SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

                   For the fiscal year ended December 31, 2002
                         Commission file number 0-24159

                        MIDDLEBURG FINANCIAL CORPORATION
             (Exact Name of Registrant as Specified in its Charter)

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

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

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

          Securities registered pursuant to Section 12(b) of the Act:

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

                 None                                    n/a

           Securities registered pursuant to Section 12(g) of the Act:

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

         Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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 ___

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K. [ X ]

         Indicate  by check mark whether the registrant is an accelerated  filer
(as defined in  Exchange  Act Rule  12b-2).  Yes ___ No _X__

         State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common
equity, as of the last business day of the registrant's most recently completed
second fiscal quarter. $61,170,310

         Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. 1,852,682 shares of
Common Stock

                       DOCUMENTS INCORPORATED BY REFERENCE

     Proxy Statement for the 2003 Annual Meeting of Shareholders - Part III
<PAGE>

                                TABLE OF CONTENTS

                                     PART I
                                     ------
                                                                            Page
                                                                            ----

ITEM 1.  BUSINESS.............................................................3

ITEM 2.  PROPERTIES...........................................................7

ITEM 3.  LEGAL PROCEEDINGS....................................................8

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE
            OF SECURITY HOLDERS...............................................9

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND
            RELATED STOCKHOLDER MATTERS.......................................9

ITEM 6.  SELECTED FINANCIAL DATA.............................................10

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS..............................11

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
            MARKET RISK......................................................36

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................38

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
            ON ACCOUNTING AND FINANCIAL DISCLOSURE...........................38

                                    PART III
                                    --------

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS....................................38

ITEM 11. EXECUTIVE COMPENSATION..............................................38

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
            OWNERS AND MANAGEMENT AND RELATED
            STOCKHOLDER MATTERS..............................................38

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................39

ITEM 14. CONTROLS AND PROCEDURES.............................................39

                                     PART IV
                                     -------

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
            REPORTS ON FORM 8-K..............................................40



                                      -2-
<PAGE>

                                     PART I
                                     ------

ITEM 1.  BUSINESS

General

         Middleburg  Financial  Corporation  ("MFC" or the  "Company") is a bank
holding  company that was  incorporated  under Virginia law in 1993. The Company
changed  its name in May 2002 from  Independent  Community  Bankshares,  Inc. to
Middleburg  Financial  Corporation.  The Company conducts its primary operations
through three wholly owned subsidiaries,  Middleburg Bank (the "Bank"), Tredegar
Trust Company  ("Tredegar")  both of which are chartered under Virginia law, and
Gilkison Patterson  Investment Advisors,  Inc. ("GPIA"),  which is an investment
advisor registered with the Securities and Exchange Commission.

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

         Tredegar  has its  main  office  at 821  East  Main  Street,  Richmond,
Virginia 23219, and a branch office in Middleburg, Virginia. Tredegar opened for
business in January 1994.

         GPIA has its main office at 1901 North Beauregard  Street,  Alexandria,
Virginia 22311.

         The  Bank  serves  western  Loudoun   County.   Loudoun  County  is  in
northwestern  Virginia  and  included in the  Washington-Baltimore  Metropolitan
statistical area. Loudoun County's population is approximately 170,000 with over
one-third of the population located in the Company's markets.  The local economy
is driven by service  industries  requiring  a high 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 clients outside of its primary market.  Richmond is
the state capital of Virginia, and the greater Richmond area has a population in
excess of 800,000  people.  GPIA  primarily  serves  the  District  of  Columbia
metropolitan area including contingent markets in Virginia and Maryland but also
has clients in 25 other states.

         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  ATMs at all  locations,  internet  banking,  travelers'
checks,  money orders,  safe deposit rentals,  collections,  notary public, wire
services and other traditional bank services to its customers. Tredegar provides
a variety of investment  management and fiduciary  services  including trust and
estate  settlement.  Tredegar can also serve as escrow agent,  attorney-in-fact,
guardian of property or trustee of an IRA.  GPIA  provides fee based  investment
management services for its clients.

         The Bank has one  wholly  owned  subsidiary,  Middleburg  Bank  Service
Corporation.  Middleburg  Bank  Service  Corporation  is a partner  in a limited
liability company, Bankers Title Shenandoah, LLC, which sells title insurance to
its members.  Middleburg  Bank Service  Corporation has also invested in another
limited liability company, Virginia Bankers Insurance Center, LLC, which acts as
a broker for  insurance  sales for its member  banks.  The  Company has a fourth
wholly  owned  subsidiary,  ICBI Capital  Trust I, which is a Delaware  Business
Trust that the Company formed in connection  with the issuance of $10 million in
trust preferred debt in November 2001.


                                      -3-
<PAGE>

         As of  December  31,  2002,  the  Company  had a total of 152 full time
equivalent  employees.  The Company considers relations with its employees to be
excellent.   The  Company's  employees  are  not  represented  by  a  collective
bargaining unit.

Competition

         The Company faces significant  competition for both loans and deposits.
Competition for loans comes from commercial banks, savings and loan associations
and savings banks,  mortgage banking  subsidiaries 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  deposits at
June 30,  2002 as reported  to the FDIC,  MFC has the largest  share of deposits
among the banking organizations operating in Loudoun County,  Virginia. MFC also
faces  competition  for deposits from  short-term  money market mutual funds and
other corporate and government securities funds.

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

         GPIA  competes for its clients and accounts  with other money  managers
and investment brokerage firms. Like the rest of the Company,  GPIA is dedicated
to quality  service and high investment  performance  for its clients.  GPIA has
successfully  operated in its markets for 21 years. For 19 years,  GPIA operated
under the name of Kahn Brothers  Investment  Management Company ("KBIMC").  Upon
entering  into a purchase  option with MFC,  KBIMC changed its name to "Gilkison
Patterson Investment Advisors, Inc."

Supervision and Regulation

         General.  As  a  bank  holding  company,  the  Company  is  subject  to
regulation under the Bank Holding Company Act of 1956, as amended,  (the "BHCA")
and the examination and reporting  requirements of the Board of Governors of the
Federal  Reserve System (the "Federal  Reserve  Board").  Under the BHCA, a bank
holding company may not directly or indirectly  acquire  ownership or control of
more than 5% of the voting shares or substantially all of the assets of any bank
or merge or  consolidate  with another bank  holding  company  without the prior
approval  of the  Federal  Reserve  Board.  The BHCA also  generally  limits the
activities of a bank holding company to that of banking, managing or controlling
banks,  or any other  activity that is  determined  to be so closely  related to
banking or to managing or  controlling  banks that an  exception  is allowed for
those activities.

         As  a   state-chartered   commercial  bank,  the  Bank  is  subject  to
regulation,  supervision  and  examination  by the  Virginia  State  Corporation
Commission's Bureau of Financial Institutions. It is also subject to regulation,
supervision and examination by the Federal Reserve Board.  State and federal law
also governs the activities in which the Bank engages,  the investments  that it
makes and the  aggregate  amount of loans that may be  granted to one  borrower.
Various  consumer and  compliance  laws and  regulations  also affect the Bank's
operations.

         The earnings of the Company's subsidiaries,  and therefore the earnings
of  the  Company,  are  affected  by  general  economic  conditions,  management
policies,  changes  in state and  federal  legislation  and  actions  of various
regulatory  authorities,  including  those  referred  to  above.  The  following
description


                                      -4-
<PAGE>

summarizes the significant federal and state laws to which the Company, the Bank
and Tredegar are subject.  To the extent  statutory or regulatory  provisions or
proposals  are  described,  the  description  is  qualified  in its  entirety by
reference to the particular statutory or regulatory provisions or proposals.

         Payment of  Dividends.  The  Company  is a legal  entity  separate  and
distinct from its banking and other subsidiaries.  The majority of the Company's
revenues are from dividends paid to the Company by the Bank. The Bank is subject
to laws and  regulations  that  limit the  amount of  dividends  it can pay.  In
addition,  both the  Company  and the Bank are  subject  to  various  regulatory
restrictions  relating to the payment of dividends,  including  requirements  to
maintain  capital  at or above  regulatory  minimums.  Banking  regulators  have
indicated that banking  organizations should generally pay dividends only if the
organization's  net income available to common  shareholders  over the past year
has been  sufficient  to fully fund the dividends  and the  prospective  rate of
earnings  retention appears  consistent with the  organization's  capital needs,
asset quality and overall financial condition.  The Company does not expect that
any of these laws, regulations or policies will materially affect the ability of
the Bank to pay  dividends.  During the year ended  December 31, 2002,  the Bank
declared $2.1 million in dividends payable to the Company.

         Capital.  The Federal Reserve Board has issued  risk-based and leverage
capital guidelines applicable to banking organizations that it supervises. Under
the risk-based capital requirements, the Company and the Bank are each generally
required to maintain a minimum  ratio of total capital to  risk-weighted  assets
(including  certain  off-balance  sheet  activities,  such as standby letters of
credit) of 8%. At least half of the total  capital  must be  composed  of common
equity, retained earnings and qualifying perpetual preferred stock, less certain
intangibles   ("Tier  1  capital").   The   remainder  may  consist  of  certain
subordinated  debt,  certain hybrid capital  instruments,  qualifying  preferred
stock and a limited amount of the loan loss allowance  ("Tier 2 capital," which,
together with Tier 1 capital, composes "total capital").

         In  addition,  each of the  federal  banking  regulatory  agencies  has
established  minimum  leverage capital  requirements for banking  organizations.
Pursuant to these  requirements,  banking  organizations must maintain a minimum
ratio of Tier 1 capital to adjusted  average  quarterly assets equal to 3% to 5%
subject to federal banking  regulatory  evaluation of an organization's  overall
safety and soundness.

         The  risk-based  capital or  standards  of the  Federal  Reserve  Board
explicitly  identify  concentrations  of credit risk and the risk  arising  from
non-traditional  activities, as well as an institution's ability to manage these
risks, as important  factors to be taken into account by the agency in assessing
an institution's  overall capital adequacy.  The capital guidelines also provide
that an institution's exposure to a decline in the economic value of its capital
due to  changes in  interest  rates be  considered  by the agency as a factor in
evaluating a banking organization's capital adequacy.

         Other  Safety  and  Soundness  Regulations.   There  are  a  number  of
obligations  and  restrictions  imposed  on bank  holding  companies  and  their
depository  institution  subsidiaries by federal law and regulatory  policy that
are  designed  to reduce  potential  loss  exposure  to the  depositors  of such
depository  institutions  and  to  the  Federal  Deposit  Insurance  Corporation
("FDIC")  insurance  funds in the  event  that  the  depository  institution  is
insolvent or is in danger of becoming insolvent. For example, under requirements
of the Federal Reserve Board 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 otherwise.  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  insolvency  of commonly
controlled insured depository institutions or for any assistance provided by the
FDIC to  commonly  controlled  insured  depository  institutions  in  danger  of
failure.  The FDIC may decline to enforce the  cross-guarantee  provision  if it
determines  that a waiver  is in


                                      -5-
<PAGE>

the best  interests  of the  deposit  insurance  funds.  The  FDIC's  claim  for
reimbursement  under the cross  guarantee  provisions  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 nonaffiliated holders
of subordinated debt of the commonly controlled insured depository institutions.

         The federal  banking  agencies  also 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
institution   in  question   is  well   capitalized,   adequately   capitalized,
undercapitalized, significantly undercapitalized or critically undercapitalized,
as defined by the law. As of December  31,  2002,  the Company and the Bank were
classified as well capitalized.

         State banking  regulators also have broad  enforcement  powers over the
Bank,  including  the  power to  impose  fines  and  other  civil  and  criminal
penalties, and to appoint a conservator.

         Interstate  Banking  and  Branching.  Current  federal  law  authorizes
interstate  acquisitions of banks and bank holding companies without  geographic
limitation.  Effective  June 1,  1997,  a bank  headquartered  in one  state was
authorized  to merge  with a bank  headquartered  in another  state,  as long as
neither of the states had opted out of such interstate merger authority prior to
such  date.  After  a bank  has  established  branches  in a  state  through  an
interstate  merger  transaction,  the bank may establish and acquire  additional
branches at any location in the state where a bank  headquartered  in that state
could have established or acquired  branches under  applicable  federal or state
law.

         Gramm-Leach-Bliley Act of 1999. The Gramm-Leach-Bliley Act of 1999 (the
"Act") was signed into law on November 12, 1999. The Act covers a broad range of
issues,  including a repeal of most of the  restrictions on  affiliations  among
depository institutions,  securities firms and insurance companies.  Most of the
Act's  provisions  require the federal  banking  regulatory  agencies  and other
regulatory bodies to adopt regulations to implement the Act, and for that reason
an assessment of the full impact on the Company of the Act must await completion
of that regulatory process.

         The Act  repeals  sections  20 and 32 of the  Glass-Stegall  Act,  thus
permitting unrestricted affiliations between banks and securities firms. The Act
also  permits  bank  holding  companies  to elect to  become  financial  holding
companies.  A financial  holding company may engage in or acquire companies that
engage in a broad range of financial services,  including securities  activities
such as  underwriting,  dealing,  brokerage,  investment  and merchant  banking,
insurance  underwriting,  sales and brokerage  activities.  In order to become a
financial  holding  company,  the bank holding company and all of its affiliated
depository  institutions  must be  well-capitalized,  well-managed,  and have at
least a satisfactory Community Reinvestment Act rating.

         The Act  provides  that the states  continue to have the  authority  to
regulate  insurance  activities  but prohibits the states in most instances from
preventing or significantly  interfering with the ability of a bank, directly or
through  an  affiliate,   to  engage  in  insurance   sales,   solicitations  or
cross-marketing  activities.  Although the states  generally  must regulate bank
insurance  activities in a nondiscriminatory  manner, the states may continue to
adopt and enforce rules that specifically  regulate bank insurance activities in
certain  areas  identified  in the Act.  The Act  directs  the  federal  banking
regulatory  agencies to adopt insurance  consumer  protection  regulations  that
apply to sales practices, solicitations, advertising and disclosures.

         The Act  adopts a system  of  functional  regulation  under  which  the
Federal  Reserve  Board is  confirmed as the umbrella  regulator  for  financial
holding   companies,   but  financial  holding  company  affiliates  are  to  be
principally  regulated  by  functional  regulators  such as the FDIC  for  state
nonmember bank affiliates, the Securities and Exchange Commission for securities
affiliates  and state  insurance

                                      -6-
<PAGE>

regulators  for  insurance  affiliates.  The Act repeals the broad  exemption of
banks  from the  definitions  of  "broker"  and  "dealer"  for  purposes  of the
Securities  Exchange Act of 1934, as amended,  but  identifies a set of specific
activities,  including traditional bank trust and fiduciary activities, in which
a bank may engage  without  being deemed a "broker",  and a set of activities in
which a bank may engage  without  being  deemed a  "dealer".  The Act also makes
conforming  changes in the  definitions of "broker" and "dealer" for purposes of
the Investment Company Act of 1940, as amended,  and the Investment Advisers Act
of 1940, as amended.

         The Act contains  extensive  customer  privacy  protection  provisions.
Under these provisions,  a financial  institution must provide to its customers,
at the  inception of the customer  relationship  and  annually  thereafter,  the
institution's  policies and  procedures  regarding  the  handling of  customers'
nonpublic  personal  financial  information.  The Act provides that,  except for
certain  limited  exceptions,  an  institution  may not  provide  such  personal
information to unaffiliated  third parties unless the  institution  discloses to
the customer that such  information may be so provided and the customer is given
the opportunity to opt out of such  disclosure.  An institution may not disclose
to a  non-affiliated  third party,  other than to a consumer  reporting  agency,
customer  account  numbers or other similar  account  identifiers  for marketing
purposes.  The Act also  provides  that the  states may adopt  customer  privacy
protections  that are more strict than those  contained in the Act. The Act also
makes  a  criminal  offense,  except  in  limited  circumstances,  obtaining  or
attempting to obtain customer information of a financial nature by fraudulent or
deceptive means.

         Tredegar. Tredegar operates as a trust subsidiary of the Company. It is
subject  to  supervision  and  regulation  by  the  Virginia  State  Corporation
Commission's Bureau of Financial Institutions and the Federal Reserve Board.

         State and federal  regulators have substantial  discretion and latitude
in the exercise of their  supervisory  and  regulatory  authority over Tredegar,
including  the  statutory  authority to  promulgate  regulations  affecting  the
conduct of business and the  operations of Tredegar.  They also have the ability
to exercise  substantial  remedial  powers with respect to Tredegar in the event
that it  determines  that Tredegar is not in compliance  with  applicable  laws,
orders or  regulations  governing its  operations,  is operating in an unsafe or
unsound manner, or is engaging in any irregular practices.

         GPIA. GPIA operates as a non-banking  subsidiary of the Company.  It is
subject to supervision and regulation by the Securities and Exchange  Commission
under the Investment Advisors Act of 1940, as amended.


ITEM 2.  PROPERTIES

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

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

                                      -7-
<PAGE>

         The Catoctin Circle,  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,  SE, Leesburg,  Virginia 20175.
The office operates five teller windows, including three drive-up facilities and
one drive-up automatic teller machine. The Bank owns this branch building.

         The Fort Evans Road,  Leesburg  bank branch was  completed in July 2002
and is a one-story  building of brick  construction,  with  approximately  3,500
square  feet of floor  space,  located at 211 Fort  Evans  Road,  NE,  Leesburg,
Virginia  20176.  The office  operates  five  teller  windows,  including  three
drive-up  facilities and one drive-up  automatic  teller machine.  The Bank owns
this branch building.

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

         The  Ashburn  bank  branch,  which is  leased,  opened in June 1999 and
consists of 3,400 rentable square feet at 20955  Professional  Plaza, Suite 100,
Ashburn,  Virginia  20147.  The office is a full service branch with five teller
windows,  three drive-up facilities and a drive-up automated teller machine. The
initial term of the lease is 15 years with two five-year  renewal  options.  The
annual lease expense associated with this location is $68,000.

         The  Leesburg  operations  building  was  completed  in June 2002.  The
building is Class A office space and is home to the deposit and loan operations,
data processing,  information technology, human resources, training and mortgage
banking  departments.  This building is a two story  building with 18,000 square
feet of floor space,  located at 106 Catoctin  Circle,  SE,  Leesburg,  Virginia
20175. The Bank owns this building.

         Tredegar  leases its main office at 821 East Main  Street in  Richmond,
Virginia.  The lease,  which was entered into in August 2001 when Tredegar moved
from its former  location,  is for a term of 15 years,  with no renewal options.
The annual  lease  expense for the new location  will be  $165,000.  Total lease
expense for 2001,  including  the new and previous  office  space,  was $76,000.
Tredegar closed its branch office in  Williamsburg,  Virginia in April 2001. The
space  included  approximately  500  square  feet used  primarily  for  business
development  and sales.  The annual lease expense  associated with this location
was $7,500.

         GPIA  leases  its  main  office  at  1901  North   Beauregard   Avenue,
Alexandria,  Virginia,  22311. The lease, which was entered into in May 1999, is
for a  term  of  five  years,  with  no  renewal  options.  The  space  includes
approximately  3,500 square feet of office space and 900 square feet of storage.
The annual lease expense associated with this location is $79,000.  The lease is
currently in negotiations with no anticipated increase in expense.

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


ITEM 3.  LEGAL PROCEEDINGS

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


                                      -8-
<PAGE>


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 REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Since May 15, 2002, the Company's Common Stock has traded on the Nasdaq
SmallCap  Market under the symbol "MBRG".  From September 15, 2000 until May 14,
2002, the Company's  Common Stock had traded on the Nasdaq SmallCap Market under
the symbol "ICBX".

                           Market Price and Dividends

                                                Sales Price ($)    Dividends ($)
                                                ---------------    -------------
                                               High          Low
                                               ----          ---
2001:
     1st quarter............................   33.00        21.00      .25
     2nd quarter............................   31.25        27.00      .25
     3rd quarter............................   36.00        29.00      .25
     4th quarter............................   35.90        32.50      .25
2002:
     1st quarter............................   45.58        35.11      .30
     2nd quarter............................   50.00        44.10      .30
     3rd quarter............................   48.75        44.00      .30
     4th quarter............................   48.25        45.25      .30

         MFC  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 MFC's Board of Directors and will depend upon the
earnings of MFC and its  subsidiaries,  principally  its  subsidiary  bank,  the
financial  condition  of MFC  and  other  factors,  including  general  economic
conditions and applicable governmental regulations and policies. MFC or the Bank
has paid regular cash dividends for over 200 consecutive quarters.

         As of  March 4,  2003,  MFC had  approximately  1,350  shareholders  of
record.


                                      -9-
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

         The  information  set forth in the  following  table  should be read in
conjunction with  "Management's  Discussion and Analysis of Financial  Condition
and Results of Operations" and the Consolidated  Financial  Statements and Notes
thereto.

<TABLE>
<CAPTION>
                                                                Years Ended December 31,
                                                 2002           2001           2000        1999        1998

                                             (In thousands, except ratios and per share amounts)
<S>                                                <C>           <C>            <C>        <C>         <C>
      Income Statement Data:
         Interest income                           $23,758       $21,822        $19,209    $15,522     $13,785
         Interest expense                            6,524         7,814          7,041      5,345       5,313
         Net interest income                       $17,234       $14,008        $12,168    $10,177      $8,472
         Provision for loan losses                     300           300            400        420         135
         Net interest income after
           provision for loan losses               $16,934       $13,708        $11,768     $9,757      $8,337
         Noninterest income                          7,312         4,827          3,669      2,959       2,187
         Securities gains (losses)                    (73)           384          (204)       (13)        (18)
         Noninterest expense                        15,526        11,947          9,555      8,040       6,674
         Income before income taxes                 $8,647        $6,972         $5,678     $4,663      $3,832
         Income taxes                                2,335         1,755          1,450      1,097         857
         Net income                                 $6,312        $5,217         $4,228     $3,566      $2,975

      Per Share Data:
         Net Income, Basic                           $3.47         $2.99          $2.43      $2.00       $1.65
         Net Income, Diluted                          3.39          2.93           2.41       1.99        1.63
         Cash Dividends                               1.20          1.00           0.84       0.68        0.75
         Book value at period end                    22.35         17.31          15.68      12.97       12.85

      Balance Sheet Data:
         Assets                                   $424,974      $354,101       $289,461   $243,925    $205,403
         Loans, net of unearned income             212,107       196,400        177,598    143,235     121,323
         Securities                                163,673       124,351         81,577     67,739      57,786
         Deposits                                  328,903       271,731        224,640    203,837     172,680
         Shareholders' equity                       41,410        30,338         27,271     23,075      22,863
         Average shares outstanding,                 1,821         1,746          1,741      1,779       1,803
      Basic
         Average shares outstanding,                 1,863         1,783          1,752      1,795       1,821
      Diluted

      Performance Ratios:
         Return on Average Assets                    1.62%         1.67%          1.62%      1.60%       1.54%
         Return on Average Equity                   17.24%        17.55%         17.46%     15.48%      13.24%
         Capital to Assets                           9.74%         8.57%          9.42%      9.49%      11.13%
         Dividend payout                            35.04%        33.53%         34.57%     34.00%      45.45%
         Efficiency (1)                             60.93%         60.4%          57.4%      57.9%       58.5%

      Capital and Liquidity Ratios:
         Risk-based capital ratios:
           Tier 1 capital                            14.8%         16.4%          12.7%      14.0%       17.1%
           Total capital                             15.6%         17.3%          13.6%      14.8%       17.9%
         Leverage                                    10.6%         12.5%           9.7%      10.8%       11.2%
</TABLE>

--------
(1)  Computed by dividing  noninterest expense by the sum of net interest income
     on a tax  equivalent  basis  and  noninterest  income,  net  of  securities
     gains or losses.


                                      -10-
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

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

Critical Accounting Policies

         The  financial  condition  and results of  operations  presented in the
Consolidated  Financial  Statements,  accompanying  Notes  to  the  Consolidated
Financial  Statements and  management's  discussion and analysis are, to a large
degree, dependent upon the accounting policies of the Company. The selection and
application of these  accounting  policies  involve  judgments,  estimates,  and
uncertainties that are susceptible to change.

         Presented  below  is  discussion  of  those  accounting  policies  that
management believes are the most important ("Critical  Accounting  Policies") to
the portrayal and understanding of the Company's financial condition and results
of operations.  These Critical  Accounting  Policies require  management's  most
difficult,  subjective and complex  judgments  about matters that are inherently
uncertain.  In the  event  that  different  assumptions  or  conditions  were to
prevail,  and depending  upon the severity of such changes,  the  possibility of
materially   different  financial  condition  or  results  of  operations  is  a
reasonable likelihood.

Allowance for Loan Losses

         The Company  monitors and  maintains  an  allowance  for loan losses to
absorb an estimate of probable losses inherent in the loan and lease  portfolio.
The  Company  maintains  policies  and  procedures  that  address the systems of
controls  over  the  following  areas  of  maintenance  of  the  allowance:  the
systematic  methodology used to determine the appropriate level of the allowance
to  provide   assurance  they  are  maintained  in  accordance  with  accounting
principles  generally  accepted in the United States of America;  the accounting
policies for loan charge-offs and recoveries;  the assessment and measurement of
impairment in the loan and lease portfolio; and the loan grading system.

         The Company  evaluates  various loans  individually  for  impairment as
required  by  Statement  of  Financial  Accounting  Standard  ("SFAS")  No. 114,
Accounting by Creditors for Impairment of a Loan,  and SFAS No. 118,  Accounting
by Creditors for  Impairment  of a Loan - Income  Recognition  and  Disclosures.
Loans evaluated  individually for impairment include  non-performing loans, such
as loans on non-accrual,  loans past due by 90 days or more,  restructured loans
and  other  loans  selected  by  management.  The  evaluations  are  based  upon
discounted expected cash flows or collateral valuations. If the evaluation shows
that a loan is individually impaired, then a specific reserve is established for
the amount of impairment. If a loan evaluated individually is not impaired, then
the  loan  is  assessed  for  impairment   under  SFAS  No.  5,  Accounting  for
Contingencies   ("SFAS   5"),   with  a  group  of  loans   that  have   similar
characteristics.

         For loans without individual measures of impairment,  the Company makes
estimates of losses for groups of loans as required by SFAS 5. Loans are grouped
by similar characteristics,  including the type of loan, the assigned loan grade
and the general  collateral  type.  A loss rate  reflecting  the  expected  loss
inherent in a group of loans is derived  based upon  estimates of default  rates
for a given loan grade,  the  predominant  collateral type for the group and the
terms of the loan.  The  resulting  estimate  of losses  for groups of loans are
adjusted  for  relevant  environmental  factors  and  other  conditions  of  the
portfolio of loans and leases, including:  borrower and industry concentrations;
levels and  trends in  delinquencies,


                                      -11-
<PAGE>

charge-offs  and  recoveries;   changes  in  underwriting   standards  and  risk
selection;  level of experience,  ability and depth of lending  management;  and
national and local economic conditions.

         The amount of estimated impairment for individually evaluated loans and
groups  of loans is added  together  for a total  estimate  of loans  and  lease
losses.  This estimate of losses is compared to the allowance for loan and lease
losses of the Company as of the  evaluation  date and, if the estimate of losses
is greater than the allowance, an additional provision to the allowance would be
made. If the estimate of losses is less than the allowance,  the degree to which
the  allowance  exceeds  the  estimate is  evaluated  to  determine  whether the
allowance falls outside a range of estimates. If the estimate of losses is below
the range of reasonable  estimates,  the allowance  would be reduced by way of a
credit to the provision  for loan losses.  The Company  recognizes  the inherent
imprecision in estimates of losses due to various  uncertainties and variability
related to the  factors  used,  and  therefore  a  reasonable  range  around the
estimate of losses is derived and used to ascertain whether the allowance is too
high.  If  different  assumptions  or  conditions  were  to  prevail  and  it is
determined  that the  allowance  is not  adequate to absorb the new  estimate of
probable  losses,  an additional  provision for loan losses would be made, which
amount may be material to the Consolidated Financial Statements.

Valuation of Derivatives

         The Company maintains an overall interest rate risk management strategy
that incorporates the use of derivative financial  instruments.  The Company has
used  derivative  financial  instruments  only  for  asset/liability  management
through the hedging of a specific  transaction or position,  and not for trading
or speculative purposes.

         Management  believes  that the risk  associated  with using  derivative
financial  instruments to mitigate interest rate risk sensitivity is minimal and
should  not have any  material  unintended  impact  on the  Company's  financial
condition or results of operations.

Intangibles and Goodwill

         The Company has  approximately  $6.9 million in  intangible  assets and
goodwill at December 31, 2002,  an increase of $5.9 million  since  December 31,
2001. The increase is associated with the April 1, 2002  acquisition of Gilkison
Patterson Investment Advisors,  Inc. ("GPIA"), a registered  investment advisor.
In connection with this  investment,  a purchase price valuation  (using FAS 141
and 142 as a guideline) was completed to determine the appropriate allocation to
identified  intangibles.  The valuation  concluded that approximately 42% of the
purchase price was related to the acquisition of customer  relationships with an
amortizable life of 15 years. Another 19% of the purchase price was allocated to
a non-compete  agreement with an amortizable  life of 7 years.  The remainder of
the purchase price has been allocated to goodwill.

         The purchase price allocation process requires management estimates and
judgment as to expectations for the life span of various customer  relationships
as well as the value that key  members of  management  add to the success of the
Company.  For  example,  customer  attrition  rates were  determined  based upon
assumptions  that the past five  years may  predict  the  future.  If the actual
attrition  rates,  among other  assumptions,  differed  from the  estimates  and
judgments used in the purchase  price  allocation,  the amounts  recorded in the
financial  statements  could result in a possible  impairment of the  intangible
assets and goodwill or require an acceleration in the amortization expense.

         In addition,  FAS 142 requires that goodwill be tested annually using a
two-step  process.  The first step is to  identify a potential  impairment.  The
second step measures the amount of the  impairment  loss, if any.  Processes and
procedures have been identified for the two-step process.


                                      -12-
<PAGE>

         When the Company completes its ongoing review of the  recoverability of
intangible  assets  and  goodwill,  factors  that are  considered  important  to
determining whether an impairment might exist include loss of customers acquired
or significant withdrawals of the assets currently under management and/or early
retirement or termination  of key members of management.  Any changes in the key
management estimates or judgments could result in an impairment charge, and such
a charge could have an adverse effect on the Company's  financial  condition and
results of operations.

Overview

         MFC is headquartered  in Middleburg,  Virginia and conducts its primary
operations through three wholly owned subsidiaries, the Bank, Tredegar and GPIA.
The Bank is a community bank serving western Loudoun County,  Virginia with five
full service  branches  and one limited  service  facility.  Tredegar is a trust
company headquartered in Richmond,  Virginia with a branch office in Middleburg,
Virginia.  GPIA is a registered  investment advisor headquartered in Alexandria,
Virginia serving clients in 26 states.

         MFC  exercised  its option to buy GPIA in April 2002.  The terms of the
transaction  include a total  purchase  price of $6 million  with 59,874  common
shares of MFC issued to the  shareholders  of GPIA.  At the time of  acquisition
GPIA had  approximately  $630 million of assets under management with clients in
30 states.  Clients who are located in  Washington,  DC,  Maryland  and Virginia
account for approximately 68% of the assets under management.  With the addition
of GPIA,  assets under  management by both Tredegar and GPIA exceeded $1 billion
at December 31, 2002.

         In 2002,  MFC  continued to realize the benefit of high growth rates in
both assets and net earnings.  Results for 2002 were also favorably  affected by
the growth in revenues from the Bank's  mortgage  banking and  investment  sales
operations.  By December 31, 2002, total assets were $425.0 million, an increase
of 20.0%.  Total assets at December 31, 2001 were $354.1 million.  Loans, net of
unearned  income,  grew 8.0% from $196.4  million at December 31, 2001 to $212.1
million at December 31, 2002. Total deposits increased $57.2 million from $271.7
million at December 31, 2001 to $328.9 million at December 31, 2002. MFC remains
well capitalized with  risk-adjusted  core capital and total capital ratios well
above the regulatory minimums. Asset quality measures also remained consistently
strong throughout the year.

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


                                      -13-
<PAGE>

Results of Operations

Net Income

         Net income for 2002 was $6.3 million,  an increase of 21.0% over 2001's
net income of $5.2 million.  Net income for 2001increased  23.4% over 2000's net
income of $4.2 million. For 2002, earnings per diluted share were $3.39 compared
to $2.93 and $2.41 for 2001 and 2000, respectively.

         Return on average assets ("ROA")  measures how  effectively MFC employs
its assets to produce net income.  The ROA for MFC  decreased  slightly to 1.62%
for the year ended December 31, 2002 from 1.67% for the same period in 2001. The
decrease in the net interest  margin and additional  investments in fixed assets
during 2002 contributed to the five basis point decrease in the ROA. The ROA for
2000 was 1.62%.  Return on average  equity  (ROE),  another  measure of earnings
performance,  indicates the amount of net income earned in relation to the total
equity capital invested. ROE decreased to 17.24% for the year ended December 31,
2002. The additional  capital issued in the acquisition of GPIA  contributed the
decrease  in ROE  during  2002.  ROE was 17.6%  and  17.5%  for the years  ended
December 31, 2001 and 2000, respectively.


                                      -14-
<PAGE>
<TABLE>
<CAPTION>
                                                     Average Balances, Income and Expenses, Yields and Rates
                                                                      Years Ended December 31,

                                   -------------------------------------------------------------------------------------------------
                                                     2002                            2001                             2000
                                   -------------------------------------------------------------------------------------------------
                                      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                             $ 101,725  $   5,629   5.53%  $   52,040  $   3,364   6.46%   $   46,838   $   3,334   7.12%
   Tax-exempt (1) (2)                     36,471      2,757   7.56%      38,748      2,933   7.57%       30,963       2,392   7.73%
                                       ---------  ---------          ----------  ---------           ----------   ---------
       Total securities                $ 138,197  $   8,386   6.07%  $   90,788  $   6,297   6.94%   $   77,801   $   5,726

Loans
    Taxable                            $ 213,844  $  16,137   7.55%   $ 194,835  $  16,297   8.36%   $  160,658   $  14,049   8.74%
   Tax-exempt                                758         63   8.32%         520         46   8.85%          437          41   9.38%
                                       ---------  ---------          ----------  ---------           ----------   ---------
       Total loans                     $ 214,602  $  16,200   7.55%   $ 195,355  $  16,343   8.37%   $  161,095   $  14,090   8.75%
Federal funds sold                         5,396         82   1.52%       3,046        117   3.84%        2,800         170   6.07%
Interest on money market investments       2,194         39   1.77%       1,742         63   3.62%          512          40   7.81%
Interest bearing deposits in
      other financial institutions           349          5   1.30%         250          9   3.60%          104           4   3.85%
                                       ---------  ---------          ----------  ---------           ----------   ---------
       Total earning assets            $ 360,738  $  24,712   6.85%   $ 291,181  $  22,829   7.84%   $  242,312   $  20,030   8.27%
Less: allowances for credit losses        (2,187)                        (1,948)                         (1,595
Total nonearning assets                   31,071                         23,508                          20,875
                                       ---------                      ---------                      ----------
Total assets                           $ 389,621                      $ 312,741                      $  261,592
                                       =========                      =========                      ==========

Liabilities:
Interest-bearing deposits:
    Checking                           $  39,430  $      93   0.24%   $  33,978  $     223   0.66%   $   32,461   $     295   0.91%
    Regular savings                       19,813        183   0.92%      15,183        278   1.83%       13,148         263   2.00%
    Money market savings                  66,102        905   1.37%      46,616      1,166   2.50%       42,852       1,162   2.71%
    Time deposits:
       $100,000 and over                  51,723      1,648   3.19%      39,154      2,086   5.33%       25,997       1,453   5.59%
       Under $100,000                     44,367      1,392   3.14%      46,409      2,088   4.50%       44,389       2,151   4.85%
                                       ---------  ---------          ----------  ---------           ----------   ---------
       Total interest-bearing deposits $ 221,435  $   4,221   1.91%   $ 181,340  $   5,841   3.22%   $  158,847   $   5,324   3.35%

Federal Home Loan Bank Advances            3,126        115   3.68%       7,543        482   6.39%        9,186         584   6.36%

Securities sold under agreements
    to repurchase                         13,434        177   1.31%      13,292        399   3.00%       12,279         616   5.02%

Long-term debt                            38,156      2,007   5.26%      19,332      1,076   5.57%        8,090         500   6.18%

Federal Funds Purchased                      221          4   1.78%         371         16   4.31%          286          17   5.94%
                                       ---------  ---------          ----------  ---------           ----------   ---------
    Total interest-bearing liabilities $ 276,373  $   6,524   2.36%   $ 221,878  $   7,814   3.52%   $  188,688   $   7,041   3.73%
Non-interest bearing liabilities
    Demand Deposits                       74,787                         59,289                          47,355
    Other liabilities                      1,860                          1,854                           1,329
                                       ---------                      ---------                      ----------
Total liabilities                      $ 353,019                      $ 283,021                      $  237,372
Shareholders' equity
                                          36,602                         29,720                          24,220
                                       ---------                      ---------                      ----------
Total liabilities and shareholders'
   Equity                              $ 389,621                      $ 312,741                      $   261,59
                                       =========                      =========                      ==========

                                                  ---------                      ---------                        ---------
Net interest income                               $  18,188                      $  15,015                        $  12,989
                                                  =========                      =========                        =========

Interest rate spread                                          4.49%                          4.32%                            4.54%
Interest expense as a percent of
    average earning assets                                    1.81%                          2.68%                            2.91%
Net interest margin                                           5.04%                          5.16%                            5.36%
</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 that are 70%
          excludable for tax purposes.

                                      -15-
<PAGE>

Net Interest Income

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

         Net interest income on a fully  tax-equivalent  basis was $18.2 million
for the year ended  December  31,  2002.  This is an  increase of 21.1% over the
$15.0 million reported for the same period in 2001. Net interest income for 2001
increased 15.6% over the $13.0 million reported for 2000.

         The increase in net  interest  income in 2002  resulted  from the 23.9%
growth in average earning assets.  The 99 basis point decrease in earning assets
yield was offset by a 116 basis point  decrease  in the cost of  funding,  which
allowed the net interest margin to remain above 5% throughout  2002. The average
balance  in the  securities  portfolio  increased  by $47.4  million  while  the
tax-equivalent  yield  decreased  87 basis  points to 6.07%.  Nevertheless,  the
increase in the average balance of the securities  portfolio was able to provide
$2.1  million in  additional  interest  income on a  tax-equivalent  basis.  The
average  loan  portfolio  volume  increased  9.9% during 2002.  Conversely,  the
average yield on the loan portfolio  decreased 82 basis points.  Loan demand was
strong throughout 2002; however, the loan portfolio experienced  significant run
off due to borrower refinancings of residential real estate loans.

         In 2002, MFC  experienced  significant  growth in its interest  bearing
checking,  savings and money market  accounts.  Despite a 30.9%  increase in the
average  balances of these  accounts,  the decline in deposit  rates during 2002
allowed MFC to  experience  a decrease in the  respective  interest  expenses of
$486,000. The average balances in certificates of deposit increased 12.3%, while
the interest  expense  associated  with these deposits  decreased  27.2% or $1.1
million.

         MFC's reliance on other funding sources,  such as the Federal Home Loan
Bank  overnight  advances,  decreased  on average by $4.4 million with a related
decrease in interest expense of $367,000. During 2002, however, MFC increased on
average  its long  term  borrowings  from the  Federal  Home  Loan Bank by $10.8
million.  Total interest  expense for 2002 was $6.5 million,  a decrease of $1.3
million compared to the total interest expense for 2001.

         The increase in net interest  income in 2001 resulted from largely from
the continued  growth in the average earning assets.  Both the assets yields and
the cost of funding  decreased at ratable amounts  resulting in a decrease of 20
basis points in the net interest  margin.  The average balance in the securities
portfolio increased $13.0 million,  while the tax-equivalent  yield decreased 42
basis points to 6.94%,  providing  $571,000 in additional  interest  income on a
tax-equivalent  basis.  The  asset/liability  strategies  employed by management
influenced  the increase in the  investment  portfolio  yield.  The average loan
portfolio volume increased 21.3% during 2001, providing $2.8 million in interest
income, while the average yield on the loan portfolio decreased 38 basis points,
causing  the  interest  income  provided  by the loan  portfolio  to decrease by
$579,000.

         In 2001, MFC  experienced  respectable  growth in its interest  bearing
checking,  savings and money market  accounts.  In spite of the 8.3% increase in
the average  balances,  the decline in deposit  rates during 2001 allowed MFC to
experience  a decrease in the  respective  interest  expenses  of  $53,000.  The
average balances in certificates of deposit increased 21.6%,  while the interest
expense associated with these deposits increased 15.8% or $570,000.  The decline
in the  average  rate paid on  certificates  of deposit  produced a decrease  in
interest  expense  of  approximately  $235,000,  while the  increased  volume of
certificates of deposit increased interest expense by approximately $805,000.

                                      -16-
<PAGE>

         MFC's reliance on other funding sources,  such as the Federal Home Loan
Bank  overnight  advances,  decreased  on average by $1.6 million with a related
decrease in interest expense of $102,000. However, during 2001, MFC increased on
average  its long  term  borrowings  from the  Federal  Home  Loan  Bank by $9.5
million.  During the fourth  quarter  of 2001,  MFC issued $10  million in trust
preferred  securities  adding  $1.7  million  in  average  long term debt to the
balance sheet. The interest expense related to the trust preferred securities is
also included in long term debt interest  expense and amounted to  approximately
$59,000.  Total  interest  expense  for 2001 was $7.8  million,  an  increase of
$773,000 compared to 2000.


                                      -17-
<PAGE>

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

                            Volume and Rate Analysis
                             (Tax Equivalent Basis)
                            Years Ended December 31,
<TABLE>
<CAPTION>

                                      ---------------------------------------------------------------
                                          2002 vs 2001                            2001 vs 2000
                                       Increase (Decrease) Due              Increase (Decrease) Due
                                           to Changes in:                         to Changes in:
                                      ---------------------------------------------------------------
                                                               (In Thousands)
                                       Volume       Rate      Total     Volume       Rate      Total
                                       ------       ----      -----     ------       ----      -----
<S>                                    <C>        <C>        <C>        <C>        <C>        <C>
Earning Assets:
Securities:
    Taxable                            $ 2,667    $  (402)   $ 2,265    $   181    $  (151)   $    30
    Tax-exempt                            (172)        (4)      (176)       590        (49)       541
Loans:
    Taxable                              1,495     (1,655)      (160)     2,825       (577)     2,248
    Tax-exempt                              20         (3)        17          7         (2)         5
Federal funds sold                         126       (161)       (35)        17        (70)       (53)
Interest on money market investments        25        (49)       (24)        30         (7)        23
Interest bearing deposits in other
    financial institutions                   7        (11)        (4)         5       --            5
                                       -------    -------    -------    -------    -------    -------
     Total earning assets              $ 4,168    $(2,285)   $ 1,883    $ 3,655    $  (856)   $ 2,799
                                       -------    -------    -------    -------    -------    -------

Interest-Bearing Liabilities:
Interest checking                      $    44    $  (174)      (130)   $    15    $   (87)       (72)
Regular savings deposits                   151       (246)       (95)        33        (18)        15
Money market deposits                      381       (642)      (261)        34        (30)         4
Time deposits
    $100,000 and over                      550       (988       (438)       697        (64)       633
    Under $100,000                         (88)      (608)      (696)       108       (171)       (63)
                                       -------    -------    -------    -------    -------    -------
    Total interest bearing deposits    $ 1,038    $(2,658)   $(1,620)   $   887    $  (370)   $   517
                                       -------    -------    -------    -------    -------    -------
    Federal Home Loan Bank
        Advances                       $  (213)   $  (154)   $  (367)   $  (105)   $     3    $  (102)
    Securities sold under agree-
      ment to repurchase                     4       (226)      (222)        56       (273)      (217)
    Long-term debt                         987        (56)       931        620        (44)       576
    Federal Funds Purchased                 (5)        (7)       (12)       (13)        12         (1)
                                       -------    -------    -------    -------    -------    -------
      Total interest bearing
         liabilities                   $ 1,811    $(3,101)   $(1,290)   $ 1,445    $  (672)   $   773
                                       -------    -------    -------    -------    -------    -------

Change in net interest income          $ 2,357    $   816    $ 3,173    $ 2,210    $  (184)   $ 2,026
                                       =======    =======    =======    =======    =======    =======
</TABLE>

---------

(1)  The change in interest,  due to both rate and volume, has been allocated to
     change  due  to  volume  and  change  due  to  rate  in  proportion  to the
     relationship of the absolute dollar amounts of the change in each.

                                      -18-
<PAGE>

Provision for Loan Losses

         MFC's loan loss  provision  during 2002 and 2001 was  $300,000.  MFC is
committed  to making  loan loss  provisions  that  maintain  an  allowance  that
adequately reflects the risk inherent in the loan portfolio.  This commitment is
more fully discussed in the "Asset Quality" section below.

Noninterest Income

         Noninterest 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.  Noninterest
income  includes fees  generated by the mortgage  banking and  investment  sales
departments  of the Bank as well as by  Tredegar  and  GPIA.  Trust  fee  income
decreased 7.7% during 2002 to $1.2 million. A significant  portion of trust fees
are based upon a percentage of the market value of the assets under  management,
so any  decreases  in market value of the assets  under  management  result in a
similar decrease in fees. Tredegar's accounts are typically invested in equities
with a smaller allocation to fixed income  securities.  The continued decline in
equity  market  values  have more than  offset  all of the growth in the fees as
result of new business.  GPIA's  investment  advisory fees added $1.5 million to
noninterest income for the eight months that they have been a subsidiary of MFC.
Like Tredegar, their fees are based upon a percentage of the market value of the
assets  under  management;  however,  GPIA's  clients  have  substantially  more
invested in fixed income  securities.  The fixed income market  typically has an
opposite  reaction to the equity markets.  Thus,  about 5% of their fee increase
over 2001 is related to relative  increases in market  values of the  portfolios
managed  while the  remaining  3% is  related  to new  business  growth.  Due to
historic low mortgage  rates and increased  refinancings,  the mortgage  banking
department  contributed  an  additional  $452,000 of fees on loans held for sale
during 2002.  During 2002, the Bank increased its transaction  oriented  deposit
accounts by 30.5%  resulting  in growth in service  charges and fee income.  The
service charges and fees associated with deposit accounts increased 35.0% during
2002.  During  2002,  MFC  realized  $73,000  in  net  losses  as  a  result  of
restructuring the investment portfolio in response to the change in the interest
rate  environment in 2002. Total  noninterest  income for 2002 was $7.2 million,
compared to $5.2 million for 2001.


                                      -19-
<PAGE>

         Noninterest  income for 2001 increased  50.4% to $5.2 million from $3.5
million in 2000.  The increase is due primarily to the increase on fees on loans
held for sale,  investment  sales fees and service charges on deposit  accounts.
The mortgage banking  department  contributed an additional  $840,000 of fees on
loans held for sale during 2001. The service  charges and fees  associated  with
deposit accounts increased 23.1% during 2001. The increase in these fees was due
primarily to a 31.2% increase in transaction oriented deposit account growth.

                               Noninterest Income

                                                      Year Ended December 31,
                                                   ----------------------------
                                                    2002       2001       2000
                                                   -------    -------   -------
                                                          (In thousands)
Service charges, commissions and fees              $ 1,960    $ 1,452   $ 1,180

Trust fee income                                     1,181      1,279     1,594

Investment advisory fee income                       1,544       --        --

Fees on loans held for sale                          1,935      1,483       643

Commission on investment sales                         611        485       116

Other operating income                                  81        128       136
                                                   -------    -------   -------


     Noninterest income                            $ 7,312    $ 4,827   $ 3,669

Gains (losses) on securities available for
sale, net                                              (73)       384      (204)
                                                   -------    -------   -------

  Total noninterest income                         $ 7,239    $ 5,211   $ 3,465
                                                   =======    =======   =======

Noninterest Expenses

         Improving  operating  efficiency  is  as  important  to  management  as
enhancing noninterest income. Total noninterest expenses increased 30.0% or $3.6
million  to $15.5  million  in 2002.  The  acquisition  of GPIA on April 1, 2002
accounts  for  32.3%  or $1.1  million  of the  total  increase  in  noninterest
expenses.  Salaries and employee benefits increased $2.2 million or 30.7% due to
increased commission expense for fee-related business and enhancing the internal
infrastructure to support a growing organization.  Approximately $673,000 of the
$2.2 million increase in salaries expense is related to the acquisition of GPIA.
Occupancy and equipment expense increased $605,000 or 48.6% to $1.9 million. The
costs to move the existing operations departments from the Company's main office
to the operations  facility as well as readying the buildings for occupancy have
caused the increase in occupancy  and  equipment  expense.  Advertising  expense
increased  29.4% in 2002.  Two  additional  bank mergers within the market areas
presented  opportunities  for  additional  image  advertising  that  resulted in
increased  business.  Computer  operations  expense  increased 32.1% to $539,000
during 2002. The Company placed in service  additional  equipment to enhance the
security  infrastructure  of the  internal  network as well as upgraded the core
bank processing software.  An increase in the usage of internet banking services
by  accountholders  also  contributed  to the  increase in  computer  operations
expense.  Other operating  expenses  increased $546,000 to $3.3 million for 2002
compared  to $2.8  million  for 2001.  Expenses  associated  with  servicing  an
increased volume of accounts and transactions  such as postage and printing have
also impacted other operating expenses in 2002.


                                      -20-
<PAGE>


         Noninterest  expenses  increased 25.0% or $2.4 million to $11.9 million
in 2001.  This  increase  resulted  from both  pressures to provide  competitive
salary and benefit programs and occupancy and equipment  investments to position
the Bank for future growth and productivity.

                              Noninterest Expenses

                                          Years Ended December 31,
                                    --------------------------------------
                                     2002           2001           2000
                                    --------     ---------       ---------
                                               (In thousands)
Salaries and employee benefits      $  9,383     $   7,180       $   5,600


Net occupancy and equipment expense    1,851         1,246           1,172

Advertising                              414           320             347

Computer operations                      539           408             298

Other operating expenses               3,339         2,793           2,138
                                    --------     ---------       ---------

  Total                             $ 15,526     $  11,947       $   9,555
                                    ========     =========       =========


Income Taxes

         Reported  income tax expense was $2.3 million for 2002,  an increase of
$580,000  compared to $1.8 million for 2001. The effective tax rate for 2002 was
27.0% compared to 25.2% in 2001 and 25.5% in 2000. The increase in the effective
tax rate for 2002 was  influenced  by the  change  in the mix of the  investment
securities  portfolio as well as the increase in non-interest income. Note 10 of
the  Company's  Consolidated  Financial  Statements  provides  a  reconciliation
between the amount of income tax expense  computed  using the federal  statutory
rate and MFC's  actual  income  tax  expense.  Also  included  in Note 10 to the
Consolidated  Financial Statements is information  regarding the principal items
giving rise to deferred taxes for the two years ended December 31, 2002.

                                      -21-
<PAGE>

Summary of Financial Results by Quarter
<TABLE>
<CAPTION>

                                                                 2002 Quarter Ended
                                              ----------------------------------------------------------

(Dollars in thousands except per share)         March 31       June 30     September 30     December 31
                                              ------------- ------------ ---------------- --------------

<S>                                             <C>            <C>           <C>              <C>
Net interest income                             $ 4,156        $ 4,290       $ 4,391          $ 4,397
Net interst income after provision
  for loan losses                                 4,081          4,215         4,316            4,322
Non interest income                               1,184          1,815         2,061            2,253
Net securities gains (losses)                       (80)            33           (31)               5
Non interest expense                              3,128          3,711         4,058            4,630
Income before income taxes                        2,057          2,352         2,288            1,950
Net income                                        1,514          1,686         1,642            1,470
Earnings per common share - assuming dilution   $  0.84        $  0.90       $  0.87          $  0.78
Dividends per common share                         0.30           0.30          0.30             0.30
</TABLE>



<TABLE>
<CAPTION>

                                                                 2001 Quarter Ended
                                              ----------------------------------------------------------

(Dollars in thousands except per share)         March 31       June 30     September 30     December 31
                                              ------------- ------------ ---------------- --------------
<S>                                             <C>            <C>           <C>              <C>
Net interest income                             $ 3,120        $ 3,422       $ 3,555          $ 3,911
Net interst income after provision
  for loan losses                                 3,045          3,347         3,480            3,836
Non interest income                               1,168          1,096         1,254            1,309
Net securities gains (losses)                       252             (6)           66               72
Non interest expense                              2,741          2,829         2,930            3,447
Income before income taxes                        1,724          1,608         1,870            1,770
Net income                                        1,292          1,199         1,389            1,337
Earnings per common share - assuming dilution   $  0.73        $  0.67       $  0.77          $  0.75
Dividends per common share                         0.25           0.25          0.25             0.25
</TABLE>



Financial Condition

         MFC's total  assets were $424.9  million as of December  31,  2002,  up
$70.9  million or 20.0% from the $354.1  million  level at  December  31,  2001.
Securities  increased $39.3 million or 31.6% from 2001 to 2002.  Loans increased
by $15.7  million  or 8.0% from 2001 to 2002,  while  deposits  increased  $57.2
million or 21.0% during the same period.  Borrowings  from the Federal Home Loan
Bank increased  $4.0 million during 2002. It is anticipated  that the borrowings
from the Federal Home Loan Bank will continue to rise should  deposit growth not
match asset  growth.  Total  shareholders'  equity at year end 2002 and 2001 was
$41.4 million and $30.3 million, respectively.

Loans

         MFC's loan  portfolio is its largest and most  profitable  component of
earning assets,  totaling 59.5% of average earning assets in 2002. MFC continues
to emphasize loan portfolio growth and  diversification as a means of increasing
earnings while  minimizing  credit risk.  Loans,  net of unearned


                                      -22-
<PAGE>

income,  were $212.1  million at  December  31,  2002,  an increase of 8.0% from
December  31,  2001's  total  of  $196.4   million.   Proactive  sales  efforts,
competitive  pricing  and the branch  network  supported  the  increase in loans
during 2002.  Loans  increased 10.6% from $177.6 million at December 31, 2000 to
$196.4  million at December 31,  2001.  The loan to deposit  ratio  decreased to
64.5% at December  31, 2002  compared to 72.3% at December 31, 2001 and 79.1% at
December 31, 2000.

                                 Loan Portfolio
<TABLE>
<CAPTION>

                                                                   December 31,
                                            ---------------------------------------------------------
                                              2002         2001        2000         1999        1998
                                            --------     --------    --------     --------   --------
                                                                   (In thousands)

<S>                                         <C>          <C>         <C>          <C>        <C>
Commercial, financial and agricultural      $ 20,323     $ 22,993    $ 22,555     $ 19,055   $ 18,880
Real estate construction                      22,008       24,174      17,693       12,151      5,436
Real estate mortgage:
  Residential (1-4 family)                    74,298       80,824      81,545       61,062      55,595
  Home equity lines                           10,091        8,271       5,973        4,382       3,617
  Non-farm, non-residential (1)               73,164       48,074      38,812       36,361      28,643
  Agricultural                                   482          163         346          379       1,057
Consumer installment                          11,741       11,901      10,674        9,845       8,095
                                            --------     --------    --------     --------   ---------
    Total loans                             $212,107     $196,400    $177,598     $143,235    $121,323
                                            ========     ========    ========     ========    ========
</TABLE>

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


         At December 31, 2002,  residential  real estate (1-4 family)  portfolio
loans constituted 35.0% of the total portfolio and decreased $6.5 million during
the year. The current  historic low mortgage  interest rates have caused many of
the Bank's  clients to refinance to a long term fixed rate product.  Real estate
construction  loans consist  primarily of pre-sold 1-4 family  residential loans
along with a marginal  amount of  commercial  construction  loans.  Real  estate
construction loans increased to $22.0 million at December 31, 2002 and represent
10.4% of the total loan portfolio. MFC's one time closing construction/permanent
loan product  competes  successfully in a high growth market like Loudoun County
because MFC is local and can respond  quickly to  inspections  and  construction
draw  requests.  Non-farm,  non-residential  real  estate  loans  are  typically
owner-occupied commercial buildings. Non-farm,  non-residential loans were 34.5%
of the total loan  portfolio at December 31, 2002.  The increase in the non-farm
non-residential  real  estate  loans  is the  result  of an  increased  focus on
diversifying  the  loan  portfolio.  The  Bank  has  hired  commercial  business
development  officers who have been successful in attracting new business to the
Bank.  The  branch  network  has also  helped  to  support  the  loan  portfolio
diversification,  such as increased  commercial  real estate loans.  Home equity
lines and  agricultural  real estate  loans were 4.8% and 0.23% of total  loans,
respectively, at December 31, 2002.

         MFC's commercial, financial and agricultural loan portfolio consists of
secured and unsecured  loans to small  businesses.  At December 31, 2002,  these
loans  comprised 9.6% of the loan portfolio.  This portfolio  decreased 11.6% in
2002 to $20.3 million.  Generally business debt has declined  nationwide as well
as locally thus causing a decrease in loan demand.  Consumer  installment  loans
primarily  consist of unsecured  installment  credit and account for 5.5% of the
loan portfolio.

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

                                      -23-
<PAGE>

         MFC's unfunded loan  commitments  totaled $31.6 million at December 31,
2002 and $34.2  million at  December  31,  2001.  The  decrease in the amount of
unfunded  commitments  is  attributed  in part to the  increase  in real  estate
construction  financing  as well as customer  demand for credit  line  products,
primarily home equity lines.

         At December  31,  2002,  MFC had no  concentration  of loans in any one
industry in excess of 10% of its total loan portfolio.  However,  because of the
nature of MFC's market, loan collateral is predominantly real estate.

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

                Remaining Maturities of Selected Loan Categories
                                December 31, 2002

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


Within 1 year               $      16,340   $     10,762
                           --------------- --------------
Variable Rate:
  1 to 5 years              $       1,600   $        896
  After 5 years                        -             631
                           --------------- --------------
  Total                     $       1,600   $      1,527
                           --------------- --------------
Fixed Rate:
  1 to 5 years              $       2,383   $      8,790
  After 5 years                        -             929
                           --------------- --------------

  Total                     $       2,383   $      9,719
                           --------------- --------------

Total Maturities            $      20,323   $     22,008
                           =============== ==============


Asset Quality

         MFC has policies and procedures  designed to control credit risk and to
maintain the quality of its loan portfolio. These include underwriting standards
for new originations  and ongoing  monitoring and reporting of asset quality and
adequacy of the allowance for loan losses.  Total  nonperforming  assets,  which
consist of nonaccrual loans,  restructured loans and foreclosed  property,  were
$1.1  million at December  31,  2002.  This is an increase of $984,000  from the
December  31, 2001 balance of $79,000.  The increase is largely two  residential
real  estate  loans  both of which  are well  secured.  Nonperforming  assets at
December 31, 2001 decreased $26,000 from $105,000 at December 31, 2000.

Nonperforming Assets

         Loans are placed on nonaccrual  status when collection of principal and
interest is doubtful,  generally when a loan becomes 90 days past due. There are
three  negative  implications  for earnings  when a loan is placed on nonaccrual
status.  First,  all  interest  accrued  but unpaid at the date that the loan is
placed on nonaccrual  status is either  deducted from interest income or written
off as a loss.  Second,  accruals of interest are discontinued  until it becomes
certain that both  principal and interest can be repaid.



                                      -24-
<PAGE>

Finally,  there may be actual losses that require additional provisions for loan
losses be charged against earnings. For real estate loans, upon foreclosure, the
balance of the loan is  transferred  to "Other Real Estate  Owned"  ("OREO") and
carried at the lower of the outstanding loan balance or the fair market value of
the property based on current  appraisals and other current market trends.  If a
write down of the OREO  property is  necessary at the time of  foreclosure,  the
amount is  charged-off  against the allowance  for loan losses.  A review of the
recorded  property value is performed in  conjunction  with normal loan reviews,
and if market  conditions  indicate  that the  recorded  value  exceeds the fair
market value,  additional write downs of the property value are charged directly
to operations.

                              Nonperforming Assets
                                  December 31,
<TABLE>
<CAPTION>

                              -------------------------------------------------------------------
                                  2002         2001          2000         1999          1998
                              ----------- -------------- ------------ ------------- -------------
                                                       (In thousands)

<S>                            <C>          <C>             <C>         <C>           <C>
Nonaccrual loans               $  1,063     $     79        $    105    $    530      $    409
Restructured loans                  -            -               -           -             -
Foreclosed property                 -            -               -           -             200
                               --------     --------        --------    --------      --------

  Total nonperforming assets   $  1,063     $     79        $    105    $    530      $    609
                               ========     ========        ========    ========      ========


Allowance for loan losses
  to nonperforming assets          217%        2608%           1718%        274%          175%

Nonperforming assets to
  period end loans                0.50%        0.04%           0.06%       0.37%         0.50%
</TABLE>


         During 2002 and 2001, approximately $41,000 and $700, respectively,  in
additional  interest income would have been recorded if MFC's  nonaccrual  loans
had been current and in accordance with their original terms.

         At December 31, 2002, the Company had no potential problem loans.

         The  allowance  for  loan  losses  was 217% of  nonperforming  loans at
December 31, 2002.  At December 31, 2001 and 2000 the  allowance for loan losses
was 2,608% and 1,718% of nonperforming loans. Management evaluates nonperforming
loans relative to their collateral value and makes appropriate reductions in the
carrying value of those loans based on that review.

Allowance For Loan Losses

         The Company  monitors and  maintains  an  allowance  for loan losses to
absorb an estimate of probable losses inherent in the loan and lease  portfolio.
The  Company  maintains  policies  and  procedures  that  address the systems of
controls  over  the  following  areas  of  maintenance  of  the  allowance:  the
systematic  methodology used to determine the appropriate level of the allowance
to  provide   assurance  they  are  maintained  in  accordance  with  accounting
principles  generally  accepted in the United States of America;  the accounting
policies for loan charge-offs and recoveries;  the assessment and measurement of
impairment in the loan and lease portfolio; and the loan grading system.

                                      -25-
<PAGE>

         The Company  evaluates  various loans  individually  for  impairment as
required by SFAS No. 114,  Accounting by Creditors for Impairment of a Loan, and
SFAS  No.  118,  Accounting  by  Creditors  for  Impairment  of a Loan -  Income
Recognition and Disclosures. Loans evaluated individually for impairment include
non-performing loans, such as loans on non-accrual, loans past due by 90 days or
more, restructured loans and other loans selected by management. The evaluations
are based upon discounted expected cash flows or collateral  valuations.  If the
evaluation shows that a loan is individually  impaired,  then a specific reserve
is established for the amount of impairment. If a loan evaluated individually is
not impaired, then the loan is assessed for impairment under SFAS 5 with a group
of loans that have similar characteristics.

         For loans without individual measures of impairment,  the Company makes
estimates of losses for groups of loans as required by SFAS 5. Loans are grouped
by similar characteristics,  including the type of loan, the assigned loan grade
and the general  collateral  type.  A loss rate  reflecting  the  expected  loss
inherent in a group of loans is derived  based upon  estimates of default  rates
for a given loan grade,  the  predominant  collateral type for the group and the
terms of the loan.  The  resulting  estimate  of losses  for groups of loans are
adjusted  for  relevant  environmental  factors  and  other  conditions  of  the
portfolio of loans and leases, including:  borrower and industry concentrations;
levels and  trends in  delinquencies,  charge-offs  and  recoveries;  changes in
underwriting  standards and risk  selection;  level of  experience,  ability and
depth of lending management; and national and local economic conditions.

         The amount of estimated impairment for individually evaluated loans and
groups  of loans is added  together  for a total  estimate  of loans  and  lease
losses.  This estimate of losses is compared to the allowance for loan and lease
losses of the Company as of the  evaluation  date and, if the estimate of losses
is greater than the allowance, an additional provision to the allowance would be
made. If the estimate of losses is less than the allowance,  the degree to which
the  allowance  exceeds  the  estimate is  evaluated  to  determine  whether the
allowance falls outside a range of estimates. If the estimate of losses is below
the range of reasonable  estimates,  the allowance  would be reduced by way of a
credit to the provision  for loan losses.  The Company  recognizes  the inherent
imprecision in estimates of losses due to various  uncertainties and variability
related to the  factors  used,  and  therefore  a  reasonable  range  around the
estimate of losses is derived and used to ascertain whether the allowance is too
high.  If  different  assumptions  or  conditions  were  to  prevail  and  it is
determined  that the  allowance  is not  adequate to absorb the new  estimate of
probable  losses,  an additional  provision for loan losses would be made, which
amount may be material to the Consolidated Financial Statements.

                                      -26-
<PAGE>

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

                            Allowance for Loan Losses

<TABLE>
<CAPTION>
                                                     December 31,
                                 --------------------------------------------------
                                  2002       2001       2000       1999       1998
                                 ------     ------     ------     ------     ------
                                                   (In thousands)

<S>                              <C>        <C>        <C>        <C>        <C>
Balance, beginning of period     $2,060     $1,804     $1,453     $1,064     $  974

  Loans charged off:
    Commercial, financial, and
      agricultural                  -          -           61         26          8
    Real estate construction        -          -          -          -          -
    Real estate mortgage            -           48        -           29        -
    Consumer installment             74         35         35         96         77
                                 ------     ------     ------     ------     ------
      Total loans charged off    $   74     $   83     $   96     $  151     $   85
                                 ------     ------     ------     ------     ------
  Recoveries:
    Commercial, financial, and
      agricultural               $    2         $-     $    6     $    7     $    1
    Real estate construction        -          -          -          -          -
    Real estate mortgage            -          -          -           79          6
    Consumer installment             19         39         41         34         33
                                 ------     ------     ------     ------     ------
      Total recoveries           $   21     $   39     $   47     $  120     $   40
                                 ------     ------     ------     ------     ------
Net charge offs (recoveries)         53         44         49         31         45
Provision for loan losses           300        300        400        420        135
                                 ------     ------     ------     ------     ------
Balance, end of period           $2,307     $2,060     $1,804     $1,453     $1,064
                                 ======     ======     ======     ======     ======

Ratio of allowance for loan
   losses to loans outstanding
   at end of period               1.09%      1.05%      1.02%      1.01%      0.88%

Ratio of net charge offs to
   average loans outstanding
   during period                  0.03%      0.02%      0.03%      0.02%      0.04%

</TABLE>

         The allowance for loan losses was $2.3 million at December 31, 2002, an
increase of $247,000  from $2.1 million at December 31, 2001.  The allowance was
$1.8 million at December  31, 2000.  In 2002,  MFC's net  charge-offs  increased
$9,000 from the previous year's net charge-offs of $44,000. Net charge-offs as a
percentage of average loans were 0.03% and 0.02% for 2002 and 2001 respectively.
The provision for loan losses was $300,000 for 2002 and 2001.


                                      -27-
<PAGE>

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

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

                    Commercial, Financial,      Real Estate             Real Estate
                           Agricultural         Construction             Mortgage                  Consumer
               --------------------------- ----------------------- ------------------------ -----------------------
                 Allowance    Percent of   Allowance  Percent of   Allowance  Percent of    Allowance  Percent of
                    for         Loan in       for      Loan in        for       Loan in        for      Loan in
                    Loan      Category to     Loan   Category to      Loan    Category to      Loan   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,
   2002         $      487       9.58%     $     624     10.38%     $     924    74.51%     $     272    5.54%
   2001         $      634      11.71%     $     750     12.31%     $     374    69.92%     $     302    6.06%
   2000         $      645      12.70%     $     500     9.96%      $     310    71.33%     $     349    6.01%
   1999         $      580      13.30%     $     350     8.48%      $     178    71.34%     $     345    6.82%
   1998         $      442      15.56%     $     100     4.48%      $     144    73.28%     $     378    6.43%

</TABLE>


         MFC  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 that they may have in
prior  years  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

         MFC  manages  its  investment   securities  portfolio  consistent  with
established  policies that include  guidelines for earnings,  rate  sensitivity,
liquidity and pledging  needs.  MFC holds bonds issued from the  Commonwealth of
Virginia and its political  subdivisions with an aggregate book value and market
value of $2.7  million at December  31, 2002.  The  aggregate  holdings of these
bonds approximate 6.6% of MFC's shareholders' equity.

         MFC accounts for securities under Financial  Accounting Standards Board
("FASB")  Statement No. 115,  "Accounting  for Certain  Investments  in Debt and
Equity  Securities." This standard  requires  classification of investments into
three categories,  "held to maturity" ("HTM"),  "available for sale" ("AFS"), or
"trading," as further defined in Note 1 to the Company's  Consolidated Financial
Statements.  MFC's does not  maintain a trading  account and has  classified  no
securities in this  category.  HTM  securities are required to be carried on the
financial  statements  at  amortized  cost.  AFS  securities  are carried on the
financial  statements  at fair value.  The  unrealized  gains or losses,  net of
deferred  income  taxes,  are  reflected  in  shareholders'   equity.   The  HTM
classification  places  restrictions  on MFC's ability to sell  securities or to
transfer  securities  into  the  AFS  classification.   Since  MFC  desires  the
flexibility  to respond to  changing  balance  sheet  needs  through  investment
portfolio  management,  it has chosen to  classify  only a small  portion of its
portfolio in this  category.  At December 31, 2002,  2.8% of the  portfolio  was
classified as HTM.

                                      -28-
<PAGE>

         MFC holds in its loan and securities portfolios investments that adjust
or float  according to changes in "prime"  lending rate.  These holdings are not
considered   speculative   but  instead   necessary  for  good   asset/liability
management.

         The carrying  value of the  securities  portfolio was $163.7 million at
December 31, 2002, an increase of $39.3 million or 31.6% from the carrying value
of $124.4  million at December 31, 2001.  The market value of the AFS securities
at  December  31,  2002  was  $159.0  million.  The  unrealized  loss on the AFS
securities was $409,000 that was more than offset by an unrealized  gain of $5.4
million at December 31, 2002.  The net market value gain at December 31, 2002 is
reflective of the recent decrease in market  interest rates.  The net unrealized
loss on the AFS securities was $376,000 at December 31, 2001.

                         Investment Securities Portfolio

         The  carrying  value  of  securities  held  to  maturity  at the  dates
indicated were as follows:

<TABLE>
<CAPTION>
                                                                                      December 31,
                                                            ------------------------------------------------------------
                                                                   2002                  2001                    2000
                                                            ------------------      ---------------       --------------
                                                                                    (In thousands)


<S>                                                         <C>                     <C>                   <C>
            U.S. Government securities                      $               -       $             -       $          250
            State and political subdivision obligations                  4,590                5,484                6,657
            Mortgage-backed securities                                      53                   61                   93
                                                            ------------------      ---------------       --------------
                                                            $            4,643      $         5,545       $        7,000
                                                            ==================      ===============       ==============
</TABLE>



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


<TABLE>
<CAPTION>

                                                                                      December 31,
                                                            ------------------------------------------------------------
                                                                    2002                 2001                    2000
                                                            ------------------      ---------------       --------------
                                                                                    (In thousands)

<S>                                                         <C>                     <C>                   <C>
            U.S. Government securities                      $            4,406      $           267       $        3,072
            State and political subdivision obligations                 32,639               33,220               27,961
            Mortgage-backed securities                                 102,521               63,746                3,443
            Other securities                                            19,464               21,573                9,501
                                                            ------------------      ---------------       --------------
                                                            $          159,030      $       118,806       $       43,977
                                                            ==================      ===============       ==============
</TABLE>

                                      -29-
<PAGE>

         The following table indicates the increased  return  experienced by MFC
by lengthening the maturity of the investment securities  portfolio.  Securities
with maturities  greater than five years total $83.7 million and have an average
yield greater than 6.0%. The securities portfolio represents approximately 38.3%
of the  earning  assets of MFC.  For that  reason,  it is managed  primarily  to
provide superior returns without  sacrificing  interest rate,  market and credit
risk.  Secondarily  through  the  asset/liability  process,  MFC  considers  the
securities  portfolio as a liquidity  source in the event that funding is needed
quickly within a 30-day period of time.

            Maturity Distribution and Yields of Investment Securities
                                December 31, 2002
                            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
                                 ------------------  ------------------  -----------------   ------------------    -----------------
                                                                           (In housands)
<S>                              <C>         <C>     <C>         <C>      <C>         <C>    <C>          <C>      <C>        <C>
Securities held for investment:
  Mortgage backed securities     $      2    4.63%   $      7    4.38%    $     12    4.42%  $     32     4.53%    $     53   4.48%
Tax-exempt securities (1)             376    7.39%      2,630    7.72%       1,584    7.85%       -       -           4,590   7.74%
                                 --------    ----    --------    ----     --------    ----   --------     ----     --------   ----
  Total                          $    378    7.37%   $  2,637    7.71%    $  1,596    7.83%  $     32     4.53%    $  4,643   7.70%
                                 --------    ----    --------    ----     --------    ----   --------     ----     --------   ----

Securities available for sale:
  U.S. Government securities     $    514    2.52%   $  3,615    3.03%    $    277    7.54%  $    -       -        $  4,406   3.25%
  Mortgage backed securities       20,662    5.77%     40,676    5.54%      22,683    5.33%    18,500     5.39%     102,521   5.51%
  Other                               691    7.20%      6,511    4.76%         204    7.22%     7,980     3.77%      15,386   4.39%
  Corporate preferred                 -      -            -      -             -      -         2,283     7.23%       2,283   7.23%
                                 --------    ----    --------    ----     --------    ----   --------     ----     --------   ----
  Total taxable                  $ 21,867    5.74%   $ 50,802    5.26%    $ 23,164    5.37%  $ 28,763     5.09%    $124,596   5.33%
Tax-exempt securities (1)             391    7.92%      1,602    7.98%      11,981    7.56%    18,136     7.71%      32,110   7.67%
                                 --------    ----    --------    ----     --------    ----   --------     ----     --------   ----
  Total                          $ 22,258    5.78%   $ 52,404    5.35%    $ 35,145    6.12%  $ 46,899     6.10%    $156,706   5.81%
                                 --------    ----    --------    ----     --------    ----   --------     ----     --------   ----

Total securities                 $ 22,636    5.81%   $ 55,041    5.46%    $ 36,741    6.19%  $ 46,931     6.10%    $161,349   5.86%
                                 ========    ====    ========    ====     ========    ====   ========     ====     ========   ====
</TABLE>
---------

(1)  Yields on  tax-exempt  securities  have been  computed on a  tax-equivalent
     basis.
(2)  Amounts  exclude  Federal  Reserve  Stock of $374,400 and Federal Home Loan
     Bank Stock of $1,950,000.


Other Earning Assets

         MFC's  average  investments  in  federal  funds  sold and money  market
investments  in 2002 were  $5.4  million  and $2.2  million,  increases  of $2.4
million and $452,000,  respectively,  over the 2001 amounts. Average investments
in federal funds sold and money market investments in 2001 were $3.0 million and
$1.7 million, respectively.  Fluctuations in federal funds sold and money market
investments   reflect  excess  deposit  growth  over  loan  growth  as  well  as
management's   goal  to  maximize   asset   yields  while   maintaining   proper
asset/liability structure.


                                      -30-
<PAGE>

Deposits

         Deposits  continue to be an important funding source and primary supply
of MFC's  growth.  MFC's  strategy has been to increase its core deposits at the
same time that it is controlling its cost of funds. The maturation of the branch
network,  as well as increased  advertising  campaigns  and bank  mergers,  have
contributed to the  significant  growth in deposits over the last several years.
By  monitoring  interest  rates within the local market and that of  alternative
funding sources, MFC is able to price the deposits effectively to develop a core
base of deposits in each branch.

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

                         Average Deposits and Rates Paid
<TABLE>
<CAPTION>

                                                                       December 31,
                                -----------------------------------------------------------------------------------
                                           2002                        2001                         2000
                                --------------------------- ---------------------------  --------------------------
                                    Amount        Rate          Amount        Rate          Amount        Rate
                                --------------------------- ---------------------------  --------------------------
                                                              (Dollars in Thousands)

<S>                              <C>              <C>        <C>               <C>       <C>               <C>
Noninterest-bearing deposits     $    74,787        -          $   59,289        -        $    47,355         -

Interest-bearing accounts:
    Interest checking                39,430       0.24%           33,978       0.66%          32,461       0.91%

    Regular savings                  19,813       0.92%           15,183       1.83%          13,148       2.00%

    Money market accounts            66,102       1.37%           46,616       2.50%          42,852       2.71%

    Time deposits:
        $ 100,000 and over           51,723       3.19%           39,154       5.33%          25,997       5.59%

        Under $ 100,000              44,367       3.14%           46,409       4.50%          44,389       4.85%
                                -----------                  -----------                 -----------
Total interest-bearing deposits  $  221,435       1.91%      $   181,340       3.22%     $   158,847       3.35%
                                 ----------                  -----------                 -----------
    Total                        $  296,222                  $   240,629                 $   206,202
                                 ==========                  ===========                 ===========
</TABLE>

         Average total deposits  increased 23.1% during 2002,  16.7% during 2001
and 10.3% during 2000. During 2002, the average balance of non-interest  bearing
deposits grew 26.1%.  The average balance in interest  checking and money market
accounts grew 16.0% and 41.8%,  respectively,  during 2002.  Management believes
that some of the growth in the  average  balances  of money  market  accounts is
associated  with the movement of money from the equity markets to bank accounts,
a significant portion of the growth is also core growth. The total number of net
new deposit transactional  (excluding time deposits) accounts have increased 30%
per year for the past two years.

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

                                      -31-
<PAGE>


         The  following  table is a  summary  of the  maturity  distribution  of
certificates  of deposit  equal to or greater  than  $100,000 as of December 31,
2002:

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

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

<S>                       <C>            <C>           <C>            <C>           <C>           <C>
At December 31, 2002      $9,784         $12,653       $9,470         $24,729       $56,636       17.2%
</TABLE>


Capital Resources and Dividends

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

         The Federal Reserve Board has established  minimum  regulatory  capital
standards  for bank holding  companies and state member  banks.  The  regulatory
capital  standards  categorize  assets  and  off-balance  sheet  items into four
categories  that weigh balance sheet assets  according to risk,  requiring  more
capital for holding  higher risk assets.  The minimum ratio of qualifying  total
capital to  risk-weighted  assets is 8.0%, of which at least 4.0% must be Tier 1
capital,  composed of common  equity and retained  earnings.  MFC had a ratio of
total capital to risk-weighted assets of 15.6% at December 31, 2002, compared to
17.3% at December 31, 2001. The ratio of Tier 1 capital to risk-weighted  assets
was 14.8% and 16.4% at  December  31, 2002 and 2001,  respectively.  Both ratios
exceed  the  minimum  capital   requirements  adopted  by  the  federal  banking
regulatory agencies.


                                      -32-
<PAGE>
                               Analysis of Capital
                                  December 31,

                                       2002            2001
                                   -------------- ---------------

                                      (Dollars in thousands)

Tier 1 Capital:
  Common stock                     $   9,263          $   8,761

  Capital surplus                      3,644                741

  Retained earnings                   25,184             21,084

  Trust preferred debt                10,000              9,770

  Goodwill                            (6,902)            (1,272)
                                   ---------          ---------

  Total Tier 1 capital             $  41,189          $  39,084
                                   ---------          ---------
Tier 2 Capital:
  Disallowed trust preferred       $       -          $     230

  Allowance for loan losses            2,307              2,060
                                   ---------          ---------

  Total tier 2 capital             $   2,307          $   2,290
                                   ---------          ---------
  Total risk-based capital         $  43,496          $  41,374
                                   =========          =========

Risk weighted assets               $ 278,229          $ 238,605


CAPITAL RATIOS:
  Tier 1 risk-based capital ratio       14.8%              16.4%
  Total risk-based capital ratio        15.6%              17.3%
  Tier 1 capital to average total
    assets                              10.6%              12.5%


         MFC's core equity to asset  ratio  increased  to 9.7% at  December  31,
2002,  compared to 8.6% at December 31, 2001. The issuance of additional  shares
in the  acquisition of GPIA as well as the exercise of 40,550 stock options have
contributed to the increase in capital and the equity to asset ratio in 2002.

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

Liquidity

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

         MFC also maintains additional sources of liquidity through a variety of
borrowing  arrangements.  The Bank  maintains  federal  funds  lines  with large
regional and money-center banking  institutions.  These available lines total in
excess of $5  million,  of which none were  outstanding  at December  31,  2002.
Federal funds purchased during 2002 averaged  $221,000 compared to an average of
$371,000  during

                                      -33-
<PAGE>

2001.  At  December  31,  2002 and  2001,  the Bank had $8.9  million  and $12.0
million,  respectively,  of outstanding  borrowings  pursuant to securities sold
under agreement to repurchase  transactions (Repo Accounts),  with maturities of
one day. The Repo  Accounts are  long-term  commercial  checking  accounts  with
average balances that typically exceed $100,000.

         The Bank has a  credit  line in the  amount  of  $56.5  million  at the
Federal  Home Loan Bank of Atlanta.  This line may be utilized  for short and/or
long-term borrowing. The Bank has utilized the credit line for overnight funding
throughout 2002 with an average balance of $3.1 million.

         At December 31, 2002,  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 51.3% of total
deposits and liabilities.

Forward-Looking Statements

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

Recent Accounting Pronouncements

         In  December,   2001,  the  American   Institute  of  Certified  Public
Accountants  ("AICPA") issued Statement of Position 01-6,  Accounting by Certain
Entities (Including Entities with Trade Receivables) That Lend to or Finance the
Activities  of Others,  to reconcile  and conform the  accounting  and financial
reporting  provisions  established by various AICPA industry audit guides.  This
Statement is effective for annual and interim  financial  statements  issued for
fiscal years  beginning  after  December  15, 2001,  and did not have a material
impact on the Company's consolidated financial statements.

         On March 13, 2002, the Financial  Accounting  Standard Board determined
that  commitments  for the  origination  of mortgage loans that will be held for
sale must be accounted  for as  derivatives  instruments,  effective  for fiscal
quarters  beginning  after April 10, 2002.  The Bank enters into  commitments to
originate  loans whereby the interest  rate on the loan is  determined  prior to
funding.  Such  rate  lock  commitments  on  mortgage  loans  to be  sold in the
secondary  market are considered  derivatives.  Accordingly,  these  commitments
including any fees  received  from the  potential  borrower are recorded at fair
value in derivative  assets or liabilities,  with changes in fair value recorded
in the net gain or loss on sale of mortgage  loans.  Fair value is based on fees
currently  charged  to  enter  into  similar  agreements,   and  for  fixed-rate
commitments  also  considers the difference  between  current levels of interest
rates and the committed rates. The cumulative  effect of adopting  Statement No.
133 for rate lock  commitments  as of December 31, 2002,  was not material.  The
Company  originally  adopted  Statement  No.  133,   Accounting  for  Derivative
Instruments and Hedging Activities on January 1, 2001.


                                      -34-
<PAGE>

         In  April  2002,  the  Financial   Accounting  Standards  Board  issued
Statement 145, Rescission of FASB No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical  Corrections.  The amendment to Statement 13 eliminates an
inconsistency  between the required  accounting for sale-leaseback  transactions
and the required  accounting for certain lease  modifications that have economic
effects that are similar to  sale-leaseback  transactions.  This  Statement also
amends other existing  authoritative  pronouncements  to make various  technical
corrections,  clarify meanings,  or describe their  applicability  under changed
conditions.  The  provisions  of this  Statement  related to the  rescission  of
Statement 4 shall be applied in fiscal years  beginning  after May 15, 2002. The
provisions  of  this  Statement  related  to  Statement  13  are  effective  for
transactions occurring after May 15, 2002, with early application encouraged.

         In June 2002, the Financial Accounting Standards Board issued Statement
146,  Accounting for Costs  Associated  with Exit or Disposal  Activities.  This
Statement  requires  recognition  of  a  liability,  when  incurred,  for  costs
associated with an exit or disposal  activity.  The liability should be measured
at fair  value.  The  provisions  of the  Statement  are  effective  for exit or
disposal activities initiated after December 31, 2002.

         Effective January 1, 2002, the Corporation adopted Financial Accounting
Standards  Board  Statement  No.  142,  Goodwill  and Other  Intangible  Assets.
Accordingly,  goodwill is no longer subject to  amortization  over its estimated
useful life,  but is subject to at least an annual  assessment for impairment by
applying a fair value based test.  Additionally,  Statement  142  requires  that
acquired  intangible  assets (such as core deposit  intangibles)  be  separately
recognized  if the  benefit  of the  asset can be sold,  transferred,  licensed,
rented,  or exchanged,  and amortized over their estimated  useful life.  Branch
acquisition  transactions  were outside the scope of the Statement and therefore
any  intangible  asset  arising  from  such  transactions  remained  subject  to
amortization over their estimated useful life.

         In October  2002,  the  Financial  Accounting  Standards  Board  issued
Statement No. 147, Acquisitions of Certain Financial Institutions. The Statement
amends previous  interpretive guidance on the application of the purchase method
of  accounting  to  acquisitions  of  financial  institutions,  and requires the
application of Statement No. 141, Business  Combinations,  and Statement No. 142
to branch  acquisitions if such  transactions  meet the definition of a business
combination.  The  provisions  of the  Statement  do not  apply to  transactions
between  two or more mutual  enterprises.  In  addition,  the  Statement  amends
Statement  No. 144,  Accounting  for the  Impairment of  Long-Lived  Assets,  to
include  in its  scope  core  deposit  intangibles  of  financial  institutions.
Accordingly,  such  intangibles  are subject to a  recoverability  test based on
undiscounted  cash flows,  and to the  impairment  recognition  and  measurement
provisions required for other long-lived assets held and used.

         The adoption of  Statement  Nos.  142,  145, 146 and 147 did not have a
material impact on the Company's consolidated financial statements.

         The  Financial  Accounting  Standards  Board issued  Statement No. 148,
Accounting  for  Stock-Based  Compensation  -  Transition  and  Disclosure,   an
amendment of Statement No. 123, in December 2002. The Statement amends Statement
No. 123 to provide  alternative  methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee compensation.
In addition,  the Statement amends the disclosure  requirements of Statement 123
to require prominent disclosures in both annual and interim financial statements
about the method of accounting for  stock-based  employee  compensation  and the
effect of the method used on reported  results.  Finally,  this Statement amends
APB Opinion No. 28, Interim Financial Reporting, to require disclosure about the
effects of stock options in interim  financial  information.  The  amendments to
Statement No. 123 are effective for financial statements for fiscal years ending
after  December  15,  2002.  The  amendments  to APB No.  28 are  effective  for
financial reports containing  condensed financial statements for interim


                                      -35-
<PAGE>

periods  beginning after December 15, 2002. Early  application is encouraged for
both amendments. The Company continues to record stock options under APB Opinion
No. 25,  Accounting  for Stock  Issued to  Employees,  and has not  adopted  the
alternative methods allowable under Statement No. 148.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

         Interest rate risk represents the sensitivity of earnings to changes in
market interest rates. As interest rates change, the interest income and expense
streams associated with MFC's financial  instruments also change,  affecting net
interest income, the primary component of MFC's earnings.  ALCO uses the results
of a detailed and dynamic simulation model to quantify the estimated exposure of
net interest  income to sustained  interest rate changes.  While ALCO  routinely
monitors  simulated  net interest  income  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 MFC's balance sheet.  The simulation model is prepared
and updated four times during each year. This  sensitivity  analysis is compared
to ALCO policy limits,  which specify a maximum tolerance level for net interest
income 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.  Given
the current  historic low in interest  rates for the fiscal year 2002, the model
assumed only a 100 bp decrease in interest  rates.  The  following  reflects the
range of MFC's net interest income sensitivity  analysis during the fiscal years
of 2002 and 2001 as compared to the 10% Board-approved policy limit.

                                                      2002
               Rate Change          Estimated Net Interest Income Sensitivity
               -----------          -----------------------------------------

                                    High               Low            Average
                + 200 bp           (2.51%)          (1.00%)          (1.75%)
                - 100 bp            2.62%             .63%            1.33%

                                                      2001
               Rate Change          Estimated Net Interest Income Sensitivity
               -----------          -----------------------------------------

                                    High               Low            Average
                + 200 bp           (2.21%)           (.32%)          (1.32%)
                - 200 bp            3.24%            1.57%            2.44%

                                      -36-
<PAGE>

         At the end of 2002,  MFC's interest rate risk model indicated that in a
rising rate  environment of 200 basis points over a 12 month period net interest
income could decrease by 1.75% on average. For the same time period the interest
rate risk model  indicated  that in a declining  rate  environment  of 100 basis
points over a 12 month  period net interest  income  could  increase by 1.33% on
average.  While these  numbers are  subjective  based upon the  parameters  used
within the model,  management  believes the balance  sheet is very balanced with
little risk to rising rates in the future.

         During 2001, MFC was able to test the parameters and assumptions of its
simulation  model in light of the 4.75%  decrease  in short  term  rates over 11
months.  The  simulation  model proved to be accurate in its  presentation  of a
company that benefits  from falling  interest  rates.  As presented in the table
above,  MFC has had  minimal  interest  rate  risks to either  falling or rising
interest  rates over the past two years.  MFC could expect a negative  impact to
net interest  income of $364,000 if rates rise 200 basis points over the next 12
months. If rates decline 200 basis points, MFC could expect a positive impact to
net interest income of $386,000 over the next 12 months.

         During May 2000, MFC entered into two interest rate swap  agreements to
assume  variable  market-indexed  interest  payments in exchange for  fixed-rate
interest  payments.  The  interest  rate  swap  was used to  offset  the cost of
offering a premium market rate on a promotional  retail  certificate of deposit.
MFC raised $8.5 million in new deposits  during this  three-day  promotion.  The
terms of the  certificate  of deposit and the fixed portion of the interest rate
swap are  identical.  The  notional  principal  amount of  interest  rate  swaps
outstanding  was $8.5  million at December 31,  2001.  The original  term was 24
months and matured in May 2002. The weighted-average fixed payment rate was 7.0%
throughout  the  term.   Variable  interest  payments  received  were  based  on
three-month   LIBOR  The  effect  of  these  agreements  was  to  transform  the
certificates of deposit (fixed rate  liabilities) to variable rate  certificates
of deposit (liabilities).  The net income from these agreements was $170,000 for
the year ended December 31, 2002.

         The preceding  sensitivity  analysis does not represent an MFC 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. While assumptions are developed based upon current economic and local
market conditions, MFC cannot make any assurances about the 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 factors such as prepayment and
refinancing  levels likely  deviating from those assumed,  the varying 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.


                                      -37-
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The following  financial  statements are filed as a part of this report
following Item 15 below:

         Independent Auditor's Report
         Consolidated Balance Sheets as of December 31, 2002 and 2001
         Consolidated  Statements  of Income for the Years  Ended  December  31,
              2002,   2001,   and  2000
         Consolidated   Statements   of  Changes  in Shareholders' Equity for
              the Years Ended December 31, 2002, 2001,and 2000
         Consolidated Statements of Cash Flows for the Years Ended December 31,
              2002, 2001, and 2000
         Notes to Consolidated Financial Statements


ITEM 9.  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 10.  DIRECTORS AND EXECUTIVE OFFICERS

         Pursuant  to General  Instruction  G(3) of Form 10-K,  the  information
contained under the headings "Nominees for Election for Terms Expiring in 2004,"
"Executive  Officers  Who Are  Not  Directors"  and  "Section  16(a)  Beneficial
Ownership  Reporting  Compliance" in the Company's  Proxy Statement for the 2003
Annual Meeting of Shareholders is incorporated herein by reference.


ITEM 11.  EXECUTIVE COMPENSATION

         Pursuant  to General  Instruction  G(3) of Form 10-K,  the  information
contained under the headings "Director  Compensation,"  "Compensation  Committee
Interlocks and Insider Participation," "Executive Compensation," "Stock Options"
and "Employment Agreements" in the Company's Proxy Statement for the 2003 Annual
Meeting of Shareholders is incorporated herein by reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS


         Security Ownership.  Pursuant to General Instruction G(3) of Form 10-K,
the information  contained under the headings "Security Ownership of Management"
and "Security  Ownership of Certain  Beneficial  Owners" in the Company's  Proxy
Statement for the 2003 Annual Meeting of Shareholders is incorporated  herein by
reference.


                                      -38-
<PAGE>


         Equity  Compensation Plan  Information.  The following table sets forth
information as of December 31, 2002,  with respect to  compensation  plans under
which shares of the Company's Common Stock are authorized for issuance.
<TABLE>
<CAPTION>
                                                                                               Number of Securities
                                  Number of Securities to Be        Weighted Average           Remaining Available
                                   Issued upon Exercise of         Exercise Price of           for Future Issuance
                                     Outstanding Options,         Outstanding Options,             Under Equity
Plan Category                        Warrants and Rights          Warrants and Rights         Compensation Plans (1)
                                     -------------------          -------------------         ----------------------

<S>                                        <C>                            <C>                           <C>
Equity Compensation Plans
   Approved by Shareholders
      1997 Incentive Stock                 91,375                         $29.80                        35,633
      Option Plan

Equity Compensation Plans Not
   Approved by
   Shareholders(2)                             --                             --                            --

Total                                      91,375                         $29.80                        35,633
</TABLE>

---------

(1)  Amounts  exclude any  securities to be issued upon exercise of  outstanding
     options, warrants and rights.
(2)  The Company does not have any equity  compensation plans that have not been
     approved by shareholders.



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Pursuant  to General  Instruction  G(3) of Form 10-K,  the  information
contained  under the heading  "Transactions  with  Management"  in the Company's
Proxy  Statement for the 2003 Annual  Meeting of  Shareholders  is  incorporated
herein by reference.


ITEM 14.  CONTROLS AND PROCEDURES

         Within  the 90 days  prior  to the  date of this  report,  the  Company
carried out an evaluation,  under the supervision and with the  participation of
the Company's  management,  including the Company's Chief Executive  Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's  disclosure  controls and procedures pursuant to Rule 13a-14 under the
Securities  Exchange Act of 1934, as amended.  Based upon that  evaluation,  the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's  disclosure  controls and procedures are effective in timely  alerting
them to material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic filings with the
Securities and Exchange  Commission.  There have been no significant  changes in
the Company's  internal  controls or in other  factors that could  significantly
affect internal controls subsequent to the date that the Company carried out its
evaluation.

         In September 2002, the Company  completed an upgrade  conversion of its
core  operating  software that had commenced in early 2002.  The core  operating
software   primarily   provides   customer   accounting  for  deposit  and  loan
relationships.  In addition,  the system will serve as a record-keeping tool for
general  ledger  and  accounts   payable.   The  new  system  provides  enhanced
capabilities for the management of the Company's customer relationships. As with
any  system-related  change,  internal  processes may need to change or adapt to
retain  efficiency.  As part of its  evaluation of its  disclosure  controls and
procedures,


                                      -39-
<PAGE>

management  continues to evaluate,  document and monitor any changes to internal
controls as a result of the core operating software conversion.


                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a)  (1) and (2).  The  response to this portion of Item 15 is submitted as
          a separate  section of
                  this report.

          (3). Exhibits:

          3.1  Articles of Incorporation of the Company  (restated in electronic
               format).

          3.2  Bylaws  of  the   Company,   attached   as  Exhibit  3.2  to  the
               Registration  Statement on Form S-4,  Registration No. 333-24523,
               filed with the Commission on April 4, 1997,  incorporated  herein
               by reference.

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

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

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

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

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

          10.6 Employment  Agreement,  dated as of August 9, 1999,  between GPIA
               and James H. Patterson.

          21   Subsidiaries of the Company.

          23.1 Consent of Yount, Hyde & Barbour, P.C.

                                      -40-
<PAGE>

          99.1 Statement   of   Chief   Executive   Officer   Pursuant   to   18
               U.S.C.ss.1350.

          99.2 Statement   of   Chief   Financial   Officer   Pursuant   to   18
               U.S.C.ss.1350.

          (All  exhibits not  incorporated  herein by reference  are attached as
          exhibits  to the  Company's  Annual  Report  on Form 10-K for the year
          ended  December 31, 2002,  as filed with the  Securities  and Exchange
          Commission.)

     (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.

     (c)  Exhibits

          The  response  to this  portion of Item 15 as listed in Item  15(a)(3)
          above is submitted as a separate section of this report.

     (d)  Financial Statement Schedules

          The  response to this  portion of Item 15 is  submitted  as a separate
          section of this report.


                                      -41-
<PAGE>


                        MIDDLEBURG FINANCIAL CORPORATION

                              Middleburg, Virginia

                                FINANCIAL REPORT

                                DECEMBER 31, 2002


<PAGE>


                                 C O N T E N T S


                                                                            Page

INDEPENDENT AUDITOR'S REPORT ON THE
   CONSOLIDATED FINANCIAL STATEMENTS                                          1

CONSOLIDATED FINANCIAL STATEMENTS

   Consolidated balance sheets                                                2
   Consolidated statements of income                                          3
   Consolidated statements of changes in shareholders' equity                 4
   Consolidated statements of cash flows                                5 and 6
   Notes to consolidated financial statements                              7-31


<PAGE>
                  [LETTERHEAD OF YOUNT, HYDE & BARBOUR, P.C.]


                          INDEPENDENT AUDITOR'S REPORT






To the Board of Directors
Middleburg Financial Corporation
Middleburg, Virginia


               We have audited the accompanying  consolidated  balance sheets of
Middleburg  Financial  Corporation and  subsidiaries as of December 31, 2002 and
2001,   and  the  related   consolidated   statements  of  income,   changes  in
shareholders'  equity and cash flows for the years ended December 31, 2002, 2001
and 2000.  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  auditing  standards
generally accepted in the United States of America. 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
Middleburg  Financial  Corporation and  subsidiaries as of December 31, 2002 and
2001,  and the  results of their  operations  and their cash flows for the years
ended December 31, 2002, 2001 and 2000, in conformity with accounting principles
generally accepted in the United States of America.


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

Winchester, Virginia
January 17, 2003



                                       1

<PAGE>
                        MIDDLEBURG FINANCIAL CORPORATION

                           Consolidated Balance Sheets
                           December 31, 2002 and 2001
                      (In Thousands, Except for Share Data)

        Assets                                               2002        2001
                                                          ---------   ---------
Cash and due from banks                                   $   8,338   $  10,053
Interest-bearing deposits in banks                              274         200
Temporary investments:
  Federal funds sold                                          - -           925
  Other money market investments                                911       1,797
Securities (fair value:  2002, $163,957; 2001, $124,522)    163,673     124,351
Loans held for sale                                          17,489       6,652
Loans, net of allowance for loan losses of $2,307 in 2002
   and $2,060 in 2001                                       209,800     194,340
Bank premises and equipment, net                             11,814       8,069
Accrued interest receivable and other assets                 12,675       7,714
                                                          ---------   ---------
         Total assets                                     $ 424,974   $ 354,101
                                                          =========   =========


   Liabilities and Shareholders' Equity

Liabilities
  Deposits:
    Noninterest-bearing demand deposits                   $  90,413   $  68,771
    Savings and interest-bearing demand deposits            138,661     111,148
    Time deposits                                            99,829      91,812
                                                          ---------   ---------
         Total deposits                                   $ 328,903   $ 271,731

  Securities sold under agreements to repurchase              8,924      12,011
  Federal Home Loan Bank advances                             - -         7,000
  Long-term debt                                             31,545      20,805
  Trust preferred capital notes                              10,000      10,000
  Accrued interest and other liabilities                      4,192       2,216
  Commitments and contingent liabilities                      - -         - -
                                                          ---------   ---------
         Total liabilities                                $ 383,564   $ 323,763
                                                          ---------   ---------

Shareholders' Equity
  Common stock, par value $5 per share, authorized
    10,000,000 shares; issued 2002, 1,852,682 shares;
    issued  2001, 1,752,258 shares                        $   9,263   $   8,761
  Capital surplus                                             3,644         741
  Retained earnings                                          25,184      21,084
  Accumulated other comprehensive income (loss)               3,319        (248)
                                                          ---------   ---------
         Total shareholders' equity                       $  41,410   $  30,338
                                                          ---------   ---------
         Total liabilities and shareholders' equity       $ 424,974   $ 354,101
                                                          =========   =========

 See Notes to Consolidated Financial Statements.


                                       2
 <PAGE>

                        MIDDLEBURG FINANCIAL CORPORATION

                        Consolidated Statements of Income
                  Years Ended December 31, 2002, 2001 and 2000
                    (In Thousands, Except for Per Share Data)
<TABLE>
<CAPTION>

                                                                 2002        2001       2000
                                                                 ----        ----       ----

<S>                                                            <C>         <C>        <C>
Interest and Dividend Income
  Interest and fees on loans                                   $ 16,178    $ 16,327   $ 14,076
  Interest on investment securities:
    Taxable interest income                                           3          19         25
    Interest income exempt from federal income taxes                241         297        354
  Interest and dividends on securities available for sale:
    Taxable interest income                                       5,365       3,102      3,055
    Interest income exempt from federal income taxes              1,568       1,607      1,167
    Dividends                                                       277         281        318
  Interest on deposits in banks                                       5           9          4
  Interest on federal funds sold                                     82         117        170
  Interest on other money market investments                         39          63         40
                                                               --------    --------   --------
         Total interest and dividend income                    $ 23,758    $ 21,822   $ 19,209
                                                               --------    --------   --------

Interest Expense
  Interest on deposits                                         $  4,221    $  5,841   $  5,324
  Interest on securities sold under agreements to repurchase        181         415        633
  Interest on Federal Home Loan Bank borrowings                     115         482        584
  Interest on long-term debt                                      2,007       1,076        500
                                                               --------    --------   --------
         Total interest expense                                $  6,524    $  7,814   $  7,041
                                                               --------    --------   --------

         Net interest income                                   $ 17,234    $ 14,008   $ 12,168

  Provision for loan losses                                         300         300        400
                                                               --------    --------   --------

         Net interest income after provision
            for loan losses                                    $ 16,934    $ 13,708   $ 11,768
                                                               --------    --------   --------

Noninterest Income
  Service charges, commissions and fees                        $  1,960    $  1,452   $  1,180
  Trust and investment advisory fee income                        2,725       1,279      1,594
  Fees on loans held for sale                                     1,935       1,483        643
  Gains (losses) on securities available for sale, net              (73)        384       (204)
  Commissions on investment sales                                   611         485        116
  Other                                                              81         128        136
                                                               --------    --------   --------
         Total noninterest income                              $  7,239    $  5,211   $  3,465
                                                               --------    --------   --------

Noninterest Expenses
  Salaries and employees' benefits                             $  9,383    $  7,180   $  5,600
  Net occupancy and equipment expense                             1,851       1,246      1,172
  Advertising                                                       414         320        347
  Computer operations                                               539         408        298
  Other operating expenses                                        3,339       2,793      2,138
                                                               --------    --------   --------
         Total noninterest expenses                            $ 15,526    $ 11,947   $  9,555
                                                               --------    --------   --------
         Income before income taxes                            $  8,647    $  6,972   $  5,678

  Income tax expense                                              2,335       1,755      1,450
                                                               --------    --------   --------
         Net income                                            $  6,312    $  5,217   $  4,228
                                                               ========    ========   ========
Earnings per Share, basic                                      $   3.47    $   2.99   $   2.43
                                                               ========    ========   ========
Earnings per Share, diluted                                    $   3.39    $   2.93   $   2.41
                                                               ========    ========   ========
</TABLE>

 See Notes to Consolidated Financial Statements.

                                       3
<PAGE>
                        MIDDLEBURG FINANCIAL CORPORATION

           Consolidated Statements of Changes in Shareholders' Equity
                  Years Ended December 31, 2002, 2001 and 2000
                        (In Thousands, Except Share Data)

<TABLE>
<CAPTION>

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

<S>                                               <C>         <C>         <C>         <C>                     <C>
Balance, December 31, 1999                        $  8,895    $  1,293    $ 14,852    $ (1,965)               $ 23,075
  Comprehensive income:
    Net income - 2000                                - -         - -         4,228       - -      $  4,228       4,228
    Other comprehensive income net of tax:
     Unrealized holding gains arising during the
      period (net of tax, $1,150)                    - -         - -         - -         - -         2,233       - -
     Reclassification adjustment (net of tax, $69)   - -         - -         - -         - -           135       - -
                                                                                                  --------
     Other comprehensive income (net of tax, $1,219) - -         - -         - -         2,368    $  2,368       2,368
                                                                                                  --------
  Total comprehensive income                         - -         - -         - -         - -      $  6,596       - -
                                                                                                  ========
  Cash dividends - 2000 ($0.84 per share)            - -         - -        (1,464)      - -                    (1,464)
  Purchase of common stock (57,785 shares)          (289)       (1,038)      - -         - -                    (1,327)
  Issuance of common stock (18,038 shares)            90           301       - -         - -                       391
                           -------                --------    --------    --------    --------                --------
Balance, December 31, 2000                        $  8,696    $    556    $ 17,616    $    403                $ 27,271
  Comprehensive income:
    Net income - 2001                                - -         - -         5,217       - -      $  5,217       5,217
    Other comprehensive income net of tax:
     Unrealized holding losses arising during the
      period (net of tax, $204)                      - -         - -         - -         - -          (398)      - -
    Reclassification adjustment (net of tax, $131)   - -         - -         - -         - -          (253)      - -
                                                                                                  --------
    Other comprehensive income (net of tax, $335)    - -         - -         - -          (651)   $   (651)       (651)
                                                                                                  --------
  Total comprehensive income                         - -         - -         - -         - -      $  4,566       - -
                                                                                                  ========
  Cash dividends - 2001 ($1.00 per share)            - -         - -        (1,749)      - -                    (1,749)
  Purchase of common stock (7,131 shares)              (36)       (178)      - -         - -                      (214)
  Issuance of common stock (20,142 shares)             101         363       - -         - -                       464
                  --- ----                        --------    --------    --------    --------                --------
Balance, December 31, 2001                        $  8,761    $    741    $ 21,084    $   (248)               $ 30,338
  Comprehensive income:
    Net income - 2002                                - -         - -         6,312       - -      $  6,312       6,312
    Other comprehensive income net of tax:
     Unrealized holding gains arising during the
      period (net of tax, $1,813)                    - -         - -         - -         - -         3,519       - -
    Reclassification adjustment (net of tax, $25)    - -         - -         - -         - -            48       - -
                                                                                                  --------
    Other comprehensive income (net of tax, $1,704)  - -         - -         - -         3,567    $  3,567       3,567
                                                                                                  --------
  Total comprehensive income                         - -         - -         - -         - -      $  9,879       - -
                                                                                                  ========
  Cash dividends - 2002 ($1.20 per share)            - -         - -        (2,212)      - -                    (2,212)
  Issuance of common stock (100,424 shares)            502       2,903       - -         - -                     3,405
                                                  --------    --------    --------    --------                --------
Balance, December 31, 2002                        $  9,263    $  3,644    $ 25,184    $  3,319                $ 41,410
                                                  ========    ========    ========    ========                ========

 See Notes to Consolidated Financial Statements.
</TABLE>
                                        4

<PAGE>


                    MIDDLEBURG FINANCIAL CORPORATION


                  Consolidated Statements of Cash Flows
              Years Ended December 31, 2002, 2001 and 2000
                             (In Thousands)

<TABLE>
<CAPTION>

                                                                2002             2001             2000
                                                             ----------       ---------         ---------
<S>                                                          <C>              <C>               <C>
 Cash Flows from Operating Activities
   Net income                                                $   6,312        $   5,217         $   4,228
   Adjustments to reconcile net income to net cash
     provided by (used in) operating activities:
       Depreciation                                                953              692               645
       Amortization                                                313               96                64
       Provision for loan losses                                   300              300               400
       Net (gain) loss on securities available for sale             73             (384)              204
       Net (gain) loss on sale of assets                            (3)               2                (7)
       Net loss on the sale of other real estate                   - -              - -               - -
       Discount accretion and premium amortization
         on securities, net                                        (57)            (110)              (20)
       Deferred income tax provision (benefit)                     193              (95)             (180)
       Origination of loans held for sale                     (121,862)         (93,229)          (34,837)
       Proceeds from sales of loans held for sale              111,025           88,708            33,938
       Changes in assets and liabilities:
         (Increase) in other assets                               (937)            (917)           (1,058)
         Increase in other liabilities                            235              211               846
                                                             ----------       ---------         ---------
 Net cash provided by operating activities                   $  (3,455)       $     491         $   4,223
                                                             ----------       ---------         ---------

 Cash Flows from Investing Activities
   Proceeds from maturity, principal paydowns
     and calls of investment securities                      $     897        $   2,032         $     772
   Proceeds from maturity, principal paydowns
     and calls of securities available for sale                 24,839            9,070             4,527
   Proceeds from sale of securities
     available for sale                                         21,901           24,050            16,581
   Purchase of securities available for sale                   (81,576)         (78,415)          (32,316)
   Proceeds from sale of equipment                                  31               34                 7
   Purchases of bank premises and equipment                     (4,726)          (2,448)             (709)
   Net (increase) in loans                                     (16,760)         (18,846)          (34,412)
   Purchase of subsidiary                                       (1,240)            - -               - -
                                                             ----------       ---------         ---------
 Net cash (used in) investing activities                     $ (56,634)       $ (64,523)        $ (45,550)
                                                             ----------       ----------        ----------

</TABLE>

 See Notes to Consolidated Financial Statements.

                                                         5


<PAGE>

                     MIDDLEBURG FINANCIAL CORPORATION

                  Consolidated Statements of Cash Flows
                               (Continued)
               Years Ended December 31, 2002, 2001 and 2000
                              (In Thousands)

<TABLE>
<CAPTION>

                                                                 2002             2001              2000
                                                             ----------        ----------         ----------
<S>                                                          <C>               <C>               <C>
 Cash Flows from Financing Activities
  Net increase in noninterest-bearing and interest-
   bearing demand deposits and savings accounts              $   49,155        $  33,514         $   11,147
  Net increase in certificates of deposit                         8,017           13,577              9,656
  Increase (decrease) in securities sold under agreements
   to repurchase                                                 (3,087)          (2,310)             3,510
  Proceeds from Federal Home Loan Bank advances                  95,000           87,600             35,900
  Proceeds from long-term debt                                   11,000              - -              1,300
  Proceeds from trust preferred capital notes                       - -           10,000                - -
  Payments on Federal Home Loan Bank advances                  (102,000)         (80,600)               - -
  Payments on long-term debt                                       (260)            (495)           (20,900)
  Purchase of common stock                                          - -             (214)            (1,327)
  Net proceeds from issuance of common stock                        906              464                 34
  Cash dividends paid                                            (2,094)          (1,676)            (1,402)
                                                             ----------        ---------         ----------
   Net cash provided by financing activities                 $   56,637        $  59,860         $   37,918
                                                             ----------        ---------         ----------

 (Decrease) in cash and and cash equivalents                 $   (3,452)       $  (4,172)          $ (3,409)

 Cash and Cash Equivalents
  Beginning                                                      12,975           17,147             20,556
                                                             ----------        ---------         ----------

 Ending                                                      $    9,523        $  12,975         $   17,147
                                                             ==========        =========         ==========

 Supplemental Disclosures of Cash Flow Information
  Cash payments for:
  Interest paid to depositors                                $    4,772        $   6,294         $    5,833
  Interest paid on short-term obligations                           118              479                445
  Interest paid on long-term debt                                 1,978            1,073                500
                                                             ----------        ---------         ----------
                                                             $    6,868        $   7,846         $    6,778
                                                             ==========        =========         ==========

 Income taxes                                                $    2,158        $   2,375         $    1,557
                                                             ==========        =========         ==========

 Supplemental Disclosure of Noncash Transactions
  Issuance of common stock for contingent payment under
   terms of acquisition of subsidiary                        $    2,500        $     - -         $      357
                                                             ==========        =========         ==========
 Unrealized (loss) gain on securities available for sale     $    5,405        $    (986)        $    3,587
                                                             ==========        =========         ==========
 Note receivable forgiven in connection with purchase
  of subsidiary                                              $    1,000        $     - -         $      - -
                                                             ==========        =========         ==========
 Exercise of option to purchase subsidiary                   $    1,200        $     - -         $      - -
                                                             ==========        =========         ==========
</TABLE>

 See Notes to Consolidated Financial Statements.


                                                         6
<PAGE>

                        MIDDLEBURG FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements


Note 1.        Nature of Banking Activities and Significant Accounting Policies

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

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

                  Principles of Consolidation

                      The  consolidated   financial   statements  of  Middleburg
                      Financial   Corporation  (formerly  Independent  Community
                      Bankshares,  Inc.) and its wholly-owned subsidiaries,  The
                      Middleburg  Bank,  The Tredegar  Trust  Company,  Gilkison
                      Patterson  Investment  Advisors,   Inc.,  Middleburg  Bank
                      Service  Corporation and ICBI Capital Trust I, include the
                      accounts  of  all  companies.  All  material  intercompany
                      balances  and   transactions   have  been   eliminated  in
                      consolidation.

                  Securities

                      Investments are accounted for as follows:

                      a.   Securities Held to Maturity

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

                      b.   Securities Available for Sale

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

                                       7
<PAGE>


                   Notes to Consolidated Financial Statements



                           Purchase  premiums and  discounts  are  recognized in
                           interest  income using the  interest  method over the
                           terms of the  securities.  Declines in the fair value
                           of held to maturity and available for sale securities
                           below  their  cost that are  deemed to be other  than
                           temporary  are  reflected  in  earnings  as  realized
                           losses.  Gains and  losses on the sale of  securities
                           are  recorded  on the trade  date and are  determined
                           using the specific identification method.

                  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. Substantially all
                      loans originated are held for sale to outside investors.

                  Loans

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

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

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

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

                  Allowance for Loan Losses

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

                                       8
<PAGE>


                   Notes to Consolidated Financial Statements




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

                      A loan is  considered  impaired  when,  based  on  current
                      information and events,  it is probable that the Company's
                      subsidiary  bank will be unable to collect  the  scheduled
                      payments of  principal or interest  when due  according to
                      the  contractual  terms  of the  loan  agreement.  Factors
                      considered by management in determining impairment include
                      payment status,  collateral  value, and the probability of
                      collecting  scheduled principal and interest payments when
                      due. Loans that  experience  insignificant  payment delays
                      and payment  shortfalls  generally  are not  classified as
                      impaired.   Management   determines  the  significance  of
                      payment  delays and payment  shortfalls on a  case-by-case
                      basis,  taking into consideration all of the circumstances
                      surrounding  the  loan  and the  borrower,  including  the
                      length  of the  delay,  the  reasons  for the  delay,  the
                      borrower's  prior  payment  record,  and the amount of the
                      shortfall in relation to the principal and interest  owed.
                      Impairment  is  measured  on a  loan  by  loan  basis  for
                      commercial  and  construction  loans by either the present
                      value of  expected  future  cash flows  discounted  at the
                      loan's  effective  interest  rate,  the loan's  obtainable
                      market price,  or the fair value of the  collateral if the
                      loan is collateral dependent.

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

                  Loan Fees and Costs

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

                  Bank Premises and Equipment

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

                                                                 Years
                                                                -------

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

                                       9
<PAGE>


                   Notes to Consolidated Financial Statements



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

                  Other Real Estate

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

                  Goodwill

                       The  Company  adopted  SFAS No. 142,  Goodwill  and Other
                      Identifiable   Assets,    effective   January   1,   2002.
                      Accordingly, goodwill is no longer subject to amortization
                      over its estimated useful life, but is subject to at least
                      an annual  assessment  for  impairment  by applying a fair
                      value based test.  Additionally,  under SFAS 142, acquired
                      intangible assets (such as customer  relationships and non
                      compete   agreements)   are   separately   recognized  and
                      amortized over their useful life.

                  Income Taxes

                      Deferred  income tax assets and liabilities are determined
                      using the balance sheet method. Under this method, the net
                      deferred tax asset or liability is determined based on the
                      tax effects of the temporary  differences between the book
                      and tax bases of the  various  balance  sheet  assets  and
                      liabilities  and gives current  recognition  to changes in
                      tax rates and laws.

                  Earnings Per Share

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

                  Cash and Cash Equivalents

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

                                       10
<PAGE>
                   Notes to Consolidated Financial Statements



                  Use of Estimates

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

                  Advertising Costs

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

                  Comprehensive Income

                      Accounting  principles  generally  require that recognized
                      revenue,  expenses,  gains and losses be  included  in net
                      income.   Although   certain   changes   in   assets   and
                      liabilities,  such  as  unrealized  gains  and  losses  on
                      available for sale securities,  are reported as a separate
                      component of the equity section of the balance sheet, such
                      items,   along   with  net  income   are   components   of
                      comprehensive income.

                  Derivative Financial Instruments

                      As part of the Company's asset/liability  management,  the
                      Company uses interest  rate swaps to modify  interest rate
                      characteristics   of  various   balance  sheet   accounts.
                      Derivatives  that are used as part of the  asset/liability
                      management  process  are  linked  to  specific  assets  or
                      liabilities and have high correlation between the contract
                      and the  underlying  item being hedged,  both at inception
                      and throughout  the hedge period.  Swaps are accounted for
                      on the "accrual" method.  Under that method,  the interest
                      component  associated with the contract is recognized over
                      the life of the contract in net interest income.

                      The Company enters into commitments to originate  mortgage
                      loans  whereby the interest rate on the loan is determined
                      prior  to  funding  (rate  lock  commitments).  Rate  lock
                      commitments on mortgage loans that are intended to be sold
                      are  considered  to be  derivatives.  The  period  of time
                      between issuance of a loan commitment and closing and sale
                      of the loan  generally  ranges  from 60 to 120  days.  The
                      Company  protects  itself from  changes in interest  rates
                      through  the  use  of  best   efforts   forward   delivery
                      commitments, whereby the Company commits to sell a loan at
                      the time the borrower commits to an interest rate with the
                      intent  that the buyer has assumed  interest  rate risk on
                      the loan.

                  Stock-Based Employee Compensation Plan

                      At  December  31,  2002,  the  Company  had a  stock-based
                      employee  compensation  plan which is described more fully
                      in Note 8. The  Company  accounts  for the plan  under the
                      recognition and measurement  principles of APB opinion No.
                      25, Accounting for Stock Issued to Employees,  and related
                      Interpretations. No stock-based employee compensation cost
                      is reflected in net income,  as all options  granted under
                      those plans had an exercise

                                       11
<PAGE>


                   Notes to Consolidated Financial Statements



                      price equal to the market value of the  underlying  common
                      stock  on  the  date  of  grant.   The   following   table
                      illustrates  the  effect on net income  and  earnings  per
                      share  if  the   Company   had   applied  the  fair  value
                      recognition   provisions   of  FASB   Statement  No.  123,
                      Accounting for  Stock-Based  Compensation,  to stock-based
                      employee  compensation.   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  2002  and  2000;dividend  rate  of  0.22%  and  0.20%;
                      risk-free interest rate of 5.51% and 5.35%; expected lives
                      of 10 years;  and expected price  volatility of 18.71% and
                      17.96%. No options were granted during 2001.

                                                Year Ended December 31,
                                        --------------------------------------
                                           2002          2001           2000
                                        ---------     ---------      ---------

Net income, as reported                 $   6,312     $   5,217      $   4,228
Deduct:  Total stock-based employee
 compensation expense determined under
 fair value based method for all awards     (289)         (223)           (317)
                                        ---------     ---------      ---------

Pro forma net income                    $   6,023     $   4,994      $   3,911
                                        =========     =========      =========

Earnings per share:
 Basic - as reported                    $    3.47     $    2.99      $    2.43
 Basic - pro forma                           3.31          2.86           2.25
 Diluted - as reported                       3.39          2.93           2.41
 Diluted - pro forma                         3.23          2.80           2.23


Note 2.        Securities

               Amortized  costs and fair  values  of  securities  being  held to
               maturity  as of  December  31,  2002 and 2001 are  summarized  as
               follows:
<TABLE>
<CAPTION>
                                                                         Gross            Gross
                                                      Amortized        Unrealized       Unrealized        Fair
                                                        Cost             Gains           (Losses)         Value
                                                      ----------       ----------       ----------      ---------
                                                                                  2002
                                                      -----------------------------------------------------------
                                                                            (In Thousands)
<S>                                                   <C>              <C>              <C>             <C>
             Obligations of states and
               political subdivisions                 $    4,590       $       28       $    - -        $   4,874
             Mortgage-backed securities                       53          - -                - -               53
                                                      ----------       ----------       ----------      ---------
                                                      $    4,643       $      284       $    - -        $   4,927
                                                      ==========       ==========       ==========      =========
                                                                                  2001
                                                      -----------------------------------------------------------
                                                                            (In Thousands)
             Obligations of states and
               political subdivisions                 $    5,484       $       17       $    - -        $   5,655
             Mortgage-backed securities                       61          - -                - -               61
                                                      ----------       ----------       ----------      ---------
                                                      $    5,545       $      171       $    - -        $   5,716
                                                      ----------       ----------       ----------      ---------

</TABLE>
                                       12

<PAGE>


                   Notes to Consolidated Financial Statements



               The  amortized  cost and fair value of  securities  being held to
               maturity as of  December  31, 2002 by  contractual  maturity  are
               shown below. Maturities may differ from contractual maturities in
               mortgage-backed  securities because the mortgages  underlying the
               securities  may  be  called  or  repaid  without  any  penalties.
               Therefore,  these  securities  are not  included in the  maturity
               categories in the following maturity summary.


                                                        Amortized        Fair
                                                          Cost          Value
                                                        --------       --------
                                                            (In Thousands)

               Due in one year or less                  $    376       $    377
               Due after one year through five years       2,630          2,780
               Due after five years through 10 years       1,584          1,717
               Mortgage-backed securities                     53             53
                                                        --------       --------
                                                        $  4,643       $  4,927
                                                        ========       ========

               Amortized costs and fair values of securities  available for sale
               as of December 31, 2002 and 2001, are summarized as follows:

<TABLE>
<CAPTION>
                                                             Gross          Gross
                                             Amortized     Unrealized     Unrealized        Fair
                                               Cost          Gains         (Losses)         Value
                                            ----------     ----------     ----------     ----------
                                                                    2002
                                            -------------------------------------------------------
                                                                (In Thousands)
<S>                                         <C>            <C>            <C>            <C>
 U.S. Treasury securities and
   obligations of U.S. Government
   corporations and agencies                $    4,360     $       46     $      - -     $    4,406
 Obligations of states and
   political subdivisions                       31,195          1,444            - -         32,639
 Mortgage-backed securities                     98,877          3,651             (7)       102,521
 Corporate preferred                             2,221             93            (31)         2,283
 Restricted stock                                2,324            - -            - -          2,324
 Other                                          15,024            204           (371)        14,857
                                            ----------     ----------     ----------     ----------
                                            $  154,001     $    5,438     $     (409)    $  159,030
                                            ==========     ==========     ==========     ==========
</TABLE>

                                       13

<PAGE>


                   Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>

                                                            Gross         Gross
                                             Amortized    Unrealized    Unrealized       Fair
                                                Cost         Gains       (Losses)       Value
                                            ----------    ----------    ----------    ----------
                                                                    2001
                                            ----------------------------------------------------
                                                               (In Thousands)
<S>                                         <C>           <C>           <C>           <C>
 U.S. Treasury securities and
   obligations of U.S. Government
   corporations and agencies                $      249    $       18    $      - -    $      267
 Obligations of states and
   political subdivisions                       33,338           381          (499)       33,220
 Mortgage-backed securities                     64,206           231          (691)       63,746
 Corporate preferred                             2,188            25           (28)        2,185
 Restricted stock                                2,134           - -           - -         2,134
 Other                                          17,067           265           (78)       17,254
                                            ----------    ----------    ----------    ----------
                                            $  119,182    $      920    $   (1,296)   $  118,806
                                            ==========    ==========    ==========    ==========

</TABLE>

               The  amortized  cost and fair value of  securities  available for
               sale as of December 31, 2002, by  contractual  maturity are shown
               below.  Maturities  may differ  from  contractual  maturities  in
               corporate and  mortgage-backed  securities because the securities
               and mortgages  underlying  the securities may be called or repaid
               without  any  penalties.  Therefore,  these  securities  are  not
               included in the maturity  categories  in the  following  maturity
               summary.

                                                 Amortized       Fair
                                                    Cost         Value
                                                 ----------    ----------
                                                      (In Thousands)

 Due in one year or less                          $   1,378    $    1,388
 Due after one year through five years                5,416         5,568
 Due after five years through 10 years               11,046        11,685
 Due after 10 years                                  17,715        18,404
 Mortgage-backed securities                          98,877       102,521
 Corporate preferred                                  2,221         2,283
 Restricted stock                                     2,324         2,324
 Other                                               15,024        14,857
                                                 ----------    ----------
                                                 $  154,001    $  159,030
                                                 ==========    ==========



               Proceeds from sales of securities available for sale during 2002,
               2001 and 2000 were  $21,900,811 ,  $24,050,000  and  $16,581,000,
               respectively.  Gross gains of $ 80,419,  $533,000 and $23,000 and
               gross losses of $153,887,  $149,000 and $227,000 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 $13,559,852 and $27,701,000 at December 31,
               2002 and 2001, respectively.

                                       14
<PAGE>


                   Notes to Consolidated Financial Statements





Note 3.        Loans, Net

<TABLE>
<CAPTION>

                                                                  December 31,
                                                     --------------------------------------
                                                           2002                  2001
                                                     ---------------        ---------------
                                                                 (In Thousands)
<S>                                                  <C>                    <C>
 Mortgage loans on real estate:
    Construction                                     $        22,008        $        24,174
    Secured by farmland                                          482                    163
    Secured by 1-4 family residential                         84,389                 89,095
    Other real estate loans                                   73,164                 48,074
 Loans to farmers (except secured by real estate)                686                    632
 Commercial loans                                             19,637                 22,361
 Loans to individuals for personal expenditures               11,550                 11,735
 All other loans                                                 191                    166
                                                     ---------------        ---------------
                     Total loans                     $       212,107        $       196,400
 Less:     Allowance for loan losses                           2,307                  2,060
                                                     ---------------        ---------------
                     Net loans                       $       209,800        $       194,340
                                                     ===============        ===============
</TABLE>

Note 4.        Allowance for Loan Losses

<TABLE>
<CAPTION>

                                                  2002           2001             2000
                                              -----------     -----------      -----------
                                                              (In Thousands)

<S>                                           <C>             <C>              <C>
    Balance, beginning                        $     2,060     $     1,804      $     1,453
    Provision charged to operating expense            300             300              400
    Recoveries                                         21              39               47
    Loan losses charged to the allowance              (74)            (83)             (96)
                                              -----------     -----------      -----------
                                              $     2,307     $     2,060      $     1,804
                                              ===========     ===========      ===========
</TABLE>

               There were no loans  recognized for impairment under SFAS No. 114
               as of December 31, 2002 and 2001. The average recorded investment
               in impaired loans during 2000 was $15,000.  No interest income on
               impaired loans was recognized in 2002, 2001 and 2000.

               Nonaccrual  loans  excluded from impaired loan  disclosure  under
               SFAS No. 114 amounted to  $1,063,000  and $79,000 at December 31,
               2002 and 2001, respectively.  If interest on these loans had been
               accrued, such income would have approximated $41,000 and $700 for
               2002 and 2001, respectively.

                                       15
<PAGE>
                   Notes to Consolidated Financial Statements





Note 5.        Bank Premises and Equipment, Net

               Bank premises and equipment consists of the following:

<TABLE>
<CAPTION>

                                                       2002            2001
                                                   ------------   -------------
                                                          (In Thousands)

            <S>                                    <C>            <C>
             Land                                  $      2,262   $       2,022
             Banking facilities                           7,621           3,907
             Furniture, fixtures and equipment            7,279           5,400
             Construction in progress and deposits
               on equipment                                 210           1,406
                                                   ------------   -------------
                                                   $     17,372   $      12,735
             Less accumulated depreciation                5,558           4,666
                                                   ------------   -------------
                                                   $     11,814   $       8,069
                                                   ============   =============
</TABLE>


                Depreciation  expense was $953,000,  $692,000,  and $645,000 for
                the years ended December 31, 2002, 2001 and 2000, respectively.


Note 6.        Deposits

                The aggregate amount of jumbo time deposits, each with a minimum
                denomination  of $100,000,  was  approximately  $ 56,636,000 and
                $45,679,000 in 2002 and 2001, respectively.

                At December 31, 2002, the scheduled  maturities of time deposits
                (in thousands) are as follows:

                   2003                                           57,578
                   2004                                           23,852
                   2005                                            7,215
                   2006                                            4,575
                   2007                                            6,418
                   Thereafter                                        191
                                                            ------------
                                                            $     99,829
                                                            ------------


                At  December  31,  2002  and  2001,  overdraft  demand  deposits
                reclassified   to   loans   totaled   $191,000   and   $166,000,
                respectively.


Note 7.        Borrowings

               The  Company  has a  $82,690,000  line of credit with the Federal
               Home Loan Bank of  Atlanta.  Advances  on the line are secured by
               all of  the  Company's  first  lien  loans  on  one-to-four  unit
               single-family  dwellings. As of December 31, 2002, the book value
               of these loans totaled approximately  $67,000,000.  The amount of
               the  available  credit is  limited  to  seventy-five  percent  of
               qualifying collateral. Any borrowings in excess of the qualifying
               collateral require pledging of additional assets.

                                       16
<PAGE>
                   Notes to Consolidated Financial Statements





               The  Company's  fixed-rate  long-term  debt with the Federal Home
               Loan Bank of  $31,000,000  at December 31, 2002  matures  through
               2012.  During 2002 and 2001,  the interest rates ranged from 3.83
               percent to 6.16  percent and from 4.73  percent to 6.16  percent,
               respectively. At December 31, 2002 and 2001, the weighted average
               interest rates were 5.13 percent and 5.73 percent, respectively.

               At December 31,  2002,  the Company had  floating-rate  long-term
               debt with other  institutions  totaling $ 545,000 and maturing on
               March 31, 2003.  The  floating  rate is based on the 30-day LIBOR
               plus 115 basis  points.  The interest  rate ranged from 2.53 % to
               3.03 % during 2002.

               The contractual maturities of the Company's long-term debt are as
               follows:

                                                                     2002
                                                                -------------
                                                                (In Thousands)

                           Due in 2003                          $         545
                           Due in 2004                                 11,000
                           Due in 2005                                 15,000
                           Due in 2012                                  5,000
                                                                -------------
                                                                $      31,545

               The  Company  has an  additional  $5,300,000  in lines of  credit
               available from other institutions at December 31, 2002.


Note 8.        Stock Option Plan

               The Company  sponsors a stock option plan, which provides for the
               granting of both incentive and nonqualified stock options.  Under
               the plan,  the  Company  may grant  options to its  officers  and
               employees for up to 190,000 shares of common stock.  The exercise
               price of each  option  equals the market  price of the  Company's
               stock on the date of grant. The options vest over the three years
               following  the date of grant.  All options  expire ten years from
               the grant date.

                                       17
<PAGE>

                   Notes to Consolidated Financial Statements





                Options  outstanding  at December  31,  2002,  2001 and 2000 are
                summarized as follows:

<TABLE>
<CAPTION>

                                2002                  2001                     2000
                        -------------------   --------------------    ---------------------
                                  Weighted               Weighted                  Weighted
                                   Average                Average                   Average
                                  Exercise               Exercise                  Exercise
                        Shares      Price      Shares      Price       Shares        Price
                        ------    --------     ------    ---------     ------      --------
<S>                     <C>        <C>        <C>        <C>           <C>         <C>
Outstanding at
 beginning of year      104,425    $ 20.76    154,825    $    21.15    123,825     $  21.13
Granted                  27,500      45.50        - -           - -     31,000        21.66
Exercised               (40,550)     17.10    (22,442)        20.29        - -          - -
Forfeited                   - -        - -    (27,958)        23.28        - -          - -
                        -------               -------                  -------
Outstanding at end
 of year                 91,375    $ 29.80    104,425    $    20.76    154,825     $  21.15
                        =======               =======                  =======
Options exercisable
 at year end             69,600    $ 25.71     94,425    $    20.62    116,749     $  20.69
Weighted average
 fair value of options
 granted during the
 year                              $ 12.04               $     - -                 $   9.20

</TABLE>


                As of December 31, 2002, options outstanding and exercisable are
                summarized as follows:


                                                   Weighted
                                                   Remaining
                  Exercise          Options       Contractual        Options
                   Prices         Outstanding         Life         Exercisable
                ------------      -----------     -----------      -----------

                $      17.00            2,000             4.9           2,000
                       23.50           18,000             6.0          18,000
                       24.50            3,875             6.7           3,875
                       24.75           20,000             7.0          20,000
                       21.25           20,000             8.0          17,640
                       45.50           27,500             9.3           8,085



Note 9.        Employee Benefit Plans

               The Company has a  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:

                                       18
<PAGE>
                   Notes to Consolidated Financial Statements



                                                 2002        2001        2000
                                                -------     -------     -------
                                                         (In Thousands)
Change in Benefit Obligation
  Benefit obligation, beginning of year         $ 2,299     $ 1,862     $ 2,002
  Service cost                                      155         274         215
  Interest cost                                     172         140         150
  Plan amendments                                 - -         - -          (350)
  Actuarial loss (gain)                            (181)         42         (33)
  Benefits paid                                    (329)        (19)       (122)
                                                -------     -------     -------
  Benefit obligation, end of year               $ 2,116     $ 2,299     $ 1,862
                                                -------     -------     -------


Change in Plan Assets
  Fair value of plan assets, beginning of year  $ 1,736     $ 1,894     $ 1,562
  Actual return on plan assets                     (131)       (289)        269
  Employer contributions                            705         151         185
  Benefits paid                                    (329)        (20)       (122)
                                                -------     -------     -------
  Fair value of plan assets, ending             $ 1,981     $ 1,736     $ 1,894
                                                -------     -------     -------

  Funded status                                 $  (135)    $  (563)    $    32
  Unrecognized net actuarial loss                 1,034         956         463
  Unrecognized net obligation at transition         (24)        (28)        (32)
  Unrecognized prior service cost                  (199)       (199)       (200)
                                                -------     -------     -------
  Prepaid benefit cost included in other assets $   676     $   166     $   263
                                                =======     =======     =======


Components of Net Periodic
  Benefit Cost
  Service cost                                  $   155     $   274     $   215
  Interest cost                                     172         140         150
  Expected return on plan assets                   (163)       (174)       (140)
  Amortization of prior service cost                 (1)         (1)         17
  Amortization of net obligation
    at transition                                    (4)         (4)         (4)
  Recognized net actuarial loss                      35          14          22
                                                -------     -------     -------
    Net periodic benefit cost                   $   194     $   249     $   260
                                                =======     =======     =======

Weighted-Average Assumptions
 as of December 31
  Discount rate                                   7.25%       7.50%       7.50%
  Expected return on plan assets                  9.00%       9.00%       9.00%
  Rate of compensation increase                   5.00%       5.00%       5.00%



                                       19

<PAGE>
                   Notes to Consolidated Financial Statements




               A deferred  compensation  plan was adopted for the  President and
               Chief  Executive  Officer.  Benefits  are to be paid  in  monthly
               installments  for 15 years  following  retirement  or death.  The
               agreement  provides that if employment is terminated  for reasons
               other  than  death or  disability  prior to age 65, the amount of
               benefits would be reduced. The deferred  compensation expense for
               2002, 2001 and 2000, based on the present value of the retirement
               benefits,  was  $23,320,   $21,794,  and  $20,368.  The  plan  is
               unfunded.  However,  life insurance has been acquired on the life
               of  the   employees  in  amounts   sufficient  to  discharge  the
               obligations.


Note 10.       Income Taxes

               Net deferred tax assets  (liabilities)  consist of the  following
               components as of December 31, 2002 and 2001:


                                                         2002           2001
                                                        -------        -------
                                                           (In Thousands)
                 Deferred tax assets:
                  Allowance for loan losses             $   670        $   585
                  Deferred compensation                      60             52
                  Other                                      25             13
                  Securities available for sale           - -              128
                                                        -------        -------
                                                        $   755        $   778
                                                        -------        -------
                 Deferred tax liabilities:
                  Property and equipment                $   423        $   243
                  Prepaid pension costs                     244            126
                  Securities available for sale           1,712          - -
                                                        -------        -------
                                                        $ 2,379        $   369
                                                        -------        -------

                                                        $(1,624  )     $   409
                                                        =======        =======



               The  provision  for income taxes  charged to  operations  for the
               years ended  December  31,  2002,  2001 and 2000  consists of the
               following:

                                                   2002       2001        2000
                                                   ----       ----        ----
                                                         (In Thousands)

                 Current tax expense              $ 2,142    $ 1,850    $ 1,630
                 Deferred tax provision (benefit)     193        (95)      (180)
                                                  -------    -------    -------
                                                  $ 2,335    $ 1,755    $ 1,450
                                                  =======    =======    =======


                                       20
<PAGE>
                   Notes to Consolidated Financial Statements





               The income tax  provision  differs  from the amount of income tax
               determined by applying the U.S. federal income tax rate to pretax
               income for the years ended December 31, 2002,  2001 and 2000, due
               to the following:

                                                   2002       2001        2000
                                                   ----       ----        ----
                                                          (In Thousands)

                 Computed "expected" tax expense  $ 2,940    $  2,370   $ 1,931
                 (Decrease) in income taxes
                   resulting from:
                   Tax-exempt interest income        (594)      (578)      (466)
                   Other, net                         (11)       (37)       (15)
                                                  -------    -------    -------
                                                  $ 2,335    $ 1,755    $ 1,450
                                                  =======    =======    =======


Note 11.       Related Party Transactions

               The  Company's  subsidiary  bank 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 subsidiary  bank for
               loans totaling $4,211,000 and $2,550,000 at December 31, 2002 and
               2001,  respectively.  During 2002, total principal additions were
               $2,854,000 and total principal payments were $1,193,000.


Note 12.       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  15  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,
               2002 and 2001,  the aggregate  amount of daily  average  required
               reserves for each year was approximately $25,000.

                                       21
<PAGE>
                   Notes to Consolidated Financial Statements





Note 13.       Earnings Per Share

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

<TABLE>
<CAPTION>
                                        2002                       2001                      2000
                              ------------------------   ------------------------  ------------------------
                                                Per                       Per                       Per
                                               Share                     Share                     Share
                                Shares        Amount       Shares        Amount      Shares        Amount
                              ---------     ----------   ---------     ----------  ---------     ----------

<S>                           <C>           <C>          <C>           <C>         <C>           <C>
 Basic EPS                    1,821,000     $     3.47   1,746,000     $     2.99  1,741,000     $     2.43
                                            ==========                 ==========                ==========

 Effect of dilutive
  securities:
   Stock options                 42,000                     37,000                    11,000
                              ---------                 ----------                 ---------
   Diluted EPS                1,863,000     $     3.39   1,783,000     $     2.93  1,752,000     $     2.41
                              =========     =========== ==========     ==========  =========     ==========
</TABLE>

               In 2002 and 2000,  stock  options  representing  6,875 and 69,825
               shares,  respectively,  were not included in the  calculation  of
               earnings per share because they would have been antidilutive.  No
               options were excluded from the  computation  of diluted  earnings
               per share for the year ended December 31, 2001.


Note 14.       Retained Earnings

               Transfers  of funds  from the  banking  subsidiary  to the Parent
               Company in the form of loans,  advances  and cash  dividends  are
               restricted  by federal and state  regulatory  authorities.  As of
               December 31, 2002,  the aggregate  amount of  unrestricted  funds
               which could be transferred from the Company's subsidiaries to the
               Parent  Company,  without  prior  regulatory  approval,   totaled
               $11,010,000 or 27.0 % of the total consolidated net assets.


Note 15.       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, standby letters
               of credit and interest rate swaps. 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 amount of those  instruments.  The
               Company uses the same credit  policies in making  commitments and
               conditional   obligations   as  it  does   for   on-balance-sheet
               instruments.

                                       22
<PAGE>


                   Notes to Consolidated Financial Statements





               A summary of the  contract  amount of the  Company's  exposure to
               off-balance-sheet  risk as of December  31, 2002 and 2001,  is as
               follows:

                                                          2002          2001
                                                      ------------  ------------
                                                           (In Thousands)
               Financial  instruments  whose contract
                amounts  represent credit risk:
                   Commitments to extend credit       $     31,590  $     34,244
                   Standby letters of credit                 1,969         2,343

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

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

               Standby letters of credit are conditional  commitments  issued by
               the Company to guarantee the performance of a customer to a third
               party.  Those  guarantees are primarily  issued to support public
               and private borrowing  arrangements,  including commercial paper,
               bond  financing,  and  similar  transactions.   The  credit  risk
               involved in issuing  letters of credit is essentially the same as
               that involved in extending  loan  facilities  to  customers.  The
               Company holds certificates of deposit, deposit accounts, and real
               estate  as  collateral  supporting  those  commitments  for which
               collateral is deemed necessary. The extent of collateral held for
               those commitments at December 31, 2002 averages 66.0 percent.

               The Company has utilized  derivative  instruments  in the form of
               interest rate swaps during the years 2002 and 2001. Interest rate
               swaps  are  contracts  in which a series of  interest  flows in a
               single  currency are exchanged  over a prescribed  period.  These
               transactions  involve both credit and market  risk.  The notional
               amounts are amounts on which calculations and payments are based.
               The  notional  amounts  are not  exchanged  and do not  represent
               direct credit exposure.  Direct credit exposure is limited to the
               net difference  between the calculated amounts to be received and
               paid, if any.

                                       23
<PAGE>


                   Notes to Consolidated Financial Statements





               During May 2000, the Company  entered into two interest rate swap
               agreements to assume variable market-indexed interest payments in
               exchange for fixed-rate  interest payments (interest rate swaps).
               The notional  principal amount of interest rate swaps outstanding
               was  $8,525,000 at December 31, 2001 and 2000.  The original term
               to maturity was 24 months.  The  weighted-average  fixed  payment
               rate was 7.00% at December 31, 2002 and 2001.  Variable  interest
               payments received are based on three-month LIBOR. At December 31,
               2002  and  2001,   the   weighted   average   rate  of   variable
               market-indexed  interest  payment  obligations to the Company was
               1.56 % and 1.67%,  respectively.  The effect of these  agreements
               was  to  transform  fixed  rate   liabilities  to  variable  rate
               liabilities.  The net income from these  agreements was $ 169,774
               and $250,848 for the twelve-month periods ended December 31, 2002
               and 2001, which was charged to income as it accrued.

               During   2002   and   2001,   interest   rate   swaps   used  for
               other-than-trading  purposes modify the interest rate exposure in
               the Company's interest-bearing deposits.

               The Company has approximately $4,288,237 in deposits in financial
               institutions  in excess of amounts insured by the Federal Deposit
               Insurance Corporation (FDIC) at December 31, 2002.


Note 16.       Fair Value of Financial Instruments and Interest Rate Risk

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

                  Cash and Short-Term Investments

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

                  Securities

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

                  Loans Held for Sale

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

                  Loans

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

                  Accrued Interest

                  The  carrying  amounts of accrued  interest  approximate  fair
                  values.

                                       24
<PAGE>


                   Notes to Consolidated Financial Statements





                  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, 2002 and
                  2001,  the carrying  amounts of loan  commitments  and standby
                  letters of credit approximated fair values.

                  Fair  values  for   off-balance-sheet   derivative   financial
                  instruments,  for other-than-trading  purposes, are based upon
                  quoted market prices.

                  The estimated fair values,  and related carrying  amounts,  of
                  the Company's financial instruments are as follows:

<TABLE>
<CAPTION>
                                                                  2002                        2001
                                                         ----------------------      ----------------------
                                                         Carrying       Fair         Carrying       Fair
                                                          Amount        Value         Amount        Value
                                                         --------      --------      --------      --------
                                                                           (In Thousands)
<S>                                                      <C>           <C>           <C>           <C>
 Financial assets:
    Cash and short-term investments                      $  9,523      $  9,523      $ 12,975      $ 12,975
    Securities                                            163,673       163,957       124,351       124,522
    Loans held for sale                                    17,489        17,533         6,652         6,668
    Loans                                                 209,800       212,857       194,340       203,720
 Accrued interest receivable                                2,051         2,051         1,984         1,984

 Financial liabilities:
    Deposits                                             $328,903      $330,768      $271,731      $272,864
    Securities sold under agreements
       to repurchase                                        8,924         8,924        12,011        12,011
    Federal Home Loan Bank advances                           - -           - -         7,000         7,000
    Long-term debt                                         31,545        33,180        20,805        23,136
    Trust preferred capital notes                          10,000        10,000        10,000        10,000
    Accrued interest payable                                  681           681           819           819

 Off-balance-sheet derivative financial
    instruments:
     Other-than-trading assets:
       Interest rate swaps                               $   - -        $  - -       $   - -       $   225
</TABLE>

                                       25
<PAGE>


                   Notes to Consolidated Financial Statements



                  The Company assumes  interest rate risk (the risk that general
                  interest  rate levels  will  change) as a result of its normal
                  operations.  As a result,  the fair  values  of the  Company's
                  financial  instruments  will change when  interest rate levels
                  change and that change may be either  favorable or unfavorable
                  to the Company.  Management  attempts to match  maturities  of
                  assets and  liabilities  to the extent  believed  necessary to
                  minimize  interest rate risk.  However,  borrowers  with fixed
                  rate  obligations  are less  likely to prepay in a rising rate
                  environment  and more  likely  to  prepay  in a  falling  rate
                  environment.  Conversely,  depositors who are receiving  fixed
                  rates are more likely to withdraw  funds before  maturity in a
                  rising rate  environment and less likely to do so in a falling
                  rate environment.  Management monitors rates and maturities of
                  assets and liabilities and attempts to minimize  interest rate
                  risk by  adjusting  terms of new  loans  and  deposits  and by
                  investing in securities with terms that mitigate the Company's
                  overall interest rate risk.


Note 17.       Capital Requirements

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

               Quantitative measures established by regulation to ensure capital
               adequacy  require the  Company  and the Bank to maintain  minimum
               amounts  and ratios  (set forth in the table  below) of total and
               Tier 1 capital to risk-weighted  assets, and of Tier 1 capital to
               average assets.  Management believes, as of December 31, 2002 and
               2001,  that the Company  and the Bank meet all  capital  adequacy
               requirements to which they are subject.

               As of December 31, 2002,  the most recent  notification  from the
               Federal  Reserve Bank  categorized  the Bank as well  capitalized
               under the regulatory  framework for prompt corrective  action. To
               be categorized as well capitalized,  an institution must maintain
               minimum total risk-based,  Tier 1 risk-based, and Tier 1 leverage
               ratios as set forth in the  table.  There  are no  conditions  or
               events since that  notification  that  management  believes  have
               changed the institution's category.

                                       26
<PAGE>


                   Notes to Consolidated Financial Statements





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

                                                                                                      Minimum
                                                                                                     To Be Well
                                                                          Minimum                 Capitalized Under
                                                                          Capital                 Prompt Corrective
                                            Actual                      Requirement               Action Provisions
                                --------------------------      -------------------------     ------------------------
                                   Amount          Ratio           Amount         Ratio          Amount         Ratio
                                   ------          -----           ------         -----          ------         -----
                                                                        (In Thousands)
<S>                             <C>                  <C>        <C>                  <C>       <C>           <C>
As of December 31, 2002:
  Total Capital (to Risk
    Weighted Assets):
      Consolidated              $    43,496          15.6%      $    22,258          8.0%                 N/A
      The Middleburg Bank       $    39,804          15.6%      $    20,396          8.0%      $    25,495         10.0%
  Tier 1 Capital (to Risk
    Weighted Assets):
      Consolidated              $    41,189          14.8%      $    11,129          4.0%                 N/A
      The Middleburg Bank       $    37,497          14.7%      $    10,198          4.0%      $    15,297          6.0%
  Tier 1 Capital (to
    Average Assets):
      Consolidated              $    41,189          10.6%      $    15,597          4.0%                 N/A
      The Middleburg Bank       $    37,497           9.9%      $    15,154          4.0%      $    18,943          5.0%

As of December 31, 2001:
  Total Capital (to Risk
    Weighted Assets):
      Consolidated              $    41,374          17.3%      $    19,088          8.0%                 N/A
      The Middleburg Bank       $    34,969          15.0%      $    18,675          8.0%      $    23,344         10.0%
  Tier 1 Capital (to Risk
    Weighted Assets):
      Consolidated              $    39,084          16.4%      $     9,544          4.0%                 N/A
      The Middleburg Bank       $    32,909          14.1%      $     9,338          4.0%      $    14,007          6.0%
  Tier 1 Capital (to
    Average Assets):
      Consolidated              $    39,084          12.5%      $    12,542          4.0%                 N/A
      The Middleburg Bank       $    32,909          10.8%      $    12,218          4.0%      $    15,273          5.0%
</TABLE>


Note 18.        Acquisition

               On August 9,  1999,  the  Company  purchased  one  percent of the
               issued  and  outstanding  capital  stock  of  Gilkison  Patterson
               Investment Advisors,  Inc. ("GPIA"),  an investment advisory firm
               based in  Alexandria,  Virginia.  The Company  also  acquired the
               right to purchase  all of the  remaining  authorized,  issued and
               outstanding  shares of GPIA's  capital  stock on or after July 1,
               2001. This option was extended through June 30, 2002. On April 1,
               2002, the Company completed the acquisition of GPIA. The terms of
               the  transaction  included a total  purchase price of $6 million,
               which  included   59,874  shares  ($2.5  million  value)  of  the
               Company's  common stock issued to the shareholders of GPIA. Based
               on  a   purchase   price   valuation,   the   Company   allocated
               approximately 61% of the purchase price to identified intangibles
               with a weighted-average  life of 12.5 years. The remaining 39% of
               the purchase price has been treated as goodwill.

                                       27
<PAGE>
                   Notes to Consolidated Financial Statements




Note 19.       Trust Preferred Capital Notes

                On November  14,  2001,  ICBI  Capital  Trust I, a  wholly-owned
                subsidiary of the Company, was formed for the purpose of issuing
                redeemable Capital Securities. On November 28, 2001, $10 million
                of trust  preferred  securities  were  issued  through  a pooled
                underwriting totaling approximately $750 million. The securities
                have a LIBOR-indexed floating rate of interest. During 2002, the
                interest rates ranged from 5.17% to 5.85%.  At December 31, 2002
                the  weighted-average  interest rate was 5.79%.  The  securities
                have a mandatory  redemption  date of December 8, 2031,  and are
                subject to varying call provisions  beginning  December 8, 2006.
                The principal asset of the Trust is $10 million of the Company's
                junior subordinated debt securities with the like maturities and
                like interest rates to the Capital Securities.

                The Trust Preferred Securities may be included in Tier 1 capital
                for regulatory capital adequacy determination purposes up to 25%
                of Tier 1 capital after its inclusion.  The portion of the Trust
                Preferred  not  considered  as Tier 1 capital may be included in
                Tier 2 capital.

                The  obligations  of the Company with respect to the issuance of
                the  Capital  Securities  constitute  a full  and  unconditional
                guarantee by the Company of the Trust's obligations with respect
                to the Capital Securities.

                Subject to certain  exceptions and limitations,  the Company may
                elect from time to time to defer interest payments on the junior
                subordinated  debt securities,  which would result in a deferral
                of distribution payments on the related Capital Securities.


                                       28
<PAGE>

                   Notes to Consolidated Financial Statements



 Note 20.      Condensed Financial Information - Parent Corporation Only

                            MIDDLEBURG FINANCIAL CORPORATION
                                (Parent Corporation Only)

                                     Balance Sheets
                               December 31, 2002 and 2001

<TABLE>
<CAPTION>


               Assets                                                         2002            2001
                                                                            --------          --------
                                                                                   (In Thousands)

<S>                                                                         <C>               <C>
 Cash on deposit with subsidiary bank                                       $     95          $     35
 Money market fund                                                               556             1,409
 Securities available for sale                                                 2,292             2,273
 Investment in subsidiaries, at cost, plus
   equity in undistributed net income                                         42,228            33,881
 Note receivable                                                               - -               1,000
 Goodwill                                                                      3,422             1,272
 Intangible assets                                                             3,481             - -
 Other assets                                                                    454             1,770
                                                                            --------          --------

                         Total assets                                       $ 52,528          $ 41,640
                                                                            ========          ========

               Liabilities and Shareholders' Equity

 Liabilities
   Long-term debt                                                           $    545          $    805
   Trust preferred capital notes                                              10,000            10,000
   Other liabilities                                                             573               497
                                                                            --------          --------
                         Total liabilities                                  $ 11,118          $ 11,302
                                                                            --------          --------

 Shareholders' Equity
   Common stock                                                             $  9,263          $  8,761
   Capital surplus                                                             3,644               741
   Retained earnings                                                          25,184            21,084
   Accumulated other comprehensive income (loss)                               3,319              (248)
                                                                            --------          --------
                         Total shareholders' equity                         $ 41,410          $ 30,338
                                                                            --------          --------

                         Total liabilities and shareholders' equity         $ 52,528          $ 41,640
                                                                            ========          ========

</TABLE>

                                       29
<PAGE>

                   Notes to Consolidated Financial Statements




                        MIDDLEBURG FINANCIAL CORPORATION
                            (Parent Corporation Only)


                              Statements of Income
                  Years Ended December 31, 2002, 2001 and 2000


<TABLE>
<CAPTION>

                                                             2002              2001              2000
                                                            -------           -------           -------
                                                                           (In Thousands)
<S>                                                         <C>               <C>               <C>
Income
  Dividends from subsidiaries                               $ 2,555           $ 1,795           $ 1,500
  Interest and dividends from investments                       158               169               224
  Interest on money market                                       14                18                 6
  Interest from loan to GPIA                                     16                74                80
  Management fees from GPIA                                      40                78                77
  Gains (losses) on securities available
    for sale, net                                                (6)              119                (5)
                                                            -------           -------           -------
          Total income                                      $ 2,777           $ 2,253           $ 1,882
                                                            -------           -------           -------

Expenses
  Salaries and employee benefits                            $     2           $    16           $   123
  Amortization                                                  313                96                64
  Legal and professional fees                                    73                63                65
  Printing and supplies                                          51                 1                 9
  Directors fees                                              - -                  50                34
  Advertising                                                   115             - -               - -
  Interest expense on loan from subsidiary                    - -                  37                40
  Interest expense other                                        584               114                76
  Other                                                         145               145               156
                                                            -------           -------           -------
          Total expenses                                    $ 1,310           $    66           $   567
                                                            -------           -------           -------

          Income before allocated tax benefits and
             undistributed income of subsidiaries           $ 1,467           $ 1,586           $ 1,315

Income tax (benefit)                                           (296)              (49)              (34)
                                                            -------           -------           -------

          Income before equity in undistributed
            income of subsidiaries                          $ 1,763           $ 1,635           $ 1,349

Equity in undistributed income of subsidiaries                4,549           $ 3,582           $ 2,879
                                                            -------           -------           -------

          Net income                                        $ 6,312           $ 5,217           $ 4,228
                                                            =======           =======           =======

</TABLE>


                                       30

<PAGE>

                   Notes to Consolidated Financial Statements





                      MIDDLEBURG FINANCIAL CORPORATION
                          (Parent Corporation Only)


                          Statements of Cash Flows
                Years Ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>

                                                                     2002              2001               2000
                                                                    -------           -------           -------
                                                                               (In Thousands)


<S>                                                                 <C>               <C>               <C>
 Cash Flows from Operating Activities
  Net income                                                        $ 6,312           $ 5,217           $ 4,228
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Amortization                                                      313                96                64
      Undistributed earnings of subsidiaries                         (4,549)           (3,582)           (2,879)
      (Gain) loss on sale of securities available for sale                6              (119)                5
      (Increase) in other assets                                       (190)             (300)              (19)
      Increase (decrease) in other liabilities                          (42)              (10)               92
                                                                    -------           -------           -------
Net cash provided by operating activities                           $ 1,850           $ 1,302           $ 1,491
                                                                    -------           -------           -------

Cash Flows from Investing Activities
  Purchase of securities available for sale                         $  (156)          $  (162)           $- -
  Proceeds from sale of securities available for sale                   201               503               100
  Investment in subsidiary bank                                       - -              (8,000)            - -
  Purchase of subsidiary                                             (1,240)            - -               - -
                                                                    -------           -------           -------
Net cash provided by (used in) investing activities                 $(1,195)          $(7,659)          $   100
                                                                    -------           -------           -------

Cash Flows from Financing Activities
  Proceeds from issuance of trust preferred capital notes           $ - -            $ 10,000           $ - -
  Proceeds from long-term debt                                        - -               - -               1,300
  Payments on long-term debt                                           (260)             (495)            - -
  Payment of note payable to subsidiary                               - -                (500)            - -
  Purchase of common stock                                            - -                (214)           (1,327)
  Net proceeds from issuance of common stock                            906               464                34
  Cash dividends paid                                                (2,094)           (1,676)           (1,402)
                                                                    -------           -------           -------
Net cash provided by (used in) financing activities                 $(1,448)          $ 7,579           $(1,395)
                                                                    -------           -------           -------

Increase (decrease) in cash and cash equivalents                    $  (793)          $ 1,222           $   196

Cash and Cash Equivalents
  Beginning                                                           1,444           $   222           $    26
                                                                    -------           -------           -------

  Ending                                                            $    65           $ 1,444           $   222
                                                                    =======           =======           =======

 Supplemental Disclosure of Noncash Transactions
 Issuance of common stock for contingent payment
    under terms of acquisition of subsidiary                        $ 2,500           $ - -             $   357
                                                                    =======           =======           =======

    Note receivable forgiven in connection with
        purchase of subsidiary                                      $ 1,000           $ - -               - -
                                                                    =======           =======           =======

    Exercise of option to purchase subsidiary                       $ 1,200           $ - -               - -
                                                                    =======           =======           =======
</TABLE>


                                       31



<PAGE>
                                   SIGNATURES

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


                                       MIDDLEBURG FINANCIAL CORPORATION



Date:  March 28, 2003                  By: /s/ Joseph L. Boling
                                          --------------------------------------
                                            Joseph L. Boling
                                            Chairman of the Board, President and
                                            Chief Executive Officer


         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, 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                           Chairman of the Board, President and Chief       March 28, 2003
-------------------------------------------         Executive Officer and Director
              Joseph L. Boling                      (Principal Executive Officer)


/s/ Alice P. Frazier                                  Executive Vice President and              March 28, 2003
-------------------------------------------              Chief Financial Officer
              Alice P. Frazier                        (Principal Financial Officer)


/s/ Kathleen J. Chappell                          Senior Vice President and Controller          March 28, 2003
-------------------------------------------          (Principal Accounting Officer)
            Kathleen J. Chappell


/s/ Howard M. Armfield                                          Director                        March 28, 2003
-------------------------------------------
             Howard M. Armfield


/s/ Childs Frick Burden                                         Director                        March 28, 2003
-------------------------------------------
             Childs Frick Burden


/s/ J. Lynn Cornwell, Jr.                                       Director                        March 28, 2003
-------------------------------------------
            J. Lynn Cornwell, Jr.

<PAGE>
/s/ William F. Curtis                                           Director                        March 28, 2003
-------------------------------------------
              William F. Curtis


                                                                Director                        March 28, 2003
-------------------------------------------
             Robert C. Gilkison


                                                                Director                        March 28, 2003
-------------------------------------------
            C. Oliver Iselin, III


                                                                Director                        March 28, 2003
-------------------------------------------
               Gary D. LeClair


                                                                Director                        March 28, 2003
-------------------------------------------
               Thomas W. Nalls


/s/ John Sherman                                                Director                        March 28, 2003
-------------------------------------------
                John Sherman


/s/ Millicent W. West                                           Director                        March 28, 2003
-------------------------------------------
              Millicent W. West


/s/ Edward T. Wright                                            Director                        March 28, 2003
-------------------------------------------
              Edward T. Wright

</TABLE>

<PAGE>


                                  CERTIFICATION

     I, Joseph L. Boling,  Chairman of the Board,  President and Chief Executive
Officer of Middleburg Financial Corporation, certify that:

     1.   I have  reviewed  this  annual  report  on  Form  10-K  of  Middleburg
Financial Corporation;

     2.   Based on my knowledge,  this annual report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3.   Based on my knowledge,  the financial statements,  and other financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4.   The registrant's  other  certifying  officer and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

          (a)  designed such  disclosure  controls and procedures to ensure that
     material information relating to the registrant, including its consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the  period  in which  this  annual  report  is being
     prepared;

          (b)  evaluated  the  effectiveness  of  the  registrant's   disclosure
     controls  and  procedures  as of a date  within 90 days prior to the filing
     date of this annual report (the "Evaluation Date"); and

          (c)  presented  in  this  annual  report  our  conclusions  about  the
     effectiveness  of the  disclosure  controls  and  procedures  based  on our
     evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officer and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent functions):

          (a)  all  significant  deficiencies  in the  design  or  operation  of
     internal controls which could adversely affect the registrant's  ability to
     record,  process,  summarize and report  financial data and have identified
     for the registrant's auditors any material weaknesses in internal controls;
     and

          (b)  any fraud,  whether or not material,  that involves management or
     other employees who have a significant  role in the  registrant's  internal
     controls; and

     6.   The registrant's other certifying officer and I have indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.


Date:  March 28, 2003                        /s/ Joseph L. Boling
                                             -----------------------------------
                                             Joseph L. Boling
                                             Chairman of the Board, President
                                             and Chief Executive Officer
<PAGE>

                                  CERTIFICATION

     I, Alice P. Frazier,  Executive Vice President and Chief Financial  Officer
of Middleburg Financial Corporation, certify that:

     1.   I have  reviewed  this  annual  report  on  Form  10-K  of  Middleburg
Financial Corporation;

     2.   Based on my knowledge,  this annual report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3.   Based on my knowledge,  the financial statements,  and other financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4.   The registrant's  other  certifying  officer and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

          (a)  designed such  disclosure  controls and procedures to ensure that
     material information relating to the registrant, including its consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the  period  in which  this  annual  report  is being
     prepared;

          (b)  evaluated  the  effectiveness  of  the  registrant's   disclosure
     controls  and  procedures  as of a date  within 90 days prior to the filing
     date of this annual report (the "Evaluation Date"); and

          (c)  presented  in  this  annual  report  our  conclusions  about  the
     effectiveness  of the  disclosure  controls  and  procedures  based  on our
     evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officer and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent functions):

          (a)  all  significant  deficiencies  in the  design  or  operation  of
     internal controls which could adversely affect the registrant's  ability to
     record,  process,  summarize and report  financial data and have identified
     for the registrant's auditors any material weaknesses in internal controls;
     and

          (b)  any fraud,  whether or not material,  that involves management or
     other employees who have a significant  role in the  registrant's  internal
     controls; and

     6.   The registrant's other certifying officer and I have indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.


Date:  March 28, 2003                     /s/ Alice P. Frazier
                                          --------------------------------------
                                          Alice P. Frazier
                                          Executive Vice President
                                             and Chief Financial Officer




<PAGE>
                                 EXHIBIT INDEX

Exhibit No.       Description
-----------       -----------

3.1      Articles  of  Incorporation  of the  Company  (restated  in  electronic
         format).

3.2      Bylaws of the  Company,  attached  as Exhibit  3.2 to the  Registration
         Statement  on Form S-4,  Registration  No.  333-24523,  filed  with the
         Commission on April 4, 1997, incorporated herein by reference.

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

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

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

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

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

10.6     Employment  Agreement,  dated as of August 9,  1999,  between  GPIA and
         James H. Patterson.

21       Subsidiaries of the Company.

23.1     Consent of Yount, Hyde & Barbour, P.C.

99.1     Statement of Chief Executive Officer Pursuant to 18 U.S.C.ss.1350.

99.2     Statement of Chief Financial Officer Pursuant to 18 U.S.C.ss.1350.

          (All  exhibits not  incorporated  herein by reference  are attached as
          exhibits  to the  Company's  Annual  Report  on Form 10-K for the year
          ended  December 31, 2002,  as filed with the  Securities  and Exchange
          Commission.)