U. S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                   FORM 10-QSB


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

         For the quarterly period ended            September 30, 2001
                                        ----------------------------------------



                        SALEM COMMUNITY BANKSHARES, INC.
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

         Virginia                                         31-1736845
---------------------------                  -----------------------------------
(State or other jurisdiction of                        (I.R.S. Employer
  incorporation or organization)                      Identification No.)

220 East Main Street
Salem, Virginia                                            24153
------------------------------------             --------------------------
(Address of principal executive offices)                 (Zip Code)

(Issuer's telephone number, including area code) (540)  387-0223
                                                 ---------------


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

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

State the number of shares  outstanding  of each of the issuer's class of common
equity, as of the latest practicable date.

         Class                                  Outstanding at October 29, 2001
------------------------------------            -------------------------------
COMMON STOCK, NO PAR VALUE                                 1,508,484

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (Check One):  Yes      No  X
                                                               -----   -----

                         (This report contains 19 pages)
<PAGE>
<TABLE>
                 SALEM COMMUNITY BANKSHARES, INC. AND SUBSIDIARY

                                   FORM 10-QSB

                                      INDEX


PART I      FINANCIAL INFORMATION                                               PAGE
                                                                                ----
<S> <C>
          Item 1.  Financial Statements                                          3

           Consolidated Balance Sheets as of  September 30, 2001
             and December 31, 2000.                                              4

           Consolidated Statements of Income and Comprehensive Income,
             Three Months Ended September 30, 2001 and 2000.                     5

           Consolidated Statements of Income and Comprehensive Income,
             Nine Months Ended September 30, 2001 and 2000.                      6

           Consolidated Statements of Changes In Stockholders'
             Equity, Nine Months Ended September 30, 2001 and 2000               7

           Consolidated Statements of Cash Flows,
             Nine Months Ended September 30, 2001 and 2000                       8

           Notes to Consolidated Financial Statements                         9  -  12

          Item 2.  Management's Discussion and Analysis
                   of Financial Condition and Result of Operations           13  -  17


PART II    OTHER INFORMATION

          Item 1.  Legal Proceedings                                            18

          Item 2.  Changes In Securities and Use of Proceeds                    18

          Item 3.  Defaults Upon Senior Securities                              18

          Item 4.  Submission of Matters to a Vote of Security Holders          18

          Item 5.  Other Information                                            18

          Item 6.  Exhibits and Reports on Form 8-K                             18

SIGNATURES                                                                      19
</TABLE>

                                        2
<PAGE>
                 SALEM COMMUNITY BANKSHARES, INC. AND SUBSIDIARY

                          PART I FINANCIAL INFORMATION


Item 1.  Financial Statements

The following is the  unaudited  consolidated  balance sheet of Salem  Community
Bankshares,  Inc. and subsidiary (the Company) as of September 30, 2001, and the
related unaudited consolidated statements of income and comprehensive income for
the  three-month  and nine-month  periods ended September 30, 2001 and 2000, and
the unaudited  consolidated  statements of changes in stockholders'  equity, and
cash flows,  for the nine-month  periods ended  September 30, 2001 and 2000. The
consolidated  balance  sheet  presented as of December 31, 2000 has been derived
from the  consolidated  financial  statements  that  have  been  audited  by the
Company's independent auditors.













                                        3
<PAGE>
<TABLE>
                               SALEM COMMUNITY BANKSHARES, INC. AND SUBSIDIARY
                                         CONSOLIDATED BALANCE SHEETS
                               (In thousands, except shares and per share data)

<CAPTION>
ASSETS                                                                9/30/01                      12/31/00
------                                                        (Unaudited)                   (Audited)
                                                         ---------------------       -----------------------
<S>                                                                  <C>                            <C>
Cash and due from banks                                                $8,884                         8,283
Federal funds sold and securities purchased
     under resale agreements                                           25,810                        12,310
Securities:
     Available-for-sale, at fair value                                 15,214                         9,019
     Held-to-maturity, at amortized cost
     (fair value of $21,999 at September 30, 2001
     and $38,634 at December 31, 2000)                                 21,854                        39,434
Mortgage loans held for sale                                            1,065                           139
Loans, less unearned income                                           160,343                       139,577
Less allowance for loan losses                                         (1,722)                       (1,529)
                                                         ---------------------       -----------------------
     Loans, net                                                       158,621                       138,048
                                                         ---------------------       -----------------------
Bank premises and equipment, net                                        2,069                         2,107
Accrued interest receivable                                             1,520                         1,805
Foreclosed properties                                                     394                           160
Other assets                                                            1,986                         1,077
                                                         ---------------------       -----------------------

     Total assets                                                    $237,417                       212,382
                                                         =====================       =======================

LIABILITIES AND STOCKHOLDERS' EQUITY

Noninterest-bearing demand deposits                                    24,302                        21,680
Interest-bearing demand deposits                                       47,233                        41,429
Savings deposits                                                        6,409                         6,170
Time deposits                                                         127,117                       111,704
                                                         ---------------------       -----------------------
     Total deposits                                                   205,061                       180,983
Federal Home Loan Bank long-term debt                                  10,000                        10,000
Accrued interest payable                                                1,502                         1,486
Other liabilities                                                         367                           154
                                                         ---------------------       -----------------------
     Total liabilities                                                216,930                       192,623
                                                         ---------------------       -----------------------

Stockholders' equity:
         Common stock and surplus, no par value.  Authorized
         10,000,000 shares; issued and outstanding 1,508,484 shares
         in 2001 and 1,596,873 shares in 2000.                         15,818                        17,079
     Retained earnings                                                  4,633                         2,766
     Accumulated other comprehensive gain (loss)                           36                           (86)
                                                         ---------------------       -----------------------
      Total stockholders' equity                                       20,487                        19,759
                                                         ---------------------       -----------------------
Commitments and contingent liabilities
      Total liabilities and stockholders' equity                     $237,417                       212,382
                                                         =====================       =======================
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

                                                      4

<PAGE>
<TABLE>
                             SALEM COMMUNITY BANKSHARES, INC. AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                                               (Unaudited)
                                  (In thousands, except per share data)

Three Months Ended September 30, 2001 and 2000
<CAPTION>
                                                                                   2001             2000
                                                                                   ----             ----
<S>                                                                              <C>              <C>
Interest income:
     Interest and fees on loans                                                  $3,662           $3,312
     Interest on federal funds sold and securities
        purchased under resale agreements                                           222              163
     Interest on deposits with banks                                                 22               47
     Interest on securities - taxable                                               662              791
     Interest on securities - nontaxable                                             41               57
                                                                          --------------      -----------
        Total interest income                                                     4,609            4,370
                                                                          --------------      -----------
Interest expense:
     Interest on certificates of deposit
         of $100 or more                                                            371              293
     Interest on other deposits                                                   1,853            1,835
     Interest on Federal Home Loan Bank borrowings                                  172              181
                                                                          --------------      -----------
        Total interest expense                                                    2,396            2,309
                                                                          --------------      -----------
        Net interest income                                                       2,213            2,061
Provision for loan losses                                                           296               52
                                                                          --------------      -----------
        Net interest income after provision
          for loan losses                                                         1,917            2,009
                                                                          --------------      -----------
Noninterest income:
     Service charges on deposit accounts                                            177              147
     Other service charges, commissions and fees                                     58               70
     Other income                                                                    52               20
     Realized securities gains, net                                                   2                -
                                                                          --------------      -----------
        Total noninterest income                                                    289              237
                                                                          --------------      -----------
Noninterest expense:
     Salaries and employee benefits                                                 829              728
     Occupancy expense of bank premises                                              85               80
     Furniture, fixtures and equipment                                              138              120
     Stationery, printing and supplies                                               41               41
     Write-downs and (gains) and losses, net, on foreclosed properties               (4)              (1)
     Other expenses                                                                 324              300
                                                                          --------------      -----------
        Total noninterest expense                                                 1,413            1,268
                                                                          --------------      -----------
        Income before income tax expense                                            793              978
Income tax expense                                                                  260              328
                                                                          --------------      -----------
        Net income                                                                  533              650
Other comprehensive income (loss), net of income tax expense (benefit):
      Net unrealized gains (losses) on available-for-sale securities                 29               (4)
                                                                          --------------      -----------
      Comprehensive income                                                         $562             $646
                                                                          ==============      ===========
Net income per share:
    Basic net income per share                                                    $0.35            $0.41
                                                                          ==============      ===========
    Diluted net income per share                                                  $0.35            $0.41
                                                                          ==============      ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.

                                                    5
<PAGE>
<TABLE>
                                   SALEM COMMUNITY BANKSHARES, INC. AND SUBSIDIARY
                             CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                                                     (Unaudited)
                                        (In thousands, except per share data)

Nine Months Ended September 30, 2001 and 2000
<CAPTION>
                                                                                         2001                 2000
                                                                                         ----                 ----
<S>                                                                                   <C>                    <C>
Interest income:
     Interest and fees on loans                                                       $10,766                9,193
     Interest on federal funds sold and securities
        purchased under resale agreements                                                 573                  235
     Interest on deposits with banks                                                       92                   57
     Interest on securities - taxable                                                   2,159                2,380
     Interest on securities - nontaxable                                                  130                  173
                                                                            ------------------        -------------
        Total interest income                                                          13,720               12,038
                                                                            ------------------        -------------
Interest expense:
     Interest on time certificates of deposit
        of $100,000 or more                                                             1,121                  788
     Interest on other deposits                                                         5,516                4,902
     Interest on federal funds purchased and securities sold
        under repurchase agreements                                                         -                   11
     Interest on Federal Home Loan Bank borrowings                                        512                  347
                                                                            ------------------        -------------
        Total interest expense                                                          7,149                6,048
                                                                            ------------------        -------------
        Net interest income                                                             6,571                5,990
Provision for loan losses                                                                 551                  196
                                                                            ------------------        -------------
        Net interest income after provision
          for loan losses                                                               6,020                5,794
                                                                            ------------------        -------------
Noninterest income:
     Service charges on deposit accounts                                                  506                  417
     Other service charges, commissions and fees                                          251                  224
     Other income                                                                          75                   47
     Realized securities gains, net                                                         3                    -
                                                                            ------------------        -------------
        Total noninterest income                                                          835                  688
                                                                            ------------------        -------------
Noninterest expense:
     Salaries and employee benefits                                                     2,404                2,131
     Occupancy expense of bank premises                                                   247                  223
     Furniture, fixtures and equipment                                                    395                  359
     Stationery, printing and supplies                                                    102                  110
     Write-downs and (gains) and losses, net, on foreclosed properties                    (15)                  33
     Other expenses                                                                       948                  852
                                                                            ------------------        -------------
        Total noninterest expense                                                       4,081                3,708
                                                                            ------------------        -------------
        Income before income tax expense                                                2,774                2,774
Income tax expense                                                                        907                  908
                                                                            ------------------        -------------
        Net income                                                                      1,867                1,866
Other comprehensive income (loss), net of income tax expense (benefit):
      Net unrealized gains (losses) on available-for-sale securities                      122                  (57)
                                                                            ------------------        -------------
      Comprehensive income                                                             $1,989                1,809
                                                                            ==================        =============
Net income per share:
    Basic net income per share                                                          $1.20                $1.17
                                                                            ==================        =============
    Diluted net income per share                                                        $1.19                $1.16
                                                                            ==================        =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.

                                                          6
<PAGE>
<TABLE>
                                       SALEM COMMUNITY BANKSHARES, INC. AND SUBSIDIARY
                                  CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                                         (Unaudited)
                                       (In thousands, except shares and per share data)

Nine Months Ended September 30, 2001 and 2000
<CAPTION>
                                                                                            Accumulated
                                                              Common                           Other
                                                               Stock       Retained        Comprehensive
                                                            and Surplus    Earnings           Gain (Loss)         Total
                                                            ----------------------------------------------------------------
<S>                                                              <C>            <C>              <C>              <C>
Balances at December 31, 1999                                    $16,077        1,970           (210)             17,837
Net income                                                             -        1,866              -               1,866
Stock options exercised (9,919 shares)                                87            -              -                  87
Change in net unrealized
    losses on available-for-sale
   securities, net of income tax benefit                               -            -            (57)                (57)
                                                            ----------------------------------------------------------------
Balances at September 30, 2000                                   $16,164        3,836           (267)             19,733
                                                                  ======       ======         ======              ======

Balances at December 31, 2000                                    $17,079        2,766            -86              19,759
Net income                                                             -        1,867              -               1,867
Issuance of common stock (82 shares)                                   1            -              -                   1
Stock options exercised (11,128 shares)                              103            -              -                 103
Purchase of common stock outstanding (99,599 shares)              (1,365)           -              -              (1,365)
Change in net unrealized gains
   (losses) on available-for-sale
   securities, net of income tax expense                               -              -         122                  122
                                                            ----------------------------------------------------------------
Balances at September 30, 2001                                   $15,818        4,633             36              20,487
                                                                  ======       ======         ======              ======

See accompanying notes to unaudited consolidated financial statements.
</TABLE>

                                                              7
<PAGE>
<TABLE>
                            SALEM COMMUNITY BANKSHARES, INC. AND SUBSIDIARY
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                              (Unaudited)
                                            (In thousands)
Nine Months Ended September, 2001 and 2000
<CAPTION>
                                                                             2001                2000
                                                                             ----                ----
<S>                                                                        <C>                 <C>
Cash flows from operating activities:
     Net income                                                            $1,867              $1,866
     Adjustments to reconcile net income to net cash
        provided by operating activities:
        Provision for loan losses                                             551                 196
        Depreciation and amortization of bank premises
          and equipment                                                       251                 227
        Gains on calls of securities, net                                      (3)                  -
        Amortization of premiums and accretion
          of discounts, net                                                    10                   4
        Write-downs and (gains) and losses on sales
          of foreclosed properties, net                                       (15)                 33
        (Increase) decrease in:
           Mortage loans held for sale                                       (926)               (221)
           Accrued interest receivable                                        285                (431)
           Other assets                                                      (972)               (669)
      Increase (decrease) in:
          Accrued interest payable                                             16                 184
          Other liabilities                                                   213                 (25)
                                                                     -------------       -------------
          Net cash provided by operating activities                         1,277               1,164
                                                                     -------------       -------------
Cash flows from investing activities:
     Net increase in federal funds sold and
        securities purchased under resale agreements                      (13,500)             (8,610)
     Proceeds from maturities and calls of securities                      30,557                 654
     Purchase of securities                                               (19,000)                  -
     Net increase in loans made to customers                              (21,609)            (19,408)
     Recoveries on loans previously charged off                                63                  61
     Proceeds from sales of foreclosed properties                             203                 183
     Purchases of bank premises and equipment                                (213)               (219)
                                                                     -------------       -------------
        Net cash used in investing activities                             (23,493)            (27,339)
                                                                     -------------       -------------
Cash flows from financing activities:
     Net increase in time deposits                                         15,413              11,890
     Net increase in demand and savings deposits                            8,665               8,297
     Purchase of common stock outstanding                                  (1,365)                  -
     Net decrease in federal funds purchased and securities
       sold under resale agreements                                             -                (145)
     Proceeds from notes payable from Federal Home Loan Bank                    -               5,900
     Principal payments on capital lease obligations                            4                 (26)
     Proceeds from issuance of common stock                                   103                  87
                                                                     -------------       -------------
        Net cash provided by financing activities                          22,817              26,003
                                                                     -------------       -------------

Net increase (decrease) in cash and due from banks                            601                (172)
Cash and due from banks at beginning of period                              8,283               8,959
                                                                     -------------       -------------

Cash and due from banks at end of period                                   $8,884              $8,787
                                                                     =============       =============
</TABLE>

For the nine-month  periods ended  September 30, 2001 and 2000, the Company paid
interest expense of $7,133 and $5,864, respectively.  For the nine-month periods
ended  September  30, 2001 and 2000,  the Company  paid income taxes of $940 and
$800.

See accompanying notes to unaudited consolidated financial statements.

                                                   8
<PAGE>
                 SALEM COMMUNITY BANKSHARES, INC. AND SUBSIDIARY
              Notes to Condensed Consolidated Financial Statements
                  Nine Months Ended September 30, 2001 and 2000
                                   (Unaudited)
                (In thousands, except shares and per share data)
(1)    General

The consolidated  financial  statements  include the accounts of Salem Community
Bankshares,  Inc. and its wholly-owned  subsidiary,  Salem Bank and Trust,  N.A.
(the Bank),  (collectively the Company).  All material intercompany accounts and
transactions have been eliminated. The consolidated financial statements conform
to accounting  principles generally accepted in the United States of America and
to  general  banking  industry  practices.  In  the  opinion  of  the  Company's
management, the accompanying unaudited consolidated financial statements contain
all adjustments of a normal  recurring  nature,  necessary to present fairly the
financial  position as of September 30, 2001 and the results of  operations  and
cash flows for the three-month  and nine-month  periods ended September 30, 2001
and 2000.

These interim period consolidated financial statements and financial information
should be read in conjunction  with the  consolidated  financial  statements and
notes thereto  included in Salem Community  Bankshares,  Inc. 2000 Annual Report
and additional information supplied in the 2000 Form 10-KSB.

The results of operations for the interim periods are not necessarily indicative
of the results to be expected for the full year ending December 31, 2001.

(2)    Securities

The amortized costs,  gross unrealized  holding gains,  gross unrealized holding
losses and approximate fair values for  available-for-sale  and held-to-maturity
securities by major security type are as follows:
<TABLE>
                                                       September 30, 2001
                              ------------------------------------------------------------------
                                                    Gross             Gross
                                                 Unrealized        Unrealized
                                Amortized          Holding           Holding            Fair
                                  Costs             Gains             Losses           Values
                              ------------------------------------------------------------------
<S>                              <C>                   <C>                <C>           <C>
Available-for-sale
------------------
U.S. Government agencies
    and corporations             $13,000               54                 -             13,054
Mortgage-backed securities         1,096                1                 -              1,097
Other securities                   1,063                -                 -              1,063
                               ---------        ---------         ---------          ---------
            Totals               $15,159               55                 -             15,214
                               =========        =========         =========          =========


Held-to-maturity
----------------
U.S. Government agencies
   and corporations              $18,568               61                 -             18,629
Mortgage-backed securities           200                3                 -                203
Obligations of state and
   political subdivisions          3,086               81                 -              3,167
                               ---------        ---------         ---------          ---------
         Totals                  $21,854              145                 -             21,999
                               =========        =========         =========          =========
</TABLE>

As of  September  30, 2001,  securities  with  amoritized  costs of $26,057 were
pledged to secure public deposits and for other purposes required by law.

                                        9
<PAGE>
<TABLE>
                 SALEM COMMUNITY BANKSHARES, INC. AND SUBSIDIARY
              Notes to Condensed Consolidated Financial Statements
                  Nine Months Ended September 30, 2001 and 2000
                                   (Unaudited)
                (In thousands, except shares and per share data)

(3)      Loans

A summary of loans outstanding is as follows:
<CAPTION>
                                                  September 30, 2001               December 31, 2000
                                                  ------------------               -----------------
<S>                                                   <C>                                 <C>
Commercial                                            $    13,503                         13,527
Consumer, principally installment                          45,148                         34,520
Real estate - mortgage                                     87,370                         76,481
Real estate - construction                                 15,444                         16,285
                                                        ---------                      ---------

     Total loans                                          161,465                        140,813
Less unearned income                                       (1,122)                        (1,236)
                                                        ---------                      ---------

     Total loans, less unearned income                $   160,343                        139,577
                                                        =========                      =========

(4)     Nonperforming Assets, Impaired Loans and Allowance for Loan Losses


Nonperforming assets consist of the following:
<CAPTION>
                                                  September 30, 2001               December 31, 2000
                                                  ------------------               -----------------


Nonaccrual loans                                      $       444                    $       583
Foreclosed properties                                         394                            160
                                                         --------                       --------

     Total nonperforming assets                       $       838                    $       743
                                                         ========                       ========
</TABLE>

There were no commitments to lend additional funds to customers whose loans were
classified as nonperforming at September 30, 2001.  Included in nonaccrual loans
as of  September  30,  2001 is a  restructured  loan,  restructed  during  2000,
approximating $305.

The following  table shows the pro forma interest that would have been earned on
nonaccrual  loans if they had been  current in  accordance  with their  original
terms and the recorded  interest that was earned and included in income on these
loans:

                                              Nine Months Ended September 30,
                                              -------------------------------
                                               2001                    2000
                                               ----                    ----

Pro forma interest on nonaccrual loans      $      29                     47
                                               ======                 ======

Recorded interest on nonaccrual loans       $      29                     29
                                               ======                 ======

At  September  30,  2001,  the  recorded  investment  in loans  that  have  been
identified  as  impaired  loans,  in  accordance  with  Statement  114 and which
includes nonaccrual, restructured and certain watch list loans, totaled $531. Of
this amount $124 related to loans with no valuation allowance,  and $407 related
to loans with a corresponding valuation allowance of $70.


                                       10
<PAGE>
<TABLE>
                 SALEM COMMUNITY BANKSHARES, INC. AND SUBSIDIARY
              Notes to Condensed Consolidated Financial Statements
                  Nine Months Ended September 30, 2001 and 2000
                                   (Unaudited)
                (In thousands, except shares and per share data)

A summary of the activity in the allowance for loan losses follows:

                                          Nine Months Ended September 30,
                                          -------------------------------
                                                2001            2000
                                                ----            ----
Balances, beginning of period                $    1,529        1,404
Provision for loan losses                           551          196
Loans charged off                                  (421)        (192)
Loan recoveries                                      63           61
                                               --------      -------

Balances, end of period                      $    1,722        1,469
                                               ========      =======

(5)    Time Deposits and Other Deposits

Included in time deposits are certificates of deposit and other time deposits of
$100 or more in the aggregate amount of $28,388 at September 30, 2001.

(6)    Net Income Per Share

Net income per share  excludes  dilution  and is  computed  by  dividing  income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Net income per share-assuming  dilution reflects the
potential  dilution that could occur if  securities or other  contracts to issue
common  stock were  exercised  or vested  into  common  stock or resulted in the
issuance  of common  stock that they shared in the  earnings of the entity.  The
following is a  reconciliation  of the  numerators and  denominators  of the net
income per share and net income per share - assuming  dilution  computations for
the periods indicated:
<CAPTION>
                                            Net Income                     Shares       Per Share
Three Months Ended September 30, 2001       (Numerator)                (Denominator)      Amount
-------------------------------------       -----------                -------------    ----------
<S>                                              <C>                     <C>            <C>
Basic net income per share                       $533                    1,504,775      $     .35
                                                                                        ---------
Effect of dilutive stock options                    -                       18,082
                                            ---------                    ---------

Diluted net income per share                     $533                    1,522,857      $     .35
                                            ---------                    ---------      ---------

                                            Net Income                     Shares       Per Share
Three Months Ended September 30, 2000       (Numerator)                (Denominator)      Amount
-------------------------------------       -----------                -------------    --------

Basic net income per share                       $650                    1,592,268      $     .41
                                                                                        ---------
Effect of dilutive stock options                    -                       13,166
                                            ---------                    ---------

Diluted net income per share                     $650                    1,605,434      $     .41
                                            ---------                    ---------      ---------
</TABLE>

                                       11
<PAGE>
<TABLE>
                 SALEM COMMUNITY BANKSHARES, INC. AND SUBSIDIARY
              Notes to Condensed Consolidated Financial Statements
                  Nine Months Ended September 30, 2001 and 2000
                                   (Unaudited)
                (In thousands, except shares and per share data)
<CAPTION>

                                            Net Income                     Shares        Per Share
Nine Months Ended September 30, 2001        (Numerator)                (Denominator)       Amount
------------------------------------        -----------                -------------    ---------
<S>                                           <C>                        <C>            <C>
Basic net income per share                    $ 1,867                    1,551,633      $    1.20
                                                                                        =========
Effect of dilutive stock options                    -                       12,396
                                            ---------                    ---------

Diluted net income per share                    1,867                    1,564,029      $    1.19
                                            ---------                    =========      =========
Nine Months Ended September 30, 2000

Basic net income per share                     $1,866                    1,588,841      $    1.17
                                                                                        =========
Effect of dilutive stock options                    -                       14,417
                                            ---------                    ---------

Diluted net income per share                   $1,866                    1,603,258      $    1.16
                                            ---------                    =========      =========
</TABLE>


(7)  Pending Merger

On July 31, 2001,  the  Company's  Board of  Directors  approved an agreement to
merge  the  Company  into  FNB  Corporation,  headquartered  in  Christiansburg,
Virginia.  Under the terms of the  agreement,  shareholders  of the Company will
receive  consideration  valued at $26.49 for each share of common stock,  in the
form of cash, stock of FNB Corporation,  or a combination of both. The merger is
subject to approval by  shareholders  of the Company and FNB Corporation as well
as regulatory authorities. The transaction is anticipated to close in the fourth
quarter of 2001.


                                       12
<PAGE>
Item 2.  Management's Discussion and Analysis or Plan of Operation
------------------------------------------------------------------

(Amounts in thousands, except per share data and ratios)

The following is a discussion of the factors  which  significantly  affected the
financial  condition and results of operations  of Salem  Community  Bankshares,
Inc. and subsidiary at September 30, 2001 and for the three-month and nine-month
periods ended September 30, 2001. This discussion  should be read in conjunction
with the unaudited consolidated financial statements and notes presented herein,
and with the  Company's  audited  consolidated  financial  statements  and notes
thereto for the year ended December 31, 2000.

This Quarterly Report on Form 10-QSB contains forward-looking  statements within
the meaning of Section 27A of the  Securities Act of 1933 and Section 21E of the
Securities  Exchange Act of 1934.  The  Company's  actual  results  could differ
materially from those set forth in the forward-looking statements.

On May 31, 2000,  shareholders approved the proposed  reorganization of the Bank
into  a  holding  company  structure.  On  September  11,  2000,  this  proposed
reorganization was completed with 1,535,986 shares of Salem Bank and Trust, N.A.
common stock being exchanged one-for-one for 1,535,986 shares of Salem Community
Bankshares,  Inc.  common stock.  As a result of this  reorganization,  the Bank
became a wholly-owned subsidiary of Salem Community Bankshares, Inc.

PENDING MERGER

On July 31, 2001,  the  Company's  Board of  Directors  approved an agreement to
merge  the  Company  into  FNB  Corporation,  headquartered  in  Christiansburg,
Virginia.  Under the terms of the  agreement,  shareholders  of the Company will
receive  consideration  valued at $26.49 for each share of common stock,  in the
form of cash, stock of FNB Corporation,  or a combination of both. The merger is
subject to approval by  shareholders  of the Company and FNB Corporation as well
as regulatory authorities. The transaction is anticipated to close in the fourth
quarter of 2001.

BALANCE SHEET

Total  assets of the Company at  September  30, 2001  exceeded  total  assets at
December 31, 2000 by $25,035 or 11.8 percent. This increase was due primarily to
an  increase of $13,500 in federal  funds sold and  securities  purchased  under
resale  agreements  and loan  portfolio  growth.  The increase in fed funds sold
resulted from the Company not investing in long-term  security  products  during
the current  national  environment of declining  interest rates.  Loans,  net of
unearned interest, at September 30, 2001 compared to December 31, 2000 showed an
increase  of  $20,766,  or 14.9  percent.  Higher  loan  volumes  resulted  from
increased customer demand, especially in indirect dealer loan products.

Total deposits increased by $24,078, or 13.3 percent, due mostly to increases in
time and interest-bearing  demand deposits.  Time deposits increased $15,413, or
13.8 percent,  and  interest-bearing  demand deposits increased $5,804, or 14.0,
percent due to the Company  offering more  attractive  depository  products than
area competition.

ALLOWANCE FOR LOAN LOSSES, NONPERFORMING ASSETS AND IMPAIRED LOANS

The provision for loan losses was $551 for the nine-month period ended September
30, 2001 compared to $196 for the same period in 2000, an increase of $355.  The
provision for loan losses was $296 for the  three-month  period ended  September
30,  2001,  compared  to $52 for the same  period in 2000,  an increase of $244.
These  increases  were in response to an  increased  amount of  commercial  loan
charge-offs  experienced  in the third quarter of the current year.  The Company
considers the allowance for loan losses to be adequate based on the current loan
portfolio.  An ongoing  evaluation  of the  allowance for loan losses is made to
ensure that the  allowance  for loan losses is at a  sufficient  level to absorb
estimated  losses in the Bank's loan  portfolio.  As of September 30, 2001,  the
ratio of the allowance  for loan losses to loans,  net of unearned  income,  was
1.07 percent.  While  management  uses  available  information to recognize loan
losses,  future  additions to the allowance may be necessary based on changes in
economic conditions.  In addition,  regulatory agencies,  as an integral part of
their  examination  process,  periodically  review the Bank's allowance for loan
losses.  The  agencies  may  require  the  Bank to  recognize  additions  to the
allowance based on their judgments  about  information  available at the time of
their examination.

                                       13
<PAGE>
Foreclosed  properties  increased  to $394 at  September  30,  2001 from $160 at
December 31, 2000.  This increase  resulted  mostly from the  foreclosure of one
piece of commercial property.

Nonaccrual loans were $444 and $583 at September 30, 2001 and December 31, 2000,
respectively.   Loans  are  generally  placed  in  nonaccrual  status  when  the
collection  of principal  and  interest is 90 days or more past due,  unless the
obligation is both well-secured and in the process of collection. Impaired loans
approximated $531 at September 30, 2001 and $707 at December 31, 2000.

See note 4 to the Company's unaudited  consolidated  financial  statements for a
summary of the changes in the Bank's  allowance for loan losses and a summary of
nonperforming assets.

CAPITAL RESOURCES

Stockholders' equity increased by $728, or 3.7 percent, as of September 30, 2001
to $20,487 compared to stockholders' equity of $19,759 at December 31, 2000. The
increase  was  due to  net  earnings  which  were  retained  but  offset  by the
repurchase of 99,599 shares of the Company's  common stock for $1,365 during the
previous  quarter.  Stockholders'  equity at  September  30,  2001 also has been
increased   by  $36  which   represents   the  excess  of  the  fair  values  of
available-for-sale  securities over their amortized costs, net of taxes, held by
the Company.  This sole component of comprehensive income has been recorded as a
separate  component of  stockholders'  equity and will continue to be subject to
change in future periods due to fluctuations in market value, sales,  purchases,
maturities and calls of securities classified as available-for-sale.

The Bank is in  compliance  with  minimum Tier 1 and total  capital  ratios of 4
percent and 8 percent,  respectively,  at  September  30, 2001 and  December 31,
2000.  The Bank's  leverage  ratios at September  30, 2001 and December 31, 2000
were also in excess of the 3 percent minimum.

There are no material  commitments for capital  expenditures as of September 30,
2001. In addition, there are no expected material changes in the mix or relative
cost of capital resources.

NET INTEREST INCOME

The  principal  source of  earnings  for the Bank is net  interest  income.  Net
interest  income  is  the  net  amount  of  interest  earned  on  the  Company's
interest-bearing  assets  less the  amount  of  interest  paid on the  Company's
deposits and other interest-bearing  liabilities. Net interest income before the
provision  for loan losses was $6,571 for the nine months  ended  September  30,
2001  compared  with $5,990 for the nine months ended  September  30,  2000,  an
increase of $581 or 9.7 percent.  Net interest  income  before the provision for
loan losses was $2,213 for the three months ended  September  30, 2001  compared
with $2,061 for the three months ended  September  30, 2000, an increase of $152
or 7.4 percent. Total interest income increased from $12,038 for the nine months
ended  September 30, 2000 to $13,720 for the same period in 2001, a 14.0 percent
increase.  This increase was mostly due to increased  interest and fees on loans
which resulted from a larger loan  portfolio.  Interest  expense  increased from
$6,048  for the nine  months  ended  September  30,  2000 to $7,149 for the same
period in 2001, a 18.2 percent increase.  Interest expense increased from $2,309
for three months ended September 30, 2000 to $2,396 for the same period in 2001,
a 3.8 percent  increase.  These increases in interest expense were due mainly to
an increase in interest-bearing demand and time deposit volumes.

NONINTEREST INCOME

Noninterest income consists of earnings generated primarily from service charges
on deposit accounts, securities gains and other service charges, commissions and
fees. The Company's  noninterest  income  increased from $688 for the first nine
months in 2000 to $835 for the same period in 2001, an increase of 21.4 percent.
The Company's  noninterest  income  increased from $237 for the third quarter in
2000 to $289 for the same  period in 2001,  an increase  of 21.9  percent.  This
trend  resulted  from  increases in service  charges on deposit  accounts  which
resulted from a greater volume of deposits and fewer such fees and charges being
waived by management.  In addition,  noninterest  income also increased due to a
greater level of fees being collected on mortgage loans held-for-sale.


                                       14
<PAGE>
NONINTEREST EXPENSE

The  Company's  noninterest  expense  increased  from  $3,708 for the first nine
months in 2000 to $4,081 for the same period in 2001, or 10.1 percent  increase.
The Company's noninterest expense increased from $1,268 for the third quarter in
2000 to $1,413 or 11.4 percent for the same period in 2001.  These  fluctuations
were attributable mainly to increases in salaries and employee benefits expense.

INCOME TAXES

The reported income tax expense for the nine months ended September 30, 2001 was
$907  (effective tax rate of 32.7 percent)  compared to $908 (effective tax rate
of 32.7  percent) for the same period in 2000.  The reported  income tax expense
for the three months ended  September 30, 2001 was $260  (effective  tax rate of
32.8 percent) compared to $328 (effective tax rate of 33.5 percent) for the same
period in 2000. This decrease in income tax expense was due to a decrease in net
taxable income for the quarter.

NET  INCOME

Net income for the nine months ended  September 30, 2001 was $1,867  compared to
$1,866 for the same period in 2000. The Company achieved a .78 percent return on
average  assets,  or 1.04  percent  annualized,  during the first nine months of
2001, compared to a .90 percent,  or 1.20 percent annualized,  return on average
assets  for the same  period in 2000.  Net  income  for the three  months  ended
September  30, 2001 was $533  compared to $650 for the same period in 2000.  The
majority  of this  decrease  was due to an increase  in the  provision  for loan
losses.

LIQUIDITY

Liquidity  is the  ability  to  generate  adequate  cash flow to meet  financial
commitments  and to fund customers'  demands for funds,  either in terms of loan
requests or deposit  withdrawals.  Liquidity  may be provided by both assets and
liabilities.  Asset liquidity is derived from sources such as readily marketable
investments,  principal  and interest  payments on loans,  and cash and due from
banks.  Liability  liquidity  is  provided by the core  deposit  growth from the
Bank's strong,  stable customer base.  Management  believes the liquidity of the
Bank remains adequate, as sufficient assets are maintained on a short-term basis
to meet the liquidity demands  anticipated.  Secondary sources of funds are also
available  should  the  need  arise.  Management  is not  aware  of any  trends,
commitments  or events  that will  result  in or that are  reasonably  likely to
result in a material increase or decrease in liquidity.

Net cash  provided by operating  activities  of $1,277 for the nine months ended
September  30, 2001 was  primarily  attributable  to net income.  Net cash flows
provided by financing  activities  for the nine months ended  September 30, 2001
was  $22,817  and  resulted  from  increased  deposits,  offset  by  the  $1,365
repurchase  of  the  Company's  common  stock.  Cash  flows  used  in  investing
activities  of $23,493 were used  primarily to fund the net increase in loans of
$21,609 and the increase in federal funds and securities purchased of $13,500.

REPURCHASE OF COMMON STOCK

On May 25,  2001,  the Company  repurchased  99,599  shares of its common  stock
outstanding  at a total  cost of  $1,365.  This  repurchase  of  stock  has been
recorded in the unaudited  consolidated  financial  statements as a reduction of
common stock and surplus.





                                       15
<PAGE>
GENERAL
-------

IMPACT OF INFLATION AND CHANGING PRICES

The  consolidated  financial  statements and related notes presented herein have
been prepared in accordance with accounting principles generally accepted in the
United States of America which require the measurement of financial position and
operating results in terms of historical dollars, without considering changes in
the relative purchasing power of money over time due to inflation.

Unlike many industrial companies,  substantially all of the assets and virtually
all of the  liabilities  of the  Company are  monetary  in nature.  As a result,
interest rates have a more significant impact on the Company's  performance than
the general level of inflation.  Over short periods of time,  interest rates may
not  necessarily  move  in the  same  direction  or in  the  same  magnitude  as
inflation.

DERIVATIVES

The Company does not use  derivatives or other  off-balance  sheet  transactions
such as future contracts, forward obligations, interest rate swaps, or options.

FUTURE ACCOUNTING CONSIDERATIONS

SFAS No. 133

In June 1998, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging  Activities.  Statement  133  establishes  accounting  and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts, and for hedging activities. The adoption of SFAS No
133, as amended, as of January 1, 2001, did not have any effect on the financial
position, results of operations or liquidity of the Company.

SFAS No. 141 and SFAS No. 142

On July 20, 2001, the FASB issued SFAS No. 141, Business Combinations,  and SFAS
No. 142, Goodwill and Other Intangible Assets.  SFAS No. 141 requires the use of
the purchase method of accounting for all business combinations.  The use of the
pooling-of-interests  method is prohibited for business  combinations  initiated
after June 30, 2000. SFAS No. 142 requires that goodwill and certain  intangible
assets  would no longer be  amortized,  but  rather  be  tested  for  impairment
annually or whenever an event occurs  indicating that the asset may be impaired.
SFAS No. 142 is effective for fiscal years  beginning  after  December 15, 2001.
Management is currently  evaluating  the impact of SFAS No. 142 on the financial
position, results of operations and liquidity of the Company, but no significant
effect is expected.

SAB No. 102

On July 6, 2001,  the  Securities  and  Exchange  Commission  (SEC) issued Staff
Accounting Bulletin (SAB) No. 102, Selected Loan Loss Allowance  Methodology and
Documentation   Issues.   The  guidance   contained  in  the  SAB  is  effective
immediately.  This SAB  expresses  the  views  of the SEC  staff  regarding  the
registrant's  development,   documentation,  and  application  of  a  systematic
methodology for determining the allowance for loan and lease losses, as required
by SEC Financial Reporting Release (FRR) No. 28. The guidance in the SAB focuses
on the documentation  the SEC staff normally expects  registrants to prepare and
maintain in support of the allowance for loan and lease losses.



                                       16
<PAGE>
Concurrent with the SEC's issuance of SAB No. 102, the federal banking  agencies
(the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the
Federal  Reserve  System) (FRB),  the Office of the  Comptroller of the Currency
(OCC),  and the Office of Thrift  Supervision  (OTS)  represented by the Federal
Financial   Institutions   Examination  Council  issued  an  interagency  policy
statement  entitled  Allowance  for  Loan and  Lease  Losses  Methodologies  and
Documentation for Banks and Savings Institutions (Policy Statement). The SAB and
Policy Statement were the result of an agreement between the SEC and the federal
banking  agencies in March 1999 to provide  guidance on  allowance  for loan and
lease methodologies and supporting documentation.

The  guidance  contained  in the  SAB  does  not  prescribe  specific  allowance
estimation methodologies registrants should employ in estimating their allowance
for loan and lease  losses,  but  rather  emphasizes  the need for a  systematic
methodolgy that is properly designed and implemented by registrants.













                                       17
<PAGE>
                 SALEM COMMUNITY BANKSHARES, INC. AND SUBSIDIARY

                                     PART II

                                OTHER INFORMATION


Items 1 - 5. None for the quarter ended September 30, 2001.
-----------

Item 6.  Exhibits and Reports on Form 8-K.
------------------------------------------

     (a)  Exhibits required by Item 601 of Regulation S-B:

            None.

     (b) Reports on Form 8-K filed  during the nine months ended  September  30,
         2001.

            None.















                                       18
<PAGE>
                 SALEM COMMUNITY BANKSHARES, INC. AND SUBSIDIARY

                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                    Salem Community Bankshares, Inc.


Date:    November 2, 2001           By: /s/ Clark Owen, Jr.
         ------------------         --------------------------------------------
                                    Clark Owen, Jr., President and
                                    Chief Executive Officer

Date:    November 2, 2001           By: /s/ Gill R. Roseberry
         ------------------         --------------------------------------------
                                    Gill R. Roseberry, Corporate Secretary and
                                    Chief Financial Officer


















                                       19