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, 1998

                         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)

                                 (540) 687-6377
                (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
$15,953,000.

<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 March 22, 1999 was  approximately  $24,946,808.  (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 March 22, 1999
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 1999 Annual Meeting of Shareholders - Part III




                                      -2-
<PAGE>


                                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............................................... 33

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
           ON ACCOUNTING AND FINANCIAL DISCLOSURE........................... 33

                                    PART III

ITEM  9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
           CONTROL PERSONS; COMPLIANCE WITH SECTION
           16(a) OF THE EXCHANGE ACT........................................ 33

ITEM 10. EXECUTIVE COMPENSATION............................................. 34

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
           OWNERS AND MANAGEMENT............................................ 34

ITEM 12  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................... 34

ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K............................. 34



                                      -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 the laws of the Commonwealth of
Virginia in 1993.  The Company  owns all of the stock of its  subsidiaries,  The
Middleburg Bank (the "Bank"),  an independent  commercial bank, and The Tredegar
Trust Company  ("Tredegar"),  an independent  trust  company,  both of which are
chartered under the laws of Commonwealth of Virginia.

         The Bank has three  branches.  The Bank has its main office at 111 West
Washington  Street,  Middleburg,  Virginia  20117,  and has  branch  offices  in
Purcellville  and  Leesburg,  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 local  community  that is served by the Bank is  defined as Western
Loudoun County.  Loudoun County is in Northwestern  Virginia and included in the
Washington-Baltimore Metropolitan statistical area, the fourth largest market in
the United States.  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 state capital of Virginia and is home to over 20
Fortune 500 Companies.  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 available to both individuals and
small  businesses.  The banking  services  include various types of checking and
savings deposit accounts, and the making of business, real estate,  development,
mortgage, home equity, automobile and other installment,  demand and term loans.
Also,  the Bank offers  ATM's 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,  which  is  incorporated  under  the  laws of the  Commonwealth  of
Virginia.  Middleburg  Bank  Service  Corporation  is a  partner  in  a  limited
liability company, Bankers Title Shenandoah, LLC, which sells title insurance to
its members.

         As of December  31, 1998,  ICBI had a total of 76 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.


                                      -4-
<PAGE>

Competition

         ICBI  faces  significant  competition  both  in  making  loans  and  in
attracting deposits.  Competition for loans comes from commercial banks, savings
and loan  associations  and savings  banks,  mortgage  banking  subsidiaries  of
regional commercial banks, subsidiaries of 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,  1998,  ICBI  is the  second  largest  banking
organization operating in Loudoun County, Virginia. ICBI may face an increase in
competition,  as a result of the continuing reduction in the restrictions on the
interstate operations of financial institutions. ICBI also 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 and other
financial institutions. 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 bank 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
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.

         Formerly the BHC Act prohibited  the Federal  Reserve from approving an
application  from a bank  holding  company to acquire  shares of a bank  located
outside  the state in which the  operations  of the  holding  company's  banking
subsidiaries  are  principally   conducted,   unless  such  an  acquisition  was
authorized  by



                                      -5-
<PAGE>

statute  of the state  where  the bank  whose  shares  were to be  acquired  was
located.  However, under federal legislation enacted in 1994, the restriction on
interstate acquisitions was abolished,  effective September 1995. A bank holding
company from any state now may acquire banks and bank holding  companies located
in any other state,  subject to certain  conditions,  including  nationwide  and
state imposed concentration  limits.  Effective June 1, 1997, banks were able to
branch  across state lines by  acquisition,  merger or de novo (unless state law
would permit such  interstate  branching at an earlier date),  provided  certain
conditions are met,  including that applicable  state law must expressly  permit
such interstate branching.

         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, 1998, 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 3%  for  banks  and  their
respective  holding  companies that meet certain specified  criteria,  including
that  they  have  the  highest   regulatory   examination  rating  and  are  not
contemplating  significant  growth  or  expansion.  All



                                      -6-
<PAGE>

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  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.  ICBI does not expect the final rule to have a
material impact on its capital  requirements;  however,  the federal  regulatory
agencies may, as an integral part of their examination process,  require ICBI to
provide  additional  capital  based on such  agency's  judgments of  information
available at the time of examination.

         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.


                                      -7-
<PAGE>

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.  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.


                                      -8-
<PAGE>

         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.

         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  stand-alone  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.

         Tredegar  has  leased its main  office in  Richmond,  Virginia.  Rental
expense for this location totaled $44,000 in the fiscal year ending December 31,
1998.


                                      -9-
<PAGE>

         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 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." Prior to October 1997, the Common Stock
was neither  listed on any stock  exchange nor quoted on the Nasdaq Stock Market
and traded  infrequently.  During that time,  the Common Stock had  periodically
been sold in a limited number of privately negotiated  transactions.  The prices
set forth  below do not  necessarily  reflect the price that would be paid in an
active and liquid market.

                           Market Price and Dividends
<TABLE>
<CAPTION>
                                                                  Sales Price ($) (1)              Dividends ($) (1)
                                                                  -------------------              -----------------
                                                               High                  Low
                                                               ----                  ---
<S>                                                            <C>                  <C>                   <C>
1997:
     1st quarter...................................            14.00                14.00                 .09
     2nd quarter...................................            14.50                14.00                 .11
     3rd quarter...................................            16.00                15.50                 .12
     4th quarter...................................            22.00                16.75                 .12

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
</TABLE>
__________________
(1)      All prices and dividends are adjusted for a two-for-one  stock split as
         of November 24, 1997.

         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,



                                      -10-
<PAGE>

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.

         As of March 3, 1999, 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
thereto.

Overview

         ICBI is headquartered in Middleburg,  Virginia and has two wholly owned
subsidiaries,   The  Middleburg  Bank  (TMB)  and  The  Tredegar  Trust  Company
(Tredegar).  The  Middleburg  Bank is a community bank serving  Western  Loudoun
County,  Virginia  with three  branches.  The Tredegar  Trust Company 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.

         ICBI's  performance  for 1998 marked another year of growth in earnings
and assets.  Results were favorably affected by the growing momentum in revenues
from the newer  branch  offices  and the  addition of the  mortgage  origination
department in April 1998. By December 31, 1998 total assets were $205.4  million
an increase of 11.1% over the $184.9  million at December 31, 1997. In September
1998 ICBI  repurchased  and  retired  33,600  shares at $24.50 per  share.  This
reduced capital by $823 thousand and marginally  improved  returns on equity and
earnings per share.  ICBI  remains  well  capitalized  with  risk-adjusted  core
capital and total capital ratios well above regulatory  minimums.  Asset quality
measures also remained strong throughout the year.



                                      -11-
<PAGE>

             Average Balances, Income and Expenses, Yields and Rates
<TABLE>
<CAPTION>
                                                                             Years Ended December 31,
                                             ---------------------------------------------------------------------------------------
                                                         1998                          1997                        1996
                                             ---------------------------  ----------------------------- --------- --------- --------
                                              Average   Income/   Yield/    Average   Income/   Yield/   Average   Income/   Yield/
                                              Balance   Expense    Rate     Balance   Expense    Rate    Balance   Expense    Rate
                                             --------- --------- --------  --------- --------- -------- --------- --------- --------
                                                                              (Dollars in thousands)                             
<S>                                          <C>        <C>         <C>    <C>       <C>          <C>   <C>       <C>          <C>  
Assets :
Securities:
   Taxable                                   $  31,657  $  1,804    5.70%  $  41,242 $   2,469    5.99% $  34,550 $  2,023     5.86%
   Tax-exempt (1) (2)                           28,931     2,204    7.62%     19,721     1,574    7.98%    15,238    1,200     7.87%
                                             ---------  --------           --------- ---------          --------- --------
       Total Securities                         60,588     4,008    6.62%     60,963     4,043    6.63%    49,788    3,223     6.47%
Loans
   Taxable                                     112,281    10,181    9.07%     96,179     8,956    9.31%    87,358    8,137     9.31%
   Tax-exempt                                      416        36    8.74%        376        24    6.38%         -        -
                                             ---------  --------           --------- ---------          --------- --------
       Total Loans                             112,697    10,217    9.07%     96,555     8,980    9.30%    87,358    8,137     9.31%
Federal Funds Sold                               3,842       211    5.49%      2,928       160    5.46%     2,431      130     5.35%
Money Market investments                         1,817        90    4.95%        365        13    3.56%       125        5     4.00%
Interest Bearing Deposits in
      other financial institutions                 134         7    5.22%         84         8    9.52%        15        1     6.67%
                                             ---------  --------           --------- ---------          --------- --------
       Total earning assets                    179,078    14,533    8.12%    160,895    13,204    8.21%   139,717   11,496     8.23%

Less: allowances for credit
   Losses                                       (1,044)                         (952)                        (894)
Total nonearning assets                         15,084                        12,730                       10,340
                                             ---------                     ---------                    ---------

Total assets                                 $ 193,118                     $ 172,673                    $ 149,163
                                             =========                     =========                    =========


Liabilities (1):
Interest-bearing deposits:
    Checking                                 $  23,853  $    306    1.28%  $  19,886 $     360    1.81% $  18,348 $    390     2.13%
    Regular savings                             17,075       602    3.53%     15,631       577    3.69%    14,562      561     3.85%
    Money market savings                        34,195     1,002    2.93%     30,071       883    2.94%    28,735      869     3.02%
    Time deposits:
       $100,000 and over                        18,151       949    5.23%     16,480       936    5.68%    12,013      738     6.14%
       Under $100,000                           38,557     2,044    5.30%     40,100     2,130    5.31%    34,760    1,898     5.46%
                                             ---------  --------           --------- ---------          --------- --------

       Total interest-bearing
       Deposits                                131,831     4,903    3.72%    122,168     4,886    4.00%   108,418    4,456     4.11%

Federal Home Loan Bank
    Advances                                     1,319        70    5.31%      2,999       172    5.74%     3,188      187     5.87%
Securities sold under agreements
    to repurchase                                2,833       125    4.41%      2,662       119    4.47%         8        -         -
Long-term debt                                   3,740       206    5.51%          -         -       -          -        -         -
Federal Funds Purchased                            146         9    6.16%        272        15    5.51%        73        4     5.48%
                                             ---------  --------           --------- ---------          --------- --------
       Total interest-bearing
          Liabilities                          139,869     5,313    3.80%    128,101     5,192    4.05%   111,687    4,647     4.16%
Non-interest bearing liabilities
    Demand Deposits                             29,782                        24,025                       19,211
    Other liabilities                              997                         1,112                          923

Total liabilities                              170,648                       153,238                      131,821
Shareholders' equity                            22,470                        19,435                       17,342
  
Total liabilities and shareholders'
   Equity                                    $ 193,118                     $ 172,673                    $ 149,163
                                             =========                     =========                    =========

Net interest income                                     $  9,220                     $   8,012                    $  6,849
                                                        ========                     =========                    ========

Interest rate spread                                                4.32%                         4.16%                        4.07%
Interest expense as a percent of
    average earning assets                                          2.97%                         3.23%                        3.33%
Net interest margin                                                 5.15%                         4.98%                        4.90%
</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.


                                      -12-
<PAGE>


Results of Operations

         Net income for 1998 was $3.0 million,  an increase of 13.0% over 1997's
net income of $2.6  million and a 29.6%  increase in 1997 over 1996's net income
of $2.0  million.  For 1998  earnings per diluted  share were $1.63  compared to
$1.51 per  diluted  share for 1997 and $1.18  per  diluted  share for 1996.  The
September 1998 stock repurchase increased earnings per diluted share by $.01 for
1998.

         Return on average  assets (ROA) measures how  effectively  ICBI employs
its assets to produce net income.  ICBI's ROA increased  slightly during 1998 to
1.54%  compared  to 1.52% and 1.35% for 1997 and 1996,  respectively.  Return on
average equity (ROE) is another measure of earnings  performance,  indicates the
amount of net income  earned in relation to the total equity  capital  invested.
ICBI's ROE was 13.24% for 1998,  a decrease  compared  to 13.54% for 1997 and an
increase compared to 11.83% for 1996.

         Net interest margin  increased during 1998 to 5.15% on a tax-equivalent
basis. Net interest margin for 1997 and 1996 was 4.98% and 4.90%,  respectively.
Net interest  margin and net interest  income are influenced by  fluctuations in
market  rates and changes in both volume and mix of average  earning  assets and
the liabilities that fund those assets. Loan growth was particularly strong with
an  increase  of 21.0%.  The average  yield on earning  assets  declined 9 basis
points  to 8.12%  for  1998  compared  to 8.21%  and  8.23%  for 1997 and  1996,
respectively.  The average cost of funds  continued to decrease in 1998 to 3.80%
compared to 4.05% in 1997 and 4.16% in 1996.

         ICBI's  efficiency  ratio, a measure of its performance  based upon the
relationship  between non-interest expense and income excluding securities gains
and losses, compares favorably to other Virginia institutions. ICBI's efficiency
ratio for 1998,  1997 and 1996 was 58.49%,  53.70% and 59.50%,  respectively.  A
lower  percentage  of  the  efficiency  ratio  represents   greater  control  of
non-interest  related  costs.  A  fluctuation  in the  efficiency  ratio  can be
attributed  to relative  changes in both  non-interest  income and net  interest
income.

         Loans,  net of unearned  income,  were $124.9  million at December  31,
1998,  a 21.0%  growth over the 1997 balance of $104.2  million.  Loans,  net of
unearned income increased 10.15% in 1997 to $104.2 million from $94.6 million at
December 31, 1996. ICBI's investment  portfolio  declined during 1998 as it used
funds from matured investments to fund loan growth. At December 31, 1998, ICBI's
securities portfolio  represented 28.13% of earning assets as compared to 34.46%
at December 31, 1997. Total securities were $57.8 million in 1998, $63.7 million
in 1997 and $52.4 million in 1996.

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

Income Statement Analysis

Net Interest Income

         Net interest  income  represents  the principal  source of earnings for
ICBI.  Net interest  income equals the amount by which  interest  generated from
earning assets exceeds the expense associated with funding those assets. Changes
in  the  volume  and  mix  of  interest  earning  assets  and  interest  bearing



                                      -13-
<PAGE>

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 $9.2 million in
1998, up 15.08% over the $8.0 million  reported in 1997. Net interest  income in
1997 increased 16.98% over the $6.8 million reported for 1996. When net interest
income is  presented  on a fully  tax-equivalent  basis,  interest  income  from
tax-exempt  earning  assets is  increased  by the  amount of  equivalent  to the
federal  income  taxes which would have been paid if this income were taxable at
the statutory federal tax rate of 34%.

         The increase in net interest  income in 1998 resulted  primarily from a
11.30%  increase  volume  of  average  earning  assets  from  1997 to  1998  and
secondarily  by the  reduction  of funding  costs in a declining  interest  rate
environment.  The 16.72%  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 thousand. The yield on the investment securities portfolio
decreased 1 basis point to 6.62% in 1998 from 6.63% in 1997, on a tax-equivalent
basis and the average securities  portfolio decreased $375 thousand,  decreasing
tax  equivalent  interest  income $35  thousand  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 thousand in additional interest income.

         Average interest  bearing  deposits  increased 7.91% during 1998, while
the average  rate paid on these  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 thousand.  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 fundings sources on average  increased  35.48%,  increasing the expense
associated with those sources by $104 thousand.

         In 1997, the increase in fully  tax-equivalent  interest income was the
result of both the growth in the average  balances in the  investment  portfolio
and  the  loan  portfolio  as well  as the  increase  in  average  yield  on the
investment  portfolio.  The 22.45%  increase in average  securities from 1996 to
1997 provided $757 thousand in additional tax equivalent  interest  income while
the 16 basis  point  increase  in yield  provided  another  $63  thousand in tax
equivalent interest income. The 10.53% increase in average loan outstandings for
1997 increased tax equivalent  interest income in 1997 by $843 thousand compared
to 1996.  During  1997,  the  average  balances  in  interest  bearing  deposits
increased  by 12.68%  which  would  have  caused  ICBI to pay $546  thousand  in
additional  interest  expense  had the  average  rate paid on those  deposit not
decreased by 11 basis points saving ICBI $116 thousand in interest  expense.  In
1997,  ICBI  introduced  the  securities  sold under a agreement  to  repurchase
product for its larger  business  customers which increased the average of other
interest bearing liabilities by $2.7 million causing $119 thousand in additional
interest  expense.  Tax equivalent net interest income increased $1.2 million in
1997 compared to 1996. A stable  interest rate  environment  during 1997 allowed
for the growth in average earning assets to provide  additional  interest income
which exceeded the cost of additional interest bearing liabilities.



                                      -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 averages outstandings.

                            Volume and Rate Analysis
                             (Tax equivalent basis)
<TABLE>
<CAPTION>
                                                                              Years Ended December 31,
                                               -------------------------------------------------------------------------------------
                                                    1998  vs  1997                                  1997  vs  1996
                                               Increase (Decrease) Due                         Increase (Decrease) Due
                                                    to Changes in:                                  to Changes in:
                                               ------------------------------------------      -------------------------------------
                                                 Volume           Rate          Total          Volume           Rate          Total 
                                                 ------           ----          -----          ------           ----          -----
<S>                                             <C>             <C>           <C>            <C>             <C>           <C>      
Earning Assets:                                                                              
Securities:                                                                                
    Taxable                                     $   (550)       $  (115)      $   (665)      $     400       $     46      $     446
    Tax-exempt                                        697           (67)            630            357             17            374
Loans:                                                                                                                          
    Taxable                                         1,448          (223)          1,225            819              -            819
    Tax-exempt                                          3              9             12             24              -             24
Federal funds sold                                     49              2             51             28              2             30
Interest on money market investments                                                                                            
                                                       79            (2)             77              8              -              8
Interest bearing deposits in other                                                                                              
    financial institutions                            (4)              3            (1)              6              1              7
                                                ---------       --------      ---------      ---------       --------      ---------
     Total earning assets                       $   1,722       $  (393)      $   1,329      $   1,642       $     66      $   1,708
                                                                                                                              
Interest-Bearing Liabilities:                                                                                                 
Interest checking                               $     115       $  (169)           (54)      $      38       $   (68)           (30)
Regular savings deposits                               47           (22)             25             37           (21)             16
Money market deposits                                 122            (3)            119             33           (19)             14
Time deposits                                                                                                                 
    $100,000 and over                                  17            (4)             13          (103)             31           (72)
    Under $100,000                                   (58)           (28)           (86)            541           (39)            502
                                                ---------       --------      ---------      ---------       --------      ---------
    Total interest bearing deposits             $    243        $  (226)      $      17      $     546       $  (116)      $     430
    Federal Home Loan Bank                                                                 
        Advances                                     (90)           (12)          (102)           (11)            (4)           (15)
    Securities sold under agree-                                                           
      ment to repurchase                                8            (2)              6            119              -            119
    Long-term debt                                    206              -            206              -              -              -
    Federal Funds Purchased                           (8)              2            (6)             11              -             11
                                                ---------       --------      ---------      ---------       --------      ---------
      Total interest bearing                                                               
         Liabilities                            $     359       $  (238)      $     121      $     665       $  (120)      $     545
                                                                                           
Change in net interest income                   $   1,363       $  (155)      $   1,208      $     977       $    186      $   1,163
                                                =========       ========      =========      =========       ========      =========
</TABLE>



                                      -15-
<PAGE>

Non-interest Income

         Non-interest  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.  One
initiative  towards the goal of increasing  non-interest  income was achieved by
TMB which  opened its  mortgage  department  in April 1998.  Total  non-interest
income  increased  by $1.0  million or 88.77% in 1998  compared  to 1997,  which
follows  a $407  thousand  increase  in 1997  over  1996.  The  increase  is due
primarily to the increase in trust fees, fees on loans held for sale and service
charges on deposit accounts.  In 1998, trust fees increased to $855 thousand, an
increase of $517 thousand over 1997. The increase  resulted from the acquisition
of Tredegar in August 1997.  In its first nine months of operation  the mortgage
banking department  generated $241 thousand of fees accounting for 23.63% of the
increase  in  non-interest  income.  Service  charges,  commissions  and fees on
deposit  accounts were $916 thousand for 1998, an increase of $135 thousand over
1997,  due  primarily to growth in  transaction  based deposit  accounts.  Other
operating income increased $55 thousand in 1998 to $175 thousand,  primarily due
to the increase in sales of  alternative  investment  products.  Net  securities
losses  were $18  thousand  in 1998  compared  to $91  thousand  in 1997.  These
securities  were sold as a part of a plan to reinvest the  proceeds  into higher
yielding  investments.  In 1997  non-interest  income  increased  54.85% or $407
thousand to $1.1 million from $742 thousand.  Trust fees increased $310 thousand
from the 1996 balance accounting for 76.17% of the increase.

                               Noninterest Income
<TABLE>
<CAPTION>
                                                              Years Ended December 31,
                                              ---------------------------------------------------------
                                                    1998                1997               1996
                                              -----------------   -----------------  ------------------
<S>                                                    <C>                  <C>                 <C>    
Service charges, commissions and fees                  $    916             $   781             $   677
Trust fee income                                            855                 339                  29
Fees on loans held for sale                                 241                  -                   - 
                                                                                 
Other operating income                                      175                120                   16
                                              -----------------   -----------------  ------------------
     Noninterest income                               $   2,187            $  1,240             $   722

Profits (losses) on securities available
      for sale, net                                         (18)                (93)                 22
                                                           
Securities gains (losses), net                                -                   2                  (2)
                                              =================   =================  ==================
      Total noninterest income                        $   2,169            $  1,149             $   742
                                              =================   =================  ==================
</TABLE>

Non-Interest Expense

         Improving  operating  efficiency  is  as  important  to  management  as
enhancing  non-interest  income.  Total non-interest expense 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 staffing within the bank branches.  Salaries and employee  benefits
were $3.8  million  for 1998,  an  increase  of $887  thousand.  An  increase in
Tredegar's  salaries  and  benefit  expense  for a full  calendar  year  of $453
thousand  accounted  for 51.07% of the  increase.  The new  mortgage  department
within TMB accounted for another $254 thousand of the overall increase from 1997
to 1998. Net occupancy and equipment  expense  increased $179 thousand or 30.19%
to $772  thousand in 1998 compared to $593  thousand in 1997.  During 1998,  TMB
upgraded  its  computer  network  and at the same time,  adopted a shorter  time
period in which to depreciate  those assets,  causing $95 thousand in additional
depreciation


                                      -16-
<PAGE>

expense.  The  remaining  increase in net  occupancy  and  equipment  expense is
related to branch expansion and the Tredegar  acquisition.  Advertising  expense
increased  60.27%  in  1998  to  $234  thousand.  TMB  implemented  a new  image
advertising campaign in Loudoun County to raise awareness throughout the County,
anticipating  future branch  expansion.  Computer  operations  expense increased
78.99%  during 1998 to $247  thousand  compared to $138  thousand in 1997.  This
increase  is  related  to the  remediation  process  for the Year 2000 issue and
upgrading of the computer  network at TMB.  Other  operating  expenses were $1.7
million in 1998,  an  increase  of 35.77%  compared  to $1.2  million  for 1997.
Tredegar  accounted for $187  thousand or 42.50% of the $440  thousand  increase
from 1997 to 1998. Non-interest expense increased 13.42% to $5.0 million in 1997
compared to $4.4 million in 1996. The increase in 1997 was related  primarily to
a $331  thousand  increase  in  salaries  and  benefit  as the  result of hiring
additional support staff for TMB's branching efforts, as well as the acquisition
of Tredegar.

                               Noninterest Expense
<TABLE>
<CAPTION>
                                                            Years Ended  December 31,
                                                ----------------------------------------------
                                                    1998            1997             1996
                                                -------------   --------------   -------------
<S>                                                  <C>              <C>             <C>     
Salaries and employee benefits                       $  3,751         $  2,864        $  2,533
Net occupancy and equipment expense                       772              593             562
Advertising                                               234              146             164
Computer operations                                       247              138              90
Other operating expenses                                1,670            1,230           1,034
                                                =============   ==============   =============
                                                     $  6,674         $  4,971        $  4,383
                                                =============   ==============   =============
</TABLE>

Income Taxes

         Reported  income tax expense was $857 thousand for 1998, an decrease of
$5 thousand  compared to $862  thousand in 1997 and an increase of $129 thousand
compared to $728 thousand for 1996. While pretax income increased 9.67% in 1998,
the decrease in income taxes is the result of an increased emphasis on investing
in tax exempt securities. The effective tax rate for 1998 was 22.36% compared to
24.68%  in 1997  and  26.39%  in  1996.  Note 12 of the  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, 1998.


Market and Interest Rate Risk

         Market risk is the risk of loss in a financial  instrument arising from
adverse changes in market rates/prices such as interest rates,  foreign currency
exchange rates,  commodity prices, and equity prices. ICBI's primary market risk
exposure is interest rate 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 the asset/liability  management policies to the Asset/Liability
Committee  (ALCO)  of  TMB.  In  this  capacity  ALCO  develops  guidelines  and
strategies that govern ICBI's  asset/liability  management  related  activities,
based upon estimated market risk  sensitivity,  policy limits and overall market
interest rate levels and trends.



                                      -17-
<PAGE>

         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 utilizes
the results of 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
1998 and 1997 as compared to the 10% Board approved policy limit.

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

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


                                                     1997
             Rate Change                    Estimated NII Sensitivity
             -----------                    -------------------------

                                    High              Low               Average
                                    ----              ---               -------
              +200 bp               1.32%             .22%                .80%
              - 200 bp             (2.06%)           (.65%)               .27%


         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 decrease of $23 thousand in 1998
and for 1997 an increase of $60  thousand.  If interest  rates had decreased 200
basis points during fiscal years 1998 and 1997,  then the effect to net interest
income of the banking subsidiary could have been an increase of $44 thousand and
$20 thousand, 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 including,  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.

Loan Portfolio

         ICBI's loan portfolio is its largest and most  profitable  component of
average earning assets, totalling 62.93% of average earning assets in 1998. ICBI
continues to emphasize loan portfolio growth as a means of increasing  earnings.
Loans,  net of unearned  income,  were $126.0  million at December 31, 1998,  up
20.89% from the $104.2 million at December 31, 1997. The increase in total loans
in 1998 is largely  related to the  maturation  of TMB's  bank  branches  in its
newest markets and the new mortgage  banking  department.  Loans  increased $9.6
million from 1996 to 1997, $13.7 million from 1995 to 1996 and $1.2 million from
1994 to 1995,  increases of 10.18%,  16.91%,  1.51%,  respectively.  The loan to
deposit  ratio has  maintained  its  upward  trend in 1998,  ending  the year at
72.96%.  This  ratio  compares  to 66.58% at  December  31,  1997 and  68.16% at
December 31, 1996.

         At December 31,  1998,  residential  real estate (1 to 4 family)  loans
constituted  44.1% of the total loan portfolio with an increase of $10.4 million
or 22.91% over 1997.  This  increase is the result of the TMB's niche in funding
jumbo real estate  loans  within its  market.  Non- farm,  non-residential  real
estate  loans  provided  22.73% of total loans at December 31, 1998 with a 9.94%
increase  over  1997.  ICBI has  continued  to  broaden  its  focus on the small
business  financing market with additional  commercial lending staff and several
new  products.  Construction  real  estate  loans  comprised  4.31% of the total
portfolio  at that  same  date.  Loans  held for  sale,  home  equity  lines and
agricultural  real estate  loans made up 3.70%,  2.87% and 0.84% of total loans,
respectively, at December 31, 1998.

         ICBI's  commercial,  financial and agricultural loan portfolio consists
mostly of secured and unsecured loans extended to small businesses.  At December
31, 1998,  these loans  comprised  15.0% of the loan  portfolio.  This portfolio
increased  24.94% in 1998 to $18.9  million.  The  consumer  portion of the loan
portfolio consists of mostly unsecured installment credit and accounts for 6.42%
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 encompasses Fauquier and Loudoun Counties, Virginia.

         ICBI's unfunded loan commitments  totaled $17.1 million at December 31,
1998,  and $12.4 million at December 31, 1997. The increase in the amount of the
unfunded commitments is attributed to an increase in customer demand.

         At December 31,  1998,  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 the ICBI's  market,  loan  collateral  is  predominantly  real  estate
related.


                                      -19-
<PAGE>

                                 Loan Portfolio
<TABLE>
<CAPTION>
                                                                          December 31,
                                                     ----------------------------------------------------
                                                        1998        1997      1996      1995       1994
                                                     ----------------------------------------------------
                                                                                   (In thousands)
<S>                                                   <C>        <C>        <C>       <C>        <C>     
Commercial, financial and agricultural                $ 18,880   $  15,111  $ 11,648  $ 10,215   $  9,064
Real estate construction                                 5,436       3,798     4,182     1,791      2,432
Real estate mortgage:
  Residential (1-4 family)                              55,595      45,231    41,246    34,490     38,029
  Loans held for resale                                  4,672           -         -         -          -
  Home equity lines                                      3,617       3,165     2,614     2,188      1,512
  Multifamily                                                -           -         -         -          3
  Non-farm, non-residential (1)                         28,643      26,054    24,774    21,697     18,271
  Agricultural                                           1,057       2,140     2,105     1,549      1,040
Consumer installment                                     8,095       8,738     8,061     9,170      9,837
                                                     ---------   ---------  --------  --------   --------
    Total loans                                        125,995     104,237    94,630    81,100     80,188
Less unearned income                                         -          10        35       186        481
                                                     ---------   ---------  --------  --------   --------

Loans-net of unearned income                         $ 125,995   $ 104,227  $ 94,595  $ 80,914   $ 79,707
                                                     =========   =========  ========  ========   ========
</TABLE>


         The  following  table  reflects the maturity  distribution  of selected
loans:

           Remaining Maturities of Selected Loans

                                    December 31, 1998
                           ----------------------------------
                              Commercial,          Real
                            Financial and         Estate
                             Agricultural      Construction
                           ----------------- ----------------
                                (Dollars in thousands)

Within 1 year                     $   8,671        $   3,586
                           ----------------- ----------------

Variable Rate:
  1 to 5 years                          608               76
  After 5 years                         800                -
                           ----------------- ----------------

  Total                           $   1,408         $     76
                           ----------------- ----------------

Fixed Rate:
  1 to 5 years                        7,294            1,774
  After 5 years                       1,507                -
                           ----------------- ----------------

  Total                           $   8,801        $   1,774
                           ----------------- ----------------

Total Maturities                  $  18,880        $   5,436
                           ================= ================



                                      -20-
<PAGE>

Asset Quality

         Overall  asset  quality  for the year was  sound.  Total  nonperforming
assets,  which  consist of  nonaccrual  and  restructured  loans and  foreclosed
property,  were $609 thousand at December 31, 1998, an increase of $366 thousand
from the December 31, 1997  balance.  Total  nonperforming  assets as a ratio to
total loans was .48% at December 31, 1998. The increase in nonperforming  assets
for 1998  results  from a slight  increase  in ICBI's  nonaccrual  loans and the
foreclosure on one real estate loan previously in nonaccrual status during 1997.
However,  net charge-offs to average loans decreased 5 basis points from .09% in
1997 to .04% in 1998.

                              Nonperforming Assets
<TABLE>
<CAPTION>
                                                           December 31,
                                 ------------------------------------------------------------------
                                     1998         1997          1996          1995         1994
                                 ------------ ------------ -------------- ------------ ------------
                                                           (In thousands)
<S>                                  <C>          <C>           <C>          <C>          <C>     
Nonaccrual loans                     $   409      $   243       $     76     $  1,654     $  1,700
Restructured loans                         -            -              -            -            - 
Foreclosed property                      200            -              -            -          917
                                 ------------ ------------ -------------- ------------ ------------

  Total nonperforming assets         $   609      $   243       $     76     $  1,654     $  2,617
                                 ============ ============ ============== ============ ============


Allowance for loan losses
  to period end loans                  0.84%        0.93%          0.93%        1.07%        1.18%

Allowance for loan losses
  to nonperforming assets               175%         401%          1163%          52%          36%

Nonperforming assets to
  Period end loans                     0.48%        0.23%          0.08%        2.04%        3.28%

Net charge offs to
  Average loans                        0.04%        0.09%          0.05%        0.16%       -0.11%

</TABLE>

         Loans are placed on nonaccrual  status when collection of principal and
interest is doubtful,  generally  when loans become 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 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 writedown 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 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
writedowns of the property value are charged directly to operations.


                                      -21-
<PAGE>

         During 1998,  approximately  $4 thousand in additional  interest income
would have been recorded if the Company's  nonaccrual loans had been current and
in accordance with their original terms. During 1997, approximately $15 thousand
of  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, 1998,  potential  problem loans totaled $409  thousand.
These  loans are subject to regular  management  attention  and their  status is
reviewed on a regular basis.  Several of the potential  problem loans identified
at December 31, 1998 are  unsecured  consumer  loans.  However,  real estate and
other collateral secure most of the balance of problem loans.

         The allowance for loan losses is an estimate of the amount that will be
adequate  to provide for  potential  losses in ICBI's  loan  portfolio.  General
economic trends as well as any conditions  affecting individual borrowers 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  loans  are  subject  to  independent  review  by  its  external
auditors.  ICBI's Loan  Committee and Board of Directors  take an active role in
the monthly review of any problem  credits and their affect 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  experienced  considerable  loan growth
during 1998,  1997 and 1996,  the credit  quality of the  portfolio has improved
over the years  prior to 1996,  as  evidenced  by a low  level of  nonperforming
assets and the low level of net charges-offs during those years.



                                      -22-
<PAGE>

                            Allowance for Loan Losses
<TABLE>
<CAPTION>
                                                                     

                                                                       December 31,
                                             ----------------------------------------------------------------
                                                 1998         1997         1996         1995         1994
                                             ------------ ------------ ------------ ------------ ------------
                                                                      (In thousands)
<S>                                              <C>          <C>          <C>          <C>          <C>    
Balance, beginning of period                     $   974      $   884      $   866      $   940      $   859
  Loans charged off:
    Commercial, financial, and agricultural            8           42            6           13           38
    Real estate construction                           -            -            -            -            -
    Real estate mortgage                               -            -           79          115           36
    Consumer installment                              78           86           40           83          142
                                             ------------ ------------ ------------ ------------ ------------
      Total loans charged off                    $    86      $   128      $   125      $   211      $   216
                                             ------------ ------------ ------------ ------------ ------------
  Recoveries:
    Commercial, financial, and agricultural      $     1      $    12      $     5      $    43      $   210
    Real estate construction                           -            -            -            -            -
    Real estate mortgage                               6            7           26            4            -
    Consumer installment                              33           21           47           35           87
                                             ------------ ------------ ------------ ------------ ------------
      Total recoveries                           $    40      $    40      $    78      $    82      $   297
                                             ------------ ------------ ------------ ------------ ------------
Net charge offs (recoveries)                          46           88           47          129         (81)
Provision for loan losses                            135          178           65           55            -
                                             ------------ ------------ ------------ ------------ ------------
Balance, end of period                          $  1,063      $   974      $   884      $   866      $   940
                                             ============ ============ ============ ============ ============

Ratio of allowance for loan losses
   to loans outstanding at end of period           0.84%        0.93%        0.93%        1.07%        1.18%

Ratio of net charge offs (recoveries)to
   average loans outstanding during period         0.04%        0.09%        0.05%        0.16%       -0.11%
</TABLE>

         The allowance for loan losses was $1.1 million at December 31, 1998, an
increase  of $89  thousand  from the $974  thousand at December  31,  1997.  The
allowance  was $884  thousand at December  31,  1996.  In 1998,  ICBI's net loan
charge offs had decreased $42 thousand from the previous  year's net charge offs
of $88  thousand.  The decrease was  primarily  experienced  in the  commercial,
financial, and agricultural loan category. Net loan charge offs to average loans
were  0.04%  and 0.09% for 1998 and 1997,  respectively.  The  provision  to the
allowance  for loan  losses was $135  thousand  for 1998.  A  provision  of $178
thousand was made in 1997.

         The ratio of allowance for loan losses to nonperforming  assets totaled
175% at December 31, 1998,  401% at December 31, 1997, and 1163% at December 31,
1996.  Management  evaluates  nonperforming  loans relative to their  collateral
value and makes  appropriate  reductions  in the  carrying  value of those loans
based on that  review.  Management  believes,  based on its review,  that ICBI's
allowance for loan losses is adequate.



                                      -23-
<PAGE>

         The following  table shows the balance and  percentage of the Company'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
                     and 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>  
December 31,
   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%
   1994                 363        11.37%              17         3.05%             342        73.84%             218        11.74%
</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 Portfolio and Other Earning Assets

         The carrying  value of the  securities  portfolio  was $57.8 million at
December 31, 1998, a decrease of $5.9 million,  or 9.0% from the carrying  value
of  $63.7  million  at  December  31,  1997.  The  decrease  results  from  both
accelerated  paydowns  experienced on the mortgage backed securities held in the
portfolio and ICBI's intentional use of those funds from paydowns and maturities
to help fund the loan growth during 1998. The majority of investments  purchased
during the year were in the form of  municipal  bonds.  ICBI holds bonds  issued
from the State of Virginia and its political subdivisions with an aggregate book
value of $3.3  million and an  aggregate  market  value of $3.4  million.  These
aggregate  holdings  exceed 10% of ICBI's  stockholder's  equity at December 31,
1998.  At December 31,  1997,  ICBI held bonds issued from the State of Virginia
and its  political  subdivisions,  which  had an  aggregate  book  value of $3.5
million and an aggregate market value of $3.5 million.  These aggregate holdings
exceeded 10% of ICBI's stockholder's equity at December 31, 1997.

         The securities portfolio consists of two components, securities held to
maturity and securities available for sale. Securities are classified as held to
maturity when  management had the intent and ICBI has the ability at the time of
purchase to hold the  securities  to maturity.  Securities  held to maturity are
carried  at  cost  adjusted  for  amortization  of  premiums  and  accretion  of
discounts.  Securities to be held for indefinite  periods of time are classified
as  available  for sale  and  accounted  for at fair  market  value.  Securities
available for sale include securities that may be sold in response to changes in
market interest rates,  changes in the security's  prepayment risk,  increase in
loan demand, general liquidity needs and other similar factors.


                                      -24-
<PAGE>

         Financial Accounting Standards Board Pronouncement No. 115, "Accounting
for Certain  Investments in Debt and Equity  Securities,"  effective  January 1,
1994,  requires  ICBI to show the  effect  of  market  changes  in the  value of
securities  designated  as  available  for sale (AFS).  The market  value of AFS
securities at December 31, 1998, was $44.9 million.  The unrealized  gain on the
AFS securities totaled $180 thousand at December 31,1998.  At December 31, 1997,
the unrealized loss on the AFS securities was $199 thousand. The unrealized gain
or  loss  is  reflected,  net of  income  taxes,  as a  separate  line  item  in
shareholder's equity. All other securities are classified as held to maturity or
investment  securities.  As of  December  31,  1998,  77.77%  of the  securities
portfolio  was  classified as AFS.  ICBI's  approach in recent years has been to
classify  new  purchases  as AFS to  increase  the  potential  liquidity  of the
securities  portfolio.  ICBI does not have any securities  classified as trading
and it has no plans to establish such classification at the present time.

         During 1997 and 1998,  ICBI has  increased  its holdings of  tax-exempt
securities by $12.6 million and $4.4 million,  respectively.  The lower interest
rate environment has made tax-exempt  securities a more attractive investment in
spite of the unfavorable  laws relating to investments in tax-exempt  assets and
corporate  minimum  tax.  Future  investments  in  tax-exempt   securities  will
generally  depend upon  comparisons to taxable yields and the liquidity needs of
ICBI.

             Investment Portfolio and Securities Available for Sale

         The carrying value of investment securities at the dates indicated was:
<TABLE>
<CAPTION>
                                                                  December 31,
                                                     -----------------------------------------
                                                             (Dollars in thousands)
                                                         1998          1997          1996
                                                     ------------- ------------- -------------
<S>                                                       <C>          <C>           <C>     
              U.S. Government securities                  $   502      $  2,006      $  3,012
              States and political subdivisions            12,183        13,849        13,396
              Mortgaged-backed securities                     162           571           958
                                                     ------------- ------------- -------------
                            Total                        $ 12,847     $  16,426      $ 17,366
                                                     ============= ============= =============
</TABLE>

         The  carrying  value of  securities  available  for  sale at the  dates
indicated was:
<TABLE>
<CAPTION>
                                                                  December 31,
                                                     -----------------------------------------
                                                             (Dollars in thousands)
                                                         1998          1997          1996
                                                     ------------- ------------- -------------


<S>                                                      <C>           <C>           <C>     
              U.S. Government securities                 $  2,678      $  2,464      $  4,950
              States and political subdivisions            18,189        12,136             -
              Mortgaged-backed securities                  20,878        29,579        26,521
              Other securities                              3,196         3,091         3,565
                                                     ------------- ------------- -------------

                            Total                        $ 44,941     $  47,270      $ 35,036
                                                     ============= ============= =============
</TABLE>


                                      -25-
<PAGE>

         The  following   table   indicates  the  increased   favorable   return
experienced  by ICBI with the  lengthening  of the  maturity  of the  portfolio.
Securities with maturities greater than 5 years total $32.7 million or 57.29% of
the  portfolio.  The  securities  portfolio  is  managed  first  for  investment
performance and secondly for proper matching with interest rate risk guidelines.

                 Maturity Distribution and Yields of Securities

                                December 31, 1998
                            Taxable-Equivalent Basis
<TABLE>
<CAPTION>
                                      Due in 1 year     Due after 1 year   Due after 5 years   Due after 10 years
                                         or less        through 5 years    through 10 years       and Equities            Total
                                    -----------------  -----------------   -----------------   -------------------   ---------------
                                                                                                             
                                     Amount    Yield   Amount    Yield    Amount    Yield      Amount    Yield       Amount    Yield
                                     ------    -----   ------    -----    ------    -----      ------    -----       ------    -----
                                                                          (Dollars in thousands)         
                                                                                                    
<S>                                 <C>        <C>    <C>        <C>     <C>        <C>       <C>        <C>        <C>        <C>  
Securities held for investment:
  U.S. Government securities        $   502    5.34%  $     -    0.00%   $     -        -     $     -        -      $   502    5.34%
  Mortgage backed securities             78    2.43%       13    4.56%        10    7.25%          60    7.25%          161    4.70%
  Other taxable securities                -        -        -       -          -        -           -        -            -       -
                                    -------           -------            -------              -------               -------    

  Total taxable                         580    4.96%       13    4.57%        10    7.25%          60    7.25%          663    5.18%

Tax-exempt securities (1)             1,150    7.20%    5,456    6.84%     4,922    7.58%         655    7.77%       12,183    7.22%
                                    -------           -------            -------              -------               -------    

  Total                             $ 1,730    6.45%  $ 5,469    6.83%   $ 4,932    7.58%     $   715    7.73%      $12,846    7.12%
                                    -------           -------            -------              -------               -------    

Securities available for sale:
  U.S. Government securities        $   469    7.66%  $ 1,709    6.28%   $     -       -      $   500    6.52%      $ 2,678    6.57%
  Mortgage backed securities          4,057    5.55%   10,522    5.99%     2,642    6.23%       3,656    6.19%       20,877    5.97%
  Corporate preferred                     -        -        -       -          -       -        2,426    8.20%        2,426    8.20%
                                    -------           -------            -------              -------               -------    

  Total taxable                     $ 4,526    5.75%  $12,231    6.19%   $ 2,642    6.01%     $ 6,582    7.29%      $25,981    6.24%
                                                                     
Tax-exempt securities (1)                 -        -      398    7.62%     1,746    6.91%      16,045    7.41%       18,189    7.37%
                                    -------           -------            -------              -------               -------    

  Total                             $ 4,526    5.75%  $12,629    6.24%   $ 4,388    6.37%     $22,627    7.38%      $44,170    6.71%
                                    -------           -------            -------              -------               -------    

Total securities                    $ 6,256    5.94%  $18,098    6.42%   $ 9,320    7.01%     $23,342    7.15%      $57,016    6.62%
                                    =======           =======            =======              =======               =======
</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 $635,300

         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 security 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.

         ICBI's  average  investments  in federal  funds  sold and money  market
investments during 1998 were $3.8 million and $1.8 million,  an increase of $914
thousand and $1.5 million,  respectively.  Average  investments in federal funds
sold and money market  investments  in 1997 were $2.9 million and $365



                                      -26-
<PAGE>

thousand.  Fluctuations  in  federal  funds  sold and money  market  investments
reflect  management's  goal to maximize  asset yields while  maintaining  proper
asset/liability structure.

Deposits

         Deposits   provide   funding  for  ICBI's   investments  in  loans  and
securities.  ICBI's  strategy has been to continue to increase its core deposits
at the same  time  controlling  its cost of  funds.  The  maturation  of the two
branches  added in 1994 and 1996 have  provided a majority  of the growth in the
years 1996 through 1998. By  monitoring  interest  rates within the local market
and then  pricing the  deposits  within the range of the local  market,  TMB has
developed a core base of deposits in each branch.

         Average total deposits  increased 10.5% during 1998, 14.5% during 1997,
and 10.1% during 1996. During 1998, the average balance of non-interest  bearing
checking accounts grew 23.96%.  The average balance in interest bearing checking
and money market  accounts grew 19.95 and 13.71% during 1998. The growth in 1997
and 1998 can be attributed to branch  expansion,  increased  market awareness of
TMB as well as continued market turmoil as the result of bank mergers.

         The following table is a summary of average  deposits and average rates
paid.

                         Average Deposits and Rates Paid
<TABLE>
<CAPTION>
                                                                                December 31,
                                        --------------------------------------------------------------------------------------------
                                                    1998                            1997                            1996            
                                        ----------------------------    ----------------------------    ----------------------------
                                           Amount           Rate           Amount           Rate           Amount           Rate    
                                        ------------    ------------    ------------    ------------    ------------    ------------
                                                                            (Dollars in thousands)
<S>                                       <C>               <C>            <C>              <C>            <C>              <C>  
Noninterest-bearing
  Deposits                                $  29,782                -       $  24,025              -        $  19,211              -
Interest-bearing accounts:
  Interest checking                          23,853            1.28%          19,886           1.81%          18,348           2.13%
  Regular savings                            17,075            3.53%          15,631           3.69%          14,562           3.85%
  Money market accounts                      34,195            2.93%          30,071           2.94%          28,735           3.02%
  Time deposits:
    $ 100,000 and over                       18,151            5.23%          16,480           5.68%          12,013           6.14%
    Under $ 100,000                          38,557            5.30%          40,100           5.31%          34,760           5.46%
                                        -----------                     ------------                    ------------

Total interest-bearing deposits             131,831            3.72%         122,168           4.00%         108,418           4.11%
                                        -----------                     ------------                    ------------

    Total                                 $ 161,613                        $ 146,193                       $ 127,629
                                        ===========                     ============                    ============
</TABLE>

         ICBI will  continue  funding  assets  primarily  with deposits and will
focus on core deposit  growth as the primary source for liquidity and stability.
ICBI  offers  individuals  and small to medium  sized  businesses  a variety  of
deposit accounts,  including demand deposits,  interest checking,  money market,
savings and time deposit accounts.

         ICBI neither  purchases  brokered  deposits nor solicits  deposits from
sources outside its primary market area.



                                      -27-
<PAGE>

         The following is a summary of the maturity distribution of certificates
of deposit equal to or greater than $100 thousand as December 31, 1998:

           Maturities of Certificates of Deposit of $100,000 and Over
<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, 1998         $  2,847       $  3,517      $  5,278      $  6,515      $ 18,157         10.5%
</TABLE>

Capital Resources

         The adequacy of ICBI's  capital is reviewed by management on an ongoing
basis with reference to the amount,  composition and quality of ICBI's asset and
liability  levels,  as well for  consistency  with regulatory  requirements  and
industry standards. Management seeks to maintain an adequate level of capital to
support anticipated asset growth and absorb potential losses.

         The  Federal  Reserve,   along  with  the  Federal  Deposit   Insurance
Corporation,   has  established   minimum  regulatory  capital  standards.   The
regulatory capital guidelines categorize assets and off-balance sheet items into
categories  which weight  balance sheet assets  according to risk, and 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 17.90% at December 31, 1998
compared to 19.70% at December 31, 1997.  The ratio of  risk-weighted  assets to
Tier  1  capital  was  17.06%  and  18.80%  at  December   31,  1998  and  1997,
respectively. Both ratios exceed the minimum capital requirements adopted by the
federal bank regulatory agencies.

         The  primary  source  of  funds  for  dividends  paid  by  ICBI  to its
shareholders  is the  dividends  received  from its  subsidiary  banks.  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>

                               Analysis of Capital
<TABLE>
<CAPTION>
                                                               December 31,
                                               -------------------------------------------

                                                   1998            1997            1996
                                               -----------     -----------     -----------

<S>                                             <C>             <C>               <C>     
Tier 1 Capital:                                     
  Common stock                                  $    8,895      $    9,063        $  4,299
  Capital surplus                                    1,293           1,948           1,411
  Retained earnings                                 12,496          10,874          12,817
  Goodwill                                         (1,121)         (1,181)               -
                                               -----------     -----------     -----------
  Total Tier 1 capital                          $   21,563      $   20,704       $  18,527

Tier 2 Capital:
  Allowance for loan losses                          1,063             974             884
                                               -----------     -----------     -----------
  Total tier 2 capital                               1,063             974             884
                                               -----------     -----------     -----------

  Total risk-based capital                      $   22,626      $   21,678       $  19,411
                                               ===========     ===========     ===========

Risk weighted assets                            $  126,398      $  110,041       $  95,921

CAPITAL RATIOS:
  Tier 1 risk-based capital ratio                    17.1%           18.8%           19.3%
  Total risk-based capital ratio                     17.9%           19.7%           20.2%
  Tier 1 capital to average total assets             11.2%           11.8%           11.7%
</TABLE>

         ICBI's equity to assets ratio  decreased to 11.13% at December 31, 1998
compared to 11.73% at December 31, 1997. The equity to assets ratio for December
31, 1996 was 11.05%.  The increase in 1997 was the result of the issuance of new
capital in the acquisition of Tredegar.  The growth in assets as well as a stock
repurchase of 33,600 shares reduced this ratio in 1998.

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 loan 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  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. TMB maintains federal funds lines with large regional
and money-center banking institutions.  These available lines total in excess of
$8 million,  of which none was  outstanding at December 31, 1998.  Federal funds
purchased  during 1998  averaged  $146  thousand  compared to an average of $272
thousand  during 1997. At December 31, 1998 and 1997,  ICBI had $2.5 million and
$3.0 million,  respectively,  of outstanding  borrowings  pursuant to securities
sold under  agreement to repurchase  transactions,  with  maturities of one day.
ICBI has a credit  line in the amount of $27  million at the  Federal  Home Loan
Bank



                                      -29-
<PAGE>

of Atlanta. This line may be utilized for short and/or long-term borrowing.  The
Company  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 1998,  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, 1998,  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 55.82% of total
deposits and liabilities.

Year 2000

         In  recent  months,  there has been  increasing  public  awareness  and
attention  paid to the year 2000  problem,  which  stems from the  inability  of
certain  computerized  devices  (hardware,  software and  equipment)  to process
year-dates  properly  after 1999.  Leap years and other dates may be included as
related  to the year 2000  problem.  Affected  devices  may fail or  malfunction
unless  repaired or replaced.  Although the actual  magnitude  and effect of the
issue  cannot  be  reasonably  determined  in  advance,  ICBI has  given it high
priority by appointing a Year 2000 team.

         In  1997  the  Year  2000  team  began  its  analysis  of the  possible
implications  to ICBI of the year 2000 problem and the  development of a plan to
prevent the problem from adversely  affecting its  operations.  ICBI's year 2000
plans  are  subject  to  guidelines   promulgated   by  the  Federal   Financial
Institutions Examination Council ("FFIEC"). The Federal Reserve Bank of Richmond
periodically  measures  the  status  of the  Company's  plans and  progress,  as
outlined in the FFIEC guidelines.

         The plan as adopted  and refined by ICBI to handle year 2000 issues can
be divided into two principal areas:

         (1)      Resolution  of the internal  aspects of the year 2000 problem.
                  The focus of this area  includes  the effects of the year 2000
                  problem on ICBI's technology,  including computer hardware and
                  software systems. ICBI's internal technology plan includes (a)
                  locating,  listing and  prioritizing  the specific  technology
                  that is potentially subject to the year 2000 problem (referred
                  to  as  the  "inventory"  phase),  (b)  assessing  the  actual
                  exposure  of such  technology  to the  year  2000  problem  by
                  inquiry,  research,  testing and other means (the "assessment"
                  phase), (c) selecting the method necessary to resolve the year
                  2000 problems  that were  identified,  including  replacement,
                  upgrade,  repair or abandonment and  implementing the selected
                  resolution method (the  "remediation"  phase), and (d) testing
                  the  remediated  or  converted  technology  to  determine  the
                  efficacy of the resolutions (the "testing" phase).

         (2)      Determination  and control of the external aspects of the year
                  2000  problem.  The focus of this area  includes (a) assessing
                  the potential for credit and liquidity problems within ICBI as
                  a result of the investments in, loans to and deposits from our
                  significant customers as well as the risk of possible business
                  interruption  by relying on vendors of goods and  services due
                  to year 2000 problems  affecting their technology or business,
                  and (b) developing  contingency  plans to address  failures by
                  external  parties to  remediate  fully any year 2000  problems
                  that are material to ICBI.  Assessment of external  parties is
                  accomplished by written and verbal inquiry, and by research to
                  the extent that reliable information is available.


                                      -30-
<PAGE>

         ICBI had substantially completed both the internal and external testing
by December 31, 1998 and plans to further test its computer  systems during 1999
to confirm compliance with year 2000 data processing  standards.  ICBI considers
its  current  state of  readiness  in  addressing  the year 2000  problem  to be
adequate and expects to meet the timetable.  The total cost of  remediation  and
testing is  estimated  to be between $250  thousand  and $350  thousand,  with a
majority of the costs being incurred  during 1998.  This estimate  includes some
costs,  such as the purchase of computer hardware and software that qualifies as
a depreciable or amortizable  assets for accounting  purposes,  with the related
depreciation or amortization  recognized over the estimated lives of the related
assets. However, the majority of the costs will be expensed as incurred. Through
December  31,  1998,  the Company had incurred  approximately  $175  thousand in
noninterest expense associated with the year 2000 problem.

         ICBI has concluded that customer  awareness about year 2000 and banking
is the key factor in  minimizing  customer  concerns  about  ICBI's  progress in
planning  for the year 2000.  During  1999,  ICBI plans to inform its  customers
about its progress  through question and answer  brochures,  seminars and direct
mailings.

         The Year 2000 team of has developed a preliminary  contingency plan for
areas  deemed  "mission  critical"  for  continual  operation.  The  preliminary
contingency plan considers the likelihood of problem  occurrences  based on test
results.  ICBI's  preliminary and final  contingency plan addresses  operational
issues,  including  communication  links with other entities and the utility and
availability  of alternative  sources among key vendor  relationships.  The Year
2000 team anticipates  presenting its preliminary  contingency plan to the Board
of Directors  early in 1999 with final  contingency  plan tested and complete by
mid 1999. The Year 2000 team will monitor the status of each item as well .

         At this time,  ICBI  believes that the most likely worst case year 2000
scenario  would not have a  material  effect on ICBI's  results  of  operations,
liquidity and financial  condition for the year ending  December 31, 2000.  ICBI
does not foresee a material loss of revenue due to the year 2000 problem. ICBI's
contingency  plan,  however,  is based on  assessments  of the  likelihood  of a
problematic  occurrence;  ICBI believes that no entity can address the virtually
unlimited possible circumstances  relating to year 2000 issues,  including risks
outside of the ICBI's primary  marketplace of Loudoun  County,  Virginia.  While
considered unlikely, the failure of ICBI to successfully implement its year 2000
plan,  including  modifications  and  conversions,  or to adequately  assess the
likelihood  of various  events  relating  to the year 2000  issue,  could have a
material adverse effect on ICBI's results of operations and financial condition.

         Additionally,  there can be no assurances  that the federal  regulators
will not issue new regulatory  requirements that require additional work by ICBI
and, if issued,  that new regulatory  requirements will not increase the cost or
delay the completion of ICBI's year 2000 plan.

         The cost of the  project  and the date on which ICBI plans to  complete
the year 2000 modifications are based on management's best estimates,  which are
based  on  numerous   assumptions  of  future  events  including  the  continued
availability  of certain  resources,  third party  modification  plans and other
factors.  There can be no guarantee  that these  estimates  will be achieved and
actual results could differ  materially  from our plans.  Specific  factors that
might  cause such  material  differences  include,  but are not  limited to, the
availability  of  personnel  trained in this area,  the  ability of third  party
vendors to correct  their  software  and  hardware,  the ability of  significant
customers to remedy their year 2000 issues and similar uncertainties.


                                      -31-
<PAGE>

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

         In October 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise,
an  amendment  of FASB  Statement  No. 65." FASB  Statement  No. 65, as amended,
requires that, after  securitization of a mortgage loan held for sale, an entity
engaged in mortgage banking  activities  classify the resulting  mortgage-backed
security as a trading  security.  This Statement further amends Statement No. 65
to require that after the  securitization  of mortgage  loans held for sale,  an
entity   engaged  in  mortgage   banking   activities   classify  the  resulting
mortgage-backed  securities or other retained interests based on its ability and
intent to sell or hold those investments. This Statement conforms the subsequent
accounting for securities retained after the securitization of mortgage loans by
a mortgage  banking  enterprise  with the  subsequent  accounting for securities
retained after securitization of other types of assets by a non-mortgage banking
enterprise. This Statement is effective beginning in 1999.

         In February  1998,  the  Financial  Accounting  Standards  Board issued
Statement of Financial  Accounting  Standards  No. 132,  "Employers  Disclosures
about  Pensions and Other Post  Retirement  Benefits."  This  statement  revises
employers'  disclosures about pension and other postretirement benefit plans. It
does not change the  measurement or  recognition of those plans.  This statement
standardizes the disclosure  requirements for pensions and other  postretirement
benefits to the extent practicable,  requires additional  information on changes
in the benefit  obligations  and fair values of plan assets that will facilitate
financial  analysis,   and  eliminates  certain   disclosures.   Restatement  of
disclosures for earlier periods is required. This statement is effective for the
Company's financial statements for the year ended December 31, 1998.

         In June 1998, the Financial Accounting Standards Board issued Statement
of  Financial   Accounting   Standards  No.  133,   "Accounting  for  Derivative
Instruments and Hedging Activities." This statement requires companies to record
derivatives  on the balance  sheet as assets and  liabilities,  measured at fair
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.  This  statement  is not  expected  to have a
material  impact  on the  Company's  financial  statements.  This  statement  is
effective for



                                      -32-
<PAGE>

fiscal years beginning after June 15, 1999,  with earlier  adoption  encouraged.
The Company will adopt this accounting standard as required by January 1, 2000.

         In March 1998, the American  Institute of Certified Public  Accountants
(the "AICPA")  issued  Statement of Position  ("SOP") 98-1,  "Accounting for the
Costs of Computer  Software  Developed or Obtained  for Internal  Use." This SOP
provides guidance on accounting for the costs of computer software  developed or
obtained for internal use. This SOP requires  that entities  capitalize  certain
internal use  software  costs once  certain  criteria  are met.  This SOP is not
expected to have a material impact on the Company's financial statements.

         In April 1998,  the AICPA issued SOP 98-5,  "Reporting  on the Costs of
Start-Up  Activities,"  which  requires  the costs of  start-up  activities  and
organization costs to be expensed as incurred.  This SOP is not expected to have
a material impact on the Company's financial statements.


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, 1998 and 1997
         Consolidated  Statements  of Income for the Years  Ended  December  31,
              1998, 1997 and 1996 
         Consolidated Statements of Changes in Shareholders'
             Equity for the Years Ended December 31, 1998, 1997 and 1996
         Consolidated Statements of Cash Flows for the Years  Ended December 31,
             1998, 1997 and 1996
         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"
on pages 3  through  5 of the  Company's  Proxy  Statement  for the 1999  Annual
Meeting of Shareholders is incorporated herein by reference.




                                      -33-
<PAGE>

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"  on  pages 6  through  9 of the
Company's  Proxy  Statement  for the 1999  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" on pages 4 and 5 of the Company's Proxy
Statement for the 1999 Annual Meeting of Shareholders is incorporated  herein by
reference.


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"  on page 9 of the
Company's  Proxy  Statement  for the 1999  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   Independent   Community
                    Bankshares,  Inc. (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 Independent Community  Bankshares,  Inc., 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
                    Independent Community Bankshares, Inc. and Joseph L. Boling.

             10.2   Independent  Community  Bankshares,  Inc.  1997 Stock Option
                    Plan.

             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.




                                      -34-
<PAGE>








                     INDEPENDENT COMMUNITY BANKSHARES, INC.

                              Middleburg, Virginia

                                FINANCIAL REPORT

                                DECEMBER 31, 1998


<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 and 5
  Consolidated statements of cash flows                                 6 and 7
  Notes to consolidated financial statements                               8-29



<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, 1998
and  1997,  and the  related  consolidated  statements  of  income,  changes  in
shareholders'  equity and cash flows for the years ended December 31, 1998, 1997
and 1996.  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, 1998 and 1997,
and the  results of their  operations  and their cash flows for the years  ended
December  31,  1998,  1997 and  1996,  in  conformity  with  generally  accepted
accounting principles.


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

Winchester, Virginia
January 22, 1999



<PAGE>

                     INDEPENDENT COMMUNITY BANKSHARES, INC.

                           Consolidated Balance Sheets
                           December 31, 1998 and 1997

<TABLE>
<CAPTION>
             Assets                                                         1998                1997         
                                                                       --------------     --------------
<S>                                                                     <C>                  <C>         
Cash and due from banks                                                 $  8,161,096         $  6,128,036
Interest-bearing deposits in banks                                           108,765              455,919
Temporary investments: 
  Federal funds sold                                                       1,421,000            1,300,000
  Other money market investments                                           3,122,109              725,385
Securities (fair value:  1998, $58,158,915;
  1997, $63,957,868)                                                      57,786,149           63,695,792
Loans, net                                                               120,259,410          103,253,407
Loans held for sale                                                        4,672,327                   --
Bank premises and equipment, net                                           5,852,827            5,527,103
Accrued interest receivable and other assets                               3,819,424            3,774,064
Other real estate                                                            200,000                   --
                                                                        ------------         ------------

         Total assets                                                   $205,403,107         $184,859,706
                                                                        ============         ============

   Liabilities and Shareholders' Equity

Liabilities
  Deposits:
    Noninterest-bearing demand deposits                                 $ 36,882,791         $ 26,601,922
    Savings and interest-bearing demand deposits                          80,426,910           72,702,285
    Time deposits                                                         55,370,288           57,249,943
                                                                        ------------         ------------
         Total deposits                                                 $172,679,989         $156,554,150

  Securities sold under agreements to repurchase                           2,530,057            3,048,481
  Federal Home Loan Bank advances                                          1,000,000            2,800,000
  Long-term debt                                                           5,000,000                   --
  Accrued interest and other liabilities                                   1,329,987              770,947
  Commitments and contingent liabilities                                          --                   --
                                                                        ------------         ------------
         Total liabilities                                              $182,540,033         $163,173,578
                                                                        ------------         ------------

Shareholders' Equity
  Common stock, par value $5 per share, authorized
    10,000,000 shares; issued 1998, 1,778,994 shares;
    issued 1997, 1,812,594 shares                                       $  8,894,970         $  9,062,970
  Capital surplus                                                          1,293,046            1,948,246
  Retained earnings                                                       12,495,550           10,873,617
  Accumulated other comprehensive income (loss)                              179,508             (198,705)
                                                                        ------------         ------------
         Total shareholders' equity                                     $ 22,863,074         $ 21,686,128
                                                                        ------------         ------------

         Total liabilities and shareholders' equity                     $205,403,107         $184,859,706
                                                                        ============         ============
</TABLE>


See Notes to Consolidated Financial Statements.



                                       2
<PAGE>


                     INDEPENDENT COMMUNITY BANKSHARES, INC.

                        Consolidated Statements of Income
                  Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
                                                                                    1998               1997               1996   
                                                                                ------------       ------------       ------------
<S>                                                                             <C>                <C>                <C>         
Interest Income
  Interest and fees on loans                                                    $ 10,204,989       $  8,972,418       $  8,137,263
  Interest on investment securities:
    Taxable interest income                                                           69,645            121,314            194,506
    Interest income exempt from federal income taxes                                 617,865            686,140            588,431
  Interest and dividends on securities available for sale:
    Taxable interest income                                                        1,615,719          2,292,662          1,786,669
    Interest income exempt from federal income taxes                                 717,419            151,183                 --
    Dividends                                                                        251,577            280,645            267,791
  Interest on deposits in banks                                                        6,975              7,970                804
  Interest on federal funds sold                                                     211,021            159,458            134,765
  Interest on other money market investments                                          89,838             13,110              1,000
                                                                                ------------       ------------       ------------
         Total interest income                                                  $ 13,785,048       $ 12,684,900       $ 11,111,229
                                                                                ------------       ------------       ------------

Interest Expense
  Interest on deposits                                                          $  4,903,216       $  4,886,480       $  4,455,684
  Interest on securities sold under
    agreement to repurchase                                                          134,164            134,457              4,580
  Interest on Federal Home Loan Bank advances                                         69,607            171,509            186,513
  Interest on long-term debt                                                         206,432                 --                 --
                                                                                ------------       ------------       ------------
         Total interest expense                                                 $  5,313,420       $  5,192,446       $  4,646,777
                                                                                ------------       ------------       ------------

         Net interest income                                                    $  8,471,628       $  7,492,454       $  6,464,452

  Provision for loan losses                                                          135,000            177,602             65,000
                                                                                ------------       ------------       ------------

         Net interest income after provision
            for loan losses                                                     $  8,336,628       $  7,314,852       $  6,399,452
                                                                                ------------       ------------       ------------

Other Income
  Service charges, commissions and fees                                         $    916,012       $    780,998       $    676,655
  Trust fee income                                                                   855,483            338,613             29,316
  Fees on loans held for sale                                                        240,541                 --                 --
  Investment securities gain (loss)                                                       --              2,055             (1,875)
  Profits (losses) on securities available for sale, net                             (18,288)           (92,602)            22,496
  Other                                                                              175,055            120,137             15,551
                                                                                ------------       ------------       ------------
         Total other income                                                     $  2,168,803       $  1,149,201       $    742,143
                                                                                ------------       ------------       ------------

Other Expenses
  Salaries and employees' benefits                                              $  3,751,366       $  2,863,878       $  2,532,777
  Net occupancy and equipment expense                                                771,696            593,246            561,760
  Advertising                                                                        234,146            146,009            164,189
  Computer operations                                                                246,726            138,138             90,062
  Other operating expenses                                                         1,670,042          1,229,255          1,033,782
                                                                                ------------       ------------       ------------
         Total other expenses                                                   $  6,673,976       $  4,970,526       $  4,382,570
                                                                                ------------       ------------       ------------

         Income before income taxes                                             $  3,831,455       $  3,493,527       $  2,759,025

  Income tax expense                                                                 856,801            862,167            728,079
                                                                                ------------       ------------       ------------

         Net income                                                             $  2,974,654       $  2,631,360       $  2,030,946
                                                                                ============       ============       ============
Earnings per Share, basic                                                       $       1.65       $       1.51       $       1.18
                                                                                ============       ============       ============
Earnings per Share, diluted                                                     $       1.63       $       1.51       $       1.18
                                                                                ============       ============       ============
</TABLE>

See Notes to Consolidated Financial Statements.



                                       3
<PAGE>


                     INDEPENDENT COMMUNITY BANKSHARES, INC.

           Consolidated Statements of Changes in Shareholders' Equity
                  Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                   Common             Capital            Retained
                                                                                   Stock              Surplus            Earnings
                                                                                -----------         -----------         -----------
<S>                                                                             <C>                 <C>                 <C>        
Balance, December 31, 1995                                                      $ 4,299,190         $ 1,411,174         $11,508,100
    Comprehensive income:
        Net income - 1996                                                                --                  --           2,030,946
        Other comprehensive income net of tax:
           Unrealized holding (losses) arising during the
             period (net of tax, $122,908)                                               --                  --                  --
           Reclassification adjustment (net of tax, $7,649)                              --                  --                  --
        Other comprehensive income (net of tax, $130,557)                                --                  --                  --
        Total comprehensive income                                                       --                  --                  --
    Cash dividends - 1996 ($0.42 per share)                                              --                  --            (722,264)
                                                                                -----------         -----------         -----------
Balance, December 31, 1996                                                      $ 4,299,190         $ 1,411,174         $12,816,782
    Comprehensive income:
        Net income - 1997                                                                --                  --           2,631,360
        Other comprehensive income net of tax:
           Unrealized holding gains arising during the
              period (net of tax, $133,660)                                              --                  --                  --
           Reclassification adjustment (net of tax, $31,484)                             --                  --                  --
        Other comprehensive income (net of tax, $165,144)                                --                  --                  --
        Total comprehensive income                                                       --                  --                  --
    Cash dividends - 1997 ($0.32 per share)                                              --                  --            (574,525)
    Purchase of common stock (22,691 shares)                                       (113,455)           (521,893)                 --
    Issuance of common stock - stock split effected in the
      form of a 100% stock dividend (906,297 shares)                              4,531,485          (4,531,485)                 --
    Issuance of common stock in acquisition of subsidiary
      (69,150 shares)                                                               345,750           1,590,450                  --
    Discretionary transfer from retained earnings                                        --           4,000,000          (4,000,000)
                                                                                -----------         -----------         -----------
Balance, December 31, 1997                                                      $ 9,062,970         $ 1,948,246         $10,873,617
    Comprehensive income:
        Net income - 1998                                                                --                  --           2,974,654
        Other comprehensive income net of tax:
           Unrealized holding gains arising during the
              period (net of tax, $188,619)                                              --                  --                  --
           Reclassification adjustment (net of tax, $6,218)                              --                  --                  --
        Other comprehensive income (net of tax, $194,776)                                --                  --                  --
        Total comprehensive income                                                       --                  --                  --
    Cash dividends - 1998 ($0.75 per share)                                              --                  --          (1,352,721)
    Purchase of common stock (33,600 shares)                                       (168,000)           (655,200)                 --
                                                                                -----------         -----------         -----------
Balance, December 31, 1998                                                      $ 8,894,970         $ 1,293,046         $12,495,550
                                                                                ===========         ===========         ===========
</TABLE>


See Notes to Consolidated Financial Statements.


<PAGE>

<TABLE>
<CAPTION>

                                                                             Accumulated                                  
                                                                                Other
                                                                             Comprehensive        Comprehensive        
                                                                             Income (Loss)            Income              Total    
                                                                             -------------        -------------       -------------
<S>                                                                          <C>                  <C>                 <C>          
Balance, December 31, 1995                                                   $    (265,843)                           $  16,952,621
    Comprehensive income:                                                               
        Net income - 1996                                                               --        $   2,030,946           2,030,946
        Other comprehensive income net of tax:                                                                                     
           Unrealized holding (losses) arising during the                    
             period (net of tax, $122,908)                                              --             (238,589)                 --
           Reclassification adjustment (net of tax, $7,649)                             --              (14,847)                 --
                                                                                                  -------------
        Other comprehensive income (net of tax, $130,557)                         (253,436)       $    (253,436)           (253,436)
                                                                                                  -------------
        Total comprehensive income                                                      --        $   1,777,510                  --
                                                                                                  =============
    Cash dividends - 1996 ($0.42 per share)                                             --                                 (722,264)
                                                                             -------------                            -------------
Balance, December 31, 1996                                                   $    (519,279)                           $  18,007,867
    Comprehensive income:                                                                                                          
        Net income - 1997                                                               --        $   2,631,360           2,631,360
        Other comprehensive income net of tax:                                                                                     
           Unrealized holding gains arising during the                                                                             
              period (net of tax, $133,660)                                             --              259,457                  --
           Reclassification adjustment (net of tax, $31,484                             --               61,117                  --
                                                                                                  -------------
        Other comprehensive income (net of tax, $165,144)                          320,574        $     320,574             320,574
                                                                                                  -------------
        Total comprehensive income                                                      --        $   2,951,934                  --
                                                                                                  ============= 
    Cash dividends - 1997 ($0.32 per share)                                             --                                 (574,525)
    Purchase of common stock (22,691 shares)                                            --                                 (635,348)
    Issuance of common stock - stock split effected in the                                                                         
      form of a 100% stock dividend (906,297 shares)                                    --                                       --
    Issuance of common stock in acquisition of subsidiary                                                                          
      (69,150 shares)                                                                   --                                1,936,200
    Discretionary transfer from retained earnings                                       --                                       --
                                                                             -------------                            -------------
Balance, December 31, 1997                                                   $    (198,705)                           $  21,686,128
    Comprehensive income:                                                                                                          
        Net income - 1998                                                               --        $   2,974,654           2,974,654
        Other comprehensive income net of tax:                                         
           Unrealized holding gains arising during the                                                                             
              period (net of tax, $188,619)                                             --              366,143                  --
           Reclassification adjustment (net of tax, $6,218)                             --               12,070                  --
                                                                                                  ------------- 
        Other comprehensive income (net of tax, $194,776)                          378,213        $     378,213             378,213
                                                                                                  -------------
        Total comprehensive income                                                      --        $   3,352,867                  --
                                                                                                  =============
    Cash dividends - 1998 ($0.75 per share)                                             --                               (1,352,721)
    Purchase of common stock (33,600 shares)                                            --                                 (823,200)
                                                                             -------------                            -------------
Balance, December 31, 1998                                                   $     179,508                            $  22,863,074
                                                                             =============                            =============
                                                                              
</TABLE>
                                                                              
See Notes to Consolidated Financial Statements.                               



<PAGE>


                     INDEPENDENT COMMUNITY BANKSHARES, INC.

                      Consolidated Statements of Cash Flows
                  Years Ended December 31, 1998, 1997 and 1996


<TABLE>
<CAPTION>
                                                                        1998             1997              1996   
                                                                    ------------     ------------     ------------
<S>                                                                 <C>              <C>              <C>
Cash Flows from Operating Activities
  Net income                                                        $  2,974,654     $  2,631,360     $  2,030,946
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
      Depreciation                                                       513,769          396,833          301,497
      Amortization                                                        79,548           41,617           16,487
      Provision for loan losses                                          135,000          177,602           65,000
      Net (gain) loss on investment securities                                --           (2,055)           1,875
      Net (gain) loss on securities available for sale                    18,288           92,602          (22,496)
      Net loss on sale of assets                                              --            7,343               --
      Discount accretion and premium amortization
        on securities, net                                               193,609          180,181           157,657
      Deferred income taxes (benefit)                                    (15,998)         (19,508)           68,349
      Origination of loans held for sale                             (11,947,922)              --                --
      Proceeds from sales of loans held for sale                       7,275,595               --                --
      Changes in assets and liabilities:
        (Increase) in other assets                                      (124,908)        (669,146)         (289,041)
        Increase in other liabilities                                    113,414           57,100           195,847
                                                                    ------------     ------------     -------------
              Net cash provided by (used in)
                operating activities                                $   (784,951)    $  2,893,929     $   2,526,121
                                                                    ------------     ------------     -------------

Cash Flows from Investing Activities
  Proceeds from maturity, principal paydowns
    and calls of investment securities                              $  3,495,979     $  2,750,431     $   2,455,501
  Proceeds from maturity, principal paydowns
    and calls of securities available for sale                         9,164,066        2,742,602         2,149,662
  Proceeds from sale of securities
    available for sale                                                 9,886,732       26,500,686        24,282,770
  Purchase of investment securities                                           --       (1,848,566)       (2,846,520)
  Purchase of securities available for sale                          (16,276,043)     (40,572,390)      (30,673,806)
  Proceeds from sale of equipment                                             --           36,335                --
  Purchases of bank premises and equipment                              (839,493)      (1,221,354)       (1,623,530)
  Net (increase) in loans                                            (17,341,003)      (9,720,190)      (13,727,421)
  Cash acquired in acquisition                                                --          170,858                --
                                                                    ------------     ------------     -------------
          Net cash (used in)
            investing activities                                    $(11,909,762)    $(21,161,588)    $ (19,983,344)
                                                                    ------------     ------------     -------------
</TABLE>


See Notes to Consolidated Financial Statements.


<PAGE>


                     INDEPENDENT COMMUNITY BANKSHARES, INC.

                      Consolidated Statements of Cash Flows
                                   (Continued)
                  Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                        1998             1997              1996   
                                                                    ------------     ------------     ------------
<S>                                                                 <C>              <C>              <C>          
Cash Flows from Financing Activities
  Net increase in noninterest-bearing and interest-
    bearing demand deposits and savings accounts                    $ 18,005,494     $ 11,627,657     $  9,896,598
  Net increase (decrease) in certificates of deposit                  (1,879,655)       6,136,353        7,371,472
  Increase (decrease) in securities sold under agreements
    to repurchase                                                       (518,424)       1,603,784        1,444,697
  Proceeds from long-term debt                                         5,000,000               --               --
  Decrease in short-term borrowings                                   (1,800,000)      (1,200,000)      (1,000,000)
  Purchase of common stock                                              (823,200)        (635,348)              --
  Cash dividends paid                                                 (1,085,872)        (574,525)        (722,264)
                                                                   -------------     ------------     ------------
          Net cash provided by
            financing activities                                   $  16,898,343     $ 16,957,921     $ 18,990,503
                                                                   -------------     ------------     ------------

          Increase (decrease) in cash and
            cash equivalents                                       $   4,203,630     $ (1,309,738)    $  1,533,280

Cash and Cash Equivalents
  Beginning                                                            8,609,340        9,919,078        8,385,798
                                                                   -------------     ------------     ------------

  Ending                                                           $  12,812,970     $  8,609,340     $  9,919,078
                                                                   =============     ============     ============

Supplemental Disclosures of Cash Flow Information
  Cash payments for:
    Interest paid to depositors                                    $   5,039,942     $  4,822,840     $  4,425,048
    Interest paid on short-term obligations                                9,077          131,500            4,580
    Interest paid on Federal Home Loan
      Bank advances                                                       97,493          176,242          153,894
    Interest paid on long-term debt                                      137,432               --               --
                                                                   -------------     ------------     ------------
                                                                   $   5,283,944     $  5,130,582     $  4,583,522
                                                                   =============     ============     ============

    Income taxes                                                   $     835,000     $    849,000     $    863,723
                                                                   =============     ============     ============

Supplemental Disclosure of Noncash Transactions
  Issuance of common stock - stock split effected in
    the form of 100% stock dividend                                $          --     $  4,531,485     $         --
                                                                   =============     ============     ============

  Issuance of common stock in acquisition of subsidiary            $          --     $  1,936,200     $         --
                                                                   =============     ============     ============

  Unrealized gain (loss) on securities available for sale          $     572,989     $    485,718     $   383,994)
                                                                   =============     ============     ============

  Loan balances transferred to foreclosed properties               $     200,000     $         --     $         --
                                                                   =============     ============     ============
</TABLE>


See Notes to Consolidated Financial Statements.


<PAGE>

                     INDEPENDENT COMMUNITY BANKSHARES, INC.

                   Notes to Consolidated Financial Statements



Note 1.    Nature of Banking Activities and Significant Accounting Policies

           The Middleburg Bank, the banking subsidiary of Independent  Community
           Bankshares, 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 classified in three  categories and 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 a separate component of other comprehensive
                         income,   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.



<PAGE>

                   Notes to Consolidated Financial Statements



                   c.    Trading Securities

                         Trading  securities,  which are generally  held for the
                         short term in anticipation of market gains, are carried
                         at fair value. Realized and unrealized gains and losses
                         on trading  account  assets are  included  in  interest
                         income on trading account  securities.  The Company had
                         no trading securities at December 31, 1998 and 1997.

               Loans

                   Loans  are  shown  on the  balance  sheets  net  of  unearned
                   discounts  and the  allowance  for loan  losses.  Interest is
                   computed by methods  which result in level rates of return on
                   principal.  Loans  are  charged  off when in the  opinion  of
                   management they are deemed to be  uncollectible  after taking
                   into  consideration  such  factors as the  current  financial
                   condition of the customer and the  underlying  collateral and
                   guarantee.

                   Interest is computed on the loan balance  outstanding for all
                   loans.

                   The  Company  has  adopted  FASB  No.  114,   "Accounting  by
                   Creditors for  Impairment of a Loan." This statement has been
                   amended  by  FASB  No.  118,  "Accounting  by  Creditors  for
                   Impairment of a Loan - Income  Recognition and  Disclosures."
                   Statement  114, as amended,  requires that the  impairment of
                   loans that have been separately  identified for evaluation is
                   to be measured based on the present value of expected  future
                   cash flows or, alternatively,  the observable market price of
                   the loans or the fair value of the collateral.  However,  for
                   those  loans  that are  collateral  dependent  (that  is,  if
                   repayment of those loans is expected to be provided solely by
                   the  underlying  collateral)  and for  which  management  has
                   determined foreclosure is probable, the measure of impairment
                   of  those  loans  is to be  based  on the  fair  value of the
                   collateral.  Statement 114, as amended, also requires certain
                   disclosures  about  investments  in  impaired  loans  and the
                   allowance for loan losses and interest  income  recognized on
                   loans.

                   The Company  considers  all  consumer  installment  loans and
                   residential  mortgage  loans to be homogeneous  loans.  These
                   loans are not subject to impairment under FASB 114. A loan is
                   considered impaired when it is probable that the Company will
                   be unable to  collect  all  principal  and  interest  amounts
                   according  to the  contractual  terms of the loan  agreement.
                   Factors involved in determining  impairment include,  but are
                   not  limited  to,  expected  future  cash  flows,   financial
                   condition of the borrower, and current economic conditions. A
                   performing  loan may be considered  impaired,  if the factors
                   above  indicate a need for  impairment.  A loan on nonaccrual
                   status may not be impaired if in the process of collection or
                   there  is  an   insignificant   shortfall   in  payment.   An
                   insignificant  delay of less than 30 days or a  shortfall  of
                   less than 5% of the required  principal and interest  payment
                   generally  does not indicate an impairment  situation,  if in
                   management's  judgment  the loan will be paid in full.  Loans
                   that meet the  regulatory  definitions  of  doubtful  or loss
                   generally   qualify  as   impaired   loans  under  FASB  114.
                   Charge-offs  for  impaired  loans  occur  when the  loan,  or
                   portion of the loan is determined to be uncollectible,  as is
                   the case for all loans.


<PAGE>

                   Notes to Consolidated Financial Statements


                   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.

               Allowance for Loan Losses

                   The allowance for loan losses is maintained at a level which,
                   in management's judgment, is adequate to absorb credit losses
                   inherent in the loan  portfolio.  The amount of the allowance
                   is based on management's  evaluation of the collectibility of
                   the  loan  portfolio,   credit   concentrations,   trends  in
                   historical loss  experience,  specific  impaired  loans,  and
                   economic  conditions.   Allowances  for  impaired  loans  are
                   generally  determined  based  on  collateral  values  or  the
                   present  value of  estimated  cash flows.  The  allowance  is
                   increased by a provision for loan losses, which is charged to
                   expense  and  reduced  by  charge-offs,  net  of  recoveries.
                   Changes in the  allowances  relating  to  impaired  loans are
                   charged or credited to the provision for loan losses. Because
                   of   uncertainties   inherent  in  the  estimation   process,
                   management's  estimate of credit losses  inherent in the loan
                   portfolio  and the related  allowance  may change in the near
                   term.

               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.

               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.


<PAGE>

                   Notes to Consolidated Financial Statements


               Goodwill

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

               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

                   In 1997,  the  Financial  Accounting  Standards  Board issued
                   Statement  No.  128,  "Earnings  Per  Share."  Statement  128
                   replaced  the   calculation  of  primary  and  fully  diluted
                   earnings per share with basic and diluted earnings per share.
                   Basic  earnings per share  excludes  any dilutive  effects of
                   options,   warrants  and  convertible   securities.   Diluted
                   earnings per share is very similar to the previously reported
                   fully diluted  earnings per share.  Computations are based on
                   the weighted average number of shares outstanding during each
                   year  after  giving  retroactive  effect  to the  100%  stock
                   dividend declared in 1997.

               Pension Plan

                   In  1998,   the  Company   adopted   Statement  of  Financial
                   Accounting Standards No. 132,  "Employers'  Disclosures about
                   Pensions   and   Other    Postretirement    Benefits."   This
                   pronouncement  does not change the measurement or recognition
                   of amounts recognized in the Company's  financial  statements
                   applicable  to its defined  benefit  plan.  Statement No. 132
                   revises the existing disclosure requirements by standardizing
                   the disclosure  requirements for pensions  requiring  certain
                   additional  information on changes in the benefit obligations
                   and fair  values  of plan  assets,  and  eliminating  certain
                   disclosures.

               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.


<PAGE>

                   Notes to Consolidated Financial Statements


               Advertising Costs

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

               Comprehensive Income

                   As of January 1,  1998,  the  Company  adopted  Statement  of
                   Financial  Accounting  Standards  (SFAS) No. 130,  "Reporting
                   Comprehensive  Income."  Statement 130  establishes new rules
                   for the reporting and display of comprehensive income and its
                   components;  however,  the adoption of this  Statement had no
                   impact on the Company's net income or  shareholders'  equity.
                   The  Statement  requires  that  other  comprehensive   income
                   include  unrealized gains and losses on securities  available
                   for sale, which prior to adoption were reported separately in
                   shareholders'  equity.  The  financial  statements  have been
                   reclassified to conform to the requirements of SFAS No. 130.


Note 2.    Securities

           Amortized costs and fair values of securities  being held to maturity
           as of December 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
                                                               Gross          Gross
                                             Amortized       Unrealized     Unrealized         Fair
                                               Cost            Gains         (Losses)          Value     
                                           -------------   -------------   -------------   -------------
                                                                1998     
                                           ---------------------------------------------
<S>                                        <C>             <C>             <C>             <C>
           U.S. Treasury securities                           
             and obligations of U.S.
             government corporations
             and agencies                  $     502,454   $       2,703   $          --   $     505,157

           Obligations of states and
             political subdivisions           12,182,506         371,630            (383)     12,553,753

           Mortgage-backed securities            161,513             288          (1,472)        160,329
                                           -------------   -------------   -------------   -------------
                                           $  12,846,473   $     374,621   $      (1,855)  $  13,219,239
                                           =============   =============   =============   =============

                                                                1997
                                           ---------------------------------------------
           U.S. Treasury securities
             and obligations of U.S.
             government corporations
             and agencies                  $   2,005,491   $          --   $     (20,626)  $   1,984,865

           Obligations of states and
             political subdivisions           13,849,322         282,000          (1,207)     14,130,115

           Mortgage-backed securities            571,149           1,909              --         573,058
                                           -------------   -------------   -------------   -------------
                                           $  16,425,962   $     283,909   $     (21,833)  $  16,688,038
                                           =============   =============   =============   =============
</TABLE>


<PAGE>


                   Notes to Consolidated Financial Statements



           The  amortized  cost  and  fair  value of  securities  being  held to
           maturity as of December  31, 1998 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.
<TABLE>
<CAPTION>
                                                                      Amortized             Fair
                                                                        Cost                Value   
                                                                   -------------       -------------
<S>                                                                <C>                 <C>          
                Due in one year or less                            $   1,652,054       $   1,659,705
                Due after one year through five years                  5,455,911           5,575,746
                Due after five years through 10 years                  4,922,098           5,135,290
                Due after 10 years                                       654,897             688,169
                Mortgage-backed securities                               161,513             160,329
                                                                   -------------       -------------
                                                                   $  12,846,473       $  13,219,239
                                                                   =============       =============
</TABLE>

           Amortized  costs and fair values of securities  available for sale as
           of December 31, 1998 and 1997, are summarized as follows:
<TABLE>
<CAPTION>
                                                                   Gross          Gross
                                                 Amortized       Unrealized     Unrealized         Fair
                                                   Cost            Gains         (Losses)          Value     
                                               -------------   -------------   -------------   -------------
                                                                   1998     
                                               ---------------------------------------------
<S>                                            <C>             <C>             <C>             <C>       
           U.S. Treasury securities
                 and obligations of U.S.
                 government corporations
                 and agencies                  $   2,667,960   $      9,750    $          --   $   2,677,710

           Obligations of states and
                 political subdivisions           17,897,337        370,432          (78,869)     18,188,900

           Mortgage-backed securities             20,927,905         55,078         (105,397)     20,877,586

           Corporate preferred                     2,404,854         33,438          (12,512)      2,425,780

           Other                                     769,700             --               --         769,700
                                               -------------   -------------   -------------   -------------
                                               $  44,667,756   $     468,698   $    (196,778)  $  44,939,676
                                               =============   =============   =============   =============

</TABLE>


<PAGE>


                   Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>
                                                                   Gross          Gross
                                                 Amortized       Unrealized     Unrealized         Fair
                                                   Cost            Gains         (Losses)          Value     
                                               -------------   -------------   -------------   -------------
                                                                   1997     
                                               ---------------------------------------------
<S>                                            <C>             <C>             <C>             <C>
           U.S. Treasury securities
                 and obligations of U.S.
                 government corporations
                 and agencies                  $   2,458,729   $       7,531   $      (2,930)  $   2,463,330

           Obligations of states and
                 political subdivisions           12,081,525          54,937              --      12,136,462

           Mortgage-backed securities             29,945,864          33,893        (400,919)     29,578,838

           Corporate preferred                     2,376,980          31,766         (25,346)      2,383,400

           Other                                     707,800              --              --         707,800
                                               -------------   -------------   -------------   -------------
                                               $  47,570,898   $     128,127   $    (429,195)  $   7,269,830
                                               =============   =============   =============   =============
</TABLE>

           The amortized cost and fair value of securities available for sale as
           of December  31,  1998,  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.
<TABLE>
<CAPTION>
                                                                     Amortized              Fair
                                                                       Cost                 Value   
<S>                                                               <C>                  <C>           
               Due in one year or less                            $      469,150       $      469,150
               Due after one year through five years                   2,088,161            2,102,993
               Due after five years through 10 years                   1,737,088            1,746,526
               Due after 10 years                                     16,270,898           16,547,941
               Mortgage-backed securities                             20,927,905           20,877,586
               Corporate preferred                                     2,404,854            2,425,780
               Other                                                     769,700              769,700
                                                                  --------------       --------------
                                                                  $   44,667,756       $   44,939,676
                                                                  ==============       ==============
</TABLE>

           Proceeds  from sales of  securities  available  for sale during 1998,
           1997  and  1996  were   $9,886,732,   $26,500,686  and   $24,282,770,
           respectively.  Gross gains of $101,567, $53,384 and $42,269 and gross
           losses of  $119,855,  $145,986  and  $19,773  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 $8,250,945  and $5,945,089 at December 31, 1998
           and 1997, respectively.


<PAGE>


                   Notes to Consolidated Financial Statements



Note 3.    Loans, Net

           The composition of the net loans is as follows:
<TABLE>
<CAPTION>
                                                                                 December 31, 
                                                                       -------------------------------
                                                                           1998                1997   
                                                                       ------------       ------------
                                                                               (in thousands)
<S>                                                                    <C>                <C>
           Real estate loans:
              Construction and land development                        $      5,436       $      3,798
              Secured by farmland                                             1,057              2,140
              Secured by 1-4 family residential                              59,212             48,396
              Other real estate loans                                        28,643             26,054
           Loans to farmers (except secured by real estate)                   1,489                961
           Commercial and industrial loans (except those
              secured by real estate)                                        17,391             14,062
           Loans to individuals for personal expenditures                     8,043              8,738
           All other loans                                                       52                 88
                                                                       ------------       ------------
                           Total loans                                 $    121,323       $    104,237
           Less:  Unearned income                                                --                 10
                  Allowance for loan losses                                   1,064                974
                                                                       ------------       ------------
                           Net loans                                   $    120,259       $    103,253
                                                                       ============       ============
</TABLE>


Note 4.    Allowance for Loan Losses

           Transactions in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
                                                                          1998            1997            1996    
                                                                     -------------   -------------   -------------
<S>                                                                  <C>             <C>             <C>          
               Balance, beginning                                    $     974,360   $     883,536   $     866,173
               Provision charged to operating expense                      135,000         177,602          65,000
               Recoveries                                                   40,417          40,235          77,523
               Loan losses charged to the allowance                        (86,219)       (127,013)       (125,160)
                                                                     -------------   -------------   -------------
                                                                     $   1,063,558   $     974,360   $     883,536
                                                                     =============   =============   =============
</TABLE>

           Impairment  of loans  having  recorded  investments  of  $186,362  at
           December  31,  1998,  has been  recognized  in  conformity  with FASB
           Statement No. 114. The average recorded  investment in impaired loans
           during 1998 was $46,591.  The total allowance for loan losses related
           to these loans was $66,085 on December 31, 1998.  No interest  income
           on  impaired  loans was  recognized  in 1998.  There were no impaired
           loans under FASB 114 at December 31, 1997.

           Nonaccrual  loans excluded from impaired loan  disclosure  under FASB
           114  amounted to $223,050 and $242,583 at December 31, 1998 and 1997,
           respectively.  If  interest  on these  loans had been  accrued,  such
           income would have approximated  $3,564 and $14,898 for 1998 and 1997,
           respectively.



<PAGE>


                   Notes to Consolidated Financial Statements



Note 5.    Bank Premises and Equipment, Net

           Bank premises and equipment consists of the following:
<TABLE>
<CAPTION>
                                                                              1998             1997    
                                                                          ------------     ------------
<S>                                                                       <C>              <C>         
             Land                                                         $  1,516,423     $  1,516,423
             Banking facilities                                              3,057,340        3,057,340
             Furniture, fixtures and equipment                               3,623,595        3,141,736
             Construction in progress and deposits
               on equipment                                                    471,727          119,261
                                                                          ------------     ------------
                                                                          $  8,669,085     $  7,834,760
             Less accumulated depreciation                                   2,816,258        2,307,657
                                                                          ------------     ------------
                                                                          $  5,852,827     $  5,527,103
                                                                          ============     ============
</TABLE>

           Depreciation  expense was  $513,769,  $396,833  and  $301,497 for the
           years ended December 31, 1998, 1997 and 1996, respectively.


Note 6.    Deposits

           The  aggregate  amount of jumbo  time  deposits,  each with a minimum
           denomination   of  $100,000,   was   approximately   $18,157,296  and
           $17,268,984 in 1998 and 1997, respectively.

           At December 31, 1998,  the scheduled  maturities of time deposits are
           as follows:

                   1999                               $ 35,004,445
                   2000                                 14,720,685
                   2001                                  4,016,350
                   2002                                    660,157
                   2003 and thereafter                     968,651
                                                      ------------
                                                      $ 55,370,288
                                                      ============


Note 7.    Short-Term Borrowings

           As of December 31, 1998 and 1997, the Company had borrowed $1,000,000
           and  $2,800,000,   respectively,  on  a  short-term  basis  from  its
           $27,000,000  line of  credit  with  the  Federal  Home  Loan  Bank of
           Atlanta.  The Company has pledged  real estate loans and Federal Home
           Loan Bank stock as collateral on these borrowings.



<PAGE>


                   Notes to Consolidated Financial Statements



Note 8.    Long-Term Debt

           At December 31,  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

           In 1998, the Company adopted a stock option plan,  which provides for
           granting of both incentive and  nonqualified  stock options.  300,000
           shares of the  Company's  common  stock  have been  reserved  for the
           issuance of stock options under the Plan.  Options become exercisable
           one-third  annually beginning one year after the grant and expire ten
           years after grant. 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.
           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 1998:  dividend rate of .13%;  risk-free interest rates
           of 4.50%;  expected lives of 10 years;  and expected price volatility
           of  17.37%.  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:

                                                             1998    
                                                        -------------

                 Net Income:    As Reported             $   2,974,654
                                Pro Forma                   2,887,125

                 Basic EPS:     As Reported                      1.65
                                Pro Forma                        1.60

                 Diluted EPS:   As Reported                      1.63
                                Pro Forma                        1.59


<PAGE>

                   Notes to Consolidated Financial Statements


           No options have been  exercised  to date and all options  granted are
           outstanding at December 31, 1998. The following summarizes the number
           of grants and their  respective  exercise  prices and grant date fair
           values per option, and the number outstanding and exercisable:

                                          Exercise               Fair
                      Shares              Price Per            Value Per
                      Granted               Share               Option     
                    -----------           ---------            ---------

                       54,000             $   17.00            $    6.77
                        1,000                 27.00                10.76
                       31,000                 23.50                 9.39

           Options outstanding,  exercisable options and average exercise prices
           were:

                                                                Average
                      Options              Options              Exercise
                    Outstanding          Exercisable             Price   
                    -----------          -----------           ----------
                       86,000                 19,000           $    19.46

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

                                       Options Outstanding and Exercisable 
                                  --------------------------------------------
                                                      Weighted        Weighted
                  Range of                            Remaining        Average
                  Exercise            Number         Contractual      Exercise
                   Prices          Outstanding          Life            Price   
                -------------     ------------       -----------      --------

                   $17.00               54,000         8.9 years      $  17.00
                    27.00                1,000         9.3               27.00
                    23.50               31,000        10.0               23.50
                                  ------------
                $17.00-$27.00           86,000         9.3               19.46
                                  ============




<PAGE>

                   Notes to Consolidated Financial Statements


Note 11.   Employee Benefit Plans

           The Company has a trusteed  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:
<TABLE>
<CAPTION>
                                                                                       1998                 1997   
                                                                                   ------------         ------------
<S>                                                                                <C>                  <C>
           Change in Benefit Obligation
               Benefit obligation, beginning of year                               $  1,746,565         $  1,425,983
               Service cost                                                             126,063              120,165
               Interest cost                                                            148,458              121,209
               Actuarial loss                                                           507,683              241,754
               Benefits paid                                                           (762,612)            (162,546)
                                                                                   ------------         ------------
               Benefit obligation, end of year                                     $  1,766,157         $  1,746,565
                                                                                   ============         ============

           Change in Plan Assets
               Fair value of plan assets, beginning of year                        $  1,840,995         $  1,480,340
               Actual return on plan assets                                             (17,220)             345,344
               Employer contributions                                                   324,100              177,857
               Benefits paid                                                           (762,612)            (162,546)
                                                                                   ------------         ------------
               Fair value of plan assets, ending                                   $  1,385,263         $  1,840,995
                                                                                   ============         ============

               Funded status                                                       $   (380,894)        $     94,430
               Unrecognized net actual loss                                             825,208              125,410
               Unrecognized net obligation at transition                                (39,791)             (43,771)
               Unrecognized prior service cost                                          183,378              200,049
                                                                                   ------------         ------------
               Accrued benefit cost included in other liabilities                  $    587,901         $    376,118
                                                                                   ============         ============
</TABLE>

<TABLE>
<CAPTION>
                                                                  1998                 1997                 1996    
                                                              ------------         ------------         ------------
<S>                                                           <C>                  <C>                  <C>
           Components of Net Periodic
             Benefit Cost
                  Service cost                                $    126,063         $    120,165         $    103,203
                  Interest cost                                    148,458              121,209              133,703
                  Expected return on plan assets                  (174,895)            (140,632)            (163,858)
                  Amortization of prior service cost                16,671               16,671               16,671
                  Amortization of net obligation
                    at transition                                   (3,980)              (3,980)              (3,980)
                                                              ------------        -------------         ------------
                  Net periodic benefit cost                   $    112,317        $     113,433         $     85,739
                                                              ============        =============         ============

           Weighted-Average Assumptions
             as of December 31
                  Discount rate                                       7.50%                8.50%                8.50%
                  Expected return on plan assets                      9.00%                9.50%                9.50%
                  Rate of compensation increase                       5.00%                5.00%                6.00%

</TABLE>



<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 1998 and 1997,  based on the
           present value of the  retirement  benefits,  was $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 (liabilities) consist of the following components as
           of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
                                                                        1998              1997    
                                                                    ------------      ------------
<S>                                                                 <C>               <C>
             Deferred tax assets:
                Allowance for loan losses                           $    246,589      $    216,313
                Deferred compensation                                     29,992            24,655
                Unearned loan fees                                            --             2,159
                Interest on nonaccrual loans                               1,040             4,819
                Loss on capital assets                                    38,213            28,391
                Securities available for sale                                 --           102,363
                                                                    ------------      ------------
                                                                    $    315,834      $    378,700
                                                                    ------------      ------------
             Deferred tax liabilities:
                Property and equipment                              $    296,686      $    287,409
                Prepaid pension costs                                    199,866           185,644
                Securities available for sale                             92,413                --
                                                                    ------------      ------------
                                                                    $    588,965      $    473,053
                                                                    ------------      ------------

                                                                    $   (273,131)     $    (94,353)
                                                                    ============      ============
</TABLE>

           The provision  for income taxes  charged to operations  for the years
           ended December 31, 1998, 1997 and 1996 consists of the following:
<TABLE>
<CAPTION>

                                                      1998              1997              1996    
                                                  ------------      ------------      ------------
<S>                                               <C>               <C>               <C>         
             Current tax expense                  $    872,799      $    881,675      $    659,730
             Deferred tax expense (benefit)            (15,998)          (19,508)           68,349
                                                  ------------      ------------      ------------
                                                  $    856,801      $    862,167      $    728,079
                                                  ============      ============      ============

</TABLE>



<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, 1998,  1997 and 1996, due to
           the following:
<TABLE>
<CAPTION>
                                                          1998              1997              1996    
                                                      ------------      ------------      ------------
<S>                                                   <C>               <C>               <C>         
             Computed "expected" tax expense          $  1,302,695      $  1,187,799      $    938,069
             Increase (decrease) in income taxes
               resulting from:
                     Tax-exempt interest income           (409,916)         (284,689)         (175,099)
                     Other, net                            (35,978)          (40,943)          (34,891)
                                                      ------------      ------------      ------------
                                                      $    856,801      $    862,167      $    728,079
                                                      ============      ============      ============
</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  $3,246,556  and
           $2,783,606 at December 31, 1998 and 1997, respectively.  During 1998,
           total  principal   additions  were  $2,587,147  and  total  principal
           payments were $2,124,197.


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, 1998
           and 1997, the aggregate  amounts of daily average  required  reserves
           were approximately $1,207,000 and $1,239,000, respectively.

           The Company is  conducting  a  comprehensive  review of its  computer
           systems to identify  the  systems  that could be affected by the Year
           2000  Issue,  and is  developing  a  remediation  plan to resolve the
           Issue. The Issue is whether computer systems will properly  recognize
           date-sensitive  information  when the year  changes to 2000.  Systems
           that  do not  properly  recognize  such  information  could  generate
           erroneous  data or cause a system to fail.  The  Company  is  heavily
           dependent  on  computer  processing  in the  conduct of its  business
           activities.  Failure of these systems could have a significant impact
           on the Company's operations.



<PAGE>

                   Notes to Consolidated Financial Statements



Note 15.   Earnings Per Share

           The following table shows the weighted  average number of shares used
           in  computing  earnings  per  share and the  effect  on the  weighted
           average number of shares of diluted potential common stock. Potential
           dilutive  common  stock has no effect on income  available  to common
           stockholders.  Earnings per share amounts for prior periods have been
           restated to give effect to the application of Statement 128 which was
           adopted by the Company in 1997.
<TABLE>
<CAPTION>
                                             1998                         1997                         1996        
                                   -------------------------    -------------------------    -------------------------
                                                      Per                          Per                          Per   
                                                     Share                        Share                        Share  
                                     Shares         Amount        Shares         Amount        Shares         Amount  
                                   -----------   -----------    -----------   -----------    -----------   -----------
<S>                                <C>           <C>            <C>           <C>            <C>           <C>        
           Basic EPS                 1,802,744   $      1.65      1,740,966   $      1.51      1,719,676   $      1.18
                                                 ===========                  ===========                  ===========

           Effect of dilutive
               securities:
                  Stock options         18,511                           --                           --
                                   -----------                  -----------                  -----------
                  Diluted EPS        1,821,255   $      1.63      1,740,966   $      1.51      1,719,676   $      1.18
                                   ===========   ===========    ===========   ===========    ===========   ===========
</TABLE>


Note 16.   Retained Earnings

           Transfers  of  funds  from  the  banking  subsidiary  to  the  Parent
           Corporation  in the form of loans,  advances and cash  dividends  are
           restricted  by  federal  and  state  regulatory  authorities.  As  of
           December 31, 1998, the aggregate  amount of unrestricted  funds which
           could be transferred  from the Company's  subsidiaries  to the Parent
           Corporation,  without prior regulatory approval,  totaled $2,868,092,
           12.5% 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.


<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, 1998 and 1997,
           is as follows:
<TABLE>
<CAPTION>
                                                                   1998             1997    
                                                               ------------     ------------
<S>                                                            <C>              <C>
           Financial instruments whose contract 
             amounts represent credit risk:
                  Commitments to extend credit                 $ 17,060,000     $ 12,396,000
                  Standby letters of credit                    $  1,162,184     $  1,185,514
</TABLE>

           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.

           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, 1998, varies from 0 percent to 100 percent;  the average
           amount collateralized is 16 percent.

           The Company has  approximately  $5,319,841  in deposits in  financial
           institutions  in excess of  amounts  insured by the  Federal  Deposit
           Insurance Corporation (FDIC) at December 31, 1998.


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.




<PAGE>

                   Notes to Consolidated Financial Statements



               Securities

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

               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.

               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, 1998 and 1997,  the  difference  between the
                   carrying  amounts  and fair  values of loan  commitments  and
                   standby letters of credit were immaterial.





<PAGE>


                   Notes to Consolidated Financial Statements


                   The  estimated   fair  values  of  the  Company's   financial
                   instruments are as follows:
<TABLE>
<CAPTION>
                                                                    1998                          1998          
                                                         -------------------------     -------------------------
                                                          Carrying        Fair          Carrying        Fair    
                                                           Amount         Value          Amount         Value   
                                                         -----------   -----------     -----------   -----------
                                                               (in thousands)                (in thousands)     
<S>                                                      <C>           <C>             <C>           <C>
           Financial assets:                                                           
              Cash and short-term investments            $    12,813   $    12,813     $     8,609   $     8,609
              Securities                                      57,786        58,159          63,696        63,958
              Loans                                          120,259       122,342         103,253       104,562
              Loans held for sale                              4,672         4,672              --            --
                                                         -----------   -----------     -----------   -----------
                         Total financial assets          $   195,530   $   197,986     $   175,558   $   177,129
                                                         ===========   ===========     ===========   ===========

           Financial liabilities:
              Deposits                                   $   172,680   $   173,008     $   156,554   $   156,846
              Securities sold under agreements
                 to repurchase                                 2,530         2,530           3,048         3,048
              Federal Home Loan Bank advances                  1,000         1,008           2,800         2,800
              Long-term debt                                   5,000         5,000              --            --
                                                         -----------   -----------     -----------   -----------
                         Total financial liabilities     $   181,210   $   181,546     $   162,402   $   162,694
                                                         ===========   ===========     ===========   ===========
</TABLE>

Note 19.   Capital Requirements

           The  Company is 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  financial
           statements.  Under capital  adequacy  guidelines  and the  regulatory
           framework  for  prompt  corrective  action,  the  Company  must  meet
           specific capital guidelines that involve quantitative measures of the
           Company's assets, liabilities, and certain off-balance-sheet items as
           calculated  under  regulatory  accounting  practices.  The  Company's
           capital  amounts and  classification  are also subject to qualitative
           judgments by the regulators about  components,  risk weightings,  and
           other factors.

           Quantitative  measures  established  by regulation to ensure  capital
           adequacy  require the Company 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, 1998, that the Company meets
           all capital adequacy requirements to which it is subject.

           As of  December  31,  1998,  the most  recent  notification  from the
           Federal  Reserve  Bank  categorized  the Company as well  capitalized
           under the regulatory  framework for prompt  corrective  action. To be
           categorized as well  capitalized,  the Company 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.


<PAGE>

                   Notes to Consolidated Financial Statements



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

<TABLE>
<CAPTION>
                                                                                                           
                                                                                                        To Be Well
                                                                                                    Capitalized Under
                                                                         For Capital                Prompt Corrective
                                           Actual                     Adequacy Purposes             Action Provisions
                                --------------------------      --------------------------     --------------------------
                                   Amount         Ratio            Amount         Ratio           Amount         Ratio   
                                -----------    -----------      -----------    -----------     -----------    -----------
                                                                      (in thousands)           
<S>                             <C>            <C>              <C>            <C>             <C>            <C>       
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%

As of December 31, 1997:
  Total Capital (to Risk
    Weighted Assets):
      Consolidated              $    21,678          19.7%      =>$   8,803     =>    8.0%                N/A
      The Middleburg Bank       $    17,558          16.2%      =>$   8,694     =>    8.0%     =>$  10,867    =>   10.0%
  Tier 1 Capital (to Risk
    Weighted Assets):
      Consolidated              $    20,704          18.8%      =>$   4,401     =>    4.0%                N/A
      The Middleburg Bank       $    16,584          15.3%      =>$   4,347     =>    4.0%     =>$   6,520    =>    6.0%
  Tier 1 Capital (to
    Average Assets):
      Consolidated              $    20,704          11.8%      =>$   6,994     =>    4.0%                N/A
      The Middleburg Bank       $    16,584           9.8%      =>$   6,781     =>    4.0%     =>$   8,477    =>    5.0%

</TABLE>




<PAGE>


                   Notes to Consolidated Financial Statements



Note 20.   Condensed Financial Information - Parent Corporation Only

                     INDEPENDENT COMMUNITY BANKSHARES, INC.
                            (Parent Corporation Only)

                                 Balance Sheets
                           December 31, 1998 and 1997


<TABLE>
<CAPTION>

             Assets                                                     1998                  1997       
                                                                  ----------------      ---------------

<S>                                                               <C>                   <C>            
Cash on deposit with subsidiary bank                              $          1,161      $         1,255
Money market fund                                                        1,393,787              713,403
Securities available for sale                                            2,425,780            2,383,400
Investment in subsidiaries, at cost, plus
  equity in undistributed net income                                    18,088,219           17,343,024
Organizational expenses, net                                                   - -               19,236
Goodwill                                                                 1,120,798            1,181,110
Other assets                                                                65,044               44,700
                                                                  ----------------      ---------------

               Total assets                                       $     23,094,789      $    21,686,128
                                                                  ================      ===============

   Liabilities and Shareholders' Equity

Liabilities
  Other liabilities                                               $        231,715      $            --
                                                                  ----------------      ---------------

Shareholders' Equity
  Common stock                                                    $      8,894,970      $     9,062,970
  Capital surplus                                                        1,293,046            1,948,246
  Retained earnings                                                     12,495,550           10,873,617
  Accumulated other comprehensive income (loss)                            179,508             (198,705)
                                                                  ----------------      ---------------
               Total shareholders' equity                         $     22,863,074      $    21,686,128
                                                                  ----------------      ---------------

               Total liabilities and shareholders' equity         $     23,094,789      $    21,686,128
                                                                  ================      ===============
</TABLE>


<PAGE>


                     INDEPENDENT COMMUNITY BANKSHARES, INC.
                            (Parent Corporation Only)

                              Statements of Income
                  Years Ended December 31, 1998, 1997 and 1996


<TABLE>
<CAPTION>
                                                                   1998               1997              1996   
                                                             -------------     --------------     -------------
<S>                                                          <C>               <C>                <C>
Income
  Dividends from subsidiary                                  $   2,586,000     $    1,201,074     $     704,000
  Dividends from investments                                       197,150            224,804           226,896
  Interest                                                          33,198             13,110             5,351
  (Losses) on securities available
    for sale, net                                                  (28,889)           (83,503)               --
                                                             -------------     --------------     -------------
        Total income                                         $   2,787,459     $    1,355,485     $     936,247
                                                             -------------     --------------     -------------

Expenses
  Amortization                                               $      79,548     $       41,617     $      16,487
  Legal and professional fees                                       32,385             21,132            18,620
  Printing and supplies                                             22,605             17,270             8,818
  Other                                                             73,310                889             1,124
                                                             -------------     --------------     -------------
        Total expenses                                       $     207,848     $       80,908     $      45,049
                                                             -------------     --------------     -------------

        Income before allocated tax benefits and
          undistributed income of subsidiaries               $   2,579,611     $    1,274,577     $     891,198

Income tax expense (benefit)                                       (15,593)           (18,659)           10,770
                                                             -------------     --------------     -------------

        Income before equity in undistributed
          income of subsidiaries                             $   2,595,204     $    1,293,236     $     880,428

Equity in undistributed income of subsidiaries                     379,450          1,338,124         1,150,518
                                                             -------------     --------------     -------------

        Net income                                           $   2,974,654     $    2,631,360     $   2,030,946
                                                             =============     ==============     =============
</TABLE>


<PAGE>


                     INDEPENDENT COMMUNITY BANKSHARES, INC.
                            (Parent Corporation Only)

                            Statements of Cash Flows
                  Years Ended December 31, 1998, 1997 and 1996


<TABLE>
<CAPTION>
                                                                      1998                 1997               1996   
                                                              ----------------      -------------       -------------
<S>                                                           <C>                   <C>
Cash Flows from Operating Activities
  Net income                                                  $      2,974,654      $   2,631,360       $   2,030,946
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Amortization                                                      79,548             41,617              16,487
      Undistributed earnings of subsidiaries                          (379,450)        (1,338,124)         (1,150,518)
      Loss on sale of securities available for sale                     28,889             83,503                  --
      (Increase) decrease in other assets                              (20,345)           (40,554)              5,709
      Decrease in other liabilities                                    (37,170)                --                  --
                                                              ----------------      -------------       -------------
            Net cash provided by
              operating activities                            $      2,646,126      $   1,377,802       $     902,624
                                                              ----------------      -------------       -------------

Cash Flows from Investing Activities
  Purchase of securities available for sale                   $     (1,275,000)     $  (1,334,984)      $    (100,000)
  Proceeds from sale of securities available
    for sale                                                         1,218,236          1,908,497                  --
  Purchase of intangibles                                                  - -           (175,182)                 --
                                                              ----------------      -------------       -------------
            Net cash provided by (used in)
              investing activities                            $        (56,764)     $     398,331       $    (100,000)
                                                              ----------------      -------------       -------------

Cash Flows from Financing Activities
  Purchase of common stock                                    $       (823,200)     $    (635,348)      $          --
  Cash dividends paid                                               (1,085,872)          (574,525)           (722,264)
                                                              ----------------      -------------       -------------
            Net cash (used in)
              financing activities                            $     (1,909,072)     $  (1,209,873)      $    (722,264)
                                                              ----------------      -------------       -------------

            Increase in cash and
              cash equivalents                                $        680,290      $     566,260       $      80,360

Cash and Cash Equivalents
  Beginning                                                            714,658            148,398              68,038
                                                              ----------------      -------------       -------------
  Ending                                                      $      1,394,948      $     714,658       $     148,398
                                                              ================      =============       =============
</TABLE>


<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 29, 1999                  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 23, 1999
-------------------------------------------               Officer and Director      
              Joseph L. Boling                        (Principal Executive Officer) 


           /s/ Alice P. Frazier                 Senior Vice President and Chief Financial       March 23, 1999
-------------------------------------------         Officer (Principal Financial and 
              Alice P. Frazier                             Accounting Officer)       
                                                    

                                                                Director 
-------------------------------------------                                                     March __, 1999
             Howard M. Armfield


          /s/ Childs Frick Burden                               Director                        March 26, 1999
-------------------------------------------
             Childs Frick Burden


           /s/ J. Lynn Cornwell, Jr.                            Director                        March 26, 1999
-------------------------------------------                                                    
            J. Lynn Cornwell, Jr.


           /s/ William F. Curtis                                Director                        March 29, 1999
-------------------------------------------
              William F. Curtis

<PAGE>

                                                                Director                        March __, 1999
-------------------------------------------
               F.E. Deacon III


         /s/ George A. Horkan, Jr.                              Director                        March 26, 1999
-------------------------------------------
           George A. Horkan, Jr.


                                                                Director                        March __, 1999
-------------------------------------------
           C. Oliver Iselin, III


           /s/ William S. Leach                                 Director                        March 26, 1999
-------------------------------------------
              William S. Leach


                                                                Director                        March __, 1999
-------------------------------------------
              Thomas W. Nalls


            /s/ John C. Palmer                                  Director                        March 29, 1999
-------------------------------------------
              John C. Palmer


                                                                Director                        March __, 1999
-------------------------------------------
                John Sherman


            /s/ Millicent W. West                               Director                        March 29, 1999
-------------------------------------------
              Millicent W. West


           /s/ Edward T. Wright                                 Director                        March 25, 1999
-------------------------------------------
             Edward T. Wright

</TABLE>


<PAGE>

                                INDEX TO EXHIBITS

Number                              Document

  3.1         Articles of  Incorporation  of Independent  Community  Bankshares,
              Inc. (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  Independent  Community  Bankshares,  Inc.,  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
              Independent Community Bankshares, Inc. and Joseph L. Boling.

  10.2        Independent Community Bankshares, Inc. 1997 Stock Option Plan.

  21          Subsidiaries of the Registrant.

  27          Financial Data Schedule (filed electronically only).