<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

                  For the fiscal year ended December 31, 2002.
                                            ------------------

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED).

     For the transition periods from __________________ to _______________.

     Commission file number:                     0-18868                  .
                             ----------------------------------------------

                       Premier Community Bankshares, Inc.
                       ----------------------------------
                 (Name of small business issuer in its charter)
                 ----------------------------------------------

      Virginia                                             54-1560968      .
      ----------------------------------------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

                  4095 Valley Pike, Winchester, Virginia 22602
                  --------------------------------------------
               (Address if principal executive offices)(Zip code)

         Issuer's telephone number, including area code (540) 869-6600.
                                                        ---------------

           Securities registered under Section 12(b) of the Act: NONE

         Securities registered under section 12(g) of the Exchange Act.
                    Common Stock, Par Value $1.00 per share
                    ---------------------------------------
                                (Title of Class)

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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 the past 90 days.
                                                           [X] YES [_] NO

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.        [X]

Total revenues for the year ended December 31, 2002 were $25,554,000.

The aggregate market value of the voting stock held by non-affiliates of the
registrant was $41,084,580 as of December 31, 2002. The aggregate market value
was computed by using a market price of $10.23 per share.

As of March 15, 2002, the number of shares outstanding of the registrant's
common stock was 4,557,484.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of the 2002 Annual Meeting of Stockholders
("2002 Proxy Statement") are incorporated by reference in Part III of this Form
10-KSB.

<PAGE>

Part I

Item 1. Description of Business

General

Premier Community Bankshares, Inc. ("the Corporation"), formerly called Marathon
Financial Corporation, is a bank holding company that was incorporated under the
laws of the Commonwealth of Virginia in June 1989. The Corporation owns all of
the outstanding stock of its two subsidiaries, The Marathon Bank ("TMB"), which
was incorporated in August 1987 and acquired by the Corporation in October 1990,
in accordance with the Plan of Exchange approved by the shareholders of TMB in
June 1990, and Rockingham Heritage Bank ("RHB"), which was incorporated in June
1989 and acquired by the Corporation in November of 2000, in accordance with the
Plan of Merger approved by the shareholders of both Marathon Financial
Corporation and RHB in October of 2000. The Corporation is headquartered in
Frederick County, Virginia, operating in TMB's offices in the Marathon Financial
Center, 4095 Valley Pike, Winchester, Virginia.

The Corporation is a holding company for TMB and RHB and is not directly engaged
in the operation of any other business. RHB has one wholly owned subsidiary, RHB
Services, Inc.

TMB and RHB, which are chartered under the laws of the Commonwealth of Virginia,
conduct a general banking business through their offices. Both bank's deposits
are insured under the Federal Deposit Insurance Act and are members of the
Federal Reserve System. As of December 31, 2002, TMB employed 96 persons on a
full-time equivalent basis while RHB employed 53 persons on a full-time
equivalent basis.

Both banks are engaged in the business of offering banking services to the
general public. They offer checking accounts, savings and time deposits, and
commercial, real estate, personal, home improvement, automobile and other
installment and term loans. They also offer travelers checks, safe deposit,
collection, notary public, discount brokerage service, and other customary bank
services (other than trust services) to their customers. The three principal
types of loans made by the banks are: (1) commercial and industrial loans; (2)
real estate loans; and (3) loans to individuals for household, family, and other
consumer expenditures. Both banks' premises include drive-up facilities. There
are ATM's located at each of TMB's offices and an additional four off-premise
ATM's serviced by TMB. RHB has no ATM's at this time.

The Corporation's business in the area served by TMB (the counties of Frederick,
Clarke, Shenandoah, Warren and the city of Winchester, Virginia) and RHB
(Rockingham and Augusta counties, and the cities of Harrisonburg, Waynesboro,
and Staunton, Virginia) are highly competitive with respect to both loans and
deposits. In the Corporation's primary service area, there are numerous
commercial banks (including large, Virginia-wide banks with multiple offices)
offering services ranging from deposits and real estate loans to full service
banking. Certain of the commercial banks in this service area have higher
lending limits than the Corporation and may provide various services for their
customers that are not offered by the Corporation. In addition, there can be no
assurance that other financial institutions, with substantially greater
resources than the Corporation, will not establish operations in the
Corporation's service area.

Recent Developments

In November of 2000, the Corporation changed its name from Marathon Financial
Corporation to Premier Community Bankshares, Inc. and acquired all of the issued
and outstanding capital stock of Rockingham Heritage Bank through a merger with
Rockingham Heritage Bank at the subsidiary level.

The Corporation did not repurchase any shares of common stock in 2002. During
2001, the Corporation repurchased 114,669 shares of common stock.

Supervision and Regulation

         General. As a bank holding company, the Corporation 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

                                        2

<PAGE>

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 state-chartered banks, TMB and RHB are subject to regulation,
supervision and examination by the Virginia State Corporation Commission's
Bureau of Financial Institutions. They also are subject to regulation,
supervision and examination by the Federal Reserve Board. State and federal law
also governs the activities in which TMB and RHB engage, the investments that
they make and the aggregate amount of loans that may be granted to one borrower.
Various consumer and compliance laws and regulations also affect the operations
of each of TMB and RHB.

         The earnings of the Corporation's subsidiaries, and therefore the
earnings of the Corporation, 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
Corporation and TMB and RHB are subject. To the extent that 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 Corporation is a legal entity separate and
distinct from its banking and other subsidiaries. Virtually all of the
Corporation's revenues will result from dividends paid to the Corporation by TMB
and RHB. TMB and RHB are subject to laws and regulations that limit the amount
of dividends that they can pay. In addition, the Corporation and TMB and RHB 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 three years has been sufficient to fully fund the
dividends, and the prospective rate of earnings retention appears consistent
with the organization's capital needs, asset quality and overall financial
condition. The Corporation does not expect that any of these laws, regulations
or policies will materially affect the ability of TMB and RHB to pay dividends.

         Insurance of Accounts, Assessments and Regulation by the FDIC. The
deposits of TMB and RHB are insured by the Federal Deposit Insurance Corporation
(the "FDIC") up to the limits set forth under applicable law. The deposits of
TMB and RHB are subject to the deposit insurance assessments of the Bank
Insurance Fund ("BIF") of the FDIC.

         The FDIC has implemented a risk-based deposit insurance assessment
system under which the assessment rate for an insured institution may vary
according to regulatory capital levels of the institution and other factors
(including supervisory evaluations). Depository institutions insured by the BIF
that are "well capitalized" are required to pay only the statutory minimum
assessment of $2,000 annually for deposit insurance, while all other banks are
required to pay premiums ranging from .03% to .27% of domestic deposits. These
rate schedules are subject to future adjustments by the FDIC. In addition, the
FDIC has authority to impose special assessments from time to time. However,
because the legislation enacted in 1996 requires that both Savings Association
Insurance Fund insured and BIF-insured deposits pay a pro rata portion of the
interest due on the obligations issued by the Financing Corporation, the FDIC is
assessing BIF-insured deposits an additional 1.30 basis points per $100 of
deposits to cover those obligations.

         The FDIC is authorized to prohibit any BIF-insured institution from
engaging in any activity that the FDIC determines by regulation or order to pose
a serious threat to the respective insurance fund. Also, the FDIC may initiate
enforcement actions against banks, after first giving the institution's primary
regulatory authority an opportunity to take such action. The FDIC may terminate
the deposit insurance of any depository institution if it determines, after a
hearing, that the institution has engaged or is engaging in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations, or has
violated any applicable law, regulation, order or any condition imposed in
writing by the FDIC. It also may suspend deposit insurance temporarily during
the hearing process for the permanent termination of insurance, if the
institution has no tangible capital. If deposit insurance is terminated, the
deposits at the institution at the time of termination, less subsequent
withdrawals, shall continue to be insured for a period from six months to two
years, as determined by the FDIC. Management is not aware of any existing
circumstances that could result in termination of any deposit insurance of TMB
or RHB.

                                       3

<PAGE>

         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 Corporation and TMB and RHB 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 and other 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.
Under 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 bank regulatory evaluation of an organization's overall safety and
soundness.

         The risk-based capital 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 FDIC insurance funds in the event that the
depository institution is insolvent or is in danger of becoming insolvent. For
example, under the 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 Corporation and TMB and RHB
were classified as well capitalized.

         State banking regulators also have broad enforcement powers over TMB
and RHB, 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 bank regulatory agencies and other
regulatory bodies to adopt regulations to implement the Act,

                                       4

<PAGE>

and for that reason an assessment of the full impact on the Corporation 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 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 bank 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'
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.

                                        5

<PAGE>

Statistical Information

The following statistical information is furnished pursuant to the requirements
of Guide 3 (Statistical Disclosure by Bank Holding Companies) promulgated under
the Securities Act of 1933.

<TABLE>
<CAPTION>
                                INDEX
                                -----
<S>  <C>                                                                  <C>
1    Selected Financial Data                                              Page 8
2    Average Balance Sheets, Net Interest Income and Rates                Page 9
3    Changes in Net Interest Income Attributable to Rate and Volume       Page 10
4    Types of Investment Securities                                       Page 11
5    Securities Maturity Analysis                                         Page 12
6    Composition of the Loan Portfolio                                    Page 13
7    Maturity Schedule of Selected Loans                                  Page 14
8    Summary of Risk Elements                                             Page 14
9    Summary of Loan Loss Experience                                      Page 15
10   Allocation of Reserve for Loan Losses                                Page 16
11   Deposits and Rates                                                   Page 16
12   Maturities of CDs in Excess of $100,000                              Page 17
13   Analysis of Liquid Assets                                            Page 17
14   Financial Ratios                                                     Page 18
15   Short-Term Borrowings                                                Page 18
16   Interest Sensitivity Analysis                                        Page 19
17   Quarterly Condensed Statements of Income - Unaudited                 Page 20
</TABLE>

                                       6

<PAGE>

                           1-Selected Financial Data

The following selected consolidated financial data is based upon the
Corporation's audited financial statements and related notes and should be read
in conjunction with such financial statements and notes.

<TABLE>
<CAPTION>
                                                                                For the Years Ended December 31,
                                                                                --------------------------------
At Period End:                                                     2002          2001          2000          1999          1998
                                                                   ----          ----          ----          ----          ----
                                                                                (in 000's except per share data)
<S>                                                            <C>           <C>           <C>           <C>           <C>
Loans-net of unearned income and allowance for loan losses     $   312,554   $   229,300   $   185,706   $   152,474   $   130,015
Loans held for resale                                                    0           471           155             0           402

Allowance for loan losses                                            3,340         2,459         2,000         1,689         1,591
Total assets                                                       393,755       299,865       246,315       204,827       177,643
Deposits                                                           345,062       257,637       212,155       181,153       156,004
Shareholders' equity                                                29,824        25,745        23,307        21,073        19,305

Income Summary:
Interest income                                                     23,114        20,235        18,487        15,503        13,145
Interest expense                                                     8,468         9,064         8,209         6,617         5,781
                                                               -----------   -----------   -----------   -----------   -----------
   Net interest income                                         $    14,646   $    11,171   $    10,278   $     8,886   $     7,364
Provision for loan losses                                            1,100           687           483           380           429
                                                               -----------   -----------   -----------   -----------   -----------
Net interest income after provision for loan losses                 13,546        10,484         9,795         8,506         6,935
Noninterest income                                                   2,440         1,904         1,332         1,231         1,147
Other expenses                                                       9,527         7,514         7,126         6,242         5,218
                                                               -----------   -----------   -----------   -----------   -----------
Income before income taxes                                           6,459         4,874         4,001         3,495         2,864
Income taxes                                                         2,095         1,624         1,457         1,182           622
                                                               -----------   -----------   -----------   -----------   -----------

   Net income                                                  $     4,364   $     3,250   $     2,544   $     2,313   $     2,242
                                                               ===========   ===========   ===========   ===========   ===========

Per Share Data: *
Book value at period end                                              6.55          5.69          5.13          4.62          4.33
Net income, basic                                                     0.96          0.72          0.56          0.51          0.50
Net income, assuming dilution                                         0.94          0.71          0.55          0.50          0.49
Cash dividends declared                                               0.15          0.12          0.10          0.09          0.08
Average common shares outstanding, basic                         4,537,185     4,514,377     4,561,453     4,566,502     4,566,701
Average common shares outstanding, diluted                       4,621,088     4,591,734     4,615,023     4,651,106     4,575,861
</TABLE>

*    Adjusted for stock dividends in 1999 and 1998, and the exchange ratio of
     the merger in 2000

                                       7

<PAGE>

            2 - Average Balance Sheets, Net Interest Income and Rates

This table illustrates average balances of total earning assets and total
interest-bearing liabilities for 2002, 2001 and 2000 and shows the average
distribution of assets, liabilities, shareholders' equity, and the related
income, expense, and corresponding weighted average yields and costs. The
average balances used for the purpose of this table and other statistical
disclosures were calculated by using the daily average balances.

                            Average Yields and Costs

<TABLE>
<CAPTION>
(In thousands)                                   December 31, 2002            December 31, 2001             December 31, 2000
                                                 -----------------            -----------------             -----------------
                                             Average   Earnings/ Yield/    Average   Earnings/ Yield/    Average   Earnings/ Yield/
Assets:                                    Balances(1)  Expense   Rate   Balances(1)  Expense   Rate   Balances(1)  Expense   Rate
-------                                    -----------  -------   ----   -----------  -------   ----   -----------  -------   ----
<S>                                        <C>         <C>       <C>     <C>         <C>       <C>     <C>         <C>       <C>
Interest Earning Assets
Loans, net of unearned discounts (2)       $   275,095 $  21,558   7.84% $   206,881 $ 118,207   8.80% $   171,384 $  16,054   9.37%
Interest-bearing deposits                          502        12   2.39%         885        39   4.41%       1,155        73   6.32%
Securities (3)                                  23,148     1,404   6.07%      19,509     1,247   6.39%      20,279     1,334   6.58%
Federal funds sold                              18,029       288   1.60%      21,889       826   3.77%      16,814     1,066   6.34%
                                           ----------- ---------         ----------- ---------         ----------- ---------
Total interest earning assets              $   316,774 $  23,262   7.34% $   249,164 $  20,319   8.15% $   209,632 $  18,527   8.84%

Non-Interest Earning Assets
   Cash and due from banks                      19,026                        11,827                        10,721
   Bank premises and equipment                   5,685                         5,038                         4,944
   Other assets                                  4,736                         1,763                         2,695
   Allowance for loan losses                    (2,761)                       (2,193)                       (1,839)
                                           -----------                   -----------                   -----------

Total assets                               $   343,460                   $   265,599                   $   226,153
                                           ===========                   ===========                   ===========

Liabilities and Shareholders' Equity
------------------------------------

Liabilities
   Interest-bearing deposits                   257,699     7,788   3.02% $   197,089 $   8,662   4.39% $   167,327 $   7,890   4.72%
   Borrowed funds                               15,144       680   4.49%       7,663       402   5.25%       4,754       319   6.71%
                                           ----------- ---------         ----------- ---------         ----------- ---------

Total interest-bearing liabilities         $   272,843 $   8,468   3.10% $   204,752 $   9,064   4.43% $   172,081 $   8,209   4.77%

   Non-Interest Bearing Liabilities:

   Liabilities:
        Demand deposits                    $    41,379                   $    34,570                   $    30,901
        Other liabilities                        1,321                         1,506                           953
                                           -----------                   -----------                   -----------
   Total liabilities                           315,543                       240,828                       203,935
   Shareholders' equity                         27,917                        24,771                        22,218
                                           -----------                   -----------                   -----------

Total liabilities and shareholders' equity $   343,460                   $   265,599                   $   226,153
                                           ===========                   ===========                   ===========


Net Interest Earnings                                  $  14,794                     $  11,255                     $  10,318
                                                       =========                     =========                     =========
Net Interest Yield on Earnings Assets                              4.67%                         4.52%                         4.92%
                                                                  =====                         =====                         =====
</TABLE>

(1)  Average balances are calculated using daily balances for each category in
     2002, 2001 and 2000.
(2)  Non-accrual loans are included in the average balance of this category
(3)  Amounts are shown on a tax equivalent basis.

                                       8

<PAGE>

        3 - Changes in Net Interest Income Attributable to Rate & Volume

This table represents the variances of earning assets and interest-bearing
liabilities between the years 2002 and 2001. The total variance for each
category is broken down between volume variance and rate variance which provides
an analysis of the impact that growth and changes in interest rates have upon
the balance sheet structure.

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

                                               Due to     Change in                 Due to     Change in
Interest Earned On:                            Volume        Rate       Total       Volume        Rate       Total
                                               ------        ----       -----       ------        ----       -----
<S>                                          <C>            <C>       <C>         <C>            <C>       <C>
   Loans                                     $    5,500     ($2,149)  $   3,351   $    3,174    ($1,021)  $   2,153
   Interest - bearing                               (13)        (14)        (27)         (15)       (19)        (34)
   Securities                                       223         (66)        157          (50)       (37)        (87)
   Federal Funds Sold                              (126)       (412)       (538)         265       (505)       (240)
                                             ----------   ---------   ---------   ----------    -------   ---------

Total interest earned on Bearing assets      $    5,584     ($2,641)  $   2,943   $    3,374    ($1,582)  $   1,792
                                             ----------   ---------   ---------   ----------    -------  ---------

Interest Paid On:
   Interest-bearing deposits                 $    2,249     ($3,123)      ($874)  $    1,332      ($561)  $     771
   Borrowed funds                                   343         (65)        278          164        -80          84
                                             ----------   ---------   ---------   ----------    -------   ---------

Total interest paid on Liabilities           $    2,592     ($3,188)      ($596)  $    1,496      ($641)  $     855
                                             ----------   ---------   ---------   ----------    -------   ---------

Net interest income                          $    2,992   $     547   $   3,539   $    1,878      ($941)  $     937
                                             ==========   =========   =========   ==========    =======   =========
</TABLE>

                                       9

<PAGE>

                       4 - Types of Investment Securities

                   Book Value of Securities Available for Sale


                                                     December 31,
                                                 ---------------------
                                                    2002       2001
                                                 ---------------------
   U.S. Government and federal agencies          $   9,054   $   7,973
   Obligations of state & political
     subdivisions                                    3,006       1,190
   Corporate bonds                                       0         250
   Mortgage-backed securities                        1,473         870
   Other securities                                  1,743       1,354
                                                 ---------------------
                                                 $  15,276   $  11,637
                                                 =====================


                    Book Value of Securities Held to Maturity

                                                     December 31,
                                                 ---------------------
                                                   2002         2001
                                                 ---------------------
   U.S. Government and federal agencies          $   2,048   $   3,744
   Obligations of state & political
     subdivisions                                    5,173       3,145
   Corporate bonds                                       0           0
   Mortgage-backed securities                           48          93
   Other securities                                  2,751       2,774
                                                 ---------------------
                                                 $  10,020   $   9,756
                                                 =====================

At December 31, 2002, the securities book value was $25.3 million and the market
value was $25.3 million, compared to December 31, 2001 values of $21.3 and $21.5
million, respectively. As of December 31, 2002, there were no obligations by any
one issuer in the investment portfolio, exclusive of obligations of the U.S.
Government or U.S. Agencies and Corporations, which in the aggregate exceeded
10% of stockholders' equity.

                                       10

<PAGE>

                        5 - Securities Maturity Analysis

Table 5 sets forth the maturity of distribution and weighted average yields of
the securities portfolio at December 31, 2002. The weighted average yields are
calculated on the book value of the portfolio and on securities interest income
adjusted for amortization of premium and accretion of discount.

<TABLE>
<CAPTION>
                                              Held to Maturity
                                              ----------------
                                                       December 31, 2002
                                                                        After One But
                                             Within One Year          Within Five Years
                                        Amount(000's)   Yield(%)  Amount(000's)   Yield(%)
                                        ------------    --------  -------------   --------
<S>                                     <C>             <C>       <C>             <C>
U.S. Government and federal agencies           1,648      5.97%             400      6.00%
Obligations of state & political
  subdivisions                                   541      6.87%             809      6.39%
Mortgage-backed securities                        48      6.83%               0      0.00%
Other securities                                   0      0.00%               0      0.00%
                                               -----      ----            -----      ----
Total                                          2,237      6.21%           1,209      6.26%
                                               =====      ====            =====      ====

                                                           December 31, 2002

                                            After Five But
                                           Within Ten Years               After Ten Years
                                        Amount(000's)   Yield(%)  Amount(000's)     Yield(%)
                                        ------------    -------   ------------      --------

U.S. Government and federal agencies               0      0.00%               0      0.00%
Obligations of state & political
  subdivisions                                 2,479      5.86%           1,344      6.59%
Mortgage-backed securities                         0      0.00%               0      0.00%
Other securities                                   0      0.00%           2,751      7.81%
                                               -----      ----            -----      ----
Total                                          2,479      5.86%           4,095      7.56%
                                               =====      ====            =====      ====

                                                Available for Sale
                                                       December 31, 2002
                                                                        After One But
                                           Within One Year            Within Five Years
                                        Amount(000's)   Yield(%)  Amount(000's)   Yield(%)
                                        ------------    -------  -------------    ---------

U.S. Government and federal agencies           3,257      1.80%           5,797      4.21%
Obligations of state & political
  subdivisions                                     0      0.00%             537      6.57%
Mortgage-backed securities                         0      0.00%              43      6.87%
Other securities                                   0      0.00%               0      0.00%
                                               -----      ----            -----      ----
Total                                          3,257      1.80%           6,377      4.42%
                                               =====      ====            =====      ====

                                                       December 31, 2002

                                            After Five But
                                           Within Ten Years               After Ten Years
                                        Amount(000's)   Yield(%)  Amount(000's)   Yield (%)
                                        -------------   --------  -------------   ---------

U.S. Government and federal agencies               0      5.84%               0      0.00%
Obligations of state & political
  subdivisions                                 2,469      5.95%               0      0.00%
Mortgage-backed securities                       486      4.96%             944      5.65%
Other securities                                 250      3.65%           1,493      5.76%
                                               -----      ----            -----      ----
Total                                          3,205      5.59%           2,437      5.72%
                                               =====      ====            =====      ====
</TABLE>

                                       11

<PAGE>

                      6 - Composition of the Loan Portfolio

The following table summarizes the composition of the loan portfolio at December
31, 2002 through 1998.

<TABLE>
<CAPTION>
(In thousands)                                                                    December 31
                                                                                  -----------
                                                               2002       2001        2000       1999      1998
                                                               ----       ----        ----       ----      ----
<S>                                                         <C>          <C>       <C>           <C>      <C>
Loans secured by real estate:                                                (In 000's)
     Construction and land development                     $   38,063   $ 21,926   $  14,474  $ 12,462  $ 10,216
     Secured by farmland                                        2,774      1,677         892       957       959
     Secured by 1-4 family residential                         70,773     53,419      36,966    29,363    26,287
     Multi-family residential                                   6,258      3,982       4,809     2,767     1,841
     Non-farm, non-residential loans                          123,478     83,624      52,982    44,384    28,062
Loans to farmers (except those secured by real estate)             42         12         477       224       223
Commercial and industrial loans (except those secured
  by real estate)                                              52,970     49,445      56,155    44,391    44,568
Loans to individuals (except those secured by real estate)     19,699     17,261      19,935    18,658    20,367
All other loans                                                 1,838        425       1,224     1,404       216
                                                           -----------------------------------------------------
                                                           $  315,895   $ 231,77   $ 187,914  $154,610  $132,738
Less:
   Unearned income                                                  1         12         208       447     1,133
   Allowance for loan losses                                    3,340      2,459       2,000     1,689     1,591
                                                           -----------------------------------------------------
                                                           $  312,554   $ 229,30   $ 185,706  $152,474  $130,015
                                                           =====================================================
</TABLE>

The Corporation had no loans outstanding to foreign countries or for highly
leveraged transactions as of December 31, 2002, or any of the previous years
disclosed above.

There were no categories of loans that exceeded 10% of outstanding loans as of
December 31, 2002, which were not disclosed in Table 6.

In the normal course of business, the Corporation makes various commitments and
incurs certain contingent liabilities, which are disclosed but not reflected in
the accompanying financial statements. At December 31, 2002, commitments for
standby letters of credit totaled $3.5 million and commitments to extend credit
totaled $59.9 million. At December 31, 2001, commitments for standby letters of
credit totaled $1.7 million and commitments to extend credit totaled $45.9
million.

                                       12

<PAGE>

                     7 - Maturity Schedule of Selected Loans

The table below presents the maturities of selected loans outstanding at
December 31, 2002.

                                               After One
                                   Within      But Within    After
                                   One Year    Five Years  Five Years  Total
                                   --------    ----------  ----------  -----
                                                 (in 000's)

     Commercial                   $  32,828   $  18,760    $ 1,382    $ 52,970
     Real estate-construction        30,599       5,978      1,486      38,063
                                  ---------   ---------    -------    --------
                                  $  63,427   $  24,738    $ 2,868    $ 91,033
                                  =========   =========    =======    ========



     Interest sensitivity on such loans maturing after one year:

     Fixed                        $  24,655
     Variable                         2,951
                                  ---------
     Total                        $  27,606
                                  =========

                          8 - Summary of Risk Elements

The following table details information concerning non-accrual, past due and
restructured loans as of December 31 for each of the years indicated:

                                                        December 31,
                                                        ------------
                                            2002    2001      2000   1999  1998
                                            ----    ----      ----   ----  ----
                                                          (in 000's)

        Non-accrual loans                 $  631  $   211   $  371  $  40  $ 261
        Loans past due 90 days or more
         and still accruing interest         223    1,079      154    146    200
        Restructured loans                     0        0        0      0      0
                                          ------  -------   ------  -----  -----
                                          $  854  $ 1,290   $  525  $ 186  $ 461
                                          ======  =======   ======  =====  =====

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
process of collection. Loans are placed on non-accrual at an earlier date or
charged off if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on non-accrual
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.

Non-accrual loans at December 31, 2002 were $631 thousand compared to $211
thousand for 2001. Approximately $2 thousand of interest income would have been
recorded if interest had been accrued in 2002. As of December 31, 2002, the
Corporation had a total of $854 thousand in non-accrual, 90 days past due and
still accruing interest, and restructured loans, compared to $1.3 million in
2001. This was a decrease of $436 thousand or 33.8%.

                                       13

<PAGE>

As of December 31, 2002 the Corporation had no loans in addition to the past due
and non-accrual loans mentioned above that are considered to be potential
problem loans. The Corporation's management and Board of Directors have reviewed
the asset quality of TMB's and RHB's loan portfolios and both loan loss
allowances and have found them to be adequate.

                       9 - Summary of Loan Loss Experience

<TABLE>
<CAPTION>
(In thousands)                                 2002        2001     2000       1999      1998
                                               ----        ----     ----       ----      ----
<S>                                          <C>        <C>       <C>        <C>       <C>
        Balance, beginning of period         $ 2,459    $  2,000  $ 1,689    $ 1,591   $ 1,296
        Less Charge-off's:
          Commercial                              42          71       47        205        64
          Real estate-mortgage                     1          59        0         29         0
          Real estate-construction                 0           0        0         19         0
          Consumer installment loans             242         165      235         71       122
                                             -------    --------  -------    -------   -------
              Total                          $   285    $    295  $   282    $   324   $   186
                                             -------    --------  -------    -------   -------

        Plus Recoveries:
          Commercial                              12    $      0  $    44    $    17   $    20
          Real estate-mortgage                     0           0        0          0        20
          Real estate-construction                 0           0        0          2         0
          Consumer installment loans              54          67       66         23        12
                                             -------    --------  -------    -------   -------
              Total                          $    66    $     67  $   110    $    42   $    52
                                             -------    --------  -------    -------   -------

        Additions charged to operating       $ 1,100    $    687  $   483    $   380   $   429
                                             -------    --------  -------    -------   -------

        Balance, end of period               $ 3,340    $  2,459  $ 2,000    $ 1,689   $ 1,591
                                             =======    ========  =======    =======   =======

        Ratio of net charge-offs to
         average loans outstanding              0.08%       0.11%    0.10%      0.19%     0.11%
</TABLE>

The Corporation maintains the allowance for loan losses at a sufficient level to
provide for potential losses in the loan portfolio. Loan losses are charged
directly to the allowance when they occur, while recoveries are credited to the
allowance. The adequacy of the provision for loan losses is reviewed
periodically by management through consideration of several factors including
changes in the character and size of the loan portfolio and related loan loss
experience, a review and examination of overall loan quality which includes the
assessment of problem loans and an analysis of anticipated economic condition in
the market area. An analysis of the allowance for loan losses, including
charge-off activity, is presented above for the years ended December 31, 2002
through 1998.

                                       14

<PAGE>

                10 - Allocation of the Allowance for Loan Losses

The following table reflects management's allocation of the allowance for loan
losses for the years ended December 31, 2002 through 1998.

<TABLE>
<CAPTION>
                                                                 2002             2001        2000         1999        1998
                                                                 ----             ----        ----         ----        ----
<S>                                                              <C>              <C>         <C>          <C>         <C>
Loans secured by real estate:
   Construction and land development                             12.0%             9.5%        7.7%         8.1%        7.7%
   Secured by farmland                                            0.9%             0.7%        0.5%         0.6%        0.7%
   Secured by 1-4 family residential                             22.4%            23.0%       19.7%        19.0%       19.8%
   Multi-family residential                                       2.0%             1.7%        2.6%         1.8%        1.4%
   Non-farm, non-residential loans                               36.9%            36.1%       28.2%        28.7%       21.1%
Loans to farmers (except those secured by real estate)            0.0%             0.0%        0.3%         0.1%        0.2%
Commercial and industrial loans (except those secured by real
    estate                                                       18.9%            21.3%       29.9%        28.7%       33.6%
Loans to individuals (except those secured by real estate)        6.2%             7.4%       10.6%        12.1%       15.3%
All other loans                                                   0.6%             0.2%        0.7%         0.9%        0.2%
                                                                100.0%           100.0%      100.0%       100.0%      100.0%
</TABLE>

                             11 - Deposits and Rates

The following table details the average amount of, and the average rate paid on
the following primary deposit categories for the years ended December 31, 2002,
2001 and 2000.

<TABLE>
<CAPTION>
                                            Year ended             Year ended             Year ended
(In thousands)                          December 31, 2002      December 31, 2001      December 31, 2000
                                        -----------------      -----------------      -----------------
                                        Average   Average      Average   Average      Average   Average
                                        Balance    Rate        Balance    Rate        Balance    Rate
                                       -------------------    -------------------    -------------------
<S>                                    <C>        <C>         <C>        <C>         <C>        <C>
Demand deposits                        $ 41,379               $ 34,570               $ 30,901
Interest - bearing demand                40,789     0.96%       32,679    1.90%        27,736    2.60%
Savings                                  50,983     1.84%       35,585    2.71%        29,990    3.20%
Certificates of deposit                 165,927     3.89%      128,825    5.49%       109,601    5.70%
                                       --------               --------               --------
 Total interest - bearing deposit       257,699     3.02%      197,089    4.39%       167,327    4.72%
                                       --------               --------               --------
Borrowed money                           15,144     4.49%        7,663    5.25%         4,754    6.71%
                                       --------               --------               --------
 Total interest - bearing liabilities   272,843     3.10%      204,752    4.43%       172,081    4.77%
                                       ========               ========               ========
Total deposits & borrowed money        $314,222               $239,322               $202,982
                                       ========               ========               ========
</TABLE>

The Corporation primarily uses deposits to fund its loans and investment
securities. The Corporation offers individuals and small-to-medium-size
businesses a variety of deposit accounts. Deposit accounts, including checking,
savings, money markets and certificates of deposit, are obtained primarily from
the communities which the Corporation services.

                                       15

<PAGE>

      12 - Maturities of CDs and Other Time Deposits in Excess of $100,000

The following is a summary of the maturity distribution of certificates of
deposit and other time deposits in amounts of $100,000 or more as of December
31, 2002.

                                        Amount          Percent
                                             (in 000's)
          Three months or less           6,020           12.39%
          Over three-six months          9,356           19.26%
          Over six-twelve months        15,474           31.86%
          Over twelve months            17,718           36.48%
                                       -------         -------
                                        48,568          100.00%
                                       =======         =======

Certificates of deposit in the amounts of $100,000 or more were $48.6 million at
December 31, 2002. This represents 24.8% of the total certificates of deposit
balance of $195.6 million at December 31, 2002. The Corporation does not solicit
such deposits. Further, the Corporation does bid for selected public funds
deposits in large denominations, and such deposits may require a pledging of
investment securities.

The Corporation competes with the major regional financial institutions for
money market accounts and certificates of deposits less than $100,000. While the
Corporation is competitive with its interest rates, using a tiered rate system
to increase individual account balances, the Corporation has found that it can
continue to maintain a higher interest margin than its peers by matching loan
maturities with certificate maturities and setting loan rates based on the
Corporation's cost of funds.

                         13 - Analysis of Liquid Assets

Liquidity is a measure of the Corporation's ability to generate sufficient cash
to meet present and future obligations in a timely manner. These obligations
include the credit needs of customers, funding deposit withdrawals, and the
day-to-day operations of the Corporation. The Corporation's ability to fund
these daily commitments at December 31, 2002, 2001 and 2000 is illustrated in
the table below:

<TABLE>
<CAPTION>
                                                                  December 31,
                                                                  ------------
                                                          2002       2001        2000
                                                          ----       ----        ----
                                                              (amounts in 000's)
          <S>                                           <C>        <C>       <C>
          Liquid Assets:
             Cash and due from banks                    $ 24,768   $ 17,680  $ 12,765
             Federal funds sold                           19,017     22,185    16,996
             Liquid securities                             5,494     12,396    16,048
             Loans maturing in one year or less          118,794     90,764    72,898
                                                        --------   --------  --------
                Total liquid assets                     $168,073   $143,025  $118,707
                                                        ========   ========  ========

          Total deposits and other liabilities          $363,931   $274,120  $223,008
                                                        ========   ========  ========
          Ratio of liquid assets to deposits
           and other liabilities                           46.18%     52.18%    53.23%
                                                        ========   ========  ========
</TABLE>

The net loan to deposit ratio (90.58%) as of December 31, 2002 has provided the
opportunity for the Corporation to achieve a high return on its deposits. For
the year ended December 31, 2002, the Corporation experienced a return on assets
of 1.27% and a net interest margin of 4.67%.

                                       16

<PAGE>

The source of new funds is strong for both long-term and short-term duration.
The growth in deposits was $87.4 million or 33.9% during 2002. The Corporation
also has access to overnight federal funds from correspondent banks totaling up
to $16.9 million. In addition, The Corporation has established borrowing limits
through the Federal Reserve Bank's discount window for $1.6 million. Also, the
Corporation has $85.4 million of funds available through the Federal Home Loan
Bank of Atlanta of which $9.0 million has been utilized. Management believes
that the opportunity for the sale of loans on the market is good.

                             14 - Financial Ratios

The following table summarizes ratios considered to be significant indicators of
the Corporation's profitability and financial condition for the years ended
December 31, 2002, 2001 and 2000.

<TABLE>
<CAPTION>
                                            For the Years Ending December 31,
                                              2002      2001       2000
                                              ----      ----       ----
<S>                                         <C>         <C>        <C>
     Return on average assets
       (Net income/average total assets)      1.27%     1.22%       1.12%
                                             =====     =====       =====
     Return on average equity
       (Net income/average equity)           15.63%    13.12%      11.45%
                                             =====     =====       =====
     Dividends payment ratio
        (Dividends declared/
          Net income)                        15.65%    16.65%      18.00%
                                             =====     =====       =====
     Average equity to average asset ratio    8.13%     8.59%       9.46%
                                             =====     =====       =====
</TABLE>

                           15 - Short-Term Borrowings

The Corporation had no short-term borrowings with an average balance outstanding
of more than 30% of stockholders' equity for the years ended December 31, 2002,
2001 and 2000.

                                       17

<PAGE>

                       16 - Interest Sensitivity Analysis

This table represents the relationship of earning assets to interest-bearing
liabilities at selected periods of time. The period GAP shows whether the
Corporation is rate sensitive on either the asset or liability side for each of
the periods while the cumulative GAP reflects the sensitivity on a year-to-date
basis. As reflected in this table, the Corporation is asset sensitive during the
1-90 day period while on a cumulative basis the Corporation is liability
sensitive for the one-year period.

<TABLE>
<CAPTION>

      (In thousands)                                           90 Days                    Over
                                                               -------                    ----
                                                1-90 Days     to 1 Year    1-5 Years     5 Years      Total
                                               ----------    ----------    ---------    --------    ---------
      <S>                                      <C>           <C>           <C>          <C>         <C>
      Earning assets
      Fed funds sold                           $   19,017    $        0    $       0    $      0    $  19,017
      Interest - bearing demand                     2,049             0            0           0        2,049
      Securities                                    3,561         2,944        6,861      11,930       25,296
      Loans                                        73,865        39,723      172,640      29,666      315,894
                                               ----------    ----------    ---------    --------    ---------
      Total earning assets                     $   98,492    $   42,667    $ 179,501    $ 41,596    $ 362,256

      Interest - bearing liabilities
      Interest - bearing demand                $   20,763    $        0    $  24,207    $      0    $  44,970
      Savings                                       6,730             0       17,527           0       24,257
      Money market savings                         31,742             0            0           0       31,742
      Certificates of deposit                      29,992        99,817       65,748           0      195,557
      Borrowed funds                                9,535         1,000        4,000       2,196       16,731
                                               ----------    ----------    ---------    --------    ---------

      Total interest - bearing liabilities     $   98,762    $  100,817    $ 111,482    $  2,196    $ 313,257
                                               ----------    ----------    ---------    --------    ---------

      Period GAP                                    ($270)     ($58,150)   $  68,019    $ 39,400
                                               ==========    ==========    =========    ========

      Cumulative GAP                                ($270)     ($58,420)   $   9,599    $ 48,999
                                               ==========    ==========    =========    ========

      Cumulative GAP/Earning assets                 -0.07%       -16.13%        2.65%      13.53%
</TABLE>

                                       18

<PAGE>

            17 - Quarterly Condensed Statements of Income - Unaudited

<TABLE>
<CAPTION>
                                                                                        2002
                                                                                        ----
                                                                            In thousands (except per share)
                                                                   March 31    June 30    Sept 30     Dec 31
                                                                   ---------------------------------------------
        <S>                                                        <C>        <C>        <C>        <C>
        Total interest income                                       $ 5,190    $ 5,660    $ 6,005    $  6,259
        Net interest income after provision for loan losses           2,920      3,397      3,476       3,753
        Non interest income                                             541        535        658         706
        Non interest expense                                          2,077      2,302      2,433       2,715
        Income before income taxes                                    1,384      1,630      1,701       1,744
        Net income                                                      929      1,097      1,147       1,191
        Earnings per common share - assuming dilution               $  0.20    $  0.24    $  0.25    $   0.25
        Dividends per common share                                     0.00       0.00       0.00        0.15

<CAPTION>
                                                                                   2001 Quarter Ended
                                                                                   ------------------
                                                                            In thousands (except per share)
                                                                   March 31    June 30    Sept 30     Dec 31
                                                                   ---------------------------------------------
        <S>                                                         <C>        <C>        <C>        <C>
        Total interest income                                       $ 4,980    $ 5,062    $ 5,085    $  5,108
        Net interest income after provision for loan losses           2,504      2,609      2,703       2,668
        Non interest income                                             379        451        512         562
        Non interest expense                                          1,743      1,863      1,886       2,022
        Income before income taxes                                    1,140      1,197      1,329       1,208
        Net income                                                      760        796        890         804
        Earnings per common share - assuming dilution               $  0.16    $  0.17    $  0.20    $   0.18
        Dividends per common share                                     0.00       0.00       0.00        0.12
</TABLE>

Item 2. Description of Properties

TMB's main office is located at 4095 Valley Pike, Winchester, Virginia. On
December 31, 1993, the Marathon Land Trust executed a deed and transferred the
office to TMB. The main office is a two story facility on approximately 2.52
acres. This property is owned free of encumbrances.

On August 12, 1993, TMB opened its Warren County Branch at 300 Warren Avenue in
Post Office Plaza, Front Royal, Warren County, and Virginia. On July 1, 1996 TMB
entered into a new lease with Post Office Plaza, L.C. for the new branch
facility in Front Royal. The terms of the lease include a current monthly rent
of $4,000 and is adjusted annually. The lease term is twenty years with the
option to renew for two additional five-year terms.

On February 13, 1995, TMB opened its Winchester Branch at 1041 Berryville Avenue
in the City of Winchester, Virginia. The Berryville Avenue branch is situated on
1.59 acres and consists of a single story branch office and a separate
drive-thru structure. TMB executed a lease on October 1, 1994, for five years.
On October 1, 1999, TMB exercised the first of two five year options. The
current monthly lease payment is $1,664. TMB has one five-year option to extend
this lease.

On June 18, 1997, TMB opened a second Winchester Branch at 1447 North Frederick
Pike, Winchester, Virginia. The branch on North Frederick Pike is situated on
..81 acres and is a single story office. .TMB entered into a lease on January 13,
1997, with a termination date of December 31, 2006. TMB has two five-year
options to extend the lease. The monthly lease payment is $2,500.

On September 22, 1997, TMB opened its Shenandoah County Branch at 1014 South
Main Street, Woodstock, Virginia. This office is a one story building on
approximately 1.46 acres. A new lease was executed by TMB on September 1, 1997,
for five years with a monthly lease payment of $800 per month through the third
year, $900 per month for the fourth year and $1,000 per month for the fifth
year. TMB has two five-year options to extend that lease. The building is owned
free and clear of any encumbrances.

                                       19

<PAGE>

On December 16, 1998, TMB purchased a lot consisting of 1.033 acres adjacent to
the main office property located at 4095 Valley Pike, Winchester. TMB acquired
the property to be used for additional parking and future expansion.

On August 31, 2001, TMB purchased 26,336 square feet located at 1729 Shenandoah
Avenue, Front Royal. TMB acquired the property for future branch expansion.

On May 15, 2002, TMB opened a branch in downtown Winchester, Virginia on
property purchased August 28, 2001. The 3,367 square foot two-story brick branch
office was opened in downtown Winchester, Virginia at 139 North Cameron Street
on approximately .077 acres. This property is owned free of encumbrances.

RHB presently owns three facilities: its main office at 110 University Boulevard
in Harrisonburg, a second branch located at 1980 South Main Street, and a
building located at 410 W. Spotswood Trail in Elkton, Virginia which serves as a
third branch location. The main office is a one story brick building with
approximately 5,800 square feet and was constructed in 1991. The site is 1.9
acres and will accommodate up to 5,000 square feet of additional building space.
It is located in a relatively new and rapidly growing retail and professional
area of the city. The South Main Branch is located on a .75 acre site on the
south end of the city and provides 3,000 square feet of office space. The Elkton
Branch resides on a .33 acre site providing 2,500 square feet of office space.
The Bank also owns an undeveloped commercial lot on Evelyn Byrd Avenue,
approximately 100 yards from the main office. This .4 acre lot is for possible
future expansion purposes.

Additionally, the RHB has a branch located in the Red Front Supermarket on
Chicago Avenue in the City of Harrisonburg. This is a leased facility with
approximately 260 square feet of space. The lease has a five year term with an
automatic five year renewal. Both the Bank's Weyers Cave branch and Waynesboro
branch leases run for 5 years with options for 4 more terms of 5 years. The
space for both is approximately 2,040 square feet. The Staunton branch has 1,500
square feet and the lease runs for 5 years with options for 4 more terms of 5
years each. The bank entered into a lease agreement for its new operations
center location on Neff Ave in Harrisonburg. The facility has approximately
1,340 square feet of space. The lease is a two year lease with no current
options to renew. All properties are in sound physical condition and are deemed
to be adequately insured. There are no mortgages, liens or other limitations on
the RHB's ownership of its properties.

Item 3.  Legal Proceedings

In the course of normal operations, the Corporation, TMB and RHB are parties to
various legal proceedings. Based upon information currently available, and after
consultations with legal counsel, management believes that such legal
proceedings will not have a material adverse effect on the Corporation's
business, financial position, or results of operations.

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 Corporation through a
solicitation of proxies or otherwise.

Part II

Item 5.  Market for Common Equity and Related Stockholder Matters

The Corporation's common stock is listed on the NASDAQ Small Cap Market under
the symbol PREM. Prior to the common stock's listing on NASDAQ on October 3,
1996, there were occasional transactions in the stock and management assisted in
matching persons interested in buying or selling the stock. During 2001, the
Corporation repurchased 114,669 shares of common stock for $793 thousand. During
2000, the Corporation repurchased 16,500 shares of common stock for $81
thousand.

                                       20

<PAGE>

The following table represents the Corporation's stock prices for 2002 and 2001.
This sales price information reflects inter-dealer prices, without retail
mark-up, mark-down, or commission.

<TABLE>
<CAPTION>
                 1/st/ Quarter           2/nd/ Quarter           3/rd/ Quarter           4/th/ Quarter
               Low         High        Low         High        Low         High        Low         High
           -----------------------------------------------------------------------------------------------
<S>        <C>             <C>         <C>         <C>         <C>         <C>         <C>         <C>
2002          8.32         9.90        9.50        12.50       9.85        10.60       9.70        10.68
           -----------------------------------------------------------------------------------------------
2001          5.125        6.75        5.80        7.60        7.00        8.75        7.20         8.50
           -----------------------------------------------------------------------------------------------
</TABLE>

At December 31, 2002, the Corporation had approximately 2,100 stockholders of
record.

Dividends from TMB and RHB serve as the primary funding to the Corporation for
dividend payment. The Corporation declared a $.15 per share cash dividend to
stockholders of record as of December 27, 2002. Cash dividends of $.12 per share
cash declared in 2000 were paid in January, 2001 and cash dividends of $.10 per
share, declared in 1999, were paid in January, 2000.

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

Financial Summary

General

         Premier Community Bankshares, Incorporated ("Premier" or the
"Corporation") is a Virginia multi-bank holding company headquartered in
Winchester, Virginia. The Corporation owns The Marathon Bank as well as
Rockingham Heritage Bank and its subsidiary, RHB Services, Inc. Rockingham
Heritage Bank and its subsidiary were merged into Premier in a pooling of
interests transaction consummated on November 20, 2000. Concurrent with the
merger, Marathon Financial Corporation changed its name to Premier Community
Bankshares, Inc. The consolidated statements include the accounts of Premier and
its wholly-owned subsidiaries. All significant inter-company accounts have been
eliminated.

         The Corporation and its subsidiaries, The Marathon Bank and Rockingham
Heritage Bank are engaged in the business of offering banking services to the
general public. Premier offers checking accounts, savings and time deposits, and
commercial, real estate, personal, home improvement, automobile and other
installment and term loans. The Corporation also offers financial services,
travelers checks, safe deposit boxes, collection, notary public and other
customary bank services (with the exception of trust services) to its customers.
The three principal types of loans made by Premier are: (1) commercial and
industrial loans; (2) real estate loans; and (3) loans to individuals for
household, family and other consumer expenditures.

Critical Accounting Policies

            The allowance for loan losses is an estimate of the losses that may
be sustained in our loan portfolio. The allowance is based on two basic
principles of accounting: (i) SFAS 5, Accounting for Contingences, which
requires that losses be accrued when they are probable of occurring and
estimatable and (ii) SFAS 114, Accounting by Creditors for Impairment of a Loan,
which requires that losses be accrued based on the differences between the value
of collateral, present value of future cash flows or values that are observable
in the secondary market and the loan balance.

            Premier's allowance for loan losses is determined by evaluating its
loan portfolio on a quarterly basis. Particular attention is paid to individual
loan performance, collateral values, borrower financial condition and overall
economic conditions. The evaluation includes a close review of the internal
watch list and other non-performing loans. Management uses three steps in
calculating the balance of the reserve. The first step is the specific
classification which examines problem loans and applies a weight factor to each
category. The weight factor is based upon historical data and the loans within
each category are reviewed on a monthly basis to determine changes in their
status. The second step applies a predetermined rate against total loans with
unspecified

                                       21

<PAGE>

reserves. Again, this rate is based upon experience and can change over time.
The third step is an unallocated allowance which is determined by economic
events and conditions that may have a real, but as yet undetermined, impact upon
the portfolio. Each of these steps is based on data that can be subjective and
the actual losses may be greater or less than the amount of the allowance.
However, management feels that the allowance represents a reasonable assessment
of the risk imbedded in the portfolio.

Net Income

         Net income for the year ended 2002 was $4.4 million compared to $3.3
million for the same period in 2001. This is an increase of $1.1 million or
34.3% over the same period 2001. The provision for income tax expense increased
$472 thousand from $1.6 million in 2001 to $2.1 million in 2002. The return on
assets was 1.27% for 2002 as compared to 1.22% for the same period 2001. For
2002, the return on equity was 15.63% up from 13.12% for 2001.

Total Assets

         The Corporation's assets grew at a 31.3% pace, ending the year at
$393.8 million. Total loans at year end 2002, were $315.9 million of which
$241.3 million were loans secured by real estate. The remaining loans consisted
of $53.0 million in commercial loans, $19.7 million in consumer installment
loans and $1.9 million in all other loans. Net loans for 2002, were $312.6
million, an increase of $83.3 million or 36.3% from the December 31, 2001
balance of $229.3 million. The loan to deposit ratio was 90.6% for 2002 and
89.0% as of December 31, 2001. Steady loan demand in an expanding market
generated the loan growth experienced for 2002.

            The investment portfolio increased 18.2% to $25.3 million at year
end 2002 compared to $21.4 million at December 31, 2001. Federal funds sold
decreased $3.2 million to $19.0 million at December 31, 2002 compared to $22.2
million at December 31, 2001. The decrease in federal funds sold was due to an
increase of 33.9% in the deposit base during the year 2002. Total interest
earning assets increased $67.6 million or 27.1% from December 31, 2001 to
December 31, 2002. This increase was primarily the result of the increase in
outstanding loan balances.

Allowance for Loan Losses

         The allowance for loan losses, as of December 31, 2002, was $3.3
million. This is an increase of $881 thousand or 35.8% from December 31, 2001.
This gives the Corporation a 1.06% allowance for loan losses to total loans.
Management has completed an analysis on the reserve and feels the reserve is
adequate.

Liabilities

         Total deposits increased to $345.1 million at December 31, 2002, from a
balance of $257.6 million at December 31, 2001, which is an increase of $87.5
million or 33.9%. Non-interest bearing deposits have increased to $48.5 million
as of December 31, 2002, an increase of $11.8 million or 32.0% from year end
2001. During this period interest bearing checking and savings accounts
increased $23.1 million or 29.6% to $101.0 million. The balance in time deposits
was $195.6 million at the end of 2002 reflecting an increase of $52.6 million or
36.8% over 2001. As of December 31, 2002 non-interest bearing deposits
represented 14.1% of total deposits as compared to 14.3% at year-end 2001. Low
cost interest bearing deposits including savings and interest bearing checking
were 29.3% of total deposits, a decrease of nine basis points from 30.2% at
December 31, 2001. Time deposits represented 56.7% of total deposits at December
31, 2002, an increase from 55.5% at year-end 2001. The increase in time deposits
is the result of Premier's ability to offer competitive rates in its market
area.

Shareholders' Equity

            Total equity increased $4.1 million or 15.8% during 2002. This
increase was due to a $4.4 million net profit for the year plus exercised stock
options of $197 thousand and an increase of $201 thousand in accumulated other
comprehensive income. The primary capital to assets ratio is 7.6%.

                                       22

<PAGE>

Interest Income

         Interest income totaled $23.1 million for the year ending December 31,
2002, $2.9 million or 14.2% higher than the year ending December 31, 2001.
Interest and fees on loans of $21.6 million comprise the vast majority of
interest income. Interest income from investment securities was $1.3 million for
2002, basically unchanged from the same period 2001. Interest income on federal
funds, the third major component of the bank's investments, decreased $538
thousand or 65.1%. The decline in interest earned on federal funds balance was
the result of lower interest rates and decrease in the average fed funds
balance, as those funds were converted to meet loan demand.

Interest Expense

         Total interest expense for the year ending December 31, 2002 was $8.5
million, $596 thousand or 6.6% lower than for the same period 2001. Interest
paid on deposits for 2002 decreased by $874 thousand or 10.1% over the same
period 2001. The impact of declining interest rates from December 2001 through
December 2002 more than offset the additional expense generated by an increase
of $87.4 million in total deposits during the same period. Interest on
borrowings increased by $278 thousand or 72.0% over the same period last year.
This increase was primarily the result of additional interest expense related to
the issuance of $7.0 million in Trust Preferred Securities in December 2001.
Borrowings were also obtained from the Federal Home Loan Bank.

Net Interest Income

      Net interest income for the year ending December 31, 2002 was $14.6
million, $3.5 million or 31.1% higher than the year ending 2001. This increase
is the result of the growth in earning assets of $67.6 million in 2002. The
combination of growth and rate changes had the effect of increasing the net
interest margin from 4.52% at year end 2001 to 4.67% for the same period of
2002. Premier is liability sensitive for interest bearing balances repricing or
maturing within one year.

Other Income

         Total other income for 2002 was $2.4 million, an increase of $536
thousand or 28.1% over the 2001 balance of $1.9 million. This was the result of
additional service charges and fees for overdraft charges, check fees and ATM
fees relating to an increasing number of customer accounts.

Other Expenses

         Total other expenses for 2002 were $9.5 million, $2.0 million or 26.8%
higher than 2001 balance. The major components of the increase in other expenses
were salary expense, increasing $1.0 million or 24.5%, advertising and marketing
expenses, increasing $221 thousand or 143.5%, and stationery and supplies,
increasing $115 thousand or 54.0% over the same period in 2001. Advertising and
marketing expenses were impacted by the publicity for a new branch opened by The
Marathon Bank in downtown Winchester, Virginia in May 2002, as well as a
campaign to increase market share due to the change in the local banking
environment. The net increase in other expenses is in part a result of
additional staffing to handle the growth of the bank and the costs involved in
processing an increasing number of accounts and transactions. The Marathon Bank
also incurred additional salary and occupancy expenses related to the opening of
the new branch. In addition, the Corporation underwent a core computer
conversion in the fourth quarter of 2002 which involved costs related to
hardware, software, training and forms. The Corporation's efficiency ratio was
55.3% for 2002 compared to 57.1% for the same period in 2001.

Liquidity

         Premier's liquidity requirements are measured by the need to meet
deposit withdrawals, fund loans, meet reserve requirements and maintain cash
levels necessary for daily operations. To meet liquidity requirements, Premier
maintains cash reserves and has an adequate flow of funds from maturing loans,
securities, and short-term investments. In addition, Premier's affiliate banks
have the ability to borrow additional funds from various sources.

                                       23

<PAGE>

Short-term borrowings are available from federal funds facilities at
correspondent banks and from the discount window of the Federal Reserve Bank.
Borrowings are available from the Federal Home Loan Bank. The Corporation
considers its sources of liquidity to be ample to meet its estimated needs.

Capital Resources

         The Corporation's risk-based capital position at December 31, 2002 was
$36.6 million, or 11.5% of risk-weighted assets, for Tier I capital and $39.9
million, or 12.6% for total risk based capital. Tier I capital consists
primarily of common shareholders' equity and Trust Preferred Capital Notes.
Total risk-based capital includes the allowance for loan losses in addition to
Tier 1 Capital. Risk-weighted assets are determined by assigning various levels
of risk to different categories of assets and off-balance sheet items. Under
current risk-based capital standards, all banks are required to have Tier I
capital of at least 4% and a total capital ratio of 8%. The Corporation's
issuance of $7.0 million in Trust Preferred Capital Notes in the fourth quarter
of 2001 is included in the Tier 1 capital base, and will serve as a long-term
source of funding.

Recent Accounting Pronouncements

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

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

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

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

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

                                       24

<PAGE>

and therefore any intangible asset arising from such transactions remained
subject to amortization over their estimated useful life.

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

         The adoption of Statement No. 141, 142, 144, 145, 146 and 147 did not
have a material impact on the Corporation's consolidated financial statements.

         The Financial Accounting Standards Board issued Statement No. 148,
Accounting for Stock-Based Compensation - Transition and Disclosure, an
amendment of Statement No. 123, in December 2002. The Statement amends Statement
No. 123 to provide alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee compensation.
In addition, the Statement amends the disclosure requirements of Statement 123
to require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. Finally, this Statement amends
APB Opinion No. 28, Interim Financial Reporting, to require disclosure about the
effects of stock options in interim financial information. The amendments to
Statement No. 123 are effective for financial statements for fiscal years ending
after December 15, 2002. The amendments to APB No. 28 are effective for
financial reports containing condensed financial statements for interim periods
beginning after December 15, 2002. Early application is encouraged for both
amendments. The Corporation continues to record stock options under APB Opinion
No. 25, Accounting for Stock Issued to Employees, and has not adopted the
alternative methods allowable under Statement No. 148.

Item 7. Financial Statements

Financial Statements are included in this Form 10-KSB as Exhibit 99.1

Item 8. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

None.

Part III

The information required by Items 9, 10, 11 and 12 of Part III has been
incorporated herein by reference to the Corporation's 2002 Proxy Statement as
set forth below in accordance with General Instruction E.3 of Form 10-KSB.

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act

Information relating to directors and executive officers of the Corporation is
set forth in the sections entitled "Election of Directors", "Executive Officers"
and "Section 16(a) Beneficial Ownership Reporting Compliance" of the 2002 Proxy
Statement and is incorporated herein by reference.

Item 10. Executive Compensation

Information regarding compensation of officers and directors is set forth in the
sections entitled "Executive Officer Compensation", "Stock Options", "Employment
Agreements" and "Director Compensation" in the 2002 Proxy Statement and is
incorporated herein by reference.

                                       25

<PAGE>

Item 11. Security Ownership of Certain Beneficial Owners and Management

Information concerning the security ownership of certain beneficial owners and
management is set forth in the sections entitled "Security Ownership of
Management", "Continuing Directors" and "Security Ownership of Certain
Beneficial Owners" in the 2002 Proxy Statement and is incorporated herein by
reference.

The following table summarizes information concerning Premier's equity
compensation plans at December 31, 2002:

<TABLE>
<CAPTION>
                                                                                             Number of Shares
                                                                                            Remaining Available
                                                                                            for Future Issuance
                                             Number of Shares to                                Under Equity
                                               be Issued upon        Weighted Average       Compensation Plans
                                                 Exercise of         Exercise Price of      (Excluding Shares
                                             Outstanding Options    Outstanding Options     Reflected in First
             Plan Category                      and Warrants          and Warrants              Column)
------------------------------------------- ---------------------  ---------------------   ---------------------
<S>                                         <C>                    <C>                     <C>
Equity compensation plans approved by
 shareholders - 2001 Stock Incentive Plan         331,375          $           7.40                    318,750
Equity compensation plans not approved by
 shareholders                                         N/A                       N/A                        N/A
                                            ---------------------  ---------------------   ---------------------
Total                                             331,375          $           7.40                    318,750
                                            =====================  =====================   =====================
</TABLE>

Item 12. Certain Relationships and Related Transactions

Information regarding certain relationships and related transactions is set
forth in the section entitled "Certain Relationships and Related Transactions"
in the 2002 Proxy Statement and is incorporated herein by reference.

Item 13. Exhibits and Reports on Form 8-K

     (a) Exhibit Index

         3.1   Amended and Restated Articles of Incorporation, incorporated
               herein by reference to the Corporation's Annual Report on Form
               10-KSB for the year ended December 31, 2000 (File No. 0-18868).

         3.2   By-laws, incorporated herein by reference to the Corporation's
               Annual Report on Form 10-KSB for the year ended December 31, 2000
               (File No. 0-18868).

        10.1   401(k) Plan of Marathon Financial Corporation, incorporated
               herein by reference as Exhibit 10.1 to the Corporation's
               Registration Statement on Form S-1 filed August 26, 1992 (File
               No. 33-51366).

        10.2   Employment Agreement between TMB and Donald L. Unger,
               incorporated herein by reference as Exhibit 10.2 to the
               Corporation's Registration Statement on Form S-1 filed on
               August 26, 1992 (File No. 33-51366).

        10.3   Lease between TMB and Post Office Plaza, L.C. for the branch
               office at 300 Warren Avenue, Front Royal, Virginia, incorporated
               herein by reference as Exhibit 10.3 to the Corporation's
               Registration Statement on Form S-1 filed July 26, 1992 (File
               No. 333-08995).

        10.4   Lease between TMB and the Lessor, James Butcher, for the branch
               office at 1041 Berryville Avenue, Winchester, Virginia,
               incorporated herein by reference to the Corporation's Annual
               Report on Form 10-K for the year ended December 31, 1995 (File
               No. 0-18868).

        10.5   Lease between TMB and the Lessors, Keith R. Lantz and Mary G.
               Lantz, for land at 1014 Main Street, Woodstock, Virginia,
               incorporated by reference herein by reference to the
               Corporation's Annual Report on Form 10-KSB for the year ended
               December 31, 1997 (File No. 0-18868).


                                       26

<PAGE>


        10.6   1996 Long-Term Incentive Plan of Marathon Financial Corporation,
               incorporated herein by reference as Exhibit 99 to the
               Corporation's Registration Statement on Form S-8 filed November
               26, 1997 (File No. 333-41163).

        10.7   2002 Long-Term Incentive Plan of the Corporation, incorporated
               herein by reference as Exhibit 99 to the Corporation's
               Registration Statement on Form S-8 filed December 3, 2002 (File
               No. 333-101619).

        21     Subsidiaries of Premier Community Bankshares, Inc., incorporated
               by reference herein by reference to the Corporation's Annual
               Report on Form 10-KSB for the year ended December 31, 2001 (File
               No. 0-18868).

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

        99.1   Financial Report of Premier Community Bankshares, Inc. including
               the following:

                -- Independent Auditor's Report of Yount, Hyde & Barbour, P.C.
                -- Consolidated Balance Sheets - December 31, 2002 and 2001
                -- Consolidated Statements of Income - Years ended December 31,
                   2002, 2001 and 2000
                -- Consolidated Statements of Changes in Shareholders' Equity -
                   Years Ended December 31, 2002, 2001 and 2000
                -- Consolidated Statements of Cash Flows - Years Ended December
                   31, 2002, 2001 and 2000
                -- Notes to Consolidated Financial Statements.

     (b) Reports on Form 8-K. None.

Item 14. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to
provide assurance that information required to be disclosed by the Company in
the reports that it files or submits under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported within the time periods required
by the Securities and Exchange Commission. Within the 90 day period prior to the
filing of this report, an evaluation of the effectiveness of the design and
operation of the Company's disclosure controls and procedures was carried out
under the supervision and with the participation of management, including the
Company's Chief Executive Officer and Chief Financial Officer. Based on and as
of the date of such evaluation, the aforementioned officers concluded that the
Company's disclosure controls and procedures were effective. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to the date of this
evaluation.


                                       27

<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned PREMIER COMMUNITY BANKSHARES, INC.

                                  (Registrant)

                                  By: /s/ Donald L. Unger         .
                                      -----------------------------
                                      Donald L. Unger, President & CEO

                                      /s/ Frederick A. Board      .
                                      -----------------------------
DATE   March 28, 2003                 Frederick A. Board, CFO

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the SIGNATURE AND TITLE

DATE

March 28, 2003                  /s/ Walter H. Aikens                        .
--------------                  ---------------------------------------------
                                (Walter H. Aikens, Director)

March 28, 2003                  /s  Clifton L. Good                         .
--------------                  ---------------------------------------------
                                (Clifton L. Good, Director)

March 28, 2003                  /s/ Stephen T. Heitz                        .
--------------                  ---------------------------------------------
                                (Stephen T. Heitz, Director)

March 28, 2003                  /s/ Joseph W. Hollis.
--------------                  ---------------------
                                (Joseph W. Hollis, Director)

March 28, 2003                  /s/ Wayne B. Ruck                           .
--------------                  ---------------------------------------------
                                (Wayne B. Ruck, Director)

March 28, 2003                  /s/ John K. Stephens                        .
--------------                  ---------------------------------------------
                                (John K. Stephens, Chairman)

March 28, 2003                  /s/ Donald L. Unger                         .
--------------                  ---------------------------------------------
                                (Donald L. Unger, President & CEO


March 28, 2003                  /s/ Paul R. Yoder, Jr., MD                  .
--------------                  ---------------------------------------------
                                (Paul R. Yoder, Jr., MD, Director)






                                       28

<PAGE>

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Annual Report of Premier Community Bankshares,
Inc. (the "Company") on Form [10-KSB] for the period ending December 31, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), the undersigned Chief Executive Officer and Chief Financial Officer
of the Company hereby certify, pursuant to 18 U.S.C. ss.1350, as adopted
pursuant to ss.906 of the Sarbanes-Oxley Act of 2002 that based on their
knowledge and belief: 1) the Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and 2) the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company as of and for
the periods covered in the Report.


/s/ Donald L. Unger
-------------------------------------
Donald L. Unger
President & Chief Executive Officer

/s/ Frederick A. Board
-------------------------------------
Frederick A. Board
Senior Vice President & Chief Financial Officer


Date: March 28, 2003
      --------------


                                       29

<PAGE>


                                 CERTIFICATIONS

I, Donald L. Unger, certify that:

   1.    I have reviewed this annual report on Form 10-KSB of Premier Community
         Bankshares;

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

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

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

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

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

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

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

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

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

   6.    The registrant's other certifying officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date: March 28, 2003                       /s/ Donald L. Unger
      --------------                       -----------------------------------
                                           Donald L. Unger,
                                           President & Chief Executive Officer


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<PAGE>


                                 CERTIFICATIONS

I, Frederick A. Board, certify that:

   1.    I have reviewed this annual report on Form 10-KSB of Premier Community
         Bankshares;

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

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

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

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

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

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

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

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

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

   6.    The registrant's other certifying officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date: March 28, 2003             /s/ Frederick A. Board
      --------------             -----------------------------------------------
                                 Frederick A. Board
                                 Senior Vice President & Chief Financial Officer


                                       31

<PAGE>
                                  EXHIBIT INDEX

         3.1   Amended and Restated Articles of Incorporation, incorporated
               herein by reference to the Corporation's Annual Report on Form
               10-KSB for the year ended December 31, 2000 (File No. 0-18868).

         3.2   By-laws, incorporated herein by reference to the Corporation's
               Annual Report on Form 10-KSB for the year ended December 31, 2000
               (File No. 0-18868).

        10.1   401(k) Plan of Marathon Financial Corporation, incorporated
               herein by reference as Exhibit 10.1 to the Corporation's
               Registration Statement on Form S-1 filed August 26, 1992 (File
               No. 33-51366).

        10.2   Employment Agreement between TMB and Donald L. Unger,
               incorporated herein by reference as Exhibit 10.2 to the
               Corporation's Registration Statement on Form S-1 filed on
               August 26, 1992 (File No. 33-51366).

        10.3   Lease between TMB and Post Office Plaza, L.C. for the branch
               office at 300 Warren Avenue, Front Royal, Virginia, incorporated
               herein by reference as Exhibit 10.3 to the Corporation's
               Registration Statement on Form S-1 filed July 26, 1992 (File
               No. 333-08995).

        10.4   Lease between TMB and the Lessor, James Butcher, for the branch
               office at 1041 Berryville Avenue, Winchester, Virginia,
               incorporated herein by reference to the Corporation's Annual
               Report on Form 10-K for the year ended December 31, 1995 (File
               No. 0-18868).

        10.5   Lease between TMB and the Lessors, Keith R. Lantz and Mary G.
               Lantz, for land at 1014 Main Street, Woodstock, Virginia,
               incorporated by reference herein by reference to the
               Corporation's Annual Report on Form 10-KSB for the year ended
               December 31, 1997 (File No. 0-18868).

        10.6   1996 Long-Term Incentive Plan of Marathon Financial Corporation,
               incorporated herein by reference as Exhibit 99 to the
               Corporation's Registration Statement on Form S-8 filed November
               26, 1997 (File No. 333-41163).

        10.7   2002 Long-Term Incentive Plan of the Corporation, incorporated
               herein by reference as Exhibit 99 to the Corporation's
               Registration Statement on Form S-8 filed December 3, 2002 (File
               No. 333-101619).

        21     Subsidiaries of Premier Community Bankshares, Inc., incorporated
               by reference herein by reference to the Corporation's Annual
               Report on Form 10-KSB for the year ended December 31, 2001 (File
               No. 0-18868).

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

        99.1   Financial Report of Premier Community Bankshares, Inc. including
               the following:

                -- Independent Auditor's Report of Yount, Hyde & Barbour, P.C.
                -- Consolidated Balance Sheets - December 31, 2002 and 2001
                -- Consolidated Statements of Income - Years ended December 31,
                   2002, 2001 and 2000
                -- Consolidated Statements of Changes in Shareholders' Equity -
                   Years Ended December 31, 2002, 2001 and 2000
                -- Consolidated Statements of Cash Flows - Years Ended December
                   31, 2002, 2001 and 2000
                -- Notes to Consolidated Financial Statements.


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