SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

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

                   For the fiscal year ended December 31, 2001
                         Commission file number 0-24159

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

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

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

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

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

                                                     Name of Each Exchange
      Title of Each Class                             on Which Registered

              None                                            n/a

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

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

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for past 90 days.
                                                             Yes   X    No
                                                                 -----     -----

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

         The  issuer's  gross  income  for  its  most  recent  fiscal  year  was
$27,033,000.

         The aggregate  market value of the voting stock held by  non-affiliates
computed by reference  to the closing  sales price of such stock on February 21,
2002 was  approximately  $49,365,372.  (The  exclusion  from such  amount of the
market  value of the shares owned by any person shall not be deemed an admission
by the registrant that such person is an affiliate of the registrant.)

         The number of  outstanding  shares of Common  Stock as of February  22,
2002 was 1,752,558.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Proxy Statement for the 2002 Annual Meeting of Shareholders - Part III


<PAGE>

                                TABLE OF CONTENTS

                                     PART I
                                     ------

                                                                            Page
                                                                            ----

ITEM 1.     DESCRIPTION OF BUSINESS......................................... 3

ITEM 2.     DESCRIPTION OF PROPERTY......................................... 7

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

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE
               OF SECURITY HOLDERS.......................................... 8

                                     PART II
                                     -------

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

ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS.......................... 9

ITEM 7.     FINANCIAL STATEMENTS........................................... 28

ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
               ON ACCOUNTING AND FINANCIAL DISCLOSURE...................... 28

                                    PART III
                                    --------

ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
               CONTROL PERSONS; COMPLIANCE WITH SECTION
               16(a) OF THE EXCHANGE ACT................................... 29

ITEM 10.    EXECUTIVE COMPENSATION......................................... 29

ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
               OWNERS AND MANAGEMENT....................................... 29

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 29

ITEM 13.    EXHIBITS, LIST AND REPORTS ON FORM 8-K..........................29




                                      -2-
<PAGE>

                                     PART I
                                     ------

ITEM 1.      DESCRIPTION OF BUSINESS
             -----------------------

General

         Independent Community  Bankshares,  Inc. ("ICBI" or the "Company") is a
bank  holding  company that was  incorporated  under  Virginia law in 1993.  The
Company conducts its primary operations  through two wholly owned  subsidiaries,
The Middleburg  Bank (the "Bank") and The Tredegar  Trust Company  ("Tredegar"),
both of which are chartered under Virginia law.

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

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

         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
slightly 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.

         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.

         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 third
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.

         As of December 31, 2001,  ICBI had a total of 123 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.



                                      -3-
<PAGE>

Competition

         ICBI  faces  significant  competition  for  both  loans  and  deposits.
Competition for loans comes from commercial banks, savings and loan associations
and savings banks,  mortgage banking  subsidiaries 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, 2001 as reported  to the FDIC,  ICBI has the largest  share of deposits
among the banking organizations operating in Loudoun County, Virginia. ICBI 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.

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  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



                                      -4-
<PAGE>

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,  2001,  the Bank  declared  $1.7
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 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,  2001,  the Company and the Bank were
classified as well capitalized.



                                      -5-
<PAGE>

         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; and
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  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'



                                      -6-
<PAGE>

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.


ITEM 2.      DESCRIPTION OF PROPERTY
             -----------------------

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

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

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

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

         The  Ashburn  bank  branch,  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.



                                      -7-
<PAGE>

         The mortgage banking  department of the Bank leases office space at 203
Harrison  Street,  Leesburg,  Virginia 20175.  The space includes 1,822 rentable
square feet used primarily for mortgage  banking  operations and loan originator
office  space.  The initial  term of the lease is for five years with no renewal
options. The annual lease expense associated with this location is $36,000.

         The Bank is  currently  building a 18,000  square-foot  office on a 1.5
acre lot next to the Leesburg bank branch. The office will house the operations,
information technology,  human resources,  mortgage banking and investment sales
departments for the Bank. The Bank expects that construction will be complete in
June  2002  and  estimates  that  the  total  cost  of   construction   will  be
approximately $2.5 million.  This cost does not include the land, which the Bank
currently owns.

         The Bank  began  construction  on a 3,500  square-foot  bank  branch in
Leesburg,  Virginia  in March 2002.  The branch will be the second full  service
branch office in Leesburg.  The total cost of the project will be  approximately
$2.1  million,  including  land.  The Bank expects to open this branch in August
2002.

         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.

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


ITEM 3.      LEGAL PROCEEDINGS
             -----------------

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


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

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









                                      -8-
<PAGE>

                                     PART II
                                     -------

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

         Since September 15, 2000, the Company's  Common Stock has traded on the
Nasdaq SmallCap Stock Market under the symbol "ICBX". The Common Stock traded on
the OTC Bulletin Board from October 1997 to September 2000.

                           Market Price and Dividends
<TABLE>
<CAPTION>
                                                    Sales Price ($)             Dividends ($)
                                                    ---------------             -------------
                                                 High               Low
                                                 ----               ---
<S>                                              <C>               <C>               <C>
2000:
     1st quarter..........................       24.75             20.00             .21
     2nd quarter..........................       24.50             18.00             .21
     3rd quarter..........................       26.00             20.00             .21
     4th quarter..........................       26.75             20.00             .21
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
</TABLE>

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

         As of February 1, 2002,  ICBI had  approximately  950  shareholders  of
record.


ITEM 6.      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 ICBI.  This  discussion  and  analysis  should be read in
conjunction with the Company's  Consolidated  Financial  Statements and Notes to
Consolidated Financial Statements.

Overview

         ICBI is headquartered in Middleburg,  Virginia and conducts its primary
operations  through two wholly owned  subsidiaries,  the Bank and Tredegar.  The
Bank is a community bank serving western Loudoun County, Virginia with four full
service branches and one limited service  facility.  Tredegar is a trust company
headquartered  in  Richmond,  Virginia  with  a  branch  office  in  Middleburg,
Virginia.

         In 2001,  ICBI continued to realize the benefit of high growth rates in
both assets and net earnings.  Results for 2001 were also favorably  affected by
the growth in revenues from the Bank's  mortgage



                                      -9-
<PAGE>

banking and investment sales operations. By December 31, 2001, total assets were
$354.1  million,  an increase of 22.3%.  Total  assets at December 31, 2000 were
$289.5 million. Loans, net of unearned income, grew 10.6% from $177.6 million at
December  31,  2000 to $196.4  million at  December  31,  2001.  Total  deposits
increased  $47.1  million  from $224.6  million at  December  31, 2000 to $271.7
million at December 31, 2001. ICBI remains well capitalized  with  risk-adjusted
core capital and total capital ratios well above the regulatory minimums.  Asset
quality measures also remained strong throughout the year.

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

Results of Operations

Net Income

         Net income for 2001 was $5.2 million,  an increase of 23.4% over 2000's
net income of $4.2 million. Net income for 2000 was $4.2 million, an increase of
18.6% over 1999's net income of $3.6  million.  For 2001,  earnings  per diluted
share were $2.93 compared to $2.41 and $1.99 for 2000 and 1999, respectively.

         Return on average  assets (ROA) measures how  effectively  ICBI employs
its assets to produce net income.  ICBI  increased its ROA to 1.67% for the year
ended  December  31,  2001 from 1.62% for the same  period in 2000.  A sound net
interest margin and a 50.4% increase in non-interest  income  contributed to the
growth in the ROA. The ROA for 1999 was 1.60%.  Return on average  equity (ROE),
another  measure of  earnings  performance,  indicates  the amount of net income
earned in relation to the total equity capital invested.  ROE increased to 17.6%
for the year  ended  December  31,  2001.  ROE was 17.5% and 15.5% for the years
ended December 31, 2000 and 1999, respectively.




















                                      -10-
<PAGE>

             Average Balances, Income and Expenses, Yields and Rates
<TABLE>
<CAPTION>
                                                                           Years Ended December 31,
                                       ---------------------------------------------------------------------------------------------
                                                     2001                           2000                           1999
                                       ---------------------------------------------------------------------------------------------
                                        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                              $  52,040  $   3,364   6.46%   $  46,838  $   3,334   7.12%   $  30,368  $   1,937   6.38%
   Tax-exempt (1) (2)                      38,748      2,933   7.57%      30,963      2,392   7.73%      30,291      2,264   7.47%
                                        ---------  ---------           ---------  ---------           ---------  ---------
       Total securities                 $  90,788  $   6,297   6.94%   $  77,801  $   5,726   7.36%   $  60,659  $   4,201   6.93%
Loans
   Taxable                              $ 194,835  $  16,297   8.36%   $ 160,658  $  14,049   8.74%   $ 135,735  $  11,677   8.60%
   Tax-exempt                                 520         46   8.85%         437         41   9.38%         371         26   7.01%
                                        ---------  ---------           ---------  ---------           ---------  ---------
       Total loans                      $ 195,355  $  16,343   8.37%   $ 161,095  $  14,090   8.75%   $ 136,106  $  11,703   8.60%
Federal funds sold                          3,046        117   3.84%       2,800        170   6.07%       6,030        290   4.81%
Interest on money market investments        1,742         63   3.62%         512         40   7.81%       1,884         98   5.20%
Interest bearing deposits in
      other financial institutions            250          9   3.60%         104          4   3.85%          24          1   4.17%
                                        ---------  ---------           ---------  ---------           ---------  ---------
       Total earning assets             $ 291,181  $  22,829   7.84%   $ 242,312  $  20,030   8.27%   $ 204,703  $  16,293   7.96%
Less: allowances for credit losses         (1,948)                        (1,595)                        (1,223)
Total nonearning assets                    23,508                         20,875                         18,979
                                        ---------                      ---------                      ---------
Total assets                            $ 312,741                      $ 261,592                      $ 222,459
                                        =========                      =========                      =========

Liabilities (1):
Interest-bearing deposits:
    Checking                            $  33,978  $     223   0.66%   $  32,461  $     295   0.91%   $  29,583  $     292   0.99%
    Regular savings                        15,183        278   1.83%      13,148        263   2.00%      11,495        232   2.02%
    Money market savings                   46,616      1,166   2.50%      42,852      1,162   2.71%      41,701      1,139   2.73%
    Time deposits:
       $100,000 and over                   39,154      2,086   5.33%      25,997      1,453   5.59%      21,965      1,094   4.98%
       Under $100,000                      46,409      2,088   4.50%      44,389      2,151   4.85%      43,212      2,041   4.72%
                                        ---------  ---------           ---------  ---------           ---------  ---------
       Total interest-bearing deposits  $ 181,340  $   5,841   3.22%   $ 158,847  $   5,324   3.35%   $ 147,956  $   4,798   3.24%

Federal Home Loan Bank advances             7,543        482   6.39%       9,186        584   6.36%          56          3   5.36%
Securities sold under agreements
    to repurchase                          13,292        399   3.00%      12,279        616   5.02%       5,863        253   4.32%
Long-term debt                             19,332      1,076   5.57%       8,090        500   6.18%       5,000        281   5.62%
Federal funds purchased                       371         16   4.31%         286         17   5.94%         179         10   5.59%
                                        ---------  ---------           ---------  ---------           ---------  ---------
    Total interest-bearing liabilities  $ 221,878  $   7,814   3.52%   $ 188,688  $   7,041   3.73%   $ 159,054  $   5,345   3.36%
Non-interest bearing liabilities
    Demand deposits                        59,289                         47,355                         39,154
    Other liabilities                       1,854                          1,329                          1,213
                                        ---------                      ---------                      ---------
Total liabilities                       $ 283,021                      $ 237,372                      $ 199,421
Shareholders' equity                       29,720                         24,220                         23,038
Total liabilities and shareholders'     ---------                      ---------                      ---------
   equity                               $ 312,741                      $ 261,592                      $ 222,459
                                        =========                      =========                      =========
                                                   ---------                      ---------                      ---------
Net interest income                                $  15,015                      $  12,989                      $  10,948
                                                   =========                      =========                      =========

Interest rate spread                                          4.32%                           4.54%                          4.60%
Interest expense as a percent of
    average earning assets                                    2.68%                           2.91%                          2.61%
Net interest margin                                           5.16%                           5.36%                          5.35%
</TABLE>
_________________
(1)  Income and yields are reported on tax  equvalent  basis  assuming a federal
     tax rate of 34%.
(2)  Income  and  yields  include  dividends  on  preferred  bonds  that are 70%
     excludable for tax purposes.


                                      -11-
<PAGE>

Net Interest Income

         Net interest  income  represents  the  principal  source of earnings of
ICBI. 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 $15.0 million
for the year ended  December  31,  2001.  This is an  increase of 15.6% over the
$13.0 million reported for the same period in 2000. Net interest income for 2000
increased 18.6% over the $10.9 million reported for 1999.

         The increase in net interest  income in 2001  resulted  mostly from the
continued  growth in average  earning  assets  because the 2001 yield on earning
assets had decreased  marginally from that generated in 2000. The 43 basis point
decrease in earning  assets yield was offset by a 21 basis point decrease in the
cost of  funding,  which  allowed  the  net  interest  margin  to  remain  sound
throughout 2001. The average balance in the securities portfolio increased while
the tax-equivalent yield decreased 42 basis points to 6.94%.  Nevertheless,  the
increase in the average balance of the securities  portfolio was able to provide
$571,000 in additional  interest income on a  tax-equivalent  basis. The average
loan portfolio  volume  increased 21.3% during 2001. The increased volume of the
loan  portfolio   provided  an  additional  $2.8  million  in  interest  income.
Conversely,  the average yield on the loan portfolio  decreased 38 basis points,
which  resulted in a decrease  of  approximately  $579,000  in  interest  income
provided by the loan portfolio.

         In 2001, ICBI  experienced  respectable  growth in its interest bearing
checking,  savings and money market  accounts.  Despite an 8.3%  increase in the
average  balances of these  accounts,  the decline in deposit  rates during 2001
allowed ICBI 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.

         ICBI'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.  During 2001, however,  ICBI increased
on average  its long term  borrowings  from the  Federal  Home Loan Bank by $9.5
million.  During the fourth  quarter of 2001,  ICBI  issued $10 million in trust
preferred securities,  which added $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 the total interest expense for 2000.

         The  increase in net  interest  income in 2000  resulted  from both the
continued  growth in the  average  earning  assets  and the  increased  yield on
earning assets.  The similar increase  experienced in the cost of funding during
2000 resulted in a virtually  unchanged net interest margin. The average balance
in the securities portfolio increased,  while the tax-equivalent yield increased
43 basis points to 7.36%,  providing $1.5 million 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 18.4% during 2000, providing $2.2 million in interest
income, while the average yield on the loan portfolio increased 15 basis points,
causing  the  interest  income  provided  by the loan  portfolio  to increase by
another $200,000.

         In 2000,  ICBI  experienced  marginal  growth in its  interest  bearing
checking,  savings  and money  market  accounts.  The 6.9%  average  increase in
balances resulted in just $57,000 of additional  interest



                                      -12-
<PAGE>

expense.  The average balances in certificates of deposit  increased 8.0%, while
the interest  expense  associated with these deposits  increased  $492,000.  The
increase  in the  average  rate paid on  certificates  of deposit as well as the
volume of  certificates  of  deposit  contributed  equally  to the  increase  in
expense. ICBI's reliance on other funding sources, such as the Federal Home Loan
Bank advances,  increased on average by $12.2 million with a related increase in
interest expense of $800,000.  Total interest expense for 2000 was $7.0 million,
an increase of $1.7 million compared to 1999.  During the first quarter of 2000,
ICBI borrowed $1.3 million from a correspondent bank to repurchase 57,785 common
shares.  Interest  expense  related to this debt is  included  in long term debt
interest expense and amounted to $76,000.

         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>
                                                  2001 vs 2000                               2000 vs 1999
                                           -----------------------------            -----------------------------
                                              Increase (Decrease) Due                   Increase (Decrease) Due
                                                 to Changes in:                             to Changes in:
                                           --------------------------------------------------------------------------------
                                             Volume          Rate         Total        Volume         Rate          Total
                                             ------          ----         -----        ------         ----          -----
                                                                           (In thousands)
<S>                                        <C>           <C>           <C>           <C>           <C>           <C>
Earning Assets:
Securities:
    Taxable                                $      181    $     (151)   $       30    $    1,151    $      246    $    1,397
    Tax-exempt                                    590           (49)          541            50            78           128
Loans:
    Taxable                                     2,825          (577)        2,248         2,179           193         2,372
    Tax-exempt                                      7            (2)            5             5            10            15
Federal funds sold                                 17           (70)          (53)         (235)          115          (120)
Interest on money market investments               30            (7)           23          (187)          129           (58)
Interest bearing deposits in other
    financial institutions                          5             -             5             3             -             3
                                           ----------    ----------    ----------    ----------    ----------    ----------
     Total earning assets                  $    3,655    $     (856)   $    2,799    $    2,966    $      771    $    3,737

Interest-Bearing Liabilities:
Interest checking                          $       15    $      (87)   $      (72)   $       18    $      (15)            3
Regular savings deposits                           33           (18)           15            33            (2)           31
Money market deposits                              34           (30)            4            31            (8)           23
Time deposits
    $100,000 and over                             697           (64)          633           215           144           359
    Under $100,000                                108          (171)          (63)           10           100           110
                                           ----------    ----------    ----------    ----------    ----------    ----------
    Total interest bearing deposits        $      887    $     (370)   $      517    $      307    $      219    $      526
    Federal Home Loan Bank advances              (105)            3          (102)          580             1           581
    Securities sold under agree-
      ment to repurchase                           56          (273)         (217)          317            46           363
    Long-term debt                                620           (44)          576           188            31           219
    Federal funds purchased                       (13)           12            (1)            6             1             7
                                           ----------    ----------    ----------    ----------    ----------    ----------
      Total interest bearing liabilities   $    1,445    $     (672)   $      773    $    1,398    $      298    $    1,696

Change in net interest income              $    2,210    $     (184)   $    2,026    $    1,568    $      473    $    2,041
                                           ==========    ==========    ==========    ==========    ==========    ==========
</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.



                                      -13-
<PAGE>

Provision for Loan Losses

         ICBI's loan loss  provision  during 2001 was  $300,000,  an decrease of
$100,000  from 2000.  ICBI 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. Trust fee income decreased 19.8%
during 2001 to $1.3 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. Due to lower mortgage  rates and increased  refinancings,  the
mortgage banking department  contributed an additional $840,000 of fees on loans
held for sale during 2001. Growth in transaction  deposit accounts also provided
additional  service  charge  and  fee  income.  The  service  charges  and  fees
associated with deposit accounts  increased 23.1% during 2001. During 2001, ICBI
realized  $384,000  in net gains as a result  of  restructuring  the  investment
portfolio in response to the change in the interest  rate  environment  in 2001.
Total noninterest income for 2001 was $5.2 million, compared to $3.5 million for
2000.

         Noninterest  income for 2000 increased  17.6% to $3.5 million from $2.9
million in 1999.  The  increase is due  primarily  to the  increase in trust fee
income, fees on loans held for sale and service charges on deposit accounts.  In
2000, trust fee income  increased to $1.6 million,  an increase of $446,000 over
1999. The mortgage banking department  contributed an additional $82,000 of fees
on loans held for sale during 2000. The service charges and fees associated with
deposit accounts  increased 9.7% during 2000. The increase in these fees was due
primarily to deposit growth.

                               Noninterest Income
<TABLE>
<CAPTION>
                                                                     Years Ended December 31,
                                                              -------------------------------------
                                                                 2001         2000          1999
                                                              ----------   ----------    ----------
                                                                           (In thousands)
<S>                                                           <C>          <C>           <C>
Service charges, commissions and fees                         $    1,452   $    1,180    $    1,076
Trust fee income                                                   1,279        1,594         1,148
Fees on loans held for sale                                        1,483          643           561
Other operating income                                               613          252           174
                                                              ----------   ----------    ----------
     Noninterest income                                       $    4,827   $    3,669    $    2,959
Gains (losses) on securities available for sale, net                 384         (204)          (13)
                                                              ----------   ----------    ----------
  Total noninterest income                                    $    5,211   $    3,465    $    2,946
                                                              ==========   ==========    ==========
</TABLE>

Noninterest Expenses

         Improving  operating  efficiency  is  as  important  to  management  as
enhancing noninterest income. Total noninterest expenses increased 25.0% or $2.4
million to $11.9 million in 2001.  Salaries and employee benefits increased $1.6
million or 28.2% due to increased  commission  expense for fee-related  business
and enhancing  the internal  infrastructure  to support a growing  organization.
Occupancy  and  equipment  expense  increased  $74,000 or 6.3% to $1.2  million.
Advertising   expenses  decreased  slightly  to  $320,000  for  2001.   Computer
operations expense increased 36.9% to $408,000 during 2001. The



                                      -14-
<PAGE>

majority of this increase  relates to the cost  associated  with ICBI's internet
banking products and services.  Other operating  expenses  increased $655,000 to
$2.8  million  for 2001  compared  to $2.1  million  for 2000.  Other  operating
expenses  included $286,000 related to litigation that was settled in the fourth
quarter of 2001.  Expenses  associated  with  servicing an  increased  volume of
accounts and transactions  such as postage and printing have also impacted other
operating expenses in 2001.

         Noninterest expenses increased 18.8% or $1.5 million to $9.6 million in
2000. 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,
                                          --------------------------------------
                                             2001          2000          1999
                                          ----------    ----------    ----------
                                                      (In thousands)
Salaries and employee benefits            $    7,180    $    5,600    $    4,547
Net occupancy and equipment expense            1,246         1,172         1,013
Advertising                                      320           347           325
Computer operations                              408           298           310
Other operating expenses                       2,793         2,138         1,845
                                          ----------    ----------    ----------
  Total                                   $   11,947    $    9,555    $    8,040
                                          ==========    ==========    ==========


Income Taxes

         Reported  income tax expense was $1.8 million for 2001,  an increase of
$305,000  compared to $1.5 million for 2000. The effective tax rate for 2001 was
25.2% compared to 25.5% in 2000 and 23.5% in 1999. The decrease in the effective
tax rate for 2001 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 ICBI'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 three years ended December 31, 2001.

Market and Interest Rate Risk

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

         Interest rate risk represents the sensitivity of earnings to changes in
market interest rates. As interest rates change, the interest income and expense
streams associated with ICBI's financial instruments also change,  affecting net
interest income, the primary component of ICBI's earnings. ALCO uses the results
of a detailed and dynamic simulation model to quantify the estimated exposure of
net



                                      -15-
<PAGE>

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 ICBI'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.  The
following reflects the range of ICBI's net interest income sensitivity  analysis
during the fiscal  years of 2001 and 2000 as compared to the 10%  Board-approved
policy limit.

                                                         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%


                                                         2000
          Rate Change                  Estimated Net Interest Income Sensitivity
          -----------                  -----------------------------------------

                                       High              Low            Average
                                       ----              ---            -------
           + 200 bp                   (2.04%)           (.19%)          (1.21%)
           - 200 bp                    2.47%             .99%            1.75%


         During 2001,  ICBI 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,  ICBI has had  minimal  interest  rate risks to either  falling or rising
interest rates over the past two years.  ICBI 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,  ICBI could expect a positive impact
to net interest income of $386,000 over the next 12 months.

         If interest  rates had  increased  200 basis  points in 2000,  then the
effect to net  interest  income of ICBI could have been on average a decrease of
$147,000.  If interest  rates had  decreased 200 basis points during fiscal year
2000,  the effect to net  interest  income of ICBI could have been on average an
increase of $213,000.

         During May 2000, ICBI 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.
ICBI 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. The  weighted-average  fixed payment rate was 7.0% at December 31, 2001.
Variable interest payments received are based on three-month  LIBOR. At December
31, 2001, the weighted average rate of variable  market-indexed interest payment
obligation to ICBI was 1.67%.  The effect of these



                                      -16-
<PAGE>

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 $250,848 for the year ended December 31, 2001.

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

Financial Condition

         ICBI's  total assets were $354.1  million as of December  31, 2001,  up
$64.6  million or 22.3% from the $289.5  million  level at  December  31,  2000.
Securities  increased $42.8 million or 52.4% from 2000 to 2001.  Loans increased
by $18.8  million or 10.6% from 2000 to 2001,  while  deposits  increased  $47.1
million or 21.0% during the same period.  Borrowings  from the Federal Home Loan
Bank increased  $6.5 million during 2001. 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 2001 and 2000 was
$30.3 million and $27.3 million, respectively.

Loans

         ICBI's loan portfolio is its largest and most  profitable  component of
earning assets, totaling 67.1% of average earning assets in 2001. ICBI continues
to emphasize loan portfolio growth and  diversification as a means of increasing
earnings while  minimizing  credit risk.  Loans,  net of unearned  income,  were
$196.4  million at December  31,  2001,  an increase of 10.6% from  December 31,
2000's total of $177.6 million. Proactive sales efforts, competitive pricing and
the branch network  supported the increase in loans during 2001. Loans increased
24.0% from $143.2 million at December 31, 1999 to $175.8 million at December 31,
2000. The loan to deposit ratio decreased to 72.3% at December 31, 2001 compared
to 79.1% at December 31, 2000 and 70.9% at December 31, 1999.








                                      -17-
<PAGE>

                                 Loan Portfolio
<TABLE>
<CAPTION>
                                                                            December 31,
                                                   --------------------------------------------------------------
                                                      2001         2000         1999         1998         1997
                                                   ----------   ----------   ----------   ----------   ----------
                                                                           (In thousands)
<S>                                                <C>          <C>          <C>          <C>          <C>
Commercial, financial and agricultural             $   22,993   $   22,555   $   19,055   $   18,880   $   15,111
Real estate construction                               24,174       17,693       12,151        5,436        3,798
Real estate mortgage:
  Residential (1-4 family)                             80,824       81,545       61,062       55,595       45,231
  Home equity lines                                     8,271        5,973        4,382        3,617        3,165
  Non-farm, non-residential (1)                        48,074       38,812       36,361       28,643       26,054
  Agricultural                                            163          346          379        1,057        2,140
Consumer installment                                   11,901       10,674        9,845        8,095        8,728
                                                   ----------   ----------   ----------   ----------   ----------
    Total loans                                    $  196,400   $  177,598   $  143,235   $  121,323   $  104,227
                                                   ==========   ==========   ==========   ==========   ==========
</TABLE>
___________________
(1)  This category  generally  consists of commercial and industrial loans where
     real estate constitutes a source of collateral.


         At December 31, 2001,  residential  real estate (1-4 family)  portfolio
loans constituted 41.2% of the total portfolio and decreased $721,000 during the
year. 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 $24.2 million at December 31, 2001
and  represent  12.3% of the  total  loan  portfolio.  ICBI's  one time  closing
construction/permanent  loan  product  competes  successfully  in a high  growth
market like  Loudoun  County  because  ICBI is local and can respond  quickly to
inspections and construction draw requests. Non-farm,  non-residential loans are
typically owner-occupied commercial buildings.  Non-farm,  non-residential loans
were 24.5% of the total loan  portfolio at December 31, 2001. The branch network
has helped to support  the loan  portfolio  diversification,  such as  increased
commercial  real estate loans.  Home equity lines and  agricultural  real estate
loans were 4.2% and 0.1% of total loans, respectively, at December 31, 2001.

         ICBI's  commercial,  financial and agricultural loan portfolio consists
of secured and unsecured loans to small businesses.  At December 31, 2001, these
loans comprised 11.7% of the loan  portfolio.  This portfolio  increased 1.9% in
2001 to $23.0 million. Consumer installment loans primarily consist of unsecured
installment credit and account for 6.1% of the loan portfolio.

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

         ICBI's unfunded loan commitments  totaled $34.2 million at December 31,
2001 and $26.6  million at  December  31,  2000.  The  increase in the amount of
unfunded  commitments  is  attributed  in part to the  increase  in real  estate
construction  financing  as well as customer  demand for credit  line  products,
primarily home equity lines.

         At December 31,  2001,  ICBI had no  concentration  of loans in any one
industry in excess of 10% of its total loan portfolio.  However,  because of the
nature of ICBI's market, loan collateral is predominantly real estate.




                                      -18-
<PAGE>

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

                Remaining Maturities of Selected Loan Categories
                                December 31, 2001

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

            Within one year           $      11,752   $      18,569
                                      -------------   -------------
            Variable Rate:
              One to five years                 219               -
              After five years                1,240               -
                                      -------------   -------------
              Total                   $       1,4$                -
                                      -------------   -------------
            Fixed Rate:
              One to five years               8,440           5,605
              After five years                1,342               -
                                      -------------   -------------
              Total                   $       9,782   $       5,605
                                      -------------   -------------

            Total Maturities          $      22,993   $      24,174
                                      =============   =============


Asset Quality

         ICBI 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 reserve  for loan  losses.  Total  nonperforming  assets,  which
consist of nonaccrual loans,  restructured loans and foreclosed  property,  were
$79,000 at December 31, 2001.  This is a decrease of 24.8% from the December 31,
2000 balance of $105,000.  Nonperforming  assets at December 31, 2000  decreased
$425,000 from $530,000 at December 31, 1999.

Nonperforming Assets

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



                                      -19-
<PAGE>

                              Nonperforming Assets
<TABLE>
<CAPTION>
                                                          December 31,
                                 --------------------------------------------------------------
                                    2001         2000         1999         1998         1997
                                 ----------   ----------   ----------   ----------   ----------
                                                         (In thousands)
<S>                              <C>          <C>          <C>          <C>          <C>
Nonaccrual loans                 $       79   $      105   $      530   $      409   $      243
Restructured loans                        -            -            -            -            -
Foreclosed property                       -            -            -          200            -
                                 ----------   ----------   ----------   ----------   ----------

  Total nonperforming assets     $       79   $      105   $      530   $      609   $      243
                                 ==========   ==========   ==========   ==========   ==========


Allowance for loan losses
  to period end loans                  1.05%        1.02%        1.01%        0.88%        0.93%

Allowance for loan losses
  to nonperforming assets              2608%        1718%         274%         175%         401%

Nonperforming assets to
  period end loans                     0.04%        0.06%        0.37%        0.50%        0.23%

Net charge offs to
  average loans                        0.02%        0.03%        0.02%        0.04%        0.09%
</TABLE>

         During 2001 and 2000, approximately $700 and $14,000,  respectively, in
additional  interest income would have been recorded if ICBI's  nonaccrual loans
had been current and in accordance with their original terms.

         At December 31, 2001, the Company had no potential problem loans.

         The  allowance  for loan  losses was 2,608% of  nonperforming  loans at
December 31, 2001.  At December 31, 2000 and 1999 the  allowance for loan losses
was 1,718% and 274% of nonperforming loans.  Management evaluates  nonperforming
loans relative to their collateral value and makes appropriate reductions in the
carrying value of those loans based on that review.

Allowance For Loan Losses

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

         ICBI's Loan  Committee  and Board of  Directors  review  problem  loans
monthly,   including  their  effect  on  the  allowance  for  loan  losses.   In
management's  opinion,  the  allowance for loan losses is adequate to absorb the
current  estimated  risk  of  loss  in the  loan  portfolio.  ICBI's  management
continually evaluates the adequacy of the allowance for loan losses, and changes
in the provision are based on the analyzed inherent risk of the loan portfolio.



                                      -20-
<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,
                                                --------------------------------------------------------------------------
                                                   2001            2000            1999            1998            1997
                                                ----------      ----------      ----------      ----------      ----------
                                                                              (In thousands)
<S>                                             <C>             <C>             <C>             <C>             <C>
Balance, beginning of period                    $    1,804      $    1,453      $    1,064      $      974      $      884
  Loans charged off:
    Commercial, financial, and agricultural              -              61              26               8              42
    Real estate construction                             -               -               -               -               -
    Real estate mortgage                                48               -              29               -               -
    Consumer installment                                35              35              96              77              86
                                                ----------      ----------      ----------      ----------      ----------
      Total loans charged off                   $       83      $       96      $      151      $       85      $      128
                                                ----------      ----------      ----------      ----------      ----------
  Recoveries:
    Commercial, financial, and agricultural          $   -      $        6      $        7      $        1      $       12
    Real estate construction                             -               -               -               -               -
    Real estate mortgage                                 -               -              79               6               7
    Consumer installment                                39              41              34              33              21
                                                ----------      ----------      ----------      ----------      ----------
      Total recoveries                          $       39      $       47      $      120      $       40      $       40
                                                ----------      ----------      ----------      ----------      ----------
Net charge offs                                         44              49              31              45              88
Provision for loan losses                              300             400             420             135             178
                                                ----------      ----------      ----------      ----------      ----------
Balance, end of period                          $    2,060      $    1,804      $    1,453      $    1,064      $      974
                                                ==========      ==========      ==========      ==========      ==========

Ratio of allowance for loan losses
   to loans outstanding at end of period              1.05%           1.02%           1.01%           0.88%           0.93%

Ratio of net charge offs to average
   loans outstanding during period                    0.02%           0.03%           0.02%           0.04%           0.09%
</TABLE>

         The allowance for loan losses was $2.1 million at December 31, 2001, an
increase of $256,000  from $1.8 million at December 31, 2000.  The allowance was
$1.5 million at December 31, 1999.  In 2001,  ICBI's net  charge-offs  decreased
$5,000 from the previous year's net charge-offs of $49,000. Net charge-offs as a
percentage of average loans were 0.02% and 0.03% for 2001 and 2000 respectively.
The provision for loan losses was $300,000 for 2001 and $400,000 for 2000.



                                      -21-
<PAGE>

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

                     Allocation of Allowance for Loan Losses
<TABLE>
<CAPTION>
                Commercial, Financial,          Real Estate                Real Estate
                     Agricultural               Construction                 Mortgage                   Consumer
               ------------------------   -------------------------  -------------------------  -------------------------
               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
               ------------------------   -------------------------  -------------------------  -------------------------
                                                         (Dollars in thousands)
<S>             <C>           <C>           <C>           <C>          <C>           <C>          <C>            <C>
December 31,
      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%
      1997      $    362      14.50%        $    107       3.64%       $    159      73.49%       $    346       8.37%
</TABLE>

         ICBI  has  allocated  the  allowance  according  to the  amount  deemed
reasonably  necessary to provide for the  possibility  of losses being  incurred
within each of the above categories of loans. The allocation of the allowance as
shown in the table above should not be  interpreted  as an indication  that loan
losses in future years will occur in the same  proportions 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

         ICBI  manages  its  investment  securities  portfolio  consistent  with
established  policies that include  guidelines for earnings,  rate  sensitivity,
liquidity and pledging needs.  ICBI holds bonds issued from the  Commonwealth of
Virginia and its political  subdivisions with an aggregate book value and market
value of $2.4  million at December  31, 2001.  The  aggregate  holdings of these
bonds exceeds 8.0% of ICBI's shareholders' equity.

         ICBI accounts for securities under Financial Accounting Standards Board
(FASB) Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."  This standard  requires  classification  of investments into three
categories,  "held to maturity" (HTM), "available for sale" (AFS), or "trading,"
as further defined in Note 1 to the Company's Consolidated Financial Statements.
ICBI does not maintain a trading  account and has  classified  no  securities in
this  category.  HTM  securities  are  required  to be carried on the  financial
statements  at  amortized  cost.  AFS  securities  are carried on the  financial
statements at fair value. The unrealized gains or losses, net of deferred income
taxes,  are reflected in shareholders'  equity.  The HTM  classification  places
restrictions on ICBI's ability to sell securities or to transfer securities into
the AFS  classification.  Since  ICBI  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, 2001, 4.5% of the portfolio was classified as HTM.

         FASB  Statement No. 133,  "Accounting  for Derivative  Instruments  and
Hedging  Activities",  requires  companies to record  derivatives on the balance
sheet as assets and liabilities,  measured at fair market value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending  on the use of the  derivative  and  whether  it  qualifies  for hedge
accounting.



                                      -22-
<PAGE>

However, this statement also allowed, upon adoption, a one-time re-allocation of
securities  from HTM to AFS without  penalty to the company.  In December  1999,
ICBI adopted FASB  Statement No. 133 and elected to transfer  certain  municipal
securities  with a book  value and  market  value of $3.1  million  from the HTM
classification to the AFS classification.

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

         The carrying  value of the  securities  portfolio was $124.4 million at
December 31, 2001, an increase of $42.8 million or 52.4% from the carrying value
of $81.6 million at December 31, 2000. The market value of the AFS securities at
December 31, 2001 was $118.8 million.  The unrealized loss on the AFS securities
was $1.3  million  and offset  slightly  by an  unrealized  gain of  $920,000 at
December 31, 2001.  The net market value loss at December 31, 2001 is reflective
of the recent increase in market interest rates.  The unrealized gain on the AFS
securities was $609,000 at December 31, 2000.

                         Investment Securities Portfolio

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

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

U.S. Government securities                    $        -  $      250  $      250
State and political subdivision obligations        5,484       6,657       7,433
Mortgage-backed securities                            61          93         112
                                              ----------  ----------  ----------
                                              $    5,545  $    7,000  $    7,795
                                              ==========  ==========  ==========


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

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

U.S. Government securities                    $      267  $    3,072  $    4,824
State and political subdivision obligations       33,220      27,961      22,261
Mortgage-backed securities                        63,746      34,043      26,789
Other securities                                  21,573       9,501       6,070
                                              ----------  ----------  ----------
                                              $  118,806  $   74,577  $   59,944
                                              ==========  ==========  ==========





                                      -23-
<PAGE>

         The following table indicates the increased return  experienced by ICBI
by lengthening the maturity of the investment securities  portfolio.  Securities
with maturities  greater than five years total $79.3 million and have an average
yield greater than 7.0%. The securities portfolio represents approximately 31.2%
of the earning  assets of ICBI.  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,  ICBI  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, 2001
                            Taxable-Equivalent Basis
<TABLE>
<CAPTION>
                                       Due in 1 year    Due after 1 year   Due after 5 years  Due after 10 years
                                         or less        through 5 years    through 10 years      and Equities           Total
                                     ----------------   ----------------   ----------------   ------------------   ----------------
                                      Amount   Yield     Amount   Yield     Amount   Yield     Amount     Yield     Amount   Yield
                                     ----------------   ----------------   ----------------   ------------------   ----------------
                                               (Dollars in thousands)
<S>                                  <C>        <C>     <C>        <C>     <C>        <C>     <C>          <C>     <C>        <C>
Securities held for investment:
  Mortgage backed securities         $     16   5.75%   $     27   5.70%   $      8   6.01%   $     10     7.48%   $     61   6.04%
                                     --------           --------           --------           --------             --------
  Total taxable                      $     16   5.75%   $     27   5.70%   $      8   6.01%   $     10     7.48%   $     61   6.04%
Tax-exempt securities (1)                 590   7.49%      3,194   7.63%      1,700   7.81%          -        -       5,484   7.67%
                                     --------           --------           --------           --------             --------
  Total                              $    606   7.45%   $  3,221   7.62%   $  1,708   7.80%   $     10     7.48%   $  5,545   7.65%
                                     --------           --------           --------           --------             --------

Securities available for sale (2):
  U.S. Government securities         $      -      -    $      -      -    $    267   7.54%   $      -        -    $    267   7.54%
  Mortgage backed securities            6,991   6.19%     19,733   6.13%     23,131   5.87%     13,891     6.02%     63,746   6.02%
  Other                                   102   7.23%     11,666   5.56%        302   7.14%      6,482     7.64%     18,552   6.32%
  Corporate preferred                       -      -           -      -           -      -       2,185     7.12%      2,185   7.12%
                                     --------           --------           --------           --------             --------
  Total taxable                      $  7,093   5.75%   $ 31,399   6.19%   $ 23,700   6.01%   $ 22,558     7.29%   $ 84,750   6.12%
Tax-exempt securities (1)                   -      -         622   7.78%     10,317   7.65%     20,983     7.70%     31,922   7.69%
                                     --------           --------           --------           --------             --------
  Total                              $  7,093   5.75%   $ 32,021   6.22%   $ 34,017   6.51%   $ 43,541     7.49%   $116,672   6.55%
                                     --------           --------           --------           --------             --------

Total securities                     $  7,699   5.94%   $ 35,242   6.42%   $ 35,725   7.01%   $ 43,551     7.15%   $122,217   6.60%
                                     ========           ========           ========           ========             ========
</TABLE>
________________
(1)  Yields on  tax-exempt  securities  have been  computed on a  tax-equivalent
     basis.
(2)  Amounts  exclude  Federal  Reserve  Stock of $134,400 and Federal Home Loan
     Bank Stock of $2,000,000.


Other Earning Assets

         ICBI's  average  investment  in  federal  funds  sold and money  market
investments  in 2001 were $3.0 million and $1.7  million,  increases of $246,000
and $1.2 million,  respectively,  over the 2000 amounts.  Average investments in
federal  funds sold and money market  investments  in 2000 were $2.8 million and
$512,000,  respectively.  Fluctuations  in federal  funds sold and money  market
investments   reflect  excess  deposit  growth  over  loan  growth  as  well  as
management's   goal  to  maximize   asset   yields  while   maintaining   proper
asset/liability structure.

Deposits

         Deposits  continue to be an important funding source and primary supply
of ICBI's growth.  ICBI's strategy has been to increase its core deposits at the
same time that it is controlling its cost of funds. The maturation of the branch
network,  as well as increased  advertising  campaigns,  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,
ICBI is able to  price  the  deposits  effectively  to  develop  a core  base of
deposits in each branch.



                                      -24-
<PAGE>

         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,
                                  ---------------------------------------------------------------------------
                                           2001                      2000                      1999
                                  -----------------------   -----------------------   -----------------------
                                     Amount         Rate       Amount         Rate       Amount         Rate
                                  -----------------------   -----------------------   -----------------------
                                                              (Dollars in thousands)
<S>                               <C>               <C>     <C>               <C>     <C>               <C>
Noninterest-bearing deposits      $    59,289          -    $    47,355          -    $    39,154          -
Interest-bearing accounts:
    Interest checking                  33,978       0.66%        32,461       0.91%        29,583       0.99%
    Regular savings                    15,183       1.83%        13,148       2.00%        11,495       2.02%
    Money market accounts              46,616       2.50%        42,852       2.71%        41,701       2.73%
    Time deposits:
        $100,000 and over              39,154       5.33%        25,997       5.59%        21,965       4.98%
        Under $100,000                 46,409       4.50%        44,389       4.85%        43,212       4.72%
                                  -----------               -----------               -----------
Total interest-bearing deposits       181,340       3.22%       158,847       3.35%       147,956       3.24%
                                  -----------               -----------               -----------

    Total                         $   240,629               $   206,202               $   187,110
                                  ===========               ===========               ===========
</TABLE>

         Average total deposits  increased 16.7% during 2001,  10.3% during 2000
and 15.8% during 1999. During 2001, the average balance of non-interest  bearing
deposits grew 25.2%.  The average balance in interest  checking and money market
accounts grew 4.7% and 8.8%, respectively, during 2001.

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

         The  following  table is a  summary  of the  maturity  distribution  of
certificates  of deposit  equal to or greater  than  $100,000 as of December 31,
2001:

          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
                          ---------     ---------      ---------     ----------     ---------    --------
                                                       (Dollars in thousands)
<S>                       <C>           <C>            <C>           <C>            <C>           <C>
At December 31, 2001      $  14,949     $  12,828      $  11,659     $    6,243     $  45,679     16.8%
</TABLE>


Capital Resources and Dividends

         ICBI 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



                                      -25-
<PAGE>

capital for holding  higher risk assets.  The minimum ratio of qualifying  total
capital to  risk-weighted  assets is 8.0%, of which at least 4.0% must be Tier 1
capital,  composed of common equity and retained  earnings.  ICBI had a ratio of
risk-weighted assets to total capital of 17.3% at December 31, 2001, compared to
13.6% at December 31, 2000. The ratio of risk-weighted  assets to Tier 1 capital
was 16.4% and 12.7% at  December  31, 2001 and 2000,  respectively.  Both ratios
exceed  the  minimum  capital   requirements  adopted  by  the  federal  banking
regulatory agencies.

                               Analysis of Capital

                                                       December 31,
                                                -------------------------
                                                   2001           2000
                                                -------------------------
                                                      (In thousands)
     Tier 1 Capital:
       Common stock                             $    8,761     $    8,696
       Capital surplus                                 741            556
       Retained earnings                            21,084         17,616
       Trust preferred debt                          9,770              -
       Goodwill                                     (1,272)        (1,353)
                                                ----------     ----------
       Total Tier 1 capital                     $   39,084     $   25,515
     Tier 2 Capital:
       Trust preferred debt                     $      230     $        -
       Allowance for loan losses                     2,060          1,804
                                                ----------     ----------
       Total Tier 2 capital                     $    2,290     $    1,804
       Total risk-based capital                 $   41,374     $   27,319
                                                ==========     ==========

     Risk weighted assets                       $  238,605     $  201,096

     CAPITAL RATIOS:
       Tier 1 risk-based capital ratio                16.4%          12.7%
       Total risk-based capital ratio                 17.3%          13.6%
       Tier 1 capital to average total assets         12.5%           9.7%


         ICBI's  core equity to asset ratio  decreased  to 8.6% at December  31,
2001,  compared  to 9.4% at  December  31,  2000.  The equity to asset ratio for
December  31,  1999 was 9.5%.  Several  years of high  asset  growth  rates have
outpaced the  earnings  growth rate and caused the core equity to asset ratio to
decline since 1999.

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

Liquidity

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



                                      -26-
<PAGE>

liability  funding,   management   believes  ICBI  maintains  overall  liquidity
sufficient  to satisfy  its  depositors'  requirements  and meet its  customers'
credit needs.

         ICBI also maintains  additional  sources of liquidity through a variety
of borrowing  arrangements.  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,  2001.
Federal funds purchased during 2001 averaged  $371,000 compared to an average of
$286,000  during 2000. At December 31, 2001 and 2000, the Bank had $12.0 million
and  $14.3  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 $500,000.

         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 2001 with an average balance of $7.5 million.

         At December 31, 2001,  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 49.4% 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 July 2001,  the  Financial  Accounting  Standards  Board  issued two
statements - SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and
Other  Intangible  Assets - that will  potentially  impact  the  accounting  for
goodwill and other  intangible  assets.  Statement  141  eliminates  the pooling
method of accounting  for business  combinations  and requires  that  intangible
assets that meet certain  criteria be reported  separately  from  goodwill.  The
Statement also requires negative goodwill arising from a business combination to
be recorded as an extraordinary gain.  Statement 142 eliminates the amortization
of goodwill and other  intangibles  that are  determined  to have an  indefinite
life. The Statement requires, at a minimum, annual impairment tests for goodwill
and other intangible assets that are determined to have an indefinite life.

         Upon  adoption  of these  Statements,  an  organization  is required to
re-evaluate  goodwill  and other  intangible  assets  that arose  from  business
combinations entered into before July 1, 2001. If the recorded



                                      -27-
<PAGE>

other intangibles  assets do not meet the criteria for recognition,  they should
be classified as goodwill.  Similarly, if there are other intangible assets that
meet  the  criteria  for  recognition  but  were not  separately  recorded  from
goodwill,  they should be reclassified from goodwill.  An organization also must
reassess  the  useful  lives of  intangible  assets  and  adjust  the  remaining
amortization periods accordingly. Any negative goodwill must be written-off.

         The standards  generally are required to be  implemented by the Company
for its  financial  statements  for its 2002 fiscal year.  The adoption of these
standards will not have a material impact on the Company's financial statements.

         In June 2001, the Financial  Accounting Standards Board issued SFAS No.
143,  Accounting for Asset  Retirement  Obligations.  This  Statement  addresses
financial   accounting  and  reporting  for  obligations   associated  with  the
retirement of tangible  long-lived  assets and associated  retirement  costs. It
requires that the fair value of a liability for an asset  retirement  obligation
be  recognized  in the period in which it is incurred and the  associated  asset
retirement costs be capitalized as part of the carrying amount of the long-lived
asset.  This Statement is effective for financial  statements  issued for fiscal
years  beginning  after June 15, 2002.  The  Statement is not expected to have a
material effect on the Company's financial statements.

         In August 2001, the Financial  Accounting  Standards  Board issued SFAS
No. 144,  Accounting  for the Impairment or Disposal of Long-Lived  Assets.  The
Statement  addresses  financial  accounting  and reporting for the impairment or
disposal of long-lived assets. It also establishes a single accounting model for
long-lived  assets to be disposed of by sale, which includes  long-lived  assets
that are part of a  discontinued  operation.  This  Statement is  effective  for
financial statements issued for fiscal years and interim periods beginning after
December 15, 2001.  The  Statement is not expected to have a material  effect on
the Company's financial statements.


ITEM 7.      FINANCIAL STATEMENTS
             --------------------

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

         Independent Auditor's Report
         Consolidated Balance Sheets as of December 31, 2001 and 2000
         Consolidated Statements of Income for the Years Ended December 31,
            2001, 2000, and 1999
         Consolidated Statements of Changes in Shareholders' Equity for
            the Years Ended December 31, 2001, 2000, and 1999
         Consolidated Statements of Cash Flows for the Years Ended December 31,
            2001, 2000, and 1999
         Notes to Consolidated Financial Statements


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

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




                                      -28-
<PAGE>

                                    PART III
                                    --------

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

         Pursuant to General  Instruction  E(3) of Form 10-KSB,  the information
contained under the headings  "Election of Directors,"  "Executive  Officers Who
Are Not Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance"
in the Company's  Proxy Statement for the 2002 Annual Meeting of Shareholders is
incorporated herein by reference.


ITEM 10.     EXECUTIVE COMPENSATION
             ----------------------

         Pursuant to General  Instruction  E(3) of Form 10-KSB,  the information
contained under the headings "Director Compensation,"  "Executive Compensation,"
"Stock  Options," and  "Employment  Agreements" in the Company's Proxy Statement
for the 2002 Annual Meeting of Shareholders is incorporated herein by reference.


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

         Pursuant to General  Instruction  E(3) of Form 10-KSB,  the information
contained  under the headings  "Security  Ownership of Management" and "Security
Ownership of Certain Beneficial Owners" in the Company's Proxy Statement for the
2002 Annual Meeting of Shareholders is incorporated herein by reference.


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

         Pursuant to General  Instruction  E(3) of Form 10-KSB,  the information
contained  under the heading  "Transactions  with  Management"  in the Company's
Proxy  Statement for the 2002 Annual  Meeting of  Shareholders  is  incorporated
herein by reference.


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

      (a)    Exhibits.

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

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

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



                                      -29-
<PAGE>

             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.

             21     Subsidiaries of the Company.

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

      (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.












                                      -30-
<PAGE>






                     INDEPENDENT COMMUNITY BANKSHARES, INC.

                              Middleburg, Virginia

                                FINANCIAL REPORT

                                DECEMBER 31, 2001


<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                             7-32


<PAGE>

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


                          INDEPENDENT AUDITOR'S REPORT







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


         We  have  audited  the  accompanying  consolidated  balance  sheets  of
Independent Community Bankshares,  Inc. and subsidiaries as of December 31, 2001
and  2000,  and the  related  consolidated  statements  of  income,  changes  in
shareholders'  equity and cash flows for the years ended December 31, 2001, 2000
and 1999.  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 Independent
Community  Bankshares,  Inc. and  subsidiaries as of December 31, 2001 and 2000,
and the  results of their  operations  and their cash flows for the years  ended
December 31, 2001,  2000 and 1999,  in  conformity  with  accounting  principles
generally accepted in the United States of America.


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


Winchester, Virginia
January 15, 2002






                                        1
<PAGE>

                     INDEPENDENT COMMUNITY BANKSHARES, INC.

                           Consolidated Balance Sheets
                           December 31, 2001 and 2000
                      (In Thousands, Except for Share Data)
<TABLE>
<CAPTION>
              Assets                                                          2001            2000
                                                                           ----------      ----------
<S>                                                                        <C>             <C>
Cash and due from banks                                                    $   10,053      $    7,352
Interest-bearing deposits in banks                                                200              79
Temporary investments:
  Federal funds sold                                                              925           8,600
  Other money market investments                                                1,797           1,116
Securities (fair value:  2001, $124,522 ; 2000, $81,718)                      124,351          81,577
Loans held for sale                                                             6,652           2,131
Loans, net of allowance for loan losses of $2,060 in 2001
   and $1,804 in 2000                                                         194,340         175,794
Bank premises and equipment, net                                                8,069           6,349
Accrued interest receivable and other assets                                    7,714           6,463
                                                                           ----------      ----------

         Total assets                                                      $  354,101      $  289,461
                                                                           ==========      ==========

   Liabilities and Shareholders' Equity

Liabilities
  Deposits:
    Noninterest-bearing demand deposits                                    $   68,771      $   56,980
    Savings and interest-bearing demand deposits                              111,148          89,425
    Time deposits                                                              91,812          78,235
                                                                           ----------      ----------
         Total deposits                                                    $  271,731      $  224,640

  Securities sold under agreements to repurchase                               12,011          14,321
  Federal Home Loan Bank advances                                               7,000             - -
  Long-term debt                                                               20,805          21,300
  Trust preferred capital notes                                                10,000             - -
  Accrued interest and other liabilities                                        2,216           1,929
  Commitments and contingent liabilities                                          - -             - -
                                                                           ----------      ----------
         Total liabilities                                                 $  323,763      $  262,190
                                                                           ----------      ----------

Shareholders' Equity
  Common stock, par value $5 per share,  authorized  10,000,000  shares;
    issued 2001, 1,752,258 shares;
    issued 2000, 1,739,247 shares                                          $    8,761      $    8,696
  Capital surplus                                                                 741             556
  Retained earnings                                                            21,084          17,616
  Accumulated other comprehensive income (loss)                                  (248)            403
                                                                           ----------      ----------
         Total shareholders' equity                                        $   30,338      $   27,271
                                                                           ----------      ----------

         Total liabilities and shareholders' equity                        $  354,101      $  289,461
                                                                           ==========      ==========
</TABLE>

See Notes to Consolidated Financial Statements.


                                        2
<PAGE>

                     INDEPENDENT COMMUNITY BANKSHARES, INC.

                        Consolidated Statements of Income
                  Years Ended December 31, 2001, 2000 and 1999
                    (In Thousands, Except for Per Share Data)
<TABLE>
<CAPTION>
                                                                         2001           2000            1999
                                                                      ----------     ----------      ----------
<S>                                                                   <C>            <C>             <C>
Interest and Dividend Income
  Interest and fees on loans                                          $   16,327     $   14,076      $   11,694
  Interest on investment securities:
    Taxable interest income                                                   19             25              36
    Interest income exempt from federal income taxes                         297            354             536
  Interest and dividends on securities available for sale:
    Taxable interest income                                                3,102          3,055           1,731
    Interest income exempt from federal income taxes                       1,607          1,167             893
    Dividends                                                                281            318             243
  Interest on deposits in banks                                                9              4               1
  Interest on federal funds sold                                             117            170             290
  Interest on other money market investments                                  63             40              98
                                                                      ----------     ----------      ----------
         Total interest and dividend income                           $   21,822     $   19,209      $   15,522
                                                                      ----------     ----------      ----------

Interest Expense
  Interest on deposits                                                $    5,841     $    5,324      $    4,798
  Interest on securities sold under agreements to repurchase                 415            633             263
  Interest on Federal Home Loan Bank borrowings                              482            584               3
  Interest on long-term debt                                               1,076            500             281
                                                                      ----------     ----------      ----------
         Total interest expense                                       $    7,814     $    7,041      $    5,345
                                                                      ----------     ----------      ----------

         Net interest income                                          $   14,008     $   12,168      $   10,177

  Provision for loan losses                                                  300            400             420
                                                                      ----------     ----------      ----------

         Net interest income after provision
            for loan losses                                           $   13,708     $   11,768      $    9,757
                                                                      ----------     ----------      ----------

Noninterest Income
  Service charges, commissions and fees                               $    1,452     $    1,180      $    1,076
  Trust fee income                                                         1,279          1,594           1,148
  Fees on loans held for sale                                              1,483            643             561
  Gains (losses) on securities available for sale, net                       384           (204)            (13)
  Other                                                                      613            252             174
                                                                      ----------     ----------      ----------
         Total noninterest income                                     $    5,211     $    3,465      $    2,946
                                                                      ----------     ----------      ----------

Noninterest Expenses
  Salaries and employees' benefits                                    $    7,180     $    5,600      $    4,547
  Net occupancy and equipment expense                                      1,246          1,172           1,013
  Advertising                                                                320            347             325
  Computer operations                                                        408            298             310
  Other operating expenses                                                 2,793          2,138           1,845
                                                                      ----------     ----------      ----------
         Total noninterest expenses                                   $   11,947     $    9,555      $    8,040
                                                                      ----------     ----------      ----------

         Income before income taxes                                   $    6,972     $    5,678      $    4,663

  Income tax expense                                                       1,755          1,450           1,097
                                                                      ----------     ----------      ----------

         Net income                                                   $    5,217     $    4,228      $    3,566
                                                                      ==========     ==========      ==========

Earnings per Share, basic                                             $     2.99     $     2.43      $     2.00
                                                                      ==========     ==========      ==========
Earnings per Share, diluted                                           $     2.93     $     2.41      $     1.99
                                                                      ==========     ==========      ==========
</TABLE>

See Notes to Consolidated Financial Statements.


                                        3
<PAGE>

                     INDEPENDENT COMMUNITY BANKSHARES, INC.

           Consolidated Statements of Changes in Shareholders' Equity
                  Years Ended December 31, 2001, 2000 and 1999
                        (In Thousands, Except Share Data)
<TABLE>
<CAPTION>
                                                                                         Accumulated
                                                                                            Other
                                                                                           Compre-       Compre-
                                                   Common      Capital      Retained       hensive       hensive
                                                   Stock       Surplus      Earnings    Income (Loss)    Income       Total
                                                  --------    ---------    ----------   -------------   ---------    --------
<S>                                               <C>         <C>          <C>           <C>            <C>          <C>
Balance, December 31, 1998                        $  8,895    $   1,293    $   12,496    $       179                 $ 22,863
 Comprehensive income:
  Net income - 1999                                    - -          - -         3,566            - -    $   3,566       3,566
  Other comprehensive income net of tax:
   Unrealized holding losses arising during the
    period (net of tax, $1,100)                        - -          - -           - -            - -       (2,153)        - -
   Reclassification adjustment (net of tax, $4)        - -          - -           - -            - -            9         - -
                                                                                                        ---------    --------
   Other comprehensive income (net of tax, $1,104)     - -          - -           - -         (2,144)   $  (2,144)     (2,144)
                                                                                                        ---------
 Total comprehensive income                            - -          - -           - -            - -    $   1,422         - -
                                                                                                        =========
 Cash dividends - 1999 ($0.68 per share)               - -          - -        (1,210)           - -                   (1,210)
                                                  --------    ---------    ----------    -----------                 --------
Balance, December 31, 1999                        $  8,895    $   1,293    $   14,852    $    (1,965)                $ 23,075
 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
                                                  ========    =========    ==========    ===========                 ========
</TABLE>

 See Notes to Consolidated Financial Statements.



                                        4
<PAGE>

                     INDEPENDENT COMMUNITY BANKSHARES, INC.

                      Consolidated Statements of Cash Flows
                  Years Ended December 31, 2001, 2000 and 1999
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                         2001           2000            1999
                                                                      ----------     ----------      ----------
<S>                                                                   <C>            <C>             <C>
Cash Flows from Operating Activities
  Net income                                                          $    5,217     $    4,228      $    3,566
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Depreciation                                                           692            645             605
      Amortization                                                            96             64              60
      Provision for loan losses                                              300            400             420
      Net (gain) loss on securities available for sale                      (384)           204              13
      Net (gain) loss on sale of assets                                        2             (7)             (5)
      Net loss on the sale of other real estate                              - -            - -               5
      Discount accretion and premium amortization
        on securities, net                                                  (110)           (20)             64
      Deferred income tax (benefit)                                          (95)          (180)           (186)
      Origination of loans held for sale                                 (93,229)       (34,837)        (30,744)
      Proceeds from sales of loans held for sale                          88,708         33,938          34,184
      Changes in assets and liabilities:
        (Increase) in other assets                                          (917)        (1,058)         (1,372)
        Increase (decrease) in other liabilities                             211            846             (71)
                                                                      ----------     ----------      ----------
Net cash provided by operating activities                             $      491     $    4,223      $    6,539
                                                                      ----------     ----------      ----------

Cash Flows from Investing Activities
  Proceeds from maturity, principal paydowns
    and calls of investment securities                                $    2,032     $      772      $    1,905
  Proceeds from maturity, principal paydowns
    and calls of securities available for sale                             9,070          4,527           5,300
  Proceeds from sale of securities
    available for sale                                                    24,050         16,581           1,988
  Purchase of securities available for sale                              (78,415)       (32,316)        (22,473)
  Proceeds from sale of equipment                                             34              7             131
  Purchases of bank premises and equipment                                (2,448)          (709)         (1,164)
  Net (increase) in loans                                                (18,846)       (34,412)        (21,942)
  Proceeds from the sale of other real estate                                - -            - -             195
                                                                      ----------     ----------      ----------
Net cash (used in) investing activities                               $  (64,523)    $  (45,550)     $  (36,060)
                                                                      ----------     ----------      ----------
</TABLE>

 See Notes to Consolidated Financial Statements.



                                        5
<PAGE>

                     INDEPENDENT COMMUNITY BANKSHARES, INC.

                      Consolidated Statements of Cash Flows
                                   (Continued)
                  Years Ended December 31, 2001, 2000 and 1999
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                         2001           2000            1999
                                                                      ----------     ----------      ----------
<S>                                                                   <C>            <C>             <C>
Cash Flows from Financing Activities
 Net increase in noninterest-bearing and interest-
   bearing demand deposits and savings accounts                       $   33,514     $   11,147      $   24,798
 Net increase in certificates of deposit                                  13,577          9,656           6,359
 Increase (decrease) in securities sold under agreements
   to repurchase                                                          (2,310)         3,510           8,282
 Proceeds from Federal Home Loan Bank advances                            87,600         35,900             - -
 Proceeds from long-term debt                                                - -          1,300             - -
 Proceeds from trust preferred capital notes                              10,000            - -             - -
 Payments on Federal Home Loan Bank advances                             (80,600)           - -          (1,000)
 Payments on long-term debt                                                 (495)       (20,900)            - -
 Purchase of common stock                                                   (214)        (1,327)            - -
 Net proceeds from issuance of common stock                                  464             34             - -
 Cash dividends paid                                                      (1,676)        (1,402)         (1,175)
                                                                      ----------     ----------      ----------
     Net cash provided by financing activities                        $   59,860     $   37,918      $   37,264
                                                                      ----------     ----------      ----------

     Increase (decrease) in cash and and cash equivalents             $   (4,172)    $   (3,409)     $    7,743

Cash and Cash Equivalents
 Beginning                                                                17,147         20,556          12,813
                                                                      ----------     ----------      ----------

 Ending                                                               $   12,975     $   17,147      $   20,556
                                                                      ==========     ==========      ==========

Supplemental Disclosures of Cash Flow Information
 Cash payments for:
   Interest paid to depositors                                        $    6,294     $    5,833      $    5,073
   Interest paid on short-term obligations                                   479            445              10
   Interest paid on long-term debt                                         1,073            500             276
                                                                      ----------     ----------      ----------
                                                                      $    7,846     $    6,778      $    5,359
                                                                      ==========     ==========      ==========

   Income taxes                                                       $    2,375     $    1,557      $    1,287
                                                                      ==========     ==========      ==========

Supplemental Disclosure of Noncash Transactions
 Issuance of common stock for contingent payment under
   terms of acquisition of subsidiary                                 $      - -     $      357           $ - -
                                                                      ==========     ==========      ==========
 Unrealized (loss) gain on securities available for sale              $     (986)    $    3,587      $   (3,248)
                                                                      ==========     ==========      ==========
</TABLE>

See Notes to Consolidated Financial Statements.


                                       6
<PAGE>


                     INDEPENDENT COMMUNITY BANKSHARES, INC.

                   Notes to Consolidated Financial Statements


Note 1.    Nature of Banking Activities and Significant Accounting Policies

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

           The  accounting  and  reporting  policies of the  Company  conform to
           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   Independent
                   Community Bankshares, Inc. and its wholly-owned subsidiaries,
                   The Middleburg  Bank, The Tredegar Trust Company,  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.

               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

                   Goodwill is amortized using the straight-line  method over 20
                   years.  Annual  amortization  of  goodwill  is  approximately
                   $96,000.  In accordance with SFAS No. 142,  beginning January
                   1, 2002,  goodwill  will no longer be  amortized  but will be
                   evaluated for impairment on an annual basis.

               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  and
                   deferred taxes.

               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.














                                       11
<PAGE>

                   Notes to Consolidated Financial Statements



Note 2.    Securities

           Amortized costs and fair values of securities  being held to maturity
           as of December 31, 2001 and 2000 are summarized as follows:
<TABLE>
<CAPTION>
                                                      Gross        Gross
                                       Amortized    Unrealized   Unrealized     Fair
                                          Cost        Gains       (Losses)      Value
                                       ----------   ----------   ----------   ----------
                                                             2001
                                       -------------------------------------------------
                                                        (In Thousands)
<S>                                    <C>          <C>          <C>          <C>
Obligations of states and
  political subdivisions               $    5,484   $      171   $       --   $    5,655
Mortgage-backed securities                     61           --           --           61
                                       ----------   ----------   ----------   ----------
                                       $    5,545   $      171   $       --   $    5,716
                                       ==========   ==========   ==========   ==========
</TABLE>
<TABLE>
<CAPTION>
                                                             2000
                                       -------------------------------------------------
                                                        (In Thousands)
<S>                                    <C>          <C>          <C>          <C>
U.S. Treasury securities
  and obligations of U.S.
  Government corporations
  and agencies                         $      250   $       --   $       (5)  $      245
Obligations of states and
  political subdivisions                    6,657          146           --        6,803
Mortgage-backed securities                     93           --           --           93
                                       ----------   ----------   ----------   ----------
                                       $    7,000   $      146   $       (5)  $    7,141
                                       ==========   ==========   ==========   ==========
</TABLE>









                                       12
<PAGE>

                   Notes to Consolidated Financial Statements



           The  amortized  cost  and  fair  value of  securities  being  held to
           maturity as of December  31, 2001 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                       $      590   $      593
           Due after one year through five years              3,194        3,292
           Due after five years through 10 years              1,700        1,770
           Mortgage-backed securities                            61           61
                                                         ----------   ----------
                                                         $    5,545   $    5,716
                                                         ==========   ==========


           Amortized  costs and fair values of securities  available for sale as
           of December 31, 2001 and 2000, are summarized as follows:
<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
           Other                                          19,201          265           (78)       19,388
                                                      ----------   ----------    ----------    ----------
                                                      $  119,182   $      920    $   (1,296)   $  118,806
                                                      ==========   ==========    ==========    ==========
</TABLE>







                                       13
<PAGE>

                   Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>
                                                                     Gross         Gross
                                                      Amortized    Unrealized    Unrealized      Fair
                                                         Cost        Gains        (Losses)       Value
                                                      ----------   ----------    ----------    ----------
                                                                             2000
                                                                        (In Thousands)
<S>                                                   <C>          <C>                 <C>     <C>
           U.S. Treasury securities and
             obligations of U.S. Government
             corporations and agencies                $    3,064   $       36    $      (28)   $    3,072
           Obligations of states and
             political subdivisions                       27,699          550          (288)       27,961
           Mortgage-backed securities                     33,764          415          (136)       34,043
           Corporate preferred                             2,498          154          (200)        2,452
           Other                                           6,943          106            --         7,049
                                                      ----------   ----------    ----------    ----------
                                                      $   73,968   $    1,261    $     (652)   $   74,577
                                                      ==========   ==========    ==========    ==========
</TABLE>

           The amortized cost and fair value of securities available for sale as
           of December  31,  2001,  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 after one year through five years         $    1,165   $    1,203
           Due after five years through 10 years             10,726       10,791
           Due after 10 years                                21,696       21,493
           Mortgage-backed securities                        64,206       63,746
           Corporate preferred                                2,188        2,185
           Other                                             19,201       19,388
                                                         ----------   ----------
                                                         $  119,182   $  118,806
                                                         ==========   ==========


           Proceeds  from sales of  securities  available  for sale during 2001,
           2000  and  1999  were  $24,050,000,   $16,581,000,   and  $1,988,000,
           respectively.  Gross  gains of  $533,000,  $23,000,  and $0 and gross
           losses of  $149,000,  $227,000,  and $13,000  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 $27,701,000 and $24,491,000 at December 31, 2001
           and 2000, respectively.





                                       14
<PAGE>

                   Notes to Consolidated Financial Statements



Note 3.    Loans, Net
<TABLE>
<CAPTION>
                                                                             December 31,
                                                                       -----------------------
                                                                          2001         2000
                                                                       ----------   ----------
                                                                            (In Thousands)
<S>                                                                    <C>          <C>
           Mortgage loans on real estate:
              Construction                                             $   24,174   $   17,693
              Secured by farmland                                             163          346
              Secured by 1-4 family residential                            89,095       87,518
              Other real estate loans                                      48,074       38,812
           Loans to farmers (except secured by real estate)                   632        1,307
           Commercial loans                                                22,361       21,248
           Loans to individuals for personal expenditures                  11,735       10,505
           All other loans                                                    166          169
                                                                       ----------   ----------
                          Total loans                                  $  196,400   $  177,598
           Less: Allowance for loan losses                                  2,060        1,804
                                                                       ----------   ----------
                          Net loans                                    $  194,340   $  175,794
                                                                       ==========   ==========
</TABLE>

Note 4.    Allowance for Loan Losses
<TABLE>
<CAPTION>
                                                           2001          2000          1999
                                                        ----------    ----------    ----------
                                                                    (In Thousands)
<S>                                                     <C>           <C>           <C>
           Balance, beginning                           $    1,804    $    1,453    $    1,064
           Provision charged to operating expense              300           400           420
           Recoveries                                           39            47           120
           Loan losses charged to the allowance                (83)          (96)         (151)
                                                        ----------    ----------    ----------
                                                        $    2,060    $    1,804    $    1,453
                                                        ==========    ==========    ==========
</TABLE>

           There were no loans  recognized for impairment  under SFAS No. 114 as
           of December 31, 2001 and 2000.  The average  recorded  investment  in
           impaired  loans  during  2000  and  1999 was  $15,000,  and  $75,000,
           respectively.  No interest income on impaired loans was recognized in
           2001, 2000 and 1999.

           Nonaccrual  loans excluded from impaired loan  disclosure  under SFAS
           No. 114  amounted  to $79,000 and  $105,000 at December  31, 2001 and
           2000, respectively. If interest on these loans had been accrued, such
           income  would have  approximated  $700 and $14,000 for 2001 and 2000,
           respectively.






                                       15
<PAGE>

                   Notes to Consolidated Financial Statements



Note 5.    Bank Premises and Equipment, Net

           Bank premises and equipment consists of the following:

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

           Land                                          $    2,022   $    1,526
           Banking facilities                                 3,907        3,894
           Furniture, fixtures and equipment                  5,400        4,341
           Construction in progress and deposits
             on equipment                                     1,406          576
                                                         ----------   ----------
                                                         $   12,735   $   10,337
           Less accumulated depreciation                      4,666        3,988
                                                         ----------   ----------
                                                         $    8,069   $    6,349
                                                         ==========   ==========

           Depreciation  expense was  $692,000,  $645,000,  and $605,000 for the
           years ended December 31, 2001, 2000 and 1999, respectively.

Note 6.    Deposits

           The  aggregate  amount of jumbo  time  deposits,  each with a minimum
           denomination   of  $100,000,   was   approximately   $45,679,000  and
           $34,981,000 in 2001 and 2000, respectively.

           At December 31, 2001,  the scheduled  maturities of time deposits (in
           thousands) are as follows:

                  2002                                   $   75,883
                  2003                                        8,614
                  2004                                        4,074
                  2005                                          891
                  2006 and thereafter                         2,350
                                                         ----------
                                                         $   91,812
                                                         ----------

Note 7.    Borrowings

           The Company has a  $56,500,000  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,  2001,  the book value of these loans
           totaled approximately $80,724,000. 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  $20,000,000  at December 31, 2001 matures  through  2005. At
           December  31,  2001 and 2000,  the  interest  rates  ranged from 4.73
           percent  to 6.16  percent  and from  5.85  percent  to 6.87  percent,
           respectively.  At December 31, 2001 and 2000,  the  weighted  average
           interest rates were 5.73 percent and 6.26 percent, respectively.

           At December 31, 2001,  the Company had  floating-rate  long-term debt
           with other  institutions  totaling $805,000 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 3.19% to 6.72% during 2001.

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

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

                 Due in 2002                    $          260
                 Due in 2003                               545
                 Due in 2004                             5,000
                 Due in 2005                            15,000
                                                --------------
                                                $       20,805
                                                ==============

           The Company's  short-term  borrowings with the Federal Home Loan Bank
           totaled  $7,000,000  at December 31, 2001.  The interest  rate on the
           outstanding principal was 2.18% at December 31, 2001.

           The Company has an additional $5,300,000 in lines of credit available
           from other institutions at December 31, 2001.


Note 8.    Stock Option Plan

           The Company sponsors a stock option plan, which provides for granting
           of both incentive and nonqualified stock options.  As permitted under
           generally accepted accounting  principles,  grants under the plan are
           accounted for following the  provisions of APB Opinion No. 25 and its
           related  interpretations.  All options  were granted at fair value at
           date of grant. Accordingly,  no compensation cost has been recognized
           for grants made to date. In determining  the pro forma amounts below,
           the value of each  grant is  estimated  at the grant  date  using the
           Black-Scholes    option-pricing    model,    with    the    following
           weighted-average  assumptions  for grants in 2000 and 1999:  dividend
           rate of .20% and .22%;  risk-free  interest rates of 5.35% and 6.50%;
           expected lives of 10 years;  and expected price  volatility of 17.96%
           and  15.97%.  Options  granted  in 1999  are  included  with the 2000
           calculations to correspond with  shareholder  approval of the plan in
           2000. Had compensation  cost for the plan been determined  consistent
           with SFAS No. 123,  "Accounting  for Stock-Based  Compensation,"  the
           Company's  net income and  earnings per share would have been reduced
           to the following pro forma amounts:




                                       17
<PAGE>

                   Notes to Consolidated Financial Statements



                                      2001        2000         1999
                                    --------    ---------    ---------
                                    (In Thousands, Except Per Share Data)

Net Income:         As Reported     $  5,217    $   4,228    $   3,566
                    Pro Forma       $  4,994    $   3,911    $   3,189

Basic EPS:          As Reported     $   2.99    $    2.43    $    2.00
                    Pro Forma       $   2.86    $    2.25    $    1.79

Diluted EPS:        As Reported     $   2.93    $    2.41    $    1.99
                    Pro Forma       $   2.80    $    2.23    $    1.78



           Options   outstanding  at  December  31,  2001,  2000  and  1999  are
           summarized as follows:
<TABLE>
<CAPTION>
                                     2001                      2000                       1999
                            ----------------------     ---------------------     ----------------------
                                          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          152,825      $  21.15      121,825     $  21.13       86,000      $  19.46
Granted                           --            --       31,000        21.66       37,825         24.70
Exercised                    (20,142)        20.29           --           --           --            --
Forfeited                    (27,658)        23.28           --           --       (2,000)        17.00
                            --------                   --------                  --------
Outstanding at end
  of year                    105,025      $  20.76      152,825     $  21.15      121,825      $  21.13
                            ========                   ========                  ========
Options exercisable
  at year end                 94,425      $  20.62      116,749     $  20.69       82,681      $  19.69
Weighted average
  fair value of options
  granted during the
  year                                    $     --                  $   9.20                   $  11.53
</TABLE>







                                       18
<PAGE>

                   Notes to Consolidated Financial Statements



           As of December 31, 2001,  options  outstanding  and  exercisable  are
           summarized as follows:

                                          Weighted
                                          Remaining
            Exercise         Options     Contractual      Options
             Prices        Outstanding      Life        Exercisable
           -----------     -----------   -----------    -----------
           $     17.00          42,000        5.9            42,000
                 23.50          18,000        7.0            18,000
                 24.50           5,025        7.7             5,025
                 24.75          20,000        8.0            17,640
                 21.25          20,000        9.0            11,760
                           -----------                  -----------
                               105,025                       94,425
                           ===========                  ===========



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:
















                                       19
<PAGE>

                   Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>
                                                       2001         2000         1999
                                                    ----------   ----------   ----------
                                                               (In Thousands)
<S>                                                 <C>          <C>          <C>
Change in Benefit Obligation
  Benefit obligation, beginning of year             $    1,862   $    2,002   $    1,766
  Service cost                                             274          215          180
  Interest cost                                            140          150          132
  Plan amendments                                           --         (350)          --
  Actuarial loss (gain)                                     42          (33)         (62)
  Benefits paid                                            (19)        (122)         (14)
                                                    ----------   ----------   ----------
  Benefit obligation, end of year                   $    2,299   $    1,862   $    2,002
                                                    ----------   ----------   ----------

Change in Plan Assets
  Fair value of plan assets, beginning of year      $    2,049   $    1,751   $    1,385
  Actual return on plan assets                            (289)         269          191
  Employer contributions                                   151          151          189
  Benefits paid                                            (19)        (122)         (14)
                                                    ----------   ----------   ----------
  Fair value of plan assets, ending                 $    1,892   $    2,049   $    1,751
                                                    ----------   ----------   ----------

  Funded status                                     $     (336)  $      183   $     (251)
  Unrecognized net actuarial loss                          956          463          648
  Unrecognized net obligation at transition                (28)         (32)         (36)
  Unrecognized prior service cost                         (199)        (200)         167
                                                    ----------   ----------   ----------
  Prepaid benefit cost included in other assets     $      393   $      414   $      528
                                                    ==========   ==========   ==========

Components of Net Periodic
 Benefit Cost
  Service cost                                      $      274   $      215   $      180
  Interest cost                                            140          150          132
  Expected return on plan assets                          (174)        (140)        (111)
  Amortization of prior service cost                        (1)          17           17
  Amortization of net obligation
   at transition                                            (4)          (4)          (4)
  Recognized net actuarial loss                             14           22           32
                                                    ----------   ----------   ----------
   Net periodic benefit cost                        $      249   $      260   $      246
                                                    ==========   ==========   ==========

Weighted-Average Assumptions
 as of December 31
  Discount rate                                           7.50%        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%

</TABLE>

                                       20
<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 2001, 2000 and 1999, based on
           the present value of the retirement  benefits,  was $21,794,  $20,368
           and $19,036. 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, 2001 and 2000:

                                                          2001          2000
                                                       ----------    ----------
                                                            (In Thousands)
           Deferred tax assets:
             Allowance for loan losses                 $      585    $      498
             Deferred compensation                             52            42
             Loss on capital assets                           - -            42
             Other                                             13           - -
             Securities available for sale                    128           - -
                                                       ----------    ----------
                                                       $      778    $      582
                                                       ----------    ----------
           Deferred tax liabilities:
             Property and equipment                    $      243    $      258
             Prepaid pension costs                            126           138
             Securities available for sale                    - -           207
                                                       ----------    ----------
                                                       $      369    $      603
                                                       ----------    ----------

                                                       $      409    $      (21)
                                                       ==========    ==========


           The provision  for income taxes  charged to operations  for the years
           ended December 31, 2001, 2000 and 1999 consists of the following:

                                            2001          2000          1999
                                         ----------    ----------    ----------
                                                     (In Thousands)

           Current tax expense           $    1,850    $    1,630    $    1,283
           Deferred tax (benefit)               (95)         (180)         (186)
                                         ----------    ----------    ----------
                                         $    1,755    $    1,450    $    1,097
                                         ==========    ==========    ==========




                                       21
<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, 2001,  2000 and 1999, due to
           the following:

                                                 2001        2000        1999
                                               --------    --------    --------
                                                        (In Thousands)
           Computed "expected" tax expense     $  2,370    $  1,931    $  1,585
           (Decrease) in income taxes
             resulting from:
               Tax-exempt interest income          (578)       (466)       (486)
               Other, net                           (37)        (15)         (2)
                                               --------    --------    --------
                                               $  1,755    $  1,450    $  1,097
                                               ========    ========    ========

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  $2,550,000
           and  $3,027,000 at December 31, 2001 and 2000,  respectively.  During
           2001,  total  principal  additions were $784,000 and total  principal
           payments were $1,261,000.


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, 2001
           and 2000, the aggregate amount of daily average required reserves for
           each year was approximately $25,000.






                                       22
<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>
                                          2001                      2000                     1999
                                -----------------------   -----------------------   -----------------------
                                                Per                       Per                       Per
                                               Share                     Share                     Share
                                  Shares       Amount       Shares       Amount       Shares       Amount
                                ----------   ----------   ----------   ----------   ----------   ----------
<S>                              <C>         <C>           <C>         <C>           <C>         <C>
           Basic EPS             1,746,000   $     2.99    1,741,000   $     2.43    1,779,000   $     2.00
                                             ----------                ----------                ----------

           Effect of dilutive
           securities:
           Stock options            37,000                    11,000                    16,000
                                ----------                ----------                ----------
           Diluted EPS           1,783,000   $     2.93    1,752,000   $     2.41    1,795,000   $     1.99
                                ==========   ==========   ==========   ==========   ==========   ==========
</TABLE>

           In 2000, stock options  representing  69,825 shares 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 years ended December 31, 2001 and
           1999.

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, 2001,
           the aggregate amount of unrestricted funds which could be transferred
           from the Company's subsidiaries to the Parent Company,  without prior
           regulatory  approval,  totaled  $8,203,000  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.




                                       23
<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,  2001  and  2000,  is as
           follows:

                                                              2001       2000
                                                           ---------   ---------
                                                               (In Thousands)
           Financial instruments whose contract amounts
             represent credit risk:
                Commitments to extend credit               $  34,244   $  26,611
                Standby letters of credit                      2,343       2,058

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

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

           Standby letters of credit are conditional  commitments  issued by the
           Company to guarantee the  performance of a customer to a third party.
           Those  guarantees are primarily  issued to support public and private
           borrowing  arrangements,  including commercial paper, bond financing,
           and similar transactions. The credit risk involved in issuing letters
           of credit is essentially  the same as that involved in extending loan
           facilities to customers.  The Company holds real estate as collateral
           supporting   those   commitments  for  which   collateral  is  deemed
           necessary.  The extent of collateral  held for those  commitments  at
           December 31, 2001 averages 62.5 percent.

           The  Company  has  utilized  derivative  instruments  in the  form of
           interest  rate swaps  during the years 2001 and 2000.  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.




                                       24
<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,  2001 and 2000.  Variable  interest  payments
           received  are based on  three-month  LIBOR.  At December 31, 2001 and
           2000, the weighted average rate of variable  market-indexed  interest
           payment obligations to the Company was 1.67% and 6.41%, respectively.
           The  effect  of  these   agreements  was  to  transform   fixed  rate
           liabilities to variable rate  liabilities.  The net income from these
           agreements  was  $250,848  and $29,941 for the  twelve-month  periods
           ended  December 31, 2001 and 2000,  which was charged to income as it
           accrued.

           At  December  31,  2001  and  2000,  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  $6,785,000  in deposits in  financial
           institutions  in excess of  amounts  insured by the  Federal  Deposit
           Insurance Corporation (FDIC) at December 31, 2001.


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.



                                       25
<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, 2001 and
               2000,  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>
                                                                  2001                     2000
                                                        -----------------------   -----------------------
                                                         Carrying      Fair        Carrying      Fair
                                                          Amount       Value        Amount       Value
                                                        ----------   ----------   ----------   ----------
                                                                         (In Thousands)
<S>                                                     <C>          <C>          <C>          <C>
               Financial assets:
                  Cash and short-term investments       $   12,975   $   12,975   $   17,147   $   17,147
                  Securities                               124,351      124,522       81,577       81,718
                  Loans held for sale                        6,652        6,668        2,131        2,131
                  Loans                                    194,340      203,720      175,794      174,522
               Accrued interest receivable                   1,984        1,984        1,736        1,736

               Financial liabilities:
                  Deposits                              $  271,731   $  272,864   $  224,640   $  224,938
                  Securities sold under agreements
                     to repurchase                          12,011       12,011       14,321       14,321
                  Federal Home Loan Bank advances            7,000        7,000
                  Long-term debt                            20,805       23,136       21,300       20,999
                  Trust preferred capital notes             10,000       10,000           --           --
               Accrued interest payable                        819          819          853          853

               Off-balance-sheet derivative financial
               instruments:
                Other-than-trading assets:
                  Interest rate swaps                   $       --   $      225   $       --   $      174
</TABLE>


                                       26
<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,  2001 and 2000,  that the
           Company and the Bank meet all capital adequacy  requirements to which
           they are subject.

           As of  December  31,  2001,  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.






                                       27
<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>
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%

As of December 31, 2000:
  Total Capital (to Risk
    Weighted Assets):
      Consolidated                 $ 27,319      13.6%         $ 16,088       8.0%                  N/A
      The Middleburg Bank          $ 22,889      11.6%         $ 15,735       8.0%         $ 19,669      10.0%
  Tier 1 Capital (to Risk
    Weighted Assets):
      Consolidated                 $ 25,515      12.7%         $  8,044       4.0%                  N/A
      The Middleburg Bank          $ 21,085      10.7%         $  7,868       4.0%         $ 11,802       6.0%
  Tier 1 Capital (to
    Average Assets):
      Consolidated                 $ 25,515       9.7%         $ 10,487       4.0%                  N/A
      The Middleburg Bank          $ 21,085       8.3%         $ 10,190       4.0%         $ 12,738       5.0%
</TABLE>


Note 18.   Proposed Acquisition

           On August 9, 1999,  the Company  purchased  one percent of the issued
           and  outstanding  capital  stock  of  Gilkison  Patterson  Investment
           Advisors,  Inc.  ("GPIA"),  an  investment  advisory  firm  based  in
           Alexandria,  Virginia. In addition, the Company acquired the right to
           purchase  all of the  remaining  authorized,  issued and  outstanding
           shares of GPIA  capital  stock on or after July 1, 2001.  This option
           was extended through June 30, 2002. The  consideration for the shares
           and the merger  option  consisted of $2.26  million in cash and other
           non-stock  consideration.  Upon  exercise of the merger  option,  the
           Company will purchase all the remaining issued and outstanding shares
           of GPIA  capital  stock for an  additional  $3.8  million in cash and
           shares of the Company's common stock.



                                       28
<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.  The  interest  rate as of
           December  31,  2001  was  5.85%.  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.















                                       29
<PAGE>

                   Notes to Consolidated Financial Statements



Note 20.   Condensed Financial Information - Parent Corporation Only

                     INDEPENDENT COMMUNITY BANKSHARES, INC.
                            (Parent Corporation Only)

                                 Balance Sheets
                           December 31, 2001 and 2000

<TABLE>
<CAPTION>

         Assets                                                          2001           2000
                                                                      ----------     ----------
                                                                           (In Thousands)
<S>                                                                   <C>            <C>
Cash on deposit with subsidiary bank                                  $       35     $       53
Money market fund                                                          1,409            169
Securities available for sale                                              2,273          2,452
Investment in subsidiaries, at cost, plus
  equity in undistributed net income                                      33,881         22,978
Note receivable                                                            1,000          1,000
Goodwill                                                                   1,272          1,353
Other assets                                                               1,770          1,500
                                                                      ----------     ----------

                  Total assets                                        $   41,640     $   29,505
                                                                      ==========     ==========

         Liabilities and Shareholders' Equity

Liabilities
  Note payable to subsidiary                                          $        -     $      500
  Long-term debt                                                             805          1,300
  Trust preferred capital notes                                           10,000              -
  Other liabilities                                                          497            434
                                                                      ----------     ----------
                  Total liabilities                                   $   11,302     $    2,234
                                                                      ----------     ----------

Shareholders' Equity
  Common stock                                                        $    8,761     $    8,696
  Capital surplus                                                            741            556
  Retained earnings                                                       21,084         17,616
  Accumulated other comprehensive income (loss)                             (248)           403
                                                                      ----------     ----------
                  Total shareholders' equity                          $   30,338     $   27,271
                                                                      ----------     ----------

                  Total liabilities and shareholders' equity          $   41,640     $   29,505
                                                                      ==========     ==========
</TABLE>



                                       30
<PAGE>

                   Notes to Consolidated Financial Statements



                     INDEPENDENT COMMUNITY BANKSHARES, INC.
                            (Parent Corporation Only)

                              Statements of Income
                  Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                               2001           2000           1999
                                                            ----------     ----------     ----------
                                                                           (In Thousands)
<S>                                                         <C>            <C>            <C>
Income
  Dividends from subsidiaries                               $    1,795     $    1,500     $    1,865
  Interest and dividends from investments                          169            224            178
  Interest on money market                                          18              6             48
  Interest from loan to GPIA                                        74             80             32
  Management fees from GPIA                                         78             77             40
  Gains (losses) on securities available
    for sale, net                                                  119             (5)            (5)
                                                            ----------     ----------     ----------
          Total income                                      $    2,253     $    1,882     $    2,158
                                                            ----------     ----------     ----------

Expenses
  Salaries and employee benefits                            $      161     $       12     $      132
  Amortization                                                      96             64             60
  Legal and professional fees                                       63             65             42
  Printing and supplies                                              1              9             42
  Directors fees                                                    50             34             34
  Interest expense on loan from subsidiary                          37             40             17
  Interest expense other                                           114             76            - -
  Other                                                            145            156             27
                                                            ----------     ----------     ----------
          Total expenses                                    $      667     $       56     $      354
                                                            ----------     ----------     ----------

          Income before allocated tax benefits and
             undistributed income of subsidiaries           $    1,586     $    1,315     $    1,804

Income tax (benefit)                                               (49)           (34)           (20)
                                                            ----------     ----------     ----------

          Income before equity in undistributed
            income of subsidiaries                          $    1,635     $    1,349     $    1,824

Equity in undistributed income of subsidiaries                   3,582          2,879          1,742
                                                            ----------     ----------     ----------

          Net income                                        $    5,217     $    4,228     $    3,566
                                                            ==========     ==========     ==========
</TABLE>



                                       31
<PAGE>

                   INDEPENDENT COMMUNITY BANKSHARES, INC.
                          (Parent Corporation Only)

                          Statements of Cash Flows
                Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>

                                                                        2001           2000           1999
                                                                     ----------     ----------     ----------
                                                                               (In Thousands)
<S>                                                                  <C>            <C>            <C>
Cash Flows from Operating Activities
  Net income                                                         $    5,217     $    4,228     $    3,566
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Amortization                                                           96             64             60
      Undistributed earnings of subsidiaries                             (3,582)        (2,879)        (1,742)
      (Gain) loss on sale of securities available for sale                 (119)             5              5
      (Increase) in other assets                                           (300)           (19)        (1,433)
      Increase (decrease) in other liabilities                              (10)            92            548
                                                                     ----------     ----------     ----------
Net cash provided by operating activities                            $    1,302     $    1,491     $    1,004
                                                                     ----------     ----------     ----------

Cash Flows from Investing Activities
  Purchase of securities available for sale                          $     (162)  $         --     $     (399)
  Proceeds from sale of securities available for sale                       503            100            201
  Investment in subsidiary bank                                          (8,000)            --             --
  Increase in note receivable                                                --             --         (1,000)
                                                                     ----------     ----------     ----------
Net cash provided by (used in) investing activities                  $   (7,659)    $      100     $   (1,198)
                                                                     ----------     ----------     ----------

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                                               (495)            --             --
  Payment of note payable to subsidiary                                    (500)            --             --
  Purchase of common stock                                                 (214)        (1,327)            --
  Net proceeds from sale of common stock                                    464             34             --
  Cash dividends paid                                                    (1,676)        (1,402)        (1,175)
                                                                     ----------     ----------     ----------
Net cash provided by (used in) financing activities                  $    7,579     $   (1,395)    $   (1,175)
                                                                     ----------     ----------     ----------

Increase (decrease) in cash and
  cash equivalents                                                   $    1,222     $      196     $   (1,369)

Cash and Cash Equivalents
  Beginning                                                                 222             26          1,395
                                                                     ----------     ----------     ----------

  Ending                                                             $    1,444     $      222     $       26
                                                                     ==========     ==========     ==========

Supplemental Disclosure of Noncash Transactions,
  issuance of common stock for contingent payment under
  terms of acquisition of subsidiary                                 $       --     $      357     $       --
                                                                     ==========     ==========     ==========
</TABLE>



                                       32
<PAGE>

                                   SIGNATURES

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


                                        INDEPENDENT COMMUNITY
                                          BANKSHARES, INC.



Date:  March 20, 2002                   By: /s/ Joseph L. Boling
                                            ------------------------------------
                                            Joseph L. Boling
                                            Chairman of the Board, President and
                                              Chief Executive Officer


         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  Registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
              Signature                                     Title                               Date
              ---------                                     -----                               ----
<S>                                        <C>                                             <C>


        /s/ Joseph L. Boling                Chairman of the Board, President and           March 20, 2002
---------------------------------------     Chief Executive Officer and Director
          Joseph L. Boling                      (Principal Executive Officer)


        /s/ Alice P. Frazier                  Executive Vice President and Chief           March 20, 2002
---------------------------------------    Financial Officer (Principal Financial
          Alice P. Frazier                         and Accounting Officer)


       /s/ Howard M. Armfield                               Director                       March 20, 2002
---------------------------------------
         Howard M. Armfield


       /s/ Childs Frick Burden                              Director                       March 20, 2002
---------------------------------------
         Childs Frick Burden


       /s/ J. Lynn Cornwell, Jr.                            Director                       March 20, 2002
---------------------------------------
        J. Lynn Cornwell, Jr.


        /s/ William F. Curtis                               Director                       March 20, 2002
---------------------------------------
          William F. Curtis


       /s/ Robert C. Gilkison                               Director                       March 20, 2002
---------------------------------------
         Robert C. Gilkison

<PAGE>
              Signature                                      Title                               Date
              ---------                                      -----                               ----


      /s/ C. Oliver Iselin, III                             Director                       March 20, 2002
---------------------------------------
        C. Oliver Iselin, III


         /s/ Gary D. LeClair                                Director                       March 20, 2002
---------------------------------------
           Gary D. LeClair


         /s/ Thomas W. Nalls                                Director                       March 20, 2002
---------------------------------------
           Thomas W. Nalls


          /s/ John Sherman                                  Director                       March 20, 2002
---------------------------------------
            John Sherman


        /s/ Millicent W. West                               Director                       March 20, 2002
---------------------------------------
          Millicent W. West


        /s/ Edward T. Wright                                Director                       March 20, 2002
---------------------------------------
          Edward T. Wright

</TABLE>

<PAGE>

                                 EXHIBIT INDEX
                                 -------------

Exhibit No.                        Document
-----------                        --------

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

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

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

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

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

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

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

   21            Subsidiaries of the Company.

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