9.07%     96,179     8,956  9.31%
   Tax-exempt                           371        26   7.01%         416        36  8.74%        376        24  6.38%
                               -----------------------        ----------------------       ---------------------
       Total loans                  136,106    11,703   8.60%     112,697    10,217  9.07%     96,555     8,980  9.30%
Federal funds sold                    6,030       290   4.81%       3,842       211  5.49%      2,928       160  5.46%
Interest on money market investments  1,884        98   5.20%       1,817        90  4.95%        365        13  3.56%
Interest-bearing deposits in
      other financial institutions       24         1   4.17%         134         7  5.22%         84         8  9.52%
                               -----------------------        ----------------------       ---------------------
       Total earning assets         204,703    16,293   7.96%     179,078    14,533  8.12%    160,895    13,204  8.21%

Less:  Allowance for credit losses  (1,223)                       (1,044)                       (952)
       Total nonearning assets       18,979                        15,084                      12,730
                               -------------                  ------------                 -----------

                                                                                            $
Total assets                      $ 222,459                      $193,118                     172,673
                               =============                  ============                 ===========

Liabilities (1):
Interest-bearing deposits:
    Checking                       $ 29,583       292   0.99%    $ 23,853       306  1.28%   $ 19,886       360  1.81%
    Savings and IRA's                19,000       570   3.00%      17,075       602  3.53%     15,631       577  3.69%
    Money market savings             41,701     1,139   2.73%      34,195     1,002  2.93%     30,071       883  2.94%
    Time deposits:
       $100,000 and over             21,965     1,094   4.98%      18,151       949  5.23%     16,480       936  5.68%
       Under $100,000                35,707     1,703   4.77%      38,557     2,044  5.30%     40,100     2,130  5.31%
                               -----------------------        ----------------------       ---------------------

       Total interest-bearing
          deposits                  147,956     4,798   3.24%     131,831     4,903  3.72%    122,168     4,886  4.00%

Federal Home Loan Bank advances          56         3   5.36%       1,319        70  5.31%      2,999       172  5.74%
Securities sold under agreements
    to repurchase                     5,863       253   4.32%       2,833       125  4.41%      2,662       119  4.47%
Long-term debt                        5,000       281   5.62%       3,740       206  5.51%          -         -      -
Federal funds purchased                 179        10   5.59%         146         9  6.16%        272        15  5.51%
                               -----------------------        ----------------------       ---------------------
       Total interest-bearing
          liabilities               159,054     5,345   3.36%     139,869     5,313  3.80%    128,101     5,192  4.05%
Non-interest bearing liabilities
    Demand deposits                  39,154                        29,782                      24,025
    Other liabilities                 1,213                           997                       1,112

Total liabilities                   199,421                       170,648                     153,238
Shareholders' equity                 23,038                        22,470                      19,435

Total liabilities and
shareholders' equity              $ 222,459                      $193,118                    $172,673
                               =============                  ============                 ===========

Net interest income                          $ 10,948                       $ 9,220                      $8,012
                                           ===========                    ==========                  ==========

Interest rate spread                                    4.60%                        4.32%                       4.16%
Interest expense as a percent
of average earning assets                               2.61%                        2.97%                       3.23%
Net interest margin                                     5.35%                        5.15%                       4.98%

</TABLE>

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

(2) Income  and yields  include  dividends  on  preferred  bonds, which are  70%
    excludable for tax purposes.


                                      -13-
<PAGE>


Net Interest Income

         Net interest  income  represents  the  principal  source of earnings of
ICBI.  Net interest  income equals the amount by which  interest  generated from
earning assets exceeds the expense associated with funding those assets. Changes
in volume and mix of interest earning assets and interest  bearing  liabilities,
as well as their respective yields and rates,  have a significant  impact on the
level of net interest income.

         Net interest income on a fully  tax-equivalent  basis was $10.9 million
for the year ended December 31, 1999.  This represents an increase of 18.7% over
the $9.2 million  reported for the same period in 1998. Net interest  income for
1998 increased 15.1% over the $8.0 million  reported for 1997. When net interest
income is  presented  on a fully  tax-equivalent  basis,  interest  income  from
tax-exempt  earning  assets is increased by an amount  equivalent to the federal
income  taxes  that  would  have been paid if this  income  were  taxable at the
statutory federal tax rate of 34%.

         The increase in net interest  income in 1999  resulted  primarily  from
continued  growth in average earning assets and reduction of funding costs.  The
combination  of these two factors  contributed to the  strengthening  of the net
interest margin,  which increased 20 basis points to 5.35% for 1999. The average
balance in the portfolio of  securities  did not  increase.  The  tax-equivalent
yield;  however,  increased  31  basis  points  to  6.93%.  The  asset/liability
strategies employed by management  increased the investment portfolio yield. The
average loan portfolio increased 20.8% during 1999,  potentially  providing $2.0
million  in  interest  income.  Average  yield on the loan  portfolio,  however,
decreased 47 basis  points.  The net effect to interest  income  provided by the
loan  portfolio was an increase of $1.5 million in 1999.  Excess  deposit growth
over loan growth was placed in temporary  investments  including  federal  funds
sold and money  market  investments.  The  average  balances  in those  accounts
increased $2.1 million during 1999 and provided  $81,000 in additional  interest
income.

         ICBI  enjoyed  significant  growth  in  1999 in  core  deposits,  which
contributed  to the 48  basis  point  decrease  in cost of  funds.  Management's
strategy to continue  attracting  core deposits  resulted in a 20.2% increase in
checking,  savings and money market deposit accounts and only a $91,000 increase
in interest expense.  The average balances in certificates of deposits increased
$964,000 while the interest  expense  associated  with these deposits  decreased
$196,000.  ICBI's reliance on other funding sources increased on average by $3.1
million with a related increase in interest expense of $137,000.  Total interest
expense for 1999 was $5.3 million, an increase of $32,000 compared to 1998.

         The increase in net interest income in 1998 resulted  primarily from an
11.3%  increase  in the volume of average  earning  assets from 1997 to 1998 and
secondarily  by the  reduction  of funding  costs in a declining  interest  rate
environment.  The 16.7%  increase  in  average  loans  outstanding  during  1998
provided $1.5 million in additional interest income while a decrease of 23 basis
points in yield from 9.30% in 1997 to 9.07% in 1998 decreased interest income on
average  loans by $214,000.  The yield on the  investment  securities  portfolio
decreased  one  basis  point  to  6.62%  in  1998  from  6.63%  in  1997,  on  a
tax-equivalent  basis. The average  investment  securities  portfolio  decreased
$375,000,  decreasing  tax-equivalent  interest  income by $35,000  from 1997 to
1998.  During 1998 excess funds were temporarily  invested in federal funds sold
or money market accounts. The $2.4 million increase in average balances in those
temporary investments provided $128,000 in additional interest income.

         Average interest  bearing  deposits  increased 7.91% during 1998, while
the average  rate paid on those  deposits  decreased 28 basis points to 3.72% in
1998 from 4.0% in 1997.  The  increase in interest  expense on interest  bearing
deposits in 1998 was  $17,000.  The  control of interest  expense on deposits in
1998 resulted from a pricing strategy to grow core deposit  relationships rather
than those affected by interest rate alone. During 1998 ICBI's reliance on other
funding sources on average increased 35.48%,  increasing expense associated with
those sources by $104,000.

                                      -14-
<PAGE>

         The  following   table   analyzes   changes  in  net  interest   income
attributable to changes in the volume of interest-bearing assets and liabilities
compared to changes in interest rates. The change in interest due to both volume
and rate has been  allocated  to volume and rate  changes in  proportion  to the
relationship of the absolute  dollar amounts of the change in each.  Nonaccruing
loans are included in the average outstanding loans.
<TABLE>
<CAPTION>

                            Volume and Rate Analysis
                             (Tax Equivalent Basis)
                            Years Ended December 31,

                                    ----------------------------------------------------------------------------------
                                           1999 vs 1998                             1998 vs 1997
                                      Increase (Decrease) Due                  Increase (Decrease) Due
                                          to Changes in:                           to Changes in:
                                    ----------------------------------------------------------------------------------
                                       Volume         Rate            Total      Volume        Rate         Total
                                       ------         ----            -----      ------        ----         -----
                                                                     (In thousands)
<S>                                  <C>          <C>           <C>           <C>           <C>          <C>
Earning Assets:
Securities:
    Taxable                          $       (69) $        202  $       133    $      (550)  $    (115)  $       (665)
    Tax-exempt                               103           (43)          60            697         (67)           630
Loans:
    Taxable                                1,990          (494)       1,496          1,448        (223)         1,225
    Tax-exempt                                (4)           (6)         (10)             3           9             12
Federal funds sold                           101           (22)          79             49           2             51
Interest on money market investments           3             5            8             79          (2)            77
Interest bearing deposits in other
    financial institutions                    (5)           (1)          (6)            (4)          3             (1)
                                     ------------ ------------- ------------  ------------- -----------  -------------
    Total earning assets             $     2,119  $       (359) $     1,760   $      1,722  $     (393)  $      1,329

Interest-Bearing Liabilities:

Interest checking                    $      (246) $        232  $       (14)  $        115  $     (169)  $        (54)
Regular savings deposits                      96          (128)         (32)            47         (22)            25
Money market deposits                        199           (62)         137            122          (3)           119
Time deposits
    $100,000 and over                        188           (43)         145             17          (4)            13
    Under $100,000                          (145)         (196)        (341)           (58)        (28)           (86)
                                     ------------ ------------- ------------  ------------- -----------  -------------
     Total interest bearing deposits $        92  $       (197) $      (105)  $        243  $     (226)  $         17


    Federal Home Loan Bank
        Advances                             (68)            1          (67)           (90)        (12)          (102)
    Securities sold under agreement
      to repurchase                          130            (2)         128              8          (2)             6
    Long-term debt                            71             4           75            206           -            206
    Federal Funds Purchased                    2            (1)           1             (8)          2             (6)
                                     ------------ ------------- ------------  ------------- -----------  -------------
      Total interest bearing
         liabilities                 $       227  $       (195) $       (32)  $        359  $     (238)  $        121

Change in net interest income        $     1,892  $       (164) $     1,728   $      1,363  $     (155)  $      1,208
                                     ============ ============= ============  ============= ===========  =============
</TABLE>


Provision for Loan Losses

         ICBI's loan loss  provision  during 1999 was  $420,000,  an increase of
$285,000  from 1998.  The  increase is  reflective  of the growth of ICBI's loan
portfolio.  ICBI is committed to making loan loss


                                      -15-
<PAGE>

provisions  which  maintain  an  allowance  that  adequately  reflects  the risk
inherent in the loan portfolio. See "-- Asset Quality" below.

Other Income

         Other income has been and will  continue to be an important  factor for
increasing profitability. Management recognizes this and continues to review and
consider areas where non-interest income can be increased. Other income includes
fees  generated  by the  mortgage  banking  department  of the  Bank  as well as
Tredegar.  Trust fee income increased 34.3% during 1999 to $1.1 million.  Strong
business  development  efforts  at  Tredegar  during  1999  resulted  in a 24.0%
increase in assets under management and  accountability.  Typically,  trust fees
are  generated  based upon a percentage  of the assets;  thus,  any increases in
assets under management and accountability result in a similar increase in fees.
The mortgage banking  department  contributed an additional  $320,000 of fees on
loans held for sale during 1999, an increase of 132.8% over the contribution for
1998.  The growth in  transaction  deposit  accounts  also  provided  additional
service  charge and fee income.  The service  charges and fees  associated  with
deposit  accounts  increased 17.5% during 1999.  Other operating income for 1999
includes  $20,000  of fees  received  from  GPIA  for  accounting  and  business
services.  Total other income for 1999 was $2.9 million compared to $2.2 million
for 1998.

         Other income for 1998 increased 88.7% to $2.2 million from $1.1 million
in 1997. The increase is due primarily to the increase in trust fee income, fees
on loans held for sale and service charges on deposit  accounts.  In 1998, trust
fee income  increased  to  $855,000,  an  increase of  $517,000  over 1997.  The
increase  resulted from the  acquisition  of Tredegar in August 1997. The Bank's
mortgage  banking  department  opened in April 1998 and contributed  $241,000 to
other  income  by  generating  fees on loans  held for  sale.  Service  charges,
commission  and fees on deposit  accounts were $916,000 for 1998, an increase of
$135,000  over 1997.  The  increase in these fees was due  primarily  to deposit
growth.

                                  Other Income
<TABLE>
<CAPTION>

                                                   -------------------------------------------------------------
                                                                     Years Ended December 31,
                                                   -------------------------------------------------------------
                                                          1999                  1998                1997
                                                                          (In thousands)
<S>                                                 <C>                   <C>                  <C>
      Services, commission and fees                 $     1.076           $       916          $       781
      Trust fee income                                    1,148                   855                  339
      Fees on loans held for sale                           561                   241                    -
      Other operating income                                174                   175                  122
                                                   --------------------  -------------------  ------------------
            Noninterest income                      $     2,959           $     2,187          $     1,242
      (Losses) on securities available for sale, net        (13)                  (18)                 (93)
                                                   --------------------  -------------------  ------------------
         Total noninterest income                   $     2,946           $     2,169          $     1,149
                                                   ====================  ===================  ==================

</TABLE>

Other Expenses

         Improving  operating  efficiency  is  as  important  to  management  as
enhancing other income.  Total other expenses increased 20.4% or $1.4 million to
$8.0 million in 1999. Salaries and employee benefits increased $708,000 or 18.4%
due to  additions  of  management  and staff  related  to  expanding  the branch
network, increased trust operations and enhancing the internal infrastructure to
facilitate this larger network.  In Loudoun County,  Virginia,  the unemployment
rates hover  around 1.5%,  causing  increased  pressures to provide  competitive
salary and benefit  programs.  This  situation  also factors into the  increased
salary and benefit cost for 1999.  Occupancy  and  equipment  expense  increased
$241,000 or



                                      -16-
<PAGE>


31% to $1.0 million.  During 1999, the Bank opened one full service branch and a
limited  service  facility and moved its mortgage  banking  operation to its own
offices.  The Bank  entered  into  lease  contracts  for  these  endeavors.  The
Purcellville  branch was remodeled during 1999 to include interior  enhancements
and expanded drive-through  capabilities.  These investments have positioned the
Bank for future growth and productivity.  Advertising expenses increased $91,000
to  $325,000  for 1999.  During  the latter  part of 1998,  the Bank began a new
marketing  program to promote the  awareness of the bank.  The campaign was very
successful,  and  management  believes that it  contributed  to the  significant
deposit growth the Bank experienced  during 1999.  Computer  operations  expense
increased  25.5% to $310,000  during  1999.  The  increase  in this  expense was
related to the remediation  process for Year 2000, as well as customer awareness
campaigns about the progress of the Company.  Other operating expenses increased
$263,000 to $1.8 million for 1999, compared to $1.6 million for 1998.

         Other  expenses  increased  34.27% or $1.7  million to $6.7  million in
1998. This increase resulted primarily from a full year of Tredegar's  expenses,
the new  mortgage  banking  department  and  expansion  of staff within the bank
branches.

                                 Other Expenses
<TABLE>
<CAPTION>

                                                                 Years Ended December 31,
                                       ------------------------------------------------------------------------------
                                               1999                      1998                        1997
                                       ----------------------  -------------------------   --------------------------
                                                                      (In thousands)
<S>                                      <C>                        <C>                          <C>
Salaries and employee benefits           $      4,547               $      3,839                 $      2,864
Net occupancy and equipment expense             1,013                        772                          593
Advertising                                       325                        234                          146
Computer operations                               310                        247                          138
Other operating expenses                        1,845                      1,582                        1,230
                                       ----------------------  -------------------------   --------------------------
  Total                                  $      8,040               $      6,674                 $      4,971
                                       ======================  =========================   ==========================

</TABLE>

Income Taxes

         Reported  income tax expense was $1.1 million for 1999,  an increase of
$240,000  compared to $857,000  for 1998.  The  effective  tax rate for 1999 was
23.5% compared to 22.4% in 1998 and 24.7% in 1997. The increase in the effective
tax rate for 1999 was  influenced  by the  change  in the mix of the  investment
securities  portfolio as well as the increased  provision for allowance for loan
losses. Note 12 of the Company's  Consolidated  Financial  Statements provides a
reconciliation  between  the amount of income  tax  expense  computed  using the
federal  statutory  rate and ICBI's actual income tax expense.  Also included in
Note 12 to the Consolidated  Financial  Statements is information  regarding the
principal items giving rise to deferred taxes for the three years ended December
31, 1999.

Market and Interest Rate Risk

         Market risk is the risk of loss in a financial  instrument arising from
adverse  changes  in market  rates or prices  such as  interest  rates,  foreign
currency  exchange  rates,  commodity  prices and equity prices.  ICBI's primary
market risk exposure is interest rate risk, while the assets under management by
Tredegar  are  affected  by  equity  price  risk.  The  ongoing  monitoring  and
management  of this risk is an  important  component  of ICBI's  asset/liability
management  process,  which is governed by policies  established by its Board of
Directors  that are  reviewed  and  approved  annually.  The Board of  Directors
delegates responsibility for carrying out asset/liability management policies to
the  Asset/Liability  Committee  ("ALCO") of the Bank.  In this  capacity,  ALCO
develops guidelines and strategies that govern ICBI's


                                      -17-
<PAGE>

asset/liability management related activities,  based upon estimated market risk
sensitivity, policy limits and overall market interest rate levels and trends.

         Interest rate risk represents the sensitivity of earnings to changes in
market interest rates. As interest rates change, the interest income and expense
streams associated with ICBI's financial instruments also change,  affecting net
interest income ("NII"),  the primary component of ICBI's earnings.  ALCO uses a
detailed and dynamic  simulation model to quantify the estimated exposure of NII
to sustained interest rate changes.  While ALCO routinely monitors simulated NII
sensitivity over a rolling two-year horizon, it also employs additional tools to
monitor potential longer-term interest rate risk.

         The simulation model captures the impact of changing  interest rates on
the  interest  income  received  and  interest  expense  paid on all  assets and
liabilities  reflected on ICBI's balance  sheet.  This  sensitivity  analysis is
compared to ALCO policy limits which specify a maximum  tolerance  level for NII
exposure over a one year horizon, assuming no balance sheet growth, given both a
200 basis point (bp) upward and downward shift in interest rates. A parallel and
pro rata  shift in  rates  over a 12 month  period  is  assumed.  The  following
reflects the range of ICBI's NII sensitivity analysis during the fiscal years of
1999 and 1998 as  compared  to the 10%  policy  limit  approved  by the Board of
Directors.

                                                     1999
         Rate Change                       Estimated NII Sensitivity
         -----------                       -------------------------

                                   High               Low               Average
                                   ----               ---               -------
           +200 bp               (-1.07%)             .15%                .09%
           - 200 bp                1.66%            (-.08%)               .64%


                                                     1998
         Rate Change                       Estimated NII Sensitivity
         -----------                       -------------------------

                                   High               Low               Average
                                   ----               ---               -------
           +200 bp                 (.91%)             .02%               (.27%)
           - 200 bp                1.55%             (.01%)               .52%


         Based on the averages presented in the tables above, had interest rates
increased 200 basis points (bp) in each year  independently,  then the effect to
net interest  income of ICBI could have been a increase of $4,000 in 1999 and an
decrease of $23,000 in 1998.  If interest  rates had  decreased 200 basis points
during fiscal years 1998 and 1998, then the effect to net interest income of the
banking  subsidiary  could  have  been  an  increase  of  $34,000  and  $44,000,
respectively.

         The preceding  sensitivity analysis does not represent an ICBI forecast
and should not be relied upon as being indicative of expected operating results.
These  hypothetical  estimates are based upon numerous  assumptions  such as the
nature  and  timing of  interest  rate  levels,  including  yield  curve  shape,
prepayments on loans and securities,  deposit decay rates,  pricing decisions on
loans  and  deposits,   reinvestment  or  replacement  of  asset  and  liability
cashflows,  and others.  While  assumptions  are  developed  based upon  current
economic  and local market  conditions,  ICBI cannot make any  assurances  about
predictive nature of these  assumptions,  including how customer  preferences or
competitor influences might change.

         Also, as market  conditions  vary from those assumed in the sensitivity
analysis,  actual  results will also differ due to  prepayment  and  refinancing
levels likely deviating from those assumed,  the varying


                                      -18-
<PAGE>


impact of interest rate change,  caps or floors on adjustable  rate assets,  the
potential  effect of changing debt service levels on customers  with  adjustable
rate loans,  depositor early  withdrawals and product  preference  changes,  and
other internal and external  variables.  Furthermore,  the sensitivity  analysis
does not reflect  actions that ALCO might take in response to or anticipation of
changes in interest rates.

Financial Condition

         ICBI's  total assets were $243.9  million as of December  31, 1999,  up
$38.5  million or 18.7% from the $205.4  million  level at  December  31,  1998.
Investment  securities  increased $9.9 million or 17.2% from 1998 to 1999. Loans
increased by $18.5 million or 14.7% from 1998 to 1999, while deposits  increased
$31.2  million or 18.0% during the same period.  Total  shareholders'  equity at
year end 1999 and 1998 was $23.1 and $22.9 million, respectively.

Loans

         ICBI's loan portfolio is its largest and most  profitable  component of
average earning  assets,  totaling 66.5% of average earning assets in 1999. ICBI
continues to emphasize loan portfolio growth and  diversification  as a means of
increasing earnings while minimizing credit risk. Loans, net of unearned income,
were $144.5 million at December 31, 1999, an increase of 14.7% from the total of
$126.0  million at December  31,  1998.  Proactive  sales  efforts,  competitive
pricing and the branch  network  supported  the  increase in loans  during 1999.
Loans increased 20.9% from $104.2 million at December 31, 1997 to $126.0 million
at December 31, 1998.  The loan to deposit ratio  decreased to 70.9% at December
31, 1999  compared to 73.0% at December 31, 1998 and 66.6% at December 31, 1997.
The strong growth in deposits during 1999 affected this ratio.

                                 Loan Portfolio

<TABLE>
<CAPTION>
                                                                          December 31,
                                              ---------------------------------------------------------------------
                                                  1999          1998         1997          1996          1995
                                              ---------------------------------------------------------------------
                                                                         (In thousands)

<S>                                              <C>           <C>           <C>           <C>           <C>
Commercial, financial and agricultural           $ 19,055      $ 18,880      $ 15,111      $ 11,648      $ 10,215
Real estate construction                           12,151         5,436         3,798         4,182         1,791
Real estate mortgage:
  Residential (1-4 family)                         61,062        55,595        45,231        41,246        34,490
  Loans held for sale                               1,232         4,672             -             -             -
  Home equity lines                                 4,382         3,617         3,165         2,614         2,188
  Non-farm, non-residential (1)                    36,361        28,643        26,054        24,774        21,697
  Agricultural                                        379         1,057         2,140         2,105         1,549
Consumer installment                                9,845         8,095         8,738         8,061         9,170
                                              ------------- -------------------------------------------------------
    Total loans                                   144,467       125,995       104,237        94,630        81,100
Less unearned income                                    -             -            10            35           186
                                              ------------- -------------------------------------------------------

Loans-net of unearned income                     $144,467     $ 125,995     $ 104,227      $ 94,595      $ 80,914
                                              ============= =======================================================
</TABLE>

--------------------------------------------
(1) This category  generally  consists of commercial and industrial  loans where
    real estate constitutes a source of collateral.

         At December 31, 1999,  residential  real estate (1-4 family)  portfolio
loans constituted 42.3% of the total portfolio and increased $5.5 million during
the year.  Real estate  construction  loans  consists  primarily of pre-sold 1-4
family   residential   loans  along  with  a  marginal   amount  of   commercial


                                      -19-
<PAGE>

construction.  Real estate  construction  increased to $12.2 million at December
31, 1999 and is 8.4% of the total loan portfolio.  ICBI's  construction  product
competes  successfully  in a high growth market like Loudoun County because ICBI
is local and can respond quickly to inspections and construction  draw requests.
Non-farm,   non-residential  loans  are  typically   owner-occupied   commercial
buildings.  Non-farm,  non-residential  loans  were  25.2%  of  the  total  loan
portfolio  at December 31,  1999.  The branch  network has helped to support the
loan portfolio diversification,  such as increased commercial real estate loans.
Loans held for sale, home equity lines and  agricultural  real estate loans were
0.9%, 3.0% and 0.3% of total loans, respectively, at December 31, 1999.

         ICBI's  commercial,  financial and agricultural loan portfolio consists
of secured and unsecured  loans  extended to small  businesses.  At December 31,
1999,  these  loans  comprised  13.2%  of the  loan  portfolio.  This  portfolio
increased 0.9% in 1999 to $19.1 million.  Consumer  installment  loans primarily
consists  of  unsecured  installment  credit and  accounts  for 6.8% of the loan
portfolio.

         Consistent  with  its  focus  on  providing  community-based  financial
services,  ICBI  generally  does not extend loans outside its  principal  market
area.  ICBI's  market area for its lending  services  encompasses  Fauquier  and
Loudoun Counties, Virginia, where it operates full service branches.

         ICBI's unfunded loan commitments  totaled $26.7 million at December 31,
1999 and $17.1  million at  December  31,  1998.  The  increase in the amount of
unfunded  commitments  is  attributed  in part to the  increase  in real  estate
construction  financing  as well as  customer  demand for line of credit type of
products (i.e., home equity lines).

         At December 31,  1999,  ICBI had no  concentration  of loans in any one
industry in excess of 10% of its total loan portfolio.  However,  because of the
nature of ICBI's market, loan collateral is predominantly real estate related.

         The following table reflects the maturity distribution of selected loan
categories:

                Remaining Maturities of Selected Loan Categories

                                                   December 31, 1999
                                      ----------------------------------------
                                          Commercial,              Real
                                         Financial and            Estate
                                         Agricultural          Construction

                                      ----------------------------------------
                                               (Dollars in thousands)

                   Within 1 year        $       8,324       $          8,869
                                      ----------------------------------------
                   Variable Rate:

                     1 to 5 years                 664                     73
                     After 5 years              1,073                      -
                                      ----------------------------------------
                     Total              $       1,737       $             73
                                      ----------------------------------------
                   Fixed Rate:

                     1 to 5 years               8,482                  2,511
                     After 5 years                512                    698
                                      ----------------------------------------
                     Total              $       8,994        $         3,209
                                      ----------------------------------------

                   Total Maturities     $      19,055        $        12,151
                                      ========================================


                                      -20-
<PAGE>

Asset Quality

         ICBI has policy and  procedures  designed to control credit risk and to
maintain the quality of its loan portfolio.  These policy and procedures include
underwriting standards for new originations and ongoing monitoring and reporting
of asset  quality and adequacy of reserve for loan losses.  Total  nonperforming
assets, which consist of nonaccrual, restructured loans and foreclosed property,
were $531,000 at December 31, 1999.  This amount  represents a decrease of 13.0%
from the December 31, 1998 balance of $609,000. Nonperforming assets at December
31,  1998  increased   $366,000  from  $243,000  at  December  31,  1997.  Total
nonperforming  assets as a  percentage  of total loans were .4% at December  31,
1999. The decrease in  nonperforming  assets for 1999 was the result of the sale
of 1998 foreclosures in 1999.

Nonperforming Assets

         Loans are placed on nonaccrual  status when collection of principal and
interest is doubtful,  generally when a loan becomes 90 days past due. There are
three  negative  implications  for earnings  when a loan is placed on nonaccrual
status.  All interest  accrued but unpaid at the date that the loan is placed on
nonaccrual  status is either  deducted from interest  income or written off as a
loss.  Secondly,  accruals of interest are discontinued until it becomes certain
that both  principal  and interest can be repaid.  Finally,  there may be actual
losses that may require that  additional  provisions  for loan losses be charged
against earnings.  For real estate loans,  upon foreclosure,  the balance of the
loan is  transferred  to "Other Real Estate  Owned"  ("OREO") and carried at the
lower of the  outstanding  loan balance or the fair market value of the property
based on current  appraisals and other current market trends. If a write down of
the OREO  property  is  necessary  at the time of  foreclosure,  the  amount  is
charged-off  against the  allowance  for loan  losses.  A review of the recorded
property  value is performed in  conjunction  with normal loan  reviews,  and if
market  conditions  indicate  that the  recorded  value  exceeds the fair market
value,  additional  write downs of the  property  value are charged  directly to
operations.

                              Nonperforming Assets
<TABLE>
<CAPTION>

                                                                     December 31,
                                          --------------------------------------------------------------------
                                             1999          1998          1997          1996          1995
                                          --------------------------------------------------------------------
                                                                    (In thousands)

<S>                                         <C>           <C>           <C>           <C>          <C>
          Nonaccrual loans                  $   530       $   409       $   243       $    76      $  1,654
          Restructured loans                      -             -             -             -             -
          Foreclosed property                     -           200             -             -             -
                                          ------------ ------------- ------------- ------------- -------------

            Total nonperforming assets      $   530       $   609       $   243       $    76      $  1,654
                                          ============ ============= ============= ============= =============


          Allowance for loan losses
            to period end loans               1.01%         0.84%         0.93%         0.93%         1.07%

          Allowance for loan losses
            to nonperforming assets            274%          175%          401%         1163%           52%

          Nonperforming assets to
            period end loans                  0.37%         0.48%         0.23%         0.08%         2.04%

</TABLE>


                                      -21-
<PAGE>


         During 1999 and 1998,  approximately $12,000 and $4,000,  respectively,
in  additional  interest  income would have been  recorded if ICBI's  nonaccrual
loans had been current and in accordance with their original terms.

         At December 31, 1999,  potential problem loans totaled $531,000.  These
loans are subject to regular  management  attention and their status is reviewed
on a regular basis.  Several of the potential problem loans at December 31, 1999
are unsecured consumer loans.  However,  real estate and other collateral secure
most of the balance of the problem loans.

         The  allowance  for  loan  losses  was 274% of  nonperforming  loans at
December 31, 1999. At December 31, 1998 and 1997,  the allowance for loan losses
was 175% and 401% of nonperforming  loans.  Management  evaluates  nonperforming
loans relative to their collateral value and makes appropriate reductions in the
carrying value of those loans based on that review.

Allowance For Loan Losses

         The allowance for loan losses is an estimate of the amount that will be
adequate  to provide  for  potential  future  losses in ICBI's  loan  portfolio.
Management's  methodology  in evaluating  the adequacy of the allowance for loan
losses considers potential specific losses,  past loan loss experience,  and the
volume, growth and composition of the current portfolio. General economic trends
as well as any  conditions  affecting  individual  borrowers may also affect the
level of loan losses. The allowance is subject to regulatory  examinations as to
its adequacy,  which may take into account such factors as the methodology  used
to calculate  the  allowance and the size of the allowance in comparison to peer
financial institutions identified by the regulatory agencies.

         ICBI's Loan Committee and Board of Directors take an active role in the
monthly  review of any problem  loans and their effect on the allowance for loan
losses.  In management's  opinion,  the allowance for loan losses is adequate to
absorb the current estimated risk of loss in the existing loan portfolio. ICBI's
management  continually  evaluates the adequacy of the allowance for loan losses
and changes in the annual  provision are based on the analyzed  inherent risk of
the loan portfolio. While ICBI has experienced considerable loan growth in 1999,
1998 and 1997,  the credit  quality of the portfolio has improved since 1995, as
evidenced  by a low level of  nonperforming  assets and net  charge-offs  during
those years.

                                      -22-
<PAGE>

         The following table depicts the  transactions,  in summary form,  which
occurred to the allowance for loan losses in each year presented:

                            Allowance for Loan Losses

<TABLE>
<CAPTION>
                                                                       December 31,
                                             ------------------------------------------------------------------
                                                1999          1998         1997          1996         1995
                                             ------------------------------------------------------------------
                                                                      (In thousands)

<S>                                            <C>            <C>          <C>           <C>          <C>
    Balance, beginning of period               $  1,064       $   974      $   884       $   866      $   940
      Loans charged off:
        Commercial, financial, and
          agricultural                               26             8           42             6           13
        Real estate construction                      -             -            -             -            -
        Real estate mortgage                         29             -            -            79          115
        Consumer installment                         96            77           86            40           83
                                             ------------ -------------------------- --------------------------
          Total loans charged off              $    151       $    85      $   128       $   125      $   211
                                             ------------ -------------------------- --------------------------
      Recoveries:
        Commercial, financial, and
          agricultural                         $      7       $     1      $    12       $     5      $    43
        Real estate construction                      -             -            -             -            -
        Real estate mortgage                         79             6            7            26            4
        Consumer installment                         34            33           21            47           35
                                             ------------ -------------------------- --------------------------
          Total recoveries                     $    120       $    40      $    40       $    78      $    82
                                             ------------ -------------------------- --------------------------
    Net charge offs (recoveries)                     31            45           88            47          129
    Provision for loan losses                       420           135          178            65           55
                                             ------------ -------------------------- --------------------------
    Balance, end of period                     $  1,453      $  1,064      $   974       $   884      $   866
                                             ============ ========================== ==========================

    Ratio of allowance for loan losses
       to loans outstanding at end of period      1.01%         0.84%        0.93%         0.93%        1.07%

    Ratio of net charge offs (recoveries)to
       average loans outstanding during
    period                                        0.02%         0.04%        0.09%         0.05%        0.16%

</TABLE>

         The allowance for loan losses was $1.5 million at December 31, 1999, an
increase of $389,000  from $1.1 million at December 31, 1998.  The allowance was
$974,000 at December 31, 1997. In 1999, ICBI's net charge-offs decreased $14,000
from the previous year's net  charge-offs of $45,000.  ICBI  experienced  higher
consumer loan charge-offs  during 1999, which were offset by a large recovery in
real estate  mortgages.  Net  charge-offs  as a percentage of average loans were
0.02% and 0.04% for 1999 and 1998,  respectively.  The provision for loan losses
was $420,000 for 1999 and $135,000 for 1998.


                                      -23-
<PAGE>

         The  following  table shows the balance  and  percentage  of the ICBI's
allowance for loan losses allocated to each major category of loan:

                     Allocation of Allowance for Loan Losses
<TABLE>
<CAPTION>

               Commercial, Financial,         Real Estate              Real Estate
                    Agricultural              Construction               Mortgage                 Consumer
              ------------------------------------------------------------------------------------------------------
                Reserve    Percent of    Reserve    Percent of     Reserve   Percent of     Reserve    Percent of
                  for        Loan in       for        Loan in        for       Loan in        For        Loan in
                 Credit    Category to    Credit    Category to     Credit   Category to     Credit    Category to
                 Losses    Total Loans   Losses     Total Loans    Losses    Total Loans     Losses    Total Loans
              ------------------------------------------------------------------------------------------------------
                                 (In thousands)

<S>  <C>         <C>         <C>          <C>          <C>          <C>        <C>           <C>          <C>
 December 31,
     1999        $ 580       13.19%       $ 350        8.41%        $ 178      71.58%        $ 345        6.82%
     1998        $ 442       14.98%       $ 100        4.31%        $ 144      74.28%        $ 378        6.43%
     1997        $ 362       14.50%       $ 107        3.64%        $ 159      73.49%        $ 346        8.37%
     1996        $ 244       12.31%       $ 101        4.42%        $ 182      74.79%        $ 357        8.48%
     1995        $ 246       12.62%        $ 23        2.21%        $ 346      74.07%        $ 251       11.10%
</TABLE>


         ICBI  has  allocated  the  allowance  according  to the  amount  deemed
reasonably  necessary to provide for the  possibility  of losses being  incurred
within each of the above categories of loans. The allocation of the allowance as
shown in the table above should not be  interpreted  as an indication  that loan
losses in future years will occur in the same proportions or that the allocation
indicates  future loan loss trends.  Additionally,  the proportion  allocated to
each loan  category is not the total amount that may be available for the future
losses that could occur within such  categories  since the total  allowance is a
general allowance applicable to the total portfolio.

Securities

         ICBI  manages  its  investment  securities  portfolio  consistent  with
established policies,  which include guidelines for earnings,  rate sensitivity,
liquidity and pledging needs.  ICBI holds bonds issued from the  Commonwealth of
Virginia and its  political  subdivisions  with an aggregate  book value of $3.9
million and an aggregate  market value of $3.8 million at December 31, 1999.  At
December 31, 1998,  ICBI held the bonds issued by the  Commonwealth  of Virginia
and its political subdivision, which had an aggregate book value of $3.3 million
and market value of $3.4 million.  In both years the aggregate holdings of these
bonds exceeded 10% of ICBI's shareholders' equity.

         ICBI accounts for securities under Financial Accounting Standards Board
("FASB")  Statement No. 115,  "Accounting  for Certain  Investments  in Debt and
Equity  Securities." This standard  requires  classification of investments into
three categories,  "held to maturity" ("HTM"),  "available for sale" ("AFS"), or
"trading," as further defined in Note 1 to the Company's  Consolidated Financial
Statements.  ICBI does not  maintain a trading  account  and has  classified  no
securities in this  category.  HTM  securities are required to be carried on the
financial  statements  at  amortized  cost.  AFS  securities  are carried on the
financial  statements  at fair value.  The  unrealized  gains or losses,  net of
deferred  income  taxes,  are  reflected  in  shareholders'   equity.   The  HTM
classification  places  restrictions  on ICBI's ability to sell securities or to
transfer securities into the AFS classification. Since ICBI want the flexibility
to  respond  to  changing  balance  sheet  needs  through  investment  portfolio
management,  it has chosen to classify  only a small portion of its portfolio in
this  category.  At December 31, 1999,  11.5% of the portfolio was classified as
HTM.

                                      -24-
<PAGE>

         FASB  Statement No. 133,  "Accounting  for Derivative  Instruments  and
Hedging  Activities",  requires  companies to record  derivatives on the balance
sheet as assets and liabilities,  measured at fair market value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending  on the use of the  derivative  and  whether  it  qualifies  for hedge
accounting.  However this  statement  also allowed,  upon  adoption,  a one time
re-allocation  of securities from HTM to AFS without penalty to the company.  In
December  1999,  ICBI  adopted  FASB  Statement  No. 133 and elected to transfer
certain municipal  securities with a book value and market value of $3.1 million
from the HTM classification to the AFS classification.

         It is  ICBI's  policy  not to  engage in  activities  considered  to be
derivative in nature, such as futures, options,  contracts, swaps, caps, floors,
collars or forward commitments. ICBI holds in its loan and securities portfolios
investments  that adjust or float  according to changes in "prime" lending rate.
These holdings are not  considered  speculative  but instead  necessary for good
asset/liability management.

         The carrying  value of the  securities  portfolio  was $67.7 million at
December 31, 1999, an increase of $9.9 million or 17.1% from the carrying  value
of $57.8 million at December 31, 1998.  During 1999,  excess deposit growth over
loan growth was invested  within the securities  portfolio to maximize  interest
income.  The market value of the AFS  securities  at December 31, 1999 was $59.9
million.  The unrealized  loss on the AFS securities was $3.0 million and offset
slightly by an unrealized  gain of $14,000 at December 31, 1999.  The net market
value loss at December 31, 1999 is reflective of the increase in interest  rates
in  comparison to the rates on the  securities  held within the  portfolio.  The
unrealized gain on the AFS securities was $272,000 at December 31, 1998.

                         Investment Securities Portfolio

The carrying value of securities held to maturity at the dates indicated were:
<TABLE>
<CAPTION>

                                                            -------------------------------------------
                                                                           December 31,
                                                                 1999          1998           1997
                                                            -------------------------------------------
                                                                          (In thousands)

<S>                                                               <C>            <C>          <C>
              U.S. Government securities                         $     250      $    502      $  2,006
              State and political subdivision obligations            7,433        12,182        13,849
              Mortgage-backed securities                               112           162           571
                                                            ----------------------------- -------------
                                                                 $   7,795      $ 12,846      $ 16,426
                                                            ============================= =============
</TABLE>

The carrying value of securities available for sale at the dates indicated were:

<TABLE>
<CAPTION>
                                                            -------------------------------------------
                                                                           December 31,
                                                                 1999           1998          1997
                                                            -------------------------------------------
                                                                          (In thousands)

<S>                                                               <C>            <C>          <C>
              U.S. Government securities                          $   4,824      $  2,678     $  2,464
              State and political subdivision obligations            22,261        18,189       12,136
              Mortgage-backed securities                             26,789        20,878       29,579
              Other securities                                        6,070         3,195        3,091
                                                            -------------------------------------------
                                                                  $  59,944      $ 44,940     $ 47,270
                                                            ===========================================
</TABLE>

                                      -25-
<PAGE>

         The  following   table   indicates  the  increased   favorable   return
experienced  by ICBI with the  lengthening  of the  maturity  of the  investment
securities  portfolio.  Securities with maturities greater than five years total
$40.4  million  and have an average  yield  greater  than 7.0%.  The  securities
portfolio  is  managed  first  for  proper  matching  with  interest  rate  risk
guidelines and secondarily for investment performance.

            Maturity Distribution and Yields of Investment Securities
                                December 31, 1999
                            Taxable-Equivalent Basis
<TABLE>
<CAPTION>

                              Due in 1 year      Due after 1      Due after 5     Due after 10 years
                                                    year             years
                                 or less       through 5 years  through 10 years     and Equities          Total
                            -------------------------------------------------------------------------------------------
                             Amount    Yield    Amount  Yield    Amount   Yield     Amount    Yield   Amount    Yield
                            -------------------------------------------------------------------------------------------
                                                               (In thousands)
<S>                           <C>       <C>     <C>      <C>     <C>       <C>      <C>        <C>    <C>        <C>
Securities held for investment:
  U.S. Government securities  $     -       -   $     -      -   $      -      -    $    250   7.00%  $    250   7.00%
  Mortgage backed securities        5   6.83%        14  7.43%         15  7.53%          78   7.52%       112   7.48%
                            ----------         ---------        ----------        -----------        ----------
  Total taxable               $     5   6.83%   $    14  7.43%   $     15  7.53%    $    328   7.52%  $    362   7.15%
Tax-exempt securities (1)         822   7.10%     3,358  7.45%      3,153  7.77%         100   7.20%     7,433   7.54%
                            ----------         ---------        ----------        -----------        ----------
  Total                       $   827   7.10%   $ 3,372  7.45%   $  3,168  7.77%    $    428   7.45%  $  7,795   7.53%
                            ----------         ---------        ----------        -----------        ----------

Securities available for sale (2):

  U.S. Government securities  $   192   5.61%   $ 2,579  6.52%   $  1,413  7.09%    $    640   6.66%  $  4,824   6.67%
  Mortgage backed securities    3,101   6.28%    10,578  6.60%      6,111  6.56%       6,999   5.45%    26,789   6.25%
  Other                             -       -     2,893  7.44%        434  7.01%         460   6.77%     3,787   7.31%
  Corporate preferred               -       -         -      -          -      -       2,603   8.66%     2,603   8.66%
                            ----------         ---------        ----------        -----------        ----------
  Total taxable               $ 3,293   5.75%   $16,050  6.19%   $  7,958  6.01%    $ 10,702   7.29%  $ 38,003   6.58%
Tax-exempt securities (1)           -       -     2,875  6.70%      5,448  7.18%      12,703   7.39%    21,026   7.24%
                            ----------         ---------        ----------        -----------        ----------
  Total                       $ 3,293   5.75%   $18,925  6.27%   $ 13,406  6.49%    $ 23,405   7.34%  $ 59,029   6.81%
                            ----------         ---------        ----------        -----------        ----------

Total securities              $ 4,120   5.94%   $22,297  6.42%   $ 16,574  7.01%    $ 23,833   7.15%  $ 66,824   6.90%
                            ==========         =========        ==========        ===========        ==========
</TABLE>

(1) Yields on tax-exempt securities have been computed on a tax-equivalent basis
(2) Excludes  Federal Reserve Stock of $134,400 and Federal Home Loan Bank Stock
    of $780,500

Other Earning Assets

         ICBI's  average  investments  in federal  funds  sold and money  market
investments  in 1999 were $6.0  million  and $1.9  million,  an increase of $2.2
million and $67,000, respectively. Average investments in federal funds sold and
money  market   investments   in  1998  were  $3.8  million  and  $1.8  million,
respectively.  Fluctuations  in federal funds sold and money market  investments
reflect excess deposit growth over loan growth as well as  management's  goal to
maximize asset yields while maintaining proper asset/liability structure.

Deposits

         Deposits  continue to be an important funding source and primary supply
of ICBI's growth.  ICBI's strategy has been to increase its core deposits at the
same time controlling its cost of funds. The continued  maturation of the branch
network as well as the increased  advertising  campaigns have contributed to the
significant  growth in  deposits  over the last  several  years.  By  monitoring
interest rates


                                      -26-
<PAGE>

within the local market and then  pricing the  deposits  within the range of the
local market, ICBI has developed a core base of deposits in each branch.

         The following table is a summary of average  deposits and average rates
paid on those deposits:

                         Average Deposits and Rates Paid

<TABLE>
<CAPTION>
                                                                   December 31,
                                       ---------------------------------------------------------------------
                                               1999                    1998                   1997
                                          Amount     Rate        Amount      Rate       Amount       Rate
                                       ---------------------  ----------------------------------------------
                                                                  (In thousands)
<S>                                        <C>        <C>         <C>         <C>        <C>         <C>
       Non-interest bearing deposits       $ 39,154       -       $ 29,782         -     $ 24,025         -
       Interest-bearing accounts:
           Interest checking                 29,583   0.99%         23,853     1.28%       19,886     1.81%
           Regular savings                   19,000   3.00%         17,075     3.53%       15,631     3.69%
           Money market accounts             41,701   2.73%         34,195     2.93%       30,071     2.94%
           Time deposits:
               $ 100,000 and over            21,965   4.98%         18,151     5.23%       16,480     5.68%
               Under $ 100,000               35,707   4.77%         38,557     5.30%       40,100     5.31%
                                       -------------          -------------          -------------
       Total interest-bearing deposits      147,956   3.24%        131,831     3.72%      122,168     4.00%
                                       -------------          -------------          -------------

           Total                           $187,110               $161,613               $146,193
                                       =============          =============          =============

</TABLE>

         Average total deposits  increased 15.8% during 1999,  10.5% during 1998
and 14.5% during 1997. During 1999, the average balance of non-interest  bearing
deposits grew 31.5%.  The average balance in interest  checking and money market
accounts grew 24.0% and 21.9% during 1999.

         ICBI will  continue to fund assets  primarily  with  deposits  and will
focus on core deposit  growth as the primary  source of liquidity and stability.
ICBI  offers  individuals  and small to  medium-sized  businesses  a variety  of
deposit accounts,  including demand and interest checking, money market, savings
and time deposit accounts. ICBI neither purchases brokered deposits nor solicits
deposits from sources outside its primary market area.

         The  following  table is a  summary  of the  maturity  distribution  of
certificates  of deposit  equal to or greater  than  $100,000 as of December 31,
1999:

          Maturities of Certificates of Deposit of $100,000 and Greater

<TABLE>
<CAPTION>
                               Within      Three to       Six to        Over                     Percent
                               Three         Six          Twelve        One                      of Total
                               Months       Months        Months        Year         Total       Deposits
                               -------------------------- -------------------------- ---------------------
                                                               (In thousands)

<S>                            <C>          <C>           <C>          <C>           <C>          <C>
       At December 31, 1999    $9,347       $8,012        $6,613       $2,682        $26,654      13.1%


</TABLE>

                                      -27-
<PAGE>

Capital Resources and Dividends

         ICBI has an ongoing strategic  objective of maintaining a capital base,
which  supports  the  pursuit of  profitable  business  opportunities,  provides
resources to absorb risks  inherent in its  activities  and meets or exceeds all
regulatory requirements.

         The  Federal  Reserve,  along with the FDIC,  has  established  minimum
regulatory  capital  standards.  The regulatory  capital  guidelines  categorize
assets and off-balance  sheet items into four  categories,  which weight balance
sheet assets  according to risk,  requiring more capital for holding higher risk
assets. The minimum ratio of qualifying total capital to risk-weighted assets is
8.0%,  of which at least 4.0% must be Tier 1 capital,  composed of common equity
and retained earnings. ICBI had a ratio of risk-weighted assets to total capital
of 14.8% at December 31, 1999 compared to 17.9% at December 31, 1998.  The ratio
of  risk-weighted  assets to Tier 1 capital was 14.0% and 17.1% at December  31,
1999 and 1998, respectively. Both ratios exceed the minimum capital requirements
adopted by the federal bank regulatory agencies.

                               Analysis of Capital
<TABLE>
<CAPTION>

                                                                        December 31,
                                                            -------------------------------------
                                                                 1999                 1998
                                                            ----------------    -----------------
<S>                                                              <C>                   <C>
                   Tier 1 Capital:
                     Common stock                                 $   8,895            $   8,895
                     Capital surplus                                  1,293                1,293
                     Retained earnings                               14,852               12,496
                     Goodwill                                       (1,060)              (1,121)
                                                            ----------------    -----------------
                     Total Tier 1 capital                         $  23,980            $  21,563
                   Tier 2 Capital:
                     Allowance for loan losses                        1,453                1,063
                                                            ----------------    -----------------
                     Total Tier 2 capital                             1,453                1,063
                     Total risk-based capital                     $  25,433            $  22,626
                                                            ================    =================

                   Risk weighted assets                           $ 171,324            $ 126,398

                   CAPITAL RATIOS:
                     Tier 1 risk-based capital ratio                  14.0%                17.1%
                     Total risk-based capital ratio                   14.8%                17.9%
                     Tier 1 capital to average total assets           10.8%                11.2%

</TABLE>

         ICBI's  equity to asset ratio  decreased  to 9.5% at December  31, 1999
compared to 11.1% at December 31,  1998.  The equity to asset ratio for December
31,  1997 was 11.7%.  The growth  that ICBI  experienced,  as well as the market
value  decline of the  investment  securities  portfolio,  reduced this ratio in
1999.

         The  primary  source  of  funds  for  dividends  paid  by  ICBI  to its
shareholders is the dividends received from its subsidiaries. Federal regulatory
agencies  impose  certain  restrictions  on the  payment  of  dividends  and the
transfer  of  assets  from the  banking  subsidiaries  to the  holding  company.
Historically,  these  restrictions  have not had an  adverse  impact  on  ICBI's
dividend policy, and it is not anticipated that they will in the future.


                                      -28-
<PAGE>

Liquidity

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

         ICBI also maintains  additional  sources of liquidity through a variety
of borrowing  arrangements.  The Bank  maintains  federal funds lines with large
regional and money-center banking  institutions.  These available lines total in
excess of $8  million,  none of which were  outstanding  at December  31,  1999.
Federal funds purchased during 1999 averaged  $179,000 compared to an average of
$146,000  during 1998. At December 31, 1999 and 1998, the Bank had $10.8 million
and $2.5 million, respectively, of outstanding borrowings pursuant to securities
sold under agreement to repurchase transactions, with maturities of one day. The
Bank has a credit  line in the amount of $38  million at the  Federal  Home Loan
Bank of  Atlanta.  This  line may be  utilized  for both  short-  and  long-term
borrowing.

         The Bank joined the  Federal  Home Loan Bank system in 1995 in order to
enter a program of long-term and short-term borrowing, which is restricted to be
invested  in  support of  residential  real  estate  loans.  In 1999,  long-term
borrowings from the Federal Home Loan Bank system were $5.0 million  maturing in
2003 with a call feature in 2000.

         At December 31, 1999,  cash,  interest-bearing  deposits with financial
institutions,  federal funds sold, short-term investments,  securities available
for sale,  loans and  securities  maturing  within one year were 58.0 % of total
deposits and liabilities.

Forward-Looking Statements

         Certain   information   contained  in  this   discussion   may  include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements are generally identified by phrases
such as "the  Company  expects,"  "the  Company  believes"  or words of  similar
import.  Such  forward-looking   statements  involve  known  and  unknown  risks
including,  but not  limited  to,  changes  in  general  economic  and  business
conditions, interest rate fluctuations,  competition within and from outside the
banking  industry,  new  products  and  services in the banking  industry,  risk
inherent in making  loans such as  repayment  risks and  fluctuating  collateral
values,  problems with  technology  utilized by the Company,  changing trends in
customer profiles and changes in laws and regulations applicable to the Company.
Although  the  Company  believes  that  its  expectations  with  respect  to the
forward-looking statements are based upon reliable assumptions within the bounds
of its knowledge of its business and operations,  there can be no assurance that
actual  results,  performance  or  achievements  of the Company  will not differ
materially  from any future results,  performance or  achievements  expressed or
implied by such forward-looking statements.

Recent Accounting Pronouncements

         There are no recent accounting  pronouncements that will have an effect
on ICBI.


                                      -29-
<PAGE>


ITEM 7.  FINANCIAL STATEMENTS

         The following  financial  statements are filed as a part of this report
following Item 13 below:

         Independent Auditor's Report
         Consolidated Balance Sheets as of December 31, 1999 and 1998
         Consolidated  Statements  of Income for the Years  Ended  December  31,
              1999, 1998 and 1997
         Consolidated  Statements  of  Changes in  Shareholders'  Equity for the
              Years Ended December 31, 1999, 1998 and 1997
         Consolidated  Statements of Cash Flows for the Years Ended December 31,
              1999, 1998 and 1997
         Notes to Consolidated Financial Statements


ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

         There  were  no  changes  in  or  disagreements   with  accountants  on
accounting and financial disclosure during the last two fiscal years.

                                    PART III

ITEM 9.  DIRECTORS,   EXECUTIVE   OFFICERS,   PROMOTERS  AND  CONTROL   PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT


         Pursuant to General  Instruction  E(3) of Form 10-KSB,  the information
contained under the headings  "Election of Directors,"  "Executive  Officers Who
Are Not Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance"
in the Company's  Proxy Statement for the 2000 Annual Meeting of Shareholders is
incorporated herein by reference.

ITEM 10. EXECUTIVE COMPENSATION

         Pursuant to General  Instruction  E(3) of Form 10-KSB,  the information
contained under the headings "Director Compensation,"  "Executive Compensation,"
"Stock  Options," and  "Employment  Agreements" in the Company's Proxy Statement
for the 2000 Annual Meeting of Shareholders is incorporated herein by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Pursuant to General  Instruction  E(3) of Form 10-KSB,  the information
contained  under the headings  "Security  Ownership of Management" and "Security
Ownership of Certain Beneficial Owners" in the Company's Proxy Statement for the
2000 Annual Meeting of Shareholders is incorporated herein by reference.



                                      -30-
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Pursuant to General  Instruction  E(3) of Form 10-KSB,  the information
contained  under the heading  "Transactions  with  Management"  in the Company's
Proxy  Statement for the 2000 Annual  Meeting of  Shareholders  is  incorporated
herein by reference.

ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K

         (a)      Exhibits.

                  3.1      Articles of Incorporation of the Company (restated in
                           electronic  format),  attached  as Exhibit 3.1 to the
                           Registration  Statement on Form S-4, Registration No.
                           333-24523, filed with the Commission on April 4, 1997
                           (the "Form S-4"), incorporated herein by reference.

                  3.2      Bylaws of the Company, attached as Exhibit 3.2 to the
                           Form S-4, incorporated herein by reference.

                  10.1     Employment  Agreement,  dated as of  January 1, 1998,
                           between the Company and Joseph L. Boling, attached as
                           Exhibit 10.1 to the  Company's  Annual Report on Form
                           10-KSB  for  the  year  ended   December   31,  1998,
                           incorporated herein by reference.

                  10.2     Independent  Community  Bankshares,  Inc.  1997 Stock
                           Option Plan,  as amended,  attached as Exhibit 4.3 to
                           the Registration  Statement on Form S-8, Registration
                           No. 333-93447,  filed with the Commission on December
                           22, 1999, incorporated herein by reference.

                  10.3     Agreement  and  Plan of  Reorganization  dated  as of
                           August  9,  1999,   between  GPIA,  the  Company  and
                           Tredegar,  attached as Exhibit 10.1 to the  Company's
                           Quarterly  Report on Form 10-QSB for the period ended
                           September 30, 1999 (the "Form 10-QSB"),  incorporated
                           herein by reference.

                  10.4     Shareholder  Agreement  dated  as of  August 9, 1999,
                           between Robert C. Gilkison,  James H. Patterson,  the
                           Company  and GPIA,  attached  as Exhibit  10.2 to the
                           Form 10-QSB, incorporated herein by reference.

                  10.5     Stock Purchase  Agreement dated as of August 9, 1999,
                           between  Robert C.  Gilkison,  James H. Patterson and
                           the  Company,  attached  as Exhibit  10.3 to the Form
                           10-QSB, incorporated herein by reference.

                  21       Subsidiaries of the Registrant.

                  27       Financial Data Schedule (filed electronically only).

         (b)      Reports on Form 8-K.

                           No  reports  on Form  8-K were  filed by the  Company
                  during the last quarter of the period covered by this report.


                                      -31-
<PAGE>

                     INDEPENDENT COMMUNITY BANKSHARES, INC.

                              Middleburg, Virginia

                                FINANCIAL REPORT

                                DECEMBER 31, 1999


<PAGE>


                                 C O N T E N T S

                                                                       Page

INDEPENDENT AUDITOR'S REPORT ON THE
  CONSOLIDATED FINANCIAL STATEMENTS                                       1

FINANCIAL STATEMENTS

  Consolidated balance sheets                                             2
  Consolidated statements of income                                       3
  Consolidated statements of changes in shareholders' equity              4
  Consolidated statements of cash flows                             5 and 6
  Notes to consolidated financial statements                           7-30



<PAGE>





                          INDEPENDENT AUDITOR'S REPORT






To the Board of Directors
Independent Community Bankshares, Inc.
Middleburg, Virginia

               We have audited the accompanying  consolidated  balance sheets of
Independent Community Bankshares,  Inc. and Subsidiaries as of December 31, 1999
and  1998,  and the  related  consolidated  statements  of  income,  changes  in
shareholders'  equity and cash flows for the years ended December 31, 1999, 1998
and 1997.  These financial  statements are the  responsibility  of the Company'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 consolidated financial statements referred to
above  present  fairly,  in all material  respects,  the  financial  position of
Independent Community Bankshares,  Inc. and Subsidiaries as of December 31, 1999
and 1998, and the results of their operations and their cash flows for the years
ended December 31, 1999,  1998 and 1997, in conformity  with generally  accepted
accounting principles.

/s/ Yount, Hyde & Barbour, P.C.

Winchester, Virginia
January 21, 2000


                                       1
<PAGE>
                     INDEPENDENT COMMUNITY BANKSHARES, INC.

                           Consolidated Balance Sheets
                           December 31, 1999 and 1998
                      (In Thousands, Except for Share Data)

<TABLE>
<CAPTION>

              Assets                                           1999         1998

<S>                                                         <C>         <C>
Cash and due from banks                                     $   8,037    $   8,161
Interest-bearing deposits in banks                                 87          109
Temporary investments:
  Federal funds sold                                           12,139        1,421
  Other money market investments                                  293        3,122
Securities (fair value:  1999, $ 67,745;
  1998, $58,159)                                               67,739       57,786
Loans, net of allowance for loan losses of $1,453 in 1999
   and $1,064 in 1998                                         141,782      120,259
Loans held for sale                                             1,232        4,672
Bank premises and equipment, net                                6,285        5,853
Accrued interest receivable and other assets                    6,331        3,820
Other real estate                                                --            200

         Total assets                                       $ 243,925    $ 205,403

   Liabilities and Shareholders' Equity

Liabilities
  Deposits:
    Noninterest-bearing demand deposits                     $  44,900    $  36,883
    Savings and interest-bearing demand deposits               97,208       80,427
    Time deposits                                              61,729       55,370
         Total deposits                                     $ 203,837    $ 172,680

  Securities sold under agreements to repurchase               10,811        2,530
  Federal Home Loan Bank advances                                --          1,000
  Long-term debt                                                5,000        5,000
  Accrued interest and other liabilities                        1,202        1,330
  Commitments and contingent liabilities                         --           --
         Total liabilities                                  $ 220,850    $ 182,540

Shareholders' Equity
  Common stock, par value $5 per share, authorized
    10,000,000 shares; issued 1999, 1,778,994 shares;
    issued 1998, 1,778,994 shares;                          $   8,895    $   8,895
  Capital surplus                                               1,293        1,293
  Retained earnings                                            14,852       12,496
  Accumulated other comprehensive income (loss)                (1,965)         179
         Total shareholders' equity                         $  23,075    $  22,863

         Total liabilities and shareholders' equity         $ 243,925    $ 205,403
</TABLE>

 See Notes to Consolidated Financial Statements.

                                       2

<PAGE>

                INDEPENDENT COMMUNITY BANKSHARES, INC.



                   Consolidated Statements of Income
             Years Ended December 31, 1999, 1998 and 1997
               (In Thousands, Except for Per Share Data)

<TABLE>
<CAPTION>
                                                              1999       1998      1997
                                                              ----       ----      ----
                                                                (in thousands)

<S>                                                          <C>        <C>        <C>
Interest Income
  Interest and fees on loans                                 $11,694    $10,205    $ 8,973
  Interest and dividends on investment securities:
    Taxable interest income                                       36         70        121
    Interest income exempt from federal income taxes             536        618        686
  Interest and dividends on securities available for sale:
    Taxable interest income                                    1,731      1,616      2,293
    Interest income exempt from federal income taxes             893        717        151
    Dividends                                                    243        252        281
  Interest on deposits in banks                                    1          7          8
  Interest on federal funds sold                                 290        211        159
  Interest on other money market investments                      98         89         13
                                                             -------    -------    -------
         Total interest income                               $15,522    $13,785    $12,685
                                                             -------    -------    -------

Interest Expense
  Interest on deposits                                       $ 4,798    $  4,903   $ 4,886
  Interest on short-term borrowings                              263        134        134
  Interest on Federal Home Loan Bank advances                      3         70        172
  Interest on long-term debt                                     281        206       --
                                                             -------    -------    -------
         Total interest expense                              $ 5,345    $ 5,313    $ 5,192
                                                             -------    -------    -------

         Net interest income                                 $10,177    $ 8,472    $ 7,493

  Provision for loan losses                                      420        135        178
                                                             -------    -------    -------

         Net interest income after provision
            for loan losses                                  $ 9,757    $ 8,337    $ 7,315
                                                             -------    -------    -------

Other Income
  Service charges, commissions and fees                      $ 1,076    $    91    $   781
  Trust fee income                                             1,148        855        339
  Fees on loans held for sale                                    561        241       --
  (Losses) on securities available for sale, net                 (13)       (18)       (93)
  Other                                                          174        175        122
                                                             -------    -------    -------
         Total other income                                  $ 2,946    $ 2,169    $ 1,149
                                                             -------    -------    -------

Other Expenses
  Salaries and employees' benefits                           $ 4,547    $ 3,839    $ 2,864
  Net occupancy and equipment expense                          1,013        772        593
  Advertising                                                    325        234        146
  Computer operations                                            310        247        138
  Other operating expenses                                     1,845      1,582      1,230
                                                             -------    -------    -------
         Total other expenses                                $ 8,040    $ 6,674    $ 4,971
                                                             -------    -------    -------
         Income before income taxes                          $ 4,663    $ 3,832    $ 3,493


  Income tax expense                                         $ 1,097    $   857    $   862
                                                             -------    -------    -------

         Net income                                          $ 3,566    $ 2,975    $ 2,631
                                                             -------    -------    -------

Earnings per Share, basic                                    $   2.0    $   1.6    $  1.51
                                                             =======    =======    =======

Earnings per Share, diluted                                  $   1.9    $   1.6    $  1.51
                                                             =======    =======    =======

</TABLE>
 See Notes to Consolidated Financial Statements.

                                       3

<PAGE>
                     INDEPENDENT COMMUNITY BANKSHARES, INC.

           Consolidated Statements of Changes in Shareholders' Equity
                  Years Ended December 31, 1999, 1998 and 1997
                        (In Thousands, Except Share Data)

<TABLE>
<CAPTION>

                                                                                     Accumulated
                                                                                         Other
                                                                                        Compre-      Compre-
                                                        Common   Capital    Retained    hensive      hensive
                                                        Stock    Surplus    Earnings  Income (Loss)  Income    Total
                                                        -----    -------    --------  -------------  ------    -----

<S>                                                   <C>        <C>        <C>         <C>        <C>       <C>
Balance, December 31, 1996                            $ 4,299    $ 1,411    $ 12,817    $  (519)             $ 18,008
  Comprehensive income:
    Net income - 1997                                    --         --         2,631       --      $  2,631     2,631
    Other comprehensive income net of tax:
     Unrealized holding gains arising during the
       period (net of tax, $134)                         --         --          --         --           259      --
     Reclassification adjustment (net of tax, $31)       --         --          --         --            61      --
                                                                                                   --------
     Other comprehensive income (net of tax, $165)       --         --          --          320    $    320      320
                                                                                                   --------
  Total comprehensive income                             --         --          --         --      $  2,951      --
                                                                                                   ========
  Cash dividends - 1997 ($0.32 per share)                --         --          (574)      --                   (574)
  Purchase of common stock (22,600 shares)               (113)      (522)       --         --                   (635)
  Issuance of common stock - stock split effected
    in the form of 100% stock dividend (906,200 shares) 4,531     (4,531)       --         --                    --
  Issuance of common stock in acquisition of
    subsidiary (69,200 shares)                            346      1,590        --         --                   1,936
  Discretionary transfer from retained earnings          --        4,000      (4,000)      --                    --
                                                      -------    -------    --------    -------              --------
Balance, December 31, 1997                            $ 9,063    $ 1,948    $ 10,874    $  (199)             $ 21,686
  Comprehensive income:
    Net income - 1998                                    --         --         2,975       --      $  2,975     2,975
     Other comprehensive income net of tax:
      Unrealized holding gains arising during the
       period (net of tax, $189)                         --         --          --         --           366      --
     Reclassification adjustment (net of tax, $6)        --         --          --         --            12      --
                                                                                                   --------
     Other comprehensive income (net of tax, $195)       --         --          --          378    $    378       378
                                                                                                   --------
  Total comprehensive income                             --         --          --         --      $  3,353      --
                                                                                                   ========
  Cash dividends - 1998 ($0.75 per share)                --         --        (1,353)      --                  (1,353)
  Purchase of common stock (33,600 shares)               (168)      (655)       --         --                    (823)
                                                      -------    -------    --------    -------              --------
Balance, December 31, 1998                            $ 8,895    $ 1,293    $ 12,496    $   179              $ 22,863

  Comprehensive income:
    Net income - 1999                                    --         --         3,566       --      $  3,566     3,566
     Other comprehensive income net of tax:
      Unrealized holding losses arising during the
       period (net of tax, $1,100)                       --         --          --         --        (2,153)     --
      Reclassification adjustment (net of tax, $4)       --         --          --         --             9      --
                                                                                                   --------
      Other comprehensive income (net of tax, $1,104)    --         --          --       (2,144)   $ (2,144)   (2,144)
                                                                                                   --------
  Total comprehensive income                             --         --          --         --      $  1,422      --
                                                                                                   ========
  Cash dividends - 1999 ($0.68 per share)                --         --        (1,210)      --                  (1,210)
                                                      -------    -------    --------    -------              --------
Balance, December 31, 1999                            $ 8,895    $ 1,293    $ 14,852    $(1,965)             $ 23,075
                                                      =======    =======    ========    =======              ========
</TABLE>

 See Notes to Consolidated Financial Statements.

                                       4
<PAGE>
                     INDEPENDENT COMMUNITY BANKSHARES, INC.

                      Consolidated Statements of Cash Flows
                  Years Ended December 31, 1999, 1998 and 1997
                                 (In Thousands)

<TABLE>
<CAPTION>


                                                      1999        1998       1997
                                                      ----        ----       ----
<S>                                                 <C>          <C>        <C>
 Cash Flows from Operating Activities
  Net income                                        $  3,566    $  2,975    $  2,631
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
      Depreciation                                       605         514         397
      Amortization                                        60          79          42
      Provision for loan losses                          420         135         178
      Net loss on securities available for sale           13          18          93
      Net (gain) loss on sale of assets                   (5)       --             7
      Net loss on the sale of other real estate            5        --          --
      Discount accretion and premium amortization
        on securities, net                                64         194         180
      Deferred income taxes (benefit)                   (186)        (16)        (20)
      Origination of loans held for sale               0,744)    (11,948)       --
      Proceeds from sales of loans held for sale       4,184       7,276        --
      Changes in assets and liabilities:
        (Increase) in other assets                    (1,372)       (125)       (669)
        Increase (decrease) in other liabilities         (71)        113          57
                                                    --------    --------    --------
              Net cash provided by (used in)
                operating activities                $  6,539    $   (785)   $  2,896
                                                    --------    --------    --------

Cash Flows from Investing Activities
  Proceeds from maturity, principal paydowns
    and calls of investment securities              $  1,905    $  3,496    $  2,748
  Proceeds from maturity, principal paydowns
    and calls of securities available for sale         5,300       9,164       2,743
  Proceeds from sale of investment securities            850        --          --
  Proceeds from sale of securities
    available for sale                                 1,988       9,887      26,501
  Purchase of investment securities                     --          --        (1,849)
  Purchase of securities available for sale          (22,473)    (16,276)    (40,572)
  Proceeds from sale of equipment                        131        --            36
  Purchases of bank premises and equipment            (1,164)       (839)     (1,221)
  Net (increase) in loans                            (21,942)    (17,341)     (9,720)
  Proceeds from the sale of other real estate            195        --          --
  Cash acquired in acquisition                          --          --           171
                                                    --------    --------    --------
          Net cash (used in)
            investing activities                    $(36,060)   $(11,909)   $(21,163)
                                                    --------    --------    --------
</TABLE>


 See Notes to Consolidated Financial Statements.

                                       5
<PAGE>


                     INDEPENDENT COMMUNITY BANKSHARES, INC.

                      Consolidated Statements of Cash Flows
                                   (Continued)
                  Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>

                                                            1999        1998        1997
                                                            ----        ----        ----
<S>                                                       <C>         <C>         <C>
Cash Flows from Financing Activities
Net increase in noninterest-bearing and interest-
  bearing demand deposits and savings accounts            $ 24,798    $ 18,005    $ 11,628
Net increase (decrease) in certificates of deposit           6,359      (1,880)      6,136
Increase (decrease) in securities sold under agreements
  to repurchase                                              8,282        (518)      1,604
Proceeds from long-term debt                                  --         5,000        --
Decrease in short-term borrowings                           (1,000)     (1,800)     (1,200)
Purchase of common stock                                      --          (823)       (635)
Cash dividends paid                                         (1,175)     (1,086)       (575)
                                                          --------    --------    --------
Net cash provided by
  financing activities                                    $ 37,264    $ 16,898    $ 16,958
                                                          --------    --------    --------
Increase (decrease) in cash and
  cash equivalents                                        $  7,743    $  4,204    $ (1,310)

Cash and Cash Equivalents
Beginning                                                   12,813       8,609       9,919
                                                          --------    --------    --------
Ending                                                    $ 20,556    $ 12,813    $  8,609
                                                          ========    ========    ========

Supplemental Disclosures of Cash Flow Information
Cash payments for:

Interest paid to depositors                               $  5,073    $  5,040    $  4,823
Interest paid on short-term obligations                         10           9         132
Interest paid on Federal Home Loan
Bank advances                                                  276         235         176
                                                          --------    --------    --------
                                                          $  5,359    $  5,284    $  5,131
                                                          --------    --------    --------
Income taxes                                              $  1,287    $    835    $    849
                                                          ========    ========    ========

Supplemental Disclosure of Noncash Transactions
Issuance of common stock - stock split effected in
  the form of 100% stock dividend                            $ - -       $ - -    $  4,531
                                                          ========    ========    ========
Issuance of common stock in acquisition of subsidiary        $ - -       $ - -    $  1,936
                                                          ========    ========    ========
Unrealized gain (loss) on securities available for sale   $ (3,248)   $    573    $    486
                                                          ========    ========    ========
Loan balances transferred to foreclosed properties           $ - -    $    200       $ - -
                                                          ========    ========    ========
</TABLE>

 See Notes to Consolidated Financial Statements.


                                       6
<PAGE>


                     INDEPENDENT COMMUNITY BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

Note 1.        Nature of Banking Activities and Significant Accounting Policies

               Independent   Community   Bankshares'  banking  subsidiary,   The
               Middleburg  Bank,  grants  commercial,  financial,  agricultural,
               residential  and  consumer  loans  to  customers  principally  in
               Loudoun County and Fauquier County,  Virginia. The loan portfolio
               is well diversified and generally is  collateralized by assets of
               the customers. The loans are expected to be repaid from cash flow
               or proceeds  from the sale of selected  assets of the  borrowers.
               The Tredegar Trust Company,  a non-banking  subsidiary,  offers a
               comprehensive  range  of  fiduciary  and  investment   management
               services to individuals and businesses.

               The accounting and reporting  policies of the Company  conform to
               generally accepted accounting principles and to accepted practice
               within the banking industry.

                  Principles of Consolidation

                      The  consolidated   financial  statements  of  Independent
                      Community   Bankshares,    Inc.   and   its   wholly-owned
                      subsidiaries,  The  Middleburg  Bank,  The Tredegar  Trust
                      Company and Middleburg Bank Service  Corporation,  include
                      the   accounts  of  all  four   companies.   All  material
                      intercompany   balances   and   transactions   have   been
                      eliminated in consolidation.

                  Securities

                      Investments are accounted for as follows:

                      a.   Securities Held to Maturity

                           Securities  classified  as held to maturity are those
                           debt  securities  the Company has both the intent and
                           ability to hold to maturity  regardless of changes in
                           market  conditions,  liquidity  needs or  changes  in
                           general  economic  conditions.  These  securities are
                           carried at cost adjusted for  amortization of premium
                           and  accretion of discount,  computed by the interest
                           method over their contractual lives.

                      b.   Securities Available for Sale

                           Securities classified as available for sale are those
                           debt and equity  securities  that the Company intends
                           to hold for an  indefinite  period  of time,  but not
                           necessarily  to  maturity.  Any  decision  to  sell a
                           security  classified  as available  for sale would be
                           based  on  various  factors,   including  significant
                           movements in interest rates,  changes in the maturity
                           mix  of  the   Company's   assets  and   liabilities,
                           liquidity needs,  regulatory capital  considerations,
                           and other similar factors.  Securities  available for
                           sale are carried at fair value.  Unrealized  gains or
                           losses are  reported as  increases  or  decreases  in
                           shareholders' equity, net of the related deferred tax
                           effect.  Realized gains or losses,  determined on the
                           basis of the cost of specific  securities  sold,  are
                           included in earnings.

                                       7
<PAGE>



                   Notes to Consolidated Financial Statements

                  Loans Held for Sale

                      Mortgage  loans  originated  and  intended for sale in the
                      secondary  market  are  carried  at the  lower  of cost or
                      estimated market value in the aggregate.

                  Loans

                      The Company grants mortgage, commercial and consumer loans
                      to customers.  A substantial portion of the loan portfolio
                      is represented by mortgage loans throughout Loudoun County
                      and  Fauquier  County,   Virginia.   The  ability  of  the
                      Company's  debtors to honor their  contracts  is dependent
                      upon the real estate and general  economic  conditions  in
                      this area.

                      Loans that  management  has the intent and ability to hold
                      for the  foreseeable  future or until  maturity or pay-off
                      generally  are  reported  at  their   outstanding   unpaid
                      principal  balances  less the  allowance  for loan losses.
                      Interest  income  is  accrued  on  the  unpaid   principal
                      balance.

                      The accrual of interest on mortgage and  commercial  loans
                      is  discontinued  at the time  loan is 90 days  delinquent
                      unless  the  credit  is  well-secured  and in  process  of
                      collection.  Personal  loans are typically  charged off no
                      later  than 180 days past  due.  In all  cases,  loans are
                      placed on nonaccrual or  charged-off at an earlier date if
                      collection   of  principal   or  interest  is   considered
                      doubtful.

                      All interest  accrued but not collected for loans that are
                      placed on  nonaccrual  or charged off is reversed  against
                      interest income.  The interest on these loans is accounted
                      for on  the  cash-basis  or  cost-recovery  method,  until
                      qualifying  for return to accrual.  Loans are  returned to
                      accrual status when all the principal and interest amounts
                      contractually  due are brought current and future payments
                      are reasonably assured.

                  Allowance for Loan Losses

                      The allowance for loan losses is established as losses are
                      estimated to have  occurred  through a provision  for loan
                      losses  charged  to  earnings.  Loan  losses  are  charged
                      against  the  allowance  when   management   believes  the
                      uncollectibility   of  a  loan   balance   is   confirmed.
                      Subsequent  recoveries,   if  any,  are  credited  to  the
                      allowance.

                      The  allowance  for loan losses is  evaluated on a regular
                      basis  by  management  and  is  based  upon   management's
                      periodic  review  of the  collectibility  of the  loans in
                      light of historical  experience,  the nature and volume of
                      the loan portfolio, adverse situations that may affect the
                      borrower's  ability  to  repay,  estimated  value  of  any
                      underlying  collateral and prevailing economic conditions.
                      This evaluation is inherently  subjective,  as it requires
                      estimates that are susceptible to significant  revision as
                      more information becomes available.

                      A loan is  considered  impaired  when,  based  on  current
                      information  and events,  it is probable  that the Company
                      will be  unable  to  collect  the  scheduled  payments  of
                      principal   or  interest   when  due   according   to  the
                      contractual   terms   of  the  loan   agreement.   Factors
                      considered by management in determining impairment include
                      payment status,  collateral  value, and the probability of
                      collecting  scheduled principal and interest payments when
                      due. Loans that  experience  insignificant  payment delays
                      and payment  shortfalls  generally  are not  classified as
                      impaired.   Management   determines  the  significance  of
                      payment  delays and payment  shortfalls on a  case-by-case
                      basis,  taking into consideration all of the circumstances
                      surrounding  the  loan  and the  borrower,  including  the
                      length  of the  delay,  the  reasons  for the  delay,  the
                      borrower's  prior  payment  record,  and the amount of the
                      shortfall in relation to the principal and interest

                                       8
<PAGE>

                   Notes to Consolidated Financial Statements


                      owed Impairment is measured on a loan by  loan  basis  for
                      commercial  and  construction  loans by either the present
                      value of  expected  future  cash flows  discounted  at the
                      loan's  effective  interest  rate,  the loan's  obtainable
                      market price,  or the fair value of the  collateral if the
                      loan is collateral dependent.

                      Large  groups of  smaller  balance  homogeneous  loans are
                      collectively  evaluated for impairment.  Accordingly,  the
                      Company does not separately  identify  individual consumer
                      and residential loans for impairment disclosures.

                      Loans are placed on nonaccrual when a loan is specifically
                      determined to be impaired or when principal or interest is
                      delinquent  for 90  days  or  more.  Any  unpaid  interest
                      previously accrued on those loans is reversed from income.
                      Interest  income  generally is not  recognized on specific
                      impaired  loans unless the  likelihood  of further loss is
                      remote.  Interest  payments  received  on such  loans  are
                      applied  as a  reduction  of the loan  principal  balance.
                      Interest  income on other  nonaccrual  loans is recognized
                      only to the extent of interest payments received.

                  Loan Fees and Costs

                      Loan origination and commitment fees and direct loan costs
                      are being recognized as collected and incurred. The use of
                      this method of recognition  does not product  results that
                      are  materially  different  from results  which would have
                      been  produced  if such costs and fees were  deferred  and
                      amortized as an adjustment of the loan yield over the life
                      of the related loan.

                  Bank Premises and Equipment

                      Bank  premises  and  equipment  are  stated  at cost  less
                      accumulated  depreciation.  Depreciation  of property  and
                      equipment  is computed  principally  on the  straight-line
                      method over the following estimated useful lives:

                                                                Years
                                                                -----

                           Buildings and improvements           31.5-39
                           Furniture and equipment                 3-10

                      Maintenance  and repairs of  property  and  equipment  are
                      charged  to   operations   and  major   improvements   are
                      capitalized. Upon retirement, sale or other disposition of
                      property   and   equipment,   the  cost  and   accumulated
                      depreciation  are eliminated from the accounts and gain or
                      loss is included in operations.

                  Other Real Estate

                      Real  estate  acquired  by  foreclosure  is carried at the
                      lower of cost or fair market value less an  allowance  for
                      estimated  selling  expenses on the future  disposition of
                      the property.

                  Goodwill

                     Goodwill is amortized using the  straight-line  method over
                     20 years.

                                       9
<PAGE>


                   Notes to Consolidated Financial Statements

                  Income Taxes

                      Deferred taxes are provided on a liability  method whereby
                      deferred  tax  assets  are   recognized   for   deductible
                      temporary differences,  operating loss carryforwards,  and
                      tax credit  carryforwards.  Deferred tax  liabilities  are
                      recognized for taxable  temporary  differences.  Temporary
                      differences  are  the  differences  between  the  reported
                      amounts  of assets  and  liabilities  and their tax bases.
                      Deferred  tax assets are reduced by a valuation  allowance
                      when, in the opinion of management, it is more likely than
                      not that some  portion or all of the  deferred  tax assets
                      will not be realized.  Deferred tax assets and liabilities
                      are  adjusted  for the  effects of changes in tax laws and
                      rates on the date of enactment.

                  Earnings Per Share

                      Basic earnings per share  represents  income  available to
                      common stockholders divided by the weighted-average number
                      of common shares  outstanding  during the period.  Diluted
                      earnings per share reflects  additional common shares that
                      would have been  outstanding if dilutive  potential common
                      shares  had  been  issued,  as well as any  adjustment  to
                      income  that  would  result  from  the  assumed  issuance.
                      Potential  common shares that may be issued by the Company
                      relate  solely  to  outstanding  stock  options,  and  are
                      determined using the treasury stock method.

                  Cash and Cash Equivalents

                      For  purposes  of  reporting  cash  flows,  cash  and cash
                      equivalents  include cash on hand, amounts due from banks,
                      other  temporary   investments  and  federal  funds  sold.
                      Generally,  federal  funds  are  purchased  and  sold  for
                      one-day periods.

                  Use of Estimates

                      The preparation of financial statements in conformity with
                      generally   accepted   accounting    principles   requires
                      management to make estimates and  assumptions  that affect
                      the  reported   amounts  of  assets  and  liabilities  and
                      disclosure of  contingent  assets and  liabilities  at the
                      date of the financial  statements and the reported amounts
                      of revenues  and  expenses  during the  reporting  period.
                      Actual results could differ from those estimates. Material
                      estimates that are particularly susceptible to significant
                      change in the near term relate to the determination of the
                      allowance for loan losses and deferred taxes.

                  Advertising Costs

                      The Company  follows  the policy of charging  the costs of
                      advertising to expense as incurred.

                  Comprehensive Income

                      The  Company  adopted  SFAS 130,  Reporting  Comprehensive
                      Income,  as of  January  1,  1998.  Accounting  principles
                      generally require that recognized revenue, expenses, gains
                      and losses be  included in net  income.  Although  certain
                      changes  in assets  and  liabilities,  such as  unrealized
                      gains and  losses on  available-for-sale  securities,  are
                      reported as a separate  component of the equity section of
                      the balance sheet,  such items,  along with net income are
                      components of comprehensive  income.  The adoption of SFAS
                      130  had  no  effect  on  the   Company's  net  income  or
                      shareholders' equity.

                                       10
<PAGE>


                   Notes to Consolidated Financial Statements

                Derivative Financial Instruments

               As of  October  1,  1999,  the  Company  adopted  SFAS  No.  133,
               "Accounting for Derivative  Instruments and Hedging  Activities."
               Statement 133 establishes  accounting and reporting standards for
               derivative financial  instruments and other financial instruments
               and for hedging activities.  As permitted under SFAS No. 133, the
               Company transferred securities held to maturity with a book value
               of  $3,114,000  and a market value of  $3,117,000  to  securities
               available for sale as of October 1, 1999.  The  Corporation  does
               not have any  derivative  instruments  and hedging  activities as
               defined under this statement.

Note 2.        Securities

               Amortized  costs and fair  values  of  securities  being  held to
               maturity  as of  December  31,  1999 and 1998 are  summarized  as
               follows:

                                       11
<PAGE>

                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                               Gross        Gross
                                                 Amortized  Unrealized   Unrealized     Fair
                                                   Cost        Gains      (Losses)     Value
                                                   ----        -----      --------     -----
                                                                     1999
                                                   -----------------------------------------
                                                                  (In Thousands)
<S>                                               <C>         <C>        <C>          <C>
             U.S. Treasury securities
               and obligations of U.S.
               government corporations
               and agencies                       $    250    $  --      $    (25)    $   225

             Obligations of states and
               political subdivisions                7,433         40          (8)      7,465

             Mortgage-backed securities                112       --            (1)        111
                                                   -------    -------     -------     -------
                                                   $ 7,795    $    40     $   (34)    $ 7,801
                                                   =======    =======     =======     =======
</TABLE>

<TABLE>
<CAPTION>

                                                               Gross        Gross
                                                 Amortized  Unrealized   Unrealized     Fair
                                                   Cost        Gains      (Losses)     Value
                                                   ----        -----      --------     -----
                                                                     1998
                                                   -----------------------------------------
                                                                  (In Thousands)
<S>                                               <C>         <C>        <C>          <C>
             U.S. Treasury securities
               and obligations of U.S.
               government corporations
               and agencies                       $    502    $     3    $     --     $   505

             Obligations of states and
               political subdivisions               12,182        372          --      12,554

             Mortgage-backed securities                162       --            (2)        160
                                                   -------    -------     -------     -------
                                                   $12,846    $   375     $    (2)    $13,219
                                                   =======    =======     =======     =======

</TABLE>


                                       12
<PAGE>

                   Notes to Consolidated Financial Statements


               The  amortized  cost and fair value of  securities  being held to
               maturity as of  December  31, 1999 by  contractual  maturity  are
               shown below. Maturities may differ from contractual maturities in
               mortgage-backed  securities because the mortgages  underlying the
               securities  may  be  called  or  repaid  without  any  penalties.
               Therefore,  these  securities  are not  included in the  maturity
               categories in the following maturity summary.


                                                        Amortized       Fair
                                                          Cost         Value
                                                          ----         -----

                                                            (In Thousands)
             Due in one year or less                    $   822       $   823
             Due after one year through five years        3,358         3,370
             Due after five years through 10 years        3,153         3,171
             Due after 10 years                             350           325
             Mortgage-backed securities                     112           112
                                                        -------       -------
                                                        $ 7,795       $ 7,801
                                                        =======       =======

               Amortized costs and fair values of securities  available for sale
               as of December 31, 1999 and 1998, are summarized as follows:

<TABLE>
<CAPTION>
                                                             Gross        Gross
                                                 Amortized  Unrealized   Unrealized     Fair
                                                   Cost        Gains      (Losses)     Value
                                                   ----        -----      --------     -----
                                                                     1999
                                                   -----------------------------------------
                                                                  (In Thousands)
<S>                                               <C>        <C>         <C>         <C>
             U.S. Treasury securities
               and obligations of U.S.
               government corporations
               and agencies                       $  4,958   $      2    $   (136)   $  4,824

             Obligations of states and
               political subdivisions               23,721          3      (1,463)     22,261

             Mortgage-backed securities             27,730       --          (941)     26,789

             Corporate preferred                     2,989          9        (395)      2,603

             Other                                   3,514       --           (47)      3,467
                                                  --------   --------    --------    --------
                                                  $ 62,912   $     14    $ (2,982)   $ 59,944
                                                  ========   ========    ========    ========

</TABLE>


                                       13
<PAGE>


                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                               Gross        Gross
                                                 Amortized  Unrealized   Unrealized     Fair
                                                   Cost        Gains      (Losses)     Value
                                                   ----        -----      --------     -----
                                                                     1998
                                                   -----------------------------------------
                                                                  (In Thousands)
<S>                                               <C>        <C>         <C>         <C>
             U.S. Treasury securities
               and obligations of U.S.
               government corporations
               and agencies                       $  2,668   $      1       $ - -    $  2,678

             Obligations of states and
               political subdivisions             $ 17,897   $    371    $    (79)   $ 18,189

             Mortgage-backed securities             20,928         55        (105)     20,878

             Corporate preferred                     2,405         33         (13)      2,425

             Other                                     770       --          --           770
                                                  --------   --------    --------    --------
                                                  $ 44,668   $    469    $   (197)   $ 44,940
                                                  ========   ========    ========    ========

</TABLE>


               The  amortized  cost and fair value of  securities  available for
               sale as of December 31, 1999, by  contractual  maturity are shown
               below.  Maturities  may differ  from  contractual  maturities  in
               corporate and  mortgage-backed  securities because the securities
               and mortgages  underlying  the securities may be called or repaid
               without  any  penalties.  Therefore,  these  securities  are  not
               included in the maturity  categories  in the  following  maturity
               summary.



                                                        Amortized       Fair
                                                          Cost          Value
                                                          ----          -----

                                                          (In Thousands)
             Due in one year or less                    $    200      $    192
             Due after one year through five years         5,867         5,800
             Due after five years through 10 years         7,628         7,294
             Due after 10 years                           14,984        13,799
             Mortgage-backed securities                   27,730        26,789
             Corporate preferred                           2,989         2,603
             Other                                         3,514         3,467
                                                        --------      --------
                                                        $ 62,912      $ 59,944
                                                        ========      ========


               Proceeds from sales of securities available for sale during 1999,
               1998  and  1997  were  $1,988,000,  $9,887,000  and  $26,501,000,
               respectively.  Gross gains of $0,  $101,567 and $53,384 and gross
               losses of $13,000,  $119,855 and $145,986  were realized on those
               sales, respectively.

               The carrying value of securities pledged to qualify for fiduciary
               powers,  to secure public monies as required by law and for other
               purposes  amounted to $14,814,000  and $8,251,000 at December 31,
               1999 and 1998, respectively.

                                       14
<PAGE>

                   Notes to Consolidated Financial Statements

Note 3.        Loans, Net

<TABLE>
<CAPTION>

                                                                             December 31,
                                                                    -----------------------------
                                                                    1999                     1998
                                                                    ----                     ----
                                                                            (In Thousands)
<S>                                                                <C>                     <C>
               Real estate loans:
                  Construction and land development                $  12,151               $    5,436
                  Secured by farmland                                    379                    1,057
                  Secured by 1-4 family residential                   65,444                   59,212
                  Other real estate loans                             36,361                   28,643
               Loans to farmers (except secured by real estate)        1,438                    1,489
               Commercial and industrial loans (except those
                    secured by real estate)                           17,617                   17,391
               Loans to individuals for personal expenditures          9,694                    8,043
               All other loans                                           151                       52
                                                                   ---------                ---------
                                 Total loans                       $ 143,235                $ 121,323
               Less:   Allowance for loan losses                       1,453                    1,064
                                                                   ---------                ---------
                                 Net loans                         $ 141,782                $ 120,259
                                                                   =========                =========
</TABLE>

 Note 4.       Allowance for Loan Losses

<TABLE>
<CAPTION>
                                                               1999             1998            1997
                                                               ----             ----            ----
                                                                              (In Thousands)

<S>                                                          <C>              <C>            <C>
                  Balance, beginning                         $  1,064         $     974      $      884
                  Provision charged to operating expense          420               135             177
                  Recoveries                                      120                40              40
                  Loan losses charged to the allowance           (151)              (85)           (127)
                                                             --------         ---------      ----------
                                                             $  1,453         $   1,064      $      974
                                                             ========         =========      ==========
</TABLE>


               Impairment of loans having  recorded  investments  of $67,000 and
               $186,000 at December  31,  1999 and 1998 has been  recognized  in
               conformity  with FASB  Statement  No. 114.  The average  recorded
               investment in impaired loans during 1999 and 1998 was $75,000 and
               $47,000.  The total  allowance  for loan losses  related to these
               loans was $67,000 and $66,000 on December  31, 1999 and 1998.  No
               interest income on impaired loans was recognized in 1999 or 1998.

               Nonaccrual  loans  excluded from impaired loan  disclosure  under
               FASB 114  amounted to $464,000  and $223,000 at December 31, 1999
               and  1998,  respectively.  If  interest  on these  loans had been
               accrued,  such income would have approximated  $12,000 and $4,000
               for 1999 and 1998, respectively.


                                       15

<PAGE>


                   Notes to Consolidated Financial Statements

 Note 5.       Bank Premises and Equipment, Net

<TABLE>
<CAPTION>

                                                            1999           1998
                                                            ----           ----
                                                               (In Thousands)

<S>                                                     <C>            <C>
               Land                                     $       1,516  $       1,516
               Banking facilities                               3,894          3,057
               Furniture, fixtures and equipment                4,169          3,624
               Construction in progress and deposits
                 on equipment                                      66            472
                                                       --------------  -------------
                                                        $       9,645  $       8,669
               Less accumulated depreciation                    3,360          2,816
                                                       --------------  -------------
                                                        $       6,285  $       5,853
                                                        =============  =============
</TABLE>


                Depreciation expense was $605,000, $514,000 and $397,000 for the
                years ended December 31, 1999, 1998 and 1997, respectively.

Note 6.         Deposits

                The aggregate amount of jumbo time deposits, each with a minimum
                denomination  of $100,000,  was  approximately  $26,654,000  and
                $18,157,296 in 1999 and 1998, respectively.

                At December 31, 1999, the scheduled  maturities of time deposits
                are as follows:



                           2000                              $ 52,385
                           2001                                 6,007
                           2002                                 1,953
                           2003                                 1,041
                           2003 and thereafter                    343
                                                             --------
                                                             $ 61,729
                                                             ========


Note 7.         Short-Term Borrowings

               As of December 31, 1998, the Company had borrowed $1,000,000 on a
               short-term  basis from its  $38,018,000  line of credit  with the
               Federal Home Loan Bank of Atlanta. No borrowings were outstanding
               at December 31,  1999.  The Company has pledged real estate loans
               and  Federal  Home  Loan  Bank  stock  as   collateral  on  these
               borrowings.


                                       16
<PAGE>


                   Notes to Consolidated Financial Statements

Note 8.         Long-Term Debt

                At December 31, 1999 and 1998, the Company had  borrowings  from
                the  Federal  Home Loan Bank system  totaling  $5,000,000  at an
                interest rate of 5.52%, maturing  April 2, 2003.  The FHLB has a
                blanket  lien  on  real estate  loans  as  collateral  on  these
                borrowings. Interest only is payable until maturity. The loan is
                callable after 2 years.

Note 9.         Business Combination

                On August 1, 1997,  the  Company  acquired  The  Tredegar  Trust
                Company.  The Company  issued  69,150 shares of common stock for
                all of the outstanding  shares of common stock of Tredegar.  The
                excess of the total  acquisition cost over the fair value of the
                net  assets  acquired  is being  amortized  over 20 years by the
                straight-line  method. The acquisition has been accounted for as
                a purchase and results of operations of Tredegar  since the date
                of  acquisition  are  included  in  the  consolidated  financial
                statements.

Note 10.        Stock Option Plan

                The Company  sponsors a stock  option plan,  which  provides for
                granting of both incentive and  nonqualified  stock options.  As
                permitted under generally accepted accounting principles, grants
                under the plan are accounted for following the provisions of APB
                Opinion No. 25 and its related interpretations. All options were
                granted  at  fair  value  at  date  of  grant.  Accordingly,  no
                compensation  cost has been  recognized for grants made to date.
                In determining  the pro forma amounts  below,  the value of each
                grant is  estimated  at the grant date  using the  Black-Scholes
                option-pricing   model,  with  the  following   weighted-average
                assumptions  for grants in 1999 and 1998:  dividend rate of .22%
                and .13%; risk-free interest rates of 6.50% and 4.50%;  expected
                lives of 10 years;  and expected price  volatility of 15.97% and
                17.40%.  Options granted in 1997 are included 1998  calculations
                to correspond with shareholder approval of the plan in 1998. Had
                compensation  cost for the plan been determined  consistent with
                FASB   Statement   No.   123,    "Accounting   for   Stock-Based
                Compensation,"  the  Company's net income and earnings per share
                would have been reduced to the following pro forma amounts:


                                                  1999           1998
                                                  ----           ----

            Net Income:      As Reported         $ 3,566        $ 2,975
                             Pro Forma           $ 3,189        $ 2,664

            Basic EPS:       As Reported         $  2.00        $  1.65
                             Pro Forma           $  1.79        $  1.48

            Diluted EPS:     As Reported         $  1.99        $  1.63
                             Pro Forma           $  1.78        $  1.46

                                       17

<PAGE>

                   Notes to Consolidated Financial Statements


                Options outstanding at December 31, 1999 and 1998 are summarized
                as follows:

<TABLE>
<CAPTION>

                                         1999                           1998
                                 -----------------------        ------------------------
                                                Weighted                        Weighted
                                                Average                        Average
                                                Exercise                       Exercise
                                 Shares           Price         Shares           Price
                                 ------           -----         ------           -----

<S>                              <C>             <C>             <C>            <C>
            Outstanding at
              beginning of year   86,000         $ 19.46            - -         $   - -
            Granted               37,825         $ 24.70         86,000         $ 19.46
            Exercised                - -             - -            - -             - -
            Forfeited             (2,000)        $ 17.00            - -             - -
                                 -------                         ------
            Outstanding at end
              of year            121,825         $ 21.13         86,000         $ 19.46
                                 =======                         ======
            Weighted average
              fair value of options
              granted during the
              year                               $ 11.53                        $  7.76
</TABLE>

                As of December 31, 1999, options outstanding and exercisable are
                summarized as follows:

<TABLE>
<CAPTION>


                                        Options Outstanding                     Options Exercisable
                                -----------------------------------------      -------------------------
                                                 Weighted        Weighted                      Weighted
                   Range of                      Remaining      Average                        Average
                   Exercise      Shares         Contractual    Exercise         Shares         Exercise
                    Prices      Outstanding       Life           Price         Exercisable      Price
                    ------      -----------       ----           -----         -----------      -----
<S>                 <C>           <C>                <C>        <C>              <C>           <C>
                    $ 17.00       52,000             7.9        $ 17.00          46,100        $ 17.00
                    $ 27.00        1,000             8.3        $ 27.00           1,000        $ 27.00
                    $ 23.50       31,000             9.0        $ 23.50          18,228        $ 23.50
                    $ 24.50        6,825             9.7        $ 24.50           6,825        $ 24.50
                    $ 24.75       31,000            10.0        $ 24.75          10,528        $ 24.75

                              ----------                                     ----------
                                 121,825             8.8        $ 21.13          82,681        $ 19.69
                              ==========                                     ==========

</TABLE>


                                       18


<PAGE>

                   Notes to Consolidated Financial Statements


Note 11.       Employee Benefit Plans

               The  Company  has  a  trustee  noncontributory,  defined  benefit
               pension plan covering substantially all full-time employees.  The
               Company  funds  pension  costs in  accordance  with  the  funding
               provisions  of  the  Employee  Retirement  Income  Security  Act.
               Information about the plan follows:


                                                 1999         1998        1997
                                                 ----         ----        ----
                                                         (In Thousands)
Change in Benefit Obligation

Benefit obligation, beginning of year           $ 1,766     $ 1,747     $ 1,426
Service cost                                        180         126         120
Interest cost                                       132         148         121
Actuarial loss                                      (62)        508         242
Benefits paid                                       (14)       (763)       (162)
                                                -------     -------     -------
Benefit obligation, end of year                 $ 2,002     $ 1,766     $ 1,747
                                                =======     =======     =======


Change in Plan Assets

Fair value of plan assets, beginning of year    $ 1,382     $ 1,841     $ 1,480
Actual return on plan assets                        194         (17)        345
Employer contributions                              189         324         178
Benefits paid                                       (14)       (763)       (162)
                                                -------     -------     -------
Fair value of plan assets, ending               $ 1,751     $ 1,385     $ 1,841
                                                =======     =======     =======

Funded status                                   $  (251)    $  (384)    $    94
Unrecognized net actual loss                        648         825         125
Unrecognized net obligation at transition           (36)        (40)        (43)
Unrecognized prior service cost                     167         183         200
                                                -------     -------     -------
Prepaid benefit cost included in other assets   $   528     $   584     $   376
                                                =======     =======     =======


Components of Net Periodic
  Benefit Cost

Service cost                                    $   180     $   126     $   103
Interest cost                                       132         148         134
Expected return on plan assets                     (111)       (175)       (164)
Amortization of prior service cost                   17          17          17
Amortization of net obligation
  at transition                                      (4)         (4)         (4)
Recognized net actuarial loss                        32        --          --
                                                -------     -------     -------
Net periodic benefit cost                       $   246     $   112     $    86
                                                =======     =======     =======

Weighted-Average Assumptions
  as of December 31

Discount rate                                      7.50%       7.50%       8.50%
Expected return on plan assets                     9.00%       9.00%       9.50%
Rate of compensation increase                      5.00%       5.00%       6.00%

                                       19

<PAGE>


                 Notes to Consolidated Financial Statements


               A deferred  compensation   plan was adopted for the President and
               Chief  Executive  Officer.  Benefits  are to be paid in  monthly
               installments  for  15 years  following  retirement or death.  The
               agreement  provides that if employment is terminated for reasons
               other  than death  or  disability  prior to age 65, the amount of
               benefits would  be reduced. The deferred compensation expense for
               1999,  1998  and  1997,  based  on  the  present   value  of  the
               retirement benefits,  was $19,036,  $17,143 and $15,809. The plan
               is unfunded.  However,  life  insurance  has been acquired on the
               life of the employee  in an amount  sufficient  to discharge  the
               obligation.

Note 12.       Income Taxes

               Net deferred tax assets  (liabilities)  consist of the  following
               components as of December 31, 1999 and 1998:

               The  provision  for income taxes  charged to  operations  for the
               years ended  December  31,  1999,  1998 and 1997  consists of the
               following:



                                                        1999           1998
                                                        ----           ----
                                                           (In Thousands)
                 Deferred tax assets:
                   Allowance for loan losses        $         379  $        247
                   Deferred compensation                       36            30
                   Interest on nonaccrual loans                 5             1
                   Loss on capital assets                      40            38
                   Other                                       17           - -
                   Securities available for sale            1,012           - -
                                                   ----------------------------
                                                    $       1,489  $        316
                                                  -----------------------------
                 Deferred tax liabilities:
                   Property and equipment           $         294  $        297
                   Prepaid pension costs                      177           200
                   Securities available for sale              - -            92
                                                  -----------------------------
                                                    $         471  $        589
                                                  -----------------------------

                                                    $       1,018  $       (273)

<TABLE>
<CAPTION>

                                                   1999           1998           1997
                                                   ----           ----           ----
                                                             (In Thousands)

<S>                                            <C>            <C>             <C>
                 Current tax expense           $       1,283  $       873     $      882
                 Deferred tax expense (benefit)         (186)         (16)           (20)
                                               -------------  -----------     ----------
                                               $       1,097  $       857     $      862
                                               =============  ===========     ==========
</TABLE>


                                       20

<PAGE>

                   Notes to Consolidated Financial Statements



               The income tax  provision  differs  from the amount of income tax
               determined by applying the U.S. federal income tax rate to pretax
               income for the years ended December 31, 1999,  1998 and 1997, due
               to the following:

<TABLE>
<CAPTION>

                                                         1999           1998           1997
                                                         ----           ----           ----
                                                                    (In Thousands)

<S>                                                  <C>            <C>            <C>
                 Computed "expected" tax expense     $       1,585  $       1,303  $       1,188
                 Increase (decrease) in income taxes
                   resulting from:
                 Tax-exempt interest income                   (486)          (410)          (285)
                 Other, net                                     (2)           (36)           (41)
                                                     -------------  -------------  -------------
                                                     $       1,097  $         857  $         862
                                                     =============  =============  =============

</TABLE>

Note 13.       Related Party Transactions

               The Company  has had,  and may be expected to have in the future,
               banking  transactions  in the  ordinary  course of business  with
               directors,  principal  officers,  their  immediate  families  and
               affiliated  companies  in which they are  principal  stockholders
               (commonly  referred  to as related  parties),  on the same terms,
               including  interest rates and collateral,  as those prevailing at
               the time for comparable  transactions with others.  These persons
               and  firms  were  indebted  to the  Company  for  loans  totaling
               $3,233,000   and  $3,247,000  at  December  31,  1999  and  1998,
               respectively.   During  1999,  total  principal   additions  were
               $707,000 and total principal payments were $721,000.

Note 14.       Contingent Liabilities and Commitments

               In the normal course of business,  there are outstanding  various
               commitments and contingent  liabilities,  which are not reflected
               in the accompanying  financial  statements.  The Company does not
               anticipate any material loss as a result of these transactions.

               See  Note  17  with   respect  to  financial   instruments   with
               off-balance-sheet risk.

               The  Company  must  maintain a reserve  against  its  deposits in
               accordance  with Regulation D of the Federal Reserve Act. For the
               final  weekly  reporting  period in the years ended  December 31,
               1999 and 1998,  the aggregate  amounts of daily average  required
               reserves were approximately $25,000 and $1,207,000, respectively.


                                       21



<PAGE>
                   Notes to Consolidated Financial Statements


Note 15.       Earnings Per Share

               The following shows the weighted average number of shares used in
               computing  earnings per share and the effect on weighted  average
               number of shares of diluted  potential  common  stock.  Potential
               dilutive common stock has no effect on income available to common
               stockholders.

<TABLE>
<CAPTION>

                                                      1999                     1998                    1997
                                                      ----                     ----                    ----
                                                             Per                       Per                    Per
                                                            Share                     Share                  Share
                                               Shares       Amount      Shares        Amount     Shares      Amount
                                               ------       ------      ------        ------     ------      ------

<S>                                         <C>           <C>         <C>           <C>         <C>          <C>
                 Basic EPS                  1,779,000     $    2.00   1,803,000     $    1.65   1,741,000    $    1.51

                 Effect of dilutive
                 securities:

                 Stock options                 16,000                    18,000                       - -
                                            ---------                 ---------                 ---------
                 Diluted EPS                1,795,000     $    1.99   1,821,000     $    1.63   1,741,000    $    1.51
                                            =========     =========   =========     =========   =========    =========


</TABLE>


               In 1999,  stock  options   representing  37,825  shares  were not
               included in  the  calculation  of earnings per share because they
               would have been antidilutive.

Note 16.       Retained Earnings

               Transfers  of funds  from the  banking  subsidiary  to the Parent
               Company in the form of loans,  advances  and cash  dividends  are
               restricted  by federal and state  regulatory  authorities.  As of
               December 31, 1999,  the aggregate  amount of  unrestricted  funds
               which could be transferred from the Company's subsidiaries to the
               Parent  Company,  without  prior  regulatory  approval,   totaled
               $3,460,000 or 15.0% of the total consolidated net assets.

Note 17.       Financial Instruments With Off-Balance-Sheet Risk and Credit Risk

               The   Company   is  a  party  to   financial   instruments   with
               off-balance-sheet  risk in the normal  course of business to meet
               the  financing  needs  of its  customers  and to  reduce  its own
               exposure to  fluctuations  in  interest  rates.  These  financial
               instruments  include  commitments  to extend  credit and  standby
               letters of credit. Those instruments involve, to varying degrees,
               elements of credit and interest rate risk in excess of the amount
               recognized in the balance sheet. The contract or notional amounts
               of those  instruments  reflect  the  extent  of  involvement  the
               Company has in particular classes of financial instruments.

               The   Company's   exposure   to  credit  loss  in  the  event  of
               nonperformance by the other party to the financial instrument for
               commitments  to extend  credit and  standby  letters of credit is
               represented  by  the   contractual   notional   amount  of  those
               instruments.  The Company uses the same credit policies in making
               commitments   and   conditional   obligations   as  it  does  for
               on-balance-sheet instruments.

                                       22
<PAGE>


                   Notes to Consolidated Financial Statements


               A summary of the  contract  or notional  amount of the  Company's
               exposure to  off-balance-sheet  risk as of December  31, 1999 and
               1998, is as follows:

                                                       1999             1998
                                                       ----             ----

               Financial instruments whose contract
                 amounts represent credit risk:

                   Commitments to extend credit    $  26,725,000   $  17,060,000
                   Standby letters of credit           1,328,000       1,162,000


               Commitments to extend credit are agreements to lend to a customer
               as long as there is no violation of any condition  established in
               the contract.  Commitments  generally have fixed expiration dates
               or other  termination  clauses and may require  payment of a fee.
               Since many of the  commitments  are  expected  to expire  without
               being drawn upon, the total commitment amounts do not necessarily
               represent future cash  requirements.  The Company  evaluates each
               customer's credit worthiness on a case-by-case  basis. The amount
               of collateral  obtained,  if deemed necessary by the Company upon
               extension of credit,  is based on management's  credit evaluation
               of the  counterparty.  Collateral  held  varies  but may  include
               accounts  receivable,  inventory,  property  and  equipment,  and
               income-producing commercial properties.

               Unfunded  commitments  under lines of credit are  commitments for
               possible future extensions of credit to existing customers. Those
               lines of  credit  may not be drawn  upon to the  total  extent to
               which the Company is committed.

               Standby letters of credit are conditional  commitments  issued by
               the Company to guarantee the performance of a customer to a third
               party.  Those  guarantees are primarily  issued to support public
               and private borrowing  arrangements,  including commercial paper,
               bond  financing,  and  similar  transactions.   The  credit  risk
               involved in issuing  letters of credit is essentially the same as
               that involved in extending  loan  facilities  to  customers.  The
               Company  holds  real  estate  as  collateral   supporting   those
               commitments for which collateral is deemed necessary.  The extent
               of collateral  held for those  commitments  at December 31, 1999,
               varies  from  0  percent  to  100  percent;  the  average  amount
               collateralized is 12.3 percent.

               The Company has approximately $3,713,000 in deposits in financial
               institutions  in excess of amounts insured by the Federal Deposit
               Insurance Corporation (FDIC) at December 31, 1999.

Note 18.       Disclosures About Fair Value of Financial Instruments

               The following  methods and assumptions  were used to estimate the
               fair value of each class of financial instruments for which it is
               practicable to estimate that value:

                  Cash and Short-Term Investments

                  For those  short-term  instruments,  the carrying  amount is a
                  reasonable estimate of fair value.

                  Securities

                  For securities held for investment  purposes,  fair values are
                  based on quoted market prices or dealer quotes.


                                       23
<PAGE>

                   Notes to Consolidated Financial Statements


                  Loans Held for Sale

                  Fair values of loans held for sale are based on commitments on
                  hand from investors or prevailing market prices.

                  Loans

                  For  variable-rate  loans that reprice  frequently and with no
                  significant  change in credit  risk,  fair values are based on
                  carrying  values.   The  fair  values  for  other  loans  were
                  estimated using discounted cash flow analyses,  using interest
                  rates currently being offered.

                  Accrued Interest

                  The  carrying  amounts of accrued  interest  approximate  fair
                  values.

                  Deposits and Borrowings

                  The fair  value of  demand  deposits,  savings  accounts,  and
                  certain money market  deposits is the amount payable on demand
                  at the reporting  date. For all other deposits and borrowings,
                  the fair value is determined  using the  discounted  cash flow
                  method.  The  discount  rate was  equal to the rate  currently
                  offered on similar products.

                  Off-Balance-Sheet Financial Instruments

                  The fair value of  commitments  to extend  credit is estimated
                  using  the  fees  currently  charged  to  enter  into  similar
                  agreements,  taking into  account the  remaining  terms of the
                  agreements   and  the  present   credit   worthiness   of  the
                  counterparties.  For fixed-rate loan  commitments,  fair value
                  also  considers  the  difference  between  current  levels  of
                  interest rates and the committed rates.

                  The fair value of  standby  letters of credit is based on fees
                  currently  charged for similar  agreements or on the estimated
                  cost to  terminate  them or otherwise  settle the  obligations
                  with the counterparties at the reporting date.

                  At December 31, 1999 and 1998,  the carrying  amounts and fair
                  values of loan  commitments and standby letters of credit were
                  immaterial

                                       24

<PAGE>


                  The  estimated   fair  values  of  the   Company's   financial
                  instruments are as follows:


<TABLE>
<CAPTION>

                                               1999                   1998
                                               ----                   ----
                                       Carrying     Fair     Carrying     Fair
                                        Amount      Value     Amount      Value
                                        ------      -----     ------      -----

                                                     (In Thousands)
<S>                                     <C>        <C>        <C>        <C>
Financial assets:
   Cash and short-term investments      $ 20,556   $ 20,556   $ 12,813   $ 12,813
   Securities                             67,739     67,745     57,786     58,159
   Loans held for sale                     1,232      1,230      4,672      4,672
   Loans                                 141,782    141,436    120,259    122,342
   Accrued interest receivable             1,310      1,310      1,155      1,155

Financial liabilities:
   Deposits                             $203,837   $204,009   $172,680   $173,008
   Securities sold under agreements
      to repurchase                       10,811     10,811      2,530      2,530
   Federal Home Loan Bank advances          --         --        1,000      1,008
   Long-term debt                          5,000      4,805      5,000      5,000
   Accrued interest payable                  500        500        519        519

</TABLE>

Note 19.       Capital Requirements

               The  Company  and the  Bank are  subject  to  various  regulatory
               capital   requirements   administered   by  the  federal  banking
               agencies.  Failure  to  meet  minimum  capital  requirements  can
               initiate certain mandatory - possibly additional  discretionary -
               actions by regulators  that, if  undertaken,  could have a direct
               material effect on the Company's and Bank's financial statements.
               Under capital  adequacy  guidelines and the regulatory  framework
               for prompt corrective  action, the Company and the Bank must meet
               specific capital guidelines that involve quantitative measures of
               the Company's  and the Bank's  assets,  liabilities,  and certain
               off-balance-sheet items as calculated under regulatory accounting
               practices.  The  capital  amounts  and  classification  are  also
               subject  to  qualitative   judgments  by  the  regulators   about
               components, risk weightings, and other factors. Prompt corrective
               action provisions are not applicable to bank holding companies.

               Quantitative measures established by regulation to ensure capital
               adequacy  require the  Company  and the Bank to maintain  minimum
               amounts  and ratios  (set forth in the table  below) of total and
               Tier 1 capital to risk-weighted  assets, and of Tier 1 capital to
               average  assets.  Management  believes,  as of December 31, 1999,
               that  the  Company  and  the  Bank  meet  all  capital   adequacy
               requirements to which it is subject.

               As of December 31 1999,  the most  recent  notification  from the
               Federal  Reserve Bank  categorized  the Bank as well  capitalized
               under the regulatory  framework for prompt corrective  action. To
               be categorized as well capitalized,  an institution must maintain
               minimum total risk-based,  Tier 1 risk-based, and Tier 1 leverage
               ratios as set forth in the  table.  There  are no  conditions  or
               events since that  notification  that  management  believes  have
               changed the institution's category.


                                       25
<PAGE>


               The Company's and the Bank's  actual  capital  amounts and ratios
are also presented in the table.

<TABLE>
<CAPTION>

                                                                                                        Minimum
                                                                                                       To Be Well
                                                                          Minimum                    Capitalized Under
                                                                          Capital                   Prompt Corrective
                                            Actual                       Requirement                 Action Provisions
                                 Amount              Ratio          Amount         Ratio            Amount         Ratio
                                --------------------------     ----------------------------     ----------------------------
                                                                      (in thousands)
<S>                             <C>                  <C>          <C>                  <C>        <C>                  <C>
As of December 31, 1999:
  Total Capital (to Risk
    Weighted Assets):
      Consolidated              $    25,433          14.8%      =>$    13,706   =>     8.0%                        N/A
      The Middleburg Bank       $    18,531          11.9%      =>$    13,393   =>     8.0%     =>$     16,741    =>   10.0%

  Tier 1 Capital (to Risk
    Weighted Assets):
      Consolidated              $    23,980          14.0%      =>$     6,853   =>     4.0%                        N/A
      The Middleburg Bank       $    18,531          11.1%      =>$     6,696   =>     4.0%     =>$     10,044    =>    6.0%

  Tier 1 Capital (to
    Average Assets):
      Consolidated              $    23,980          10.8%      =>$     8,907   =>     4.0%                       N/A
      The Middleburg Bank       $    18,531           8.6%      =>$     8,645   =>     4.0%     =>$     10,807    =>    5.0%


As of December 31, 1998:
  Total Capital (to Risk
    Weighted Assets):
      Consolidated              $    22,626          17.9%      =>$    10,112    =>    8.0%                       N/A
      The Middleburg Bank       $    18,012          14.4%      =>$     9,977    =>    8.0%      =>$    12,471    =>   10.0%
  Tier 1 Capital (to Risk
    Weighted Assets):
      Consolidated              $    21,563          17.1%      =>$     5,056    =>    4.0%                       N/A
      The Middleburg Bank       $    16,949          13.6%      =>$     4,988    =>    4.0%      =>$     7,482    =>    6.0%
  Tier 1 Capital (to
    Average Assets):
      Consolidated              $    21,563          11.2%      =>$     7,723    =>    4.0%                       N/A
      The Middleburg Bank       $    16,949           9.0%      =>$     7,499    =>    4.0%      =>$     9,374    =>    5.0%

</TABLE>

                                       26

<PAGE>


Note 20.        Proposed Acquisition

                On August 9, 1999,  the  Company  purchased  one  percent of the
                issued  and  outstanding  capital  stock of  Gilkison  Patterson
                Investment Advisors,  Inc. ("GPIA"), an investment advisory firm
                based in Alexandria, Virginia. In addition, the Company acquired
                the right to purchase all of the  remaining  authorized,  issued
                and outstanding shares of GPIA capital stock on or after July 1,
                2001.  The  consideration  for the shares and the merger  option
                consisted  of  $2.26   million  in  cash  and  other   non-stock
                consideration.  Upon exercise of the merger option,  the Company
                will purchase all the remaining issued and outstanding shares of
                GPIA capital  stock for an  additional  $3.8 million in cash and
                shares of the Company's  common  stock,  and GPIA will be merged
                into the Company's wholly-owned  subsidiary,  the Tredegar Trust
                Company.


                                       27
<PAGE>


                   Notes to Consolidated Financial Statements


Note 21.       Condensed Financial Information - Parent Corporation Only

                     INDEPENDENT COMMUNITY BANKSHARES, INC.
                            (Parent Corporation Only)

                                 Balance Sheets
                           December 31, 1999 and 1998

<TABLE>
<CAPTION>



               Assets                                                  1999        1998
                                                                       (In Thousands)

<S>                                                                  <C>         <C>
Cash on deposit with subsidiary bank                                 $      2    $      1
Money market fund                                                          24       1,394
Securities available for sale                                           2,205       2,426
Investment in subsidiaries, at cost, plus
  equity in undistributed net income                                   17,962      18,088
Note receivable                                                         1,000        --
Goodwill                                                                1,060       1,121
Other assets                                                            1,602          65
                                                                     --------    --------

                        Total assets                                 $ 23,855    $ 23,095
                                                                     ========    ========


              Liabilities and Shareholders' Equity

Liabilities

  Other liabilities                                                  $    780    $    232
                                                                     --------    --------
Shareholders' Equity

  Common stock                                                       $  8,895    $  8,895
  Capital surplus                                                       1,293       1,293
  Retained earnings                                                    14,852      12,496
  Accumulated other comprehensive income (loss)                        (1,965)        179
                                                                     --------    --------
                        Total shareholders' equity                   $ 23,075    $ 22,863
                                                                     --------    --------

                        Total liabilities and shareholders' equity   $ 23,855    $ 23,095
                                                                     ========    ========
</TABLE>

                                       28
<PAGE>
                   Notes to Consolidated Financial Statements



                     INDEPENDENT COMMUNITY BANKSHARES, INC.
                            (Parent Corporation Only)

                              Statements of Income
                  Years Ended December 31, 1999, 1998 and 1997


<TABLE>
<CAPTION>

                                                      1999         1998        1997
                                                      ----         ----        ----
                                                             (In Thousands)
<S>                                                  <C>        <C>        <C>
 Income

  Dividends from subsidiary                        $   1,865    $    2,586  $     1,201
  Dividends from investments                             178           197          225
  Interest on money market                                48            33           13
  Interest from note receivable                           32            --           --
  Management fees                                         40            --           --
  (Losses) on securities available
    for sale, net                                         (5)          (29) $       (84)
                                                   ---------    ----------  -----------
          Total income                             $   2,158    $    2,787  $     1,355
                                                     -------    ----------  -----------

Expenses

  Salaries and employee benefits                     $   132    $        -  $        --
  Amortization                                            60            80           42
  Legal and professional fees                             42            32           21
  Printing and supplies                                   42            23           17
  Directors fees                                          34            --           --
  Interest expense on loan from subsidiary                17            --           --
  Other                                                   27            73            1
                                                     -------    ----------  -----------
          Total expenses                             $   354    $      208  $        81
                                                     -------    ----------  -----------

          Income before allocated tax benefits and
             undistributed income of subsidiaries    $ 1,804    $    2,579  $     1,274

Income tax expense (benefit)                             (20)          (16)         (19)
                                                     -------    ----------  -----------

          Income before equity in undistributed
            income of subsidiaries                   $ 1,824    $    2,595  $     1,293

Equity in undistributed income of subsidiaries         1,742           380        1,338
                                                     -------    ----------  -----------

          Net income                                 $ 3,566    $    2,975  $     2,631
                                                     =======    ==========  ===========
</TABLE>

                                       29
<PAGE>

                   Notes to Consolidated Financial Statements



                     INDEPENDENT COMMUNITY BANKSHARES, INC.
                            (Parent Corporation Only)

                            Statements of Cash Flows
                  Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>


                                                      1999        1998       1997
                                                      ----        ----       ----
                                                            (In Thousands)
<S>                                                   <C>        <C>        <C>
 Cash Flows from Operating Activities

  Net income                                          $ 3,566    $ 2,975    $ 2,631
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Amortization                                         60         79         42
      Undistributed earnings of subsidiaries           (1,742)      (380)    (1,338)
      Loss on sale of securities available for sale         5         29         83
      (Increase) decrease in other assets              (1,433)       (20)       (40)
      Decrease in other liabilities                        48        (37)      --
                                                      -------    -------    -------
Net cash provided by
  operating activities                                $   504    $ 2,646    $ 1,378
                                                      -------    -------    -------

Cash Flows from Investing Activities

  Purchase of securities available for sale           $  (399)   $(1,275)   $(1,335)
  Proceeds from sale of securities available
    for sale                                              201      1,218      1,908
  Increase in note receivable                          (1,000)
  Purchase of intangibles                                --         --         (175)
                                                      -------    -------    -------
Net cash provided by (used in)
  investing activities                                $(1,198)   $   (57)   $   398
                                                      -------    -------    -------

Cash Flows from Financing Activities

  Purchase of common stock                            $    --    $  (823)   $  (635)
  Net proceeds from sale of common stock                  500       --         --
  Cash dividends paid                                  (1,175)    (1,086)      (574)
                                                      -------    -------    -------
Net cash (used in)
  financing activities                                $  (675)   $(1,909)   $(1,209)
                                                      -------    -------    -------

Increase in cash and
  cash equivalents                                    $(1,369)   $   680    $   567

Cash and Cash Equivalents

  Beginning                                             1,395        715        148
                                                      -------    -------    -------

  Ending                                              $    26    $ 1,395    $   715
                                                      =======    =======    =======
</TABLE>

                                       30
<PAGE>


                                   SIGNATURES

         In accordance  with Section 13 or 15(d) of the Securities  Exchange Act
of 1934,  as  amended,  the  registrant  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                       INDEPENDENT COMMUNITY
                                          BANKSHARES, INC.



Date:  March 15, 2000                  By:      /s/ Joseph L. Boling
                                           -------------------------------------
                                           Joseph L. Boling
                                           President and Chief Executive Officer


         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>

                  Signature                                       Title                              Date

<S>                                            <C>                                              <C>
           /s/ Joseph L. Boling                       President and Chief Executive             March 15, 2000
-------------------------------------------               Officer and Director
              Joseph L. Boling                        (Principal Executive Officer)


           /s/ Alice P. Frazier                 Senior Vice President and Chief Financial       March 15, 2000
-------------------------------------------         Officer (Principal Financial and
              Alice P. Frazier                             Accounting Officer)


          /s/ Howard M. Armfield                                Director
-------------------------------------------                                                     March 15, 2000
             Howard M. Armfield


          /s/ Childs Frick Burden                               Director                        March 15, 2000
-------------------------------------------
             Childs Frick Burden


           /s/ J. Lynn Cornwell, Jr.                            Director                        March 15, 2000
-------------------------------------------
            J. Lynn Cornwell, Jr.


           /s/ William F. Curtis                                Director                        March 15, 2000
-------------------------------------------
              William F. Curtis

<PAGE>

            /s/ F.E. Deacon III                                 Director                        March 15, 2000
-------------------------------------------
               F.E. Deacon III


         /s/ Robert C. Gilkison                                 Director                        March 15, 2000
-------------------------------------------
           Robert C. Gilkison


         /s/ C. Oliver Iselin, III                              Director                        March 15, 2000
-------------------------------------------
           C. Oliver Iselin, III


           /s/ William S. Leach                                 Director                        March 15, 2000
-------------------------------------------
              William S. Leach


           /s/ Thomas W. Nalls                                  Director                        March 15, 2000
-------------------------------------------
              Thomas W. Nalls


                                                                Director                        March 15, 2000
-------------------------------------------
              John C. Palmer


                                                                Director                        March 15, 2000
-------------------------------------------
                John Sherman


            /s/ Millicent W. West                               Director                        March 15, 2000
-------------------------------------------
              Millicent W. West


           /s/ Edward T. Wright                                 Director                        March 15, 2000
-------------------------------------------
             Edward T. Wright

</TABLE>


<PAGE>

                                INDEX TO EXHIBITS

Number                              Document


3.1        Articles of Incorporation of Independent Community  Bankshares,  Inc.
          (the  "Company")(restated  in electronic format),  attached as Exhibit
          3.1 to the  Registration  Statement  on  Form  S-4,  Registration  No.
          333-24523,  filed  with the  Commission  on April 4, 1997  (the  "Form
          S-4"), incorporated herein by reference.

3.2       Bylaws  of the  Company,  attached  as  Exhibit  3.2 to the Form  S-4,
          incorporated herein by reference.

10.1      Employment Agreement, dated as of January 1, 1998, between the Company
          and Joseph L. Boling, attached as Exhibit 10.1 to the Company's Annual
          Report  on  Form  10-KSB  for  the  year  ended   December  31,  1998,
          incorporated herein by reference.

10.2      Independent  Community  Bankshares,  Inc.  1997 Stock Option Plan,  as
          amended, attached as Exhibit 4.3 to the Registration Statement on Form
          S-8, Registration No. 333-93447, filed with the Commission on December
          22, 1999, incorporated herein by reference.

10.3      Agreement  and Plan of  Reorganization  dated as of  August  9,  1999,
          between Gilkison Patterson  Investment  Advisors,  Inc. ("GPIA"),  the
          Company  and  The Tredegar Trust Company,  attached  as  Exhibit  10.1
          to the Company's  Quarterly Report on Form 10-QSB for the period ended
          September  30,  1999  (the  "Form  10-QSB"),  incorporated  herein  by
          reference.

10.4      Shareholder  Agreement  dated as of August 9, 1999,  between Robert C.
          Gilkison,  James H.  Patterson,  the  Company  and GPIA,  attached  as
          Exhibit 10.2 to the Form 10-QSB, incorporated herein by reference.

10.5      Stock Purchase Agreement dated as of August 9, 1999, between Robert C.
          Gilkison, James H. Patterson and the Company, attached as Exhibit 10.3
          to the Form 10-QSB, incorporated herein by reference.

21        Subsidiaries of the Registrant.

27        Financial Data Schedule (filed electronically only).