<PAGE>

                      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 quarter ended September 30, 2001
                         Commission file number 0-18868

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

          Virginia                                        54-1560968
---------------------------------           ------------------------------------
  (State or Other Jurisdiction              (I.R.S. Employer Identification No.)
Of Incorporation or Organization)

      4095 Valley Pike
     Winchester, Virginia                                 22602
---------------------------------           ------------------------------------
(Address of Principal Executive Offices)                (Zip Code)


                                (540) 869-6600
                -----------------------------------------------
               (Issuer's Telephone Number, Including Area Code)

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


                                            Name of Each Exchange
      Title of Each Class                    On Which Registered
      -------------------                 --------------------------
            None                                    N/A


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

                    Common Stock, par value $1.00 per share
                -----------------------------------------------
                               (Title of Class)

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

      As of November 1, 2001, there were 4,524,484 shares of the Registrant's
common stock outstanding.
<PAGE>

                         PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

      The following financial statements are provided at the page numbers
indicated.

        Consolidated Statements of Condition
        As of September 30, 2001 and December 31, 2000........................ 3

        Consolidated Statements of Income for
        The Quarters Ended and the Nine Months Ended
        September 30, 2001 and 2000........................................... 4

        Consolidated Statements of Changes in
        Shareholders Equity for the Nine Months
        Ended September 30, 2001 and 2000..................................... 5

        Consolidated Statements of Cash Flow for the
        Nine Months Ended September 30, 2001 and 2000......................... 6

        Notes to Consolidated Financial Statements........................7 - 10

Item 2. Management's Discussion and Analysis or
        Plan of Operations...............................................11 - 14

Part II. OTHER INFORMATION....................................................15

Signature.....................................................................16

                                       2
<PAGE>

                             PART I. FINANCIAL INFORMATION

                              Item 1. FINANCIAL STATEMENTS

                       PREMIER COMMUNITY BANKSHARES, INCORPORATED
                              Consolidated Balance Sheets
                         (In Thousands, Except for Share Data)


<TABLE>
<CAPTION>

                                                                     (Unaudited)
                                                                    September 30,      December 31,
Assets:                                                                  2001               2000
                                                                    -------------------------------
<S> <C>
Cash and due from banks                                             $  14,615          $  10,745
Interest-bearing deposits in other banks                                  368              2,020
Federal funds sold                                                     24,327             16,996
Securities available for sale, at fair value                           12,071             15,034
Securities held to maturity (fair value: Sept 30, 2001,
       $6,911  December 31, 2000, $8,027)                               6,726              8,029
Loans held for sale                                                       368                155
Loans, net of allowance for loan losses of $2,320,
       Sept 30, 2001, $2,000 December 31, 2000)                       213,608            185,706
Bank premises and equipment, net                                        5,395              4,874
Accrued interest receivable                                             1,416              1,377
Other assets                                                            1,767              1,379
                                                                    -------------------------------
Total assets                                                        $ 280,661          $ 246,315
                                                                    ===============================
Liabilities and Shareholders' Equity
Liabilities:
     Deposits:
          Non-interest bearing demand deposits                      $  39,221          $  33,099
          Savings and interest-bearing demand deposits                 72,993             63,274
          Time deposits                                               135,791            115,782
                                                                    -------------------------------
                 Total deposits                                       248,005            212,155
Federal Home Loan Bank advances                                         5,000              8,500
Short-term borrowings                                                     497                545
Interest expense payable                                                  392                457
Accounts payable and accrued expenses                                     998                683
Capital lease payable                                                     206                211
Dividends payable                                                           0                456
Commitments and contingent liabilities                                      0                  0
                                                                    -------------------------------
     Total liabilities                                                255,098            223,007

Shareholders' Equity
Preferred stock, Series A, 5% noncumulative, no par
     value; 1,000,000 shares authorized and unissued                $       -          $       -
Common stock, $1 par value, 20,000,000 shares authorized
     September 30, 2001, 4,524,484 shares issued and outstanding;
     December 31, 2000, 4,546,695 shares issued and outstanding         4,525              4,547
Capital surplus                                                        14,796             15,118
Retained earnings                                                       6,080              3,634
Accumulated other comprehensive income                                    162                  9
                                                                    -------------------------------
      Total shareholders' equity                                       25,563             23,308

                                                                    $ 280,661          $ 246,315
                                                                    ===============================

</TABLE>


              See Accompanying Notes to Consolidated Financial Statements

                                       3
<PAGE>

                  PREMIER COMMUNITY BANKSHARES, INCORPORATED
                       Consolidated Statements of Income
                   (In Thousands, Except for Per Share Data)

<TABLE>
<CAPTION>

                                                                               (Unaudited)                       (Unaudited)
                                                                          For the Quarter Ended           For the Nine Months Ended
                                                                                September 30,                     September 30,
                                                                          2001         2000                  2001          2000
                                                                    ---------------------------------------------------------------
<S> <C>
Interest and dividend income:
   Interest and fees on loans                                       $    4,591    $    4,129           $   13,479     $   11,702
   Interest on investment securities
      Nontaxable                                                            32            12                   83             31
      Taxable                                                               62            99                  220            318
   Interest and dividends on securities available for sale:
      Nontaxable                                                            14            10                   34             21
      Taxable                                                              162           179                  512            511
      Dividends                                                             16            21                   58             58
   Interest on deposits in banks                                             4            10                   37             38
   Interest on federal funds sold                                          204           297                  704            758
                                                                    ---------------------------------------------------------------
          Total interest and dividend income                        $    5,085    $    4,757           $   15,127     $   13,437
                                                                    ---------------------------------------------------------------

Interest expense:
   Interest on deposits                                             $    2,168    $    2,068           $    6,591     $    5,699
   Interest on capital lease obligations                                     4             5                   12             13
   Interest on short-term borrowings                                        80            88                  298            193
                                                                    ---------------------------------------------------------------
          Total interest expense                                    $    2,252    $    2,161           $    6,901     $    5,905
                                                                    ---------------------------------------------------------------

          Net interest income                                       $    2,833    $    2,596           $    8,226     $    7,532
Provision for loan losses                                                  130           160                  410            363
                                                                    ---------------------------------------------------------------
Net interest income after provision for loan losses                 $    2,703    $    2,436           $    7,816     $    7,169
                                                                    ---------------------------------------------------------------

Noninterest income
   Service charges on deposit accounts                              $      389    $      325           $    1,064     $      907
   Commissions and fees                                                     70            20                  182             42
   Other                                                                    53            13                   96             44
                                                                    ---------------------------------------------------------------
          Total noninterest income                                  $      512    $      358           $    1,342     $      993
                                                                    ---------------------------------------------------------------

Noninterest expense
    Salaries and employee benefits                                  $    1,057    $      919           $    3,043     $    2,654
    Net occupancy expense of premises                                      126           131                  372            328
    Furniture and equipment                                                163            97                  390            367
    Other                                                                  550           621                1,687          1,710
                                                                    ---------------------------------------------------------------
          Total noninterest expenses                                $    1,896    $    1,768           $    5,492     $    5,059
                                                                    ---------------------------------------------------------------

          Income before income taxes                                $    1,319    $    1,026           $    3,666     $    3,103

Provision for income taxes                                                 439           374                1,220          1,071
                                                                    ---------------------------------------------------------------
          Net income                                                $      880    $      652           $    2,446     $    2,032
                                                                    ===============================================================
Average shares:
    Basic                                                            4,478,675     4,563,320            4,510,762      4,563,320
    Assuming dilution                                                4,526,768     4,618,824            4,586,321      4,621,571

Earnings per common share:
    Basic                                                                 0.20          0.14                 0.54           0.45
    Assuming dilution                                                     0.20          0.14                 0.53           0.44

</TABLE>

                    See Accompanying Notes to Consolidated Financial Statements

                                       4
<PAGE>

                   PREMIER COMMUNITY BANKSHARES, INCORPORATED
            Consolidated Statement of Changes in Shareholders' Equity
              For the Nine Months Ended September 30, 2001 and 2000
                                 (In Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>


                                                                              Accumulated
                                                                                 Other                             Total
                                        Common     Capital        Retained   Comprehensive     Comprehensive   Shareholders'
                                         Stock     Surplus        Earnings   Income (Loss)        Income          Equity
                                        ------------------------------------------------------------------------------------
<S> <C>
Balance December 31, 1999                $4,558    $15,163         $1,546         $ (194)                         $21,073

Comprehensive Income
  Net income                                                        2,032                          2,032            2,032
  Other comprehensive income
     net of tax
  Unrealized gain on available for
     sale securities (net of tax $42)                                             $   81         $    81          $    81
                                                                                                 -------
  Total comprehensive income                                                                     $ 2,113
                                                                                                 =======
Issuance of common stock-
     exercise of stock options
     (5,000 shares)                           5         20                                                             25
                                        ------------------------------------------------------------------------------------
Balances - September 30, 2000            $4,563    $15,183         $3,578         $ (113)                         $23,211
                                        ====================================================================================

</TABLE>


<TABLE>
<CAPTION>


                                                                              Accumulated
                                                                                 Other                             Total
                                        Common     Capital        Retained   Comprehensive     Comprehensive   Shareholders'
                                         Stock     Surplus        Earnings   Income (Loss)        Income          Equity
                                        ------------------------------------------------------------------------------------
<S> <C>
Balance December 31, 2000                $4,547    $15,118         $3,634         $   9                           $23,308

Comprehensive Income
  Net income                                                        2,446                        $ 2,446            2,446
  Other comprehensive income
     net of tax
  Unrealized gain on available for
     sale securities (net of tax $79)                                               153              153              153
                                                                                                 -------
  Total comprehensive income                                                                     $ 2,599
                                                                                                 =======

Repurchase of Common Stock                 (114)      (525)                                                          (639)
  (114,669 shs)

Issuance of Common Stock-exercise
  of stock options  (92,458 shs)             92        203                                                            295
                                         ----------------------------------------------                           -------
Balances - September 30, 2001            $4,525    $14,796         $6,080         $ 162                           $25,563
                                         ==============================================                           =======
</TABLE>


                 See Accompanying Notes to Consolidated Financial Statements


                                       5
<PAGE>

                                     PREMIER COMMUNITY BANKSHARES
                                Consolidated Statements of Cash Flows
                        For the Nine Months Ended September 30, 2001 and 2000
                                            (In Thousands)
                                            (Unaudited)

<TABLE>
<CAPTION>

                                                                  2001         2000
                                                              -----------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                    $   2,446     $   2,032
Adjustments to reconcile net income
to net cash provided by operating activities:
  Amortization                                                       54            38
  Depreciation                                                      286           342
  Net amortization and (accretion) on securities                     (3)           12
  Provision for loan loss                                           410           363
  Deferred tax expense                                             (183)            -
  Loss on sale of other real estate                                   -            10
  Origination of loans available for sale                        (3,882)       (3,184)
  Proceeds from sale of loans available for sale                  3,669         2,978
  Changes in assets and liabilities:
    (Increase) in other assets                                     (357)         (320)
    (Increase) in accrued interest receivable                       (39)         (161)
    Decrease in accounts payable and accrued expenses               131            68
    Increase (Decrease) in interest expense payable                 119           (30)
                                                              -----------------------
Net cash provided by operating activities                     $   2,651     $   2,148

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities, calls and principal payments
on securities held to maturity                                $   2,842     $     488
Proceeds from maturities, calls and principal payments
on securities available for sale                                  6,411           635
Purchase of securities available for sale                        (3,213)       (2,125)
Purchase of securities held to maturity                          (1,541)       (1,286)
Net (increase) in loans                                         (28,313)      (24,471)
Purchase of bank premises and equipment                            (786)         (502)
Proceeds from sale of other real estate                               -           173
                                                              -----------------------
Net cash used in investing activities                         $ (24,600)    $ (27,088)
                                                              -----------------------

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand and interest bearing deposits          $   6,122     $  15,122
Net increase in certificates of deposits                         29,729         8,867
Net increase in borrowings                                            -         5,222
Principal payments on capital lease obligation                       (5)           (5)
Cash dividends paid                                                (456)         (184)
Proceeds from issuance of common stock                              295            25
Acquisition of common stock                                        (639)            -
Reduction in borrowed money                                      (3,548)            -
                                                              -----------------------
Net cash provided by financing activities                     $  31,498     $  29,047
                                                              -----------------------

Increase in cash and cash equivalents                         $   9,549     $   4,107
Beginning                                                        29,761        26,212
                                                              -----------------------
Ending                                                        $  39,310     $  30,319
                                                              =======================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash payments for:
   Interest                                                   $   6,965     $   5,648
                                                              =======================
   Income taxes                                               $   1,395     $   1,179
                                                              =======================
Unrealized gain on securities available for sale              $     232     $     123
                                                              =======================

</TABLE>

           See Accompanying Notes to Consolidated Financial Statements

                                       6
<PAGE>

                       PREMIER COMMUNITY BANKSHARES, INC

                   Notes to Consolidated Financial Statements
                                  (Unaudited)
             For the Nine Months Ended September 30, 2001 and 2000


Note 1.

    In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position of
Premier Community Bankshares, Incorporated ("Premier" or the "Corporation") for
the periods ending September 30, 2001 and December 31, 2000, and the result of
operations and cash flows for the nine months ended September 30, 2001 and 2000.
The statements should be read in conjunction with the Notes to Financial
Statements included in Premier's Annual Report for the year ended December 31,
2000.

      In November, 2000 Premier changed its name from Marathon Financial
Corporation and acquired all of the issued and outstanding capital stock of
Rockingham Heritage Bank and its subsidiary, RHB Services, Incorporated.
Rockingham Heritage Bank and its subsidiary were merged into Premier under the
pooling of interest method of accounting.  Premier also owns The Marathon Bank.
The amounts previously reported for the periods presented have been
retroactively restated to reflect the acquisition of Rockingham and its
subsidiary.

Note 2.

      The results of operations for the nine month period ended September 30,
2001 and 2000 are not necessarily indicative of the results to be expected for
the full year.


Note 3.  Securities

   Securities held to maturity as of September 30, 2001 are summarized as
follows:

                                            Gross       Gross
                             Amortized    Unrealized   Unrealized     Fair
                               Cost         Gains      (Losses)      Value
                             ---------------------------------------------
                                           September 30, 2001
                             ---------------------------------------------
U.S. Government and
   federal agencies              $3,841      $118          $0       $3,959
Obligations of state and
   political subdivisions         2,766        64           0        2,830
Corporate bonds                       0         0           0            0
Mortgage-backed securities          119         3           0          122
Other                                 0         0           0            0
                             ---------------------------------------------
                                 $6,726      $185          $0       $6,911
                             =============================================


                                       7
<PAGE>

      Securities available for sale as of September 30, 2001 are summarized as
follows:


                                            Gross       Gross
                             Amortized    Unrealized   Unrealized     Fair
                               Cost         Gains      (Losses)      Value
                             ---------------------------------------------
                                           September 30, 2001
                             ---------------------------------------------

U.S. Government and
   federal agencies           $ 8,107        $196          $0      $ 8,303
Obligations of state and
   political subdivisions       1,187          27           0        1,214
Corporate bonds                   251           3           0          254
Mortgage-backed securities        929          17           0          946
Other                           1,354           0           0        1,354
                              --------------------------------------------
                              $11,828        $243          $0      $12,071
                              --------------------------------------------

Note 4. Loans.

The consolidated loan portfolio is composed of the following:

                                           September 30,       December 31,
                                               2001               2000
                                           --------------------------------
                                                     (000 Omitted)
                                           --------------------------------
Mortgage loans on real estate:
  Construction and land development          $ 20,463           $ 14,474
  Secured by farmland                           1,737                892
  Secured by 1-4 family residential            49,264             36,966
  Multi-family residential                      5,052              4,809
  Nonfarm, nonresidential                      75,426             52,982
Loans to farmers                                   16                477
Commercial loans                               44,930             56,155
Consumer installment loans                     18,297             19,935
All other loans                                   852              1,224
                                           --------------------------------
Total loans                                 $ 216,037           $187,914

Less:  Unearned income                            109                208
Allowance for loan losses                       2,320              2,000
                                           --------------------------------
Loans, net                                  $ 213,608           $185,706
                                           --------------------------------

Impaired loans totaled $345 and $279 thousand at September 30, 2001 and December
31, 2000, respectively.  Non-accrual loans excluded from impaired loans
disclosure under FASB 114 amounted to $42 thousand and $92 thousand at September
30, 2001 and December 31, 2000, respectively.

                                       8
<PAGE>

Note 5. Reserve for Loan Losses.


      The following is a summary of transactions in the reserve for loan losses:


                                 September 30,       December 31,
                                     2001               2000
                                 --------------------------------
                                           (000 Omitted)
                                 --------------------------------

Balance, beginning                 $2,000             $1,689
   Provision for loan losses          410                483
   Recoveries                          58                110
   Loan losses charged to
            the allowance            (148)              (282)
Balance, ending                    $2,320             $2,000
                                 ================================


Note 6.  Earnings Per Share

                                       September 30,             September 30,
                                           2001                      2000
                                    -------------------------------------------
                                     Shares     Amount         Shares    Amount
                                    -------------------------------------------
Basic earnings per share            4,510,762     $0.54       4,563,320   $0.45

Effect of dilutive securities:
Stock options                          87,475                    58,251

Diluted earnings per share          4,598,237     $0.53       4,621,571   $0.44


      Options of 20,044 were not included in computing diluted EPS for September
30, 2000, because their effects were anti-dilutive.


Note 7.  Recent Accounting Pronouncements

      In July, 2001, the Financial Accounting Standards Board issued two
statements - Statement 141, Business Combinations, and Statement 142, Goodwill
and Other Intangible Assets, which will potentially impact the accounting for
goodwill and other intangible assets.  Statement 141 eliminates the pooling
method of accounting for business combinations and requires that intangible
assets that meet certain criteria be reported separately from goodwill.  The
Statement also requires negative goodwill arising from a business combination to

                                       9
<PAGE>

be recorded as an extraordinary gain.  Statement 142 eliminates the amortization
of goodwill and other intangibles that are determined to have an indefinite
life.  The Statement requires, at a minimum, annual impairment tests for
goodwill and other intangible assets that are determined to have an indefinite
life.

      Upon adoption of these Statements, an organization is required to re-
evaluate goodwill and other intangible assets that arose from business
combinations entered into before July 1, 2001.  If the recorded other
intangibles assets do not meet the criteria for recognition, they should be
classified as goodwill.  Similarly, if there are other intangible assets that
meet the criteria for recognition but were not separately recorded from
goodwill, they should be reclassified from goodwill.  An organization also must
reassess the useful lives of intangible assets and adjust the remaining
amortization periods accordingly.  Any negative goodwill must be written-off.

      The standards generally are required to be implemented by the Bank in its
2002 financial statements.  The adoption of these standards will not have a
material impact on the financial statements.


                                       10
<PAGE>

Item 2.  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 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.


Total Assets
------------

     Total assets of Premier increased to $280.7 million at September 30, 2001
compared to $246.3 million at December 31, 2000 representing an increase of
$34.4 million or 14.0%.  Net loans at September 30, 2001, were $213.6 million of
which $151.9 million were loans secured by real estate.  The remaining loans
consisted of $44.9 million in commercial loans, $18.3 million in consumer
installment loans and $852 thousand in all other loans.  Net loans at September
30, 2001 increased $27.9 million or 15.0% from the December 31, 2000 balance of
$185.7 million.  The loan growth has been generated by a strong local market
that is diverse in several areas of the economy.  Because of this diversity the
local economy has been able to withstand some of the recent downturn in the
overall national markets.

     The investment portfolio decreased 18.6% to $18.8 million at September 30,
2001 compared to $23.1 million at December 31, 2000.  The decline in investments
was chiefly the result of bonds called prior to maturity due to the dramatic
decline in interest rates during the first nine months of 2001.  Federal funds
sold increased $7.3 million to $24.3 million at September 30, 2001.  Earning
assets increased by $29.6 million or 12.9% to $259.4 million from December 31,
2000.

                                       11
<PAGE>

Allowance for Loan Losses
-------------------------

    The allowance for loan losses, as of September 30, 2001, was $2.3 million.
This is an increase of $320 thousand or 16.0% from December 31, 2000.  This
gives the bank a 1.07% 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 $248.0 million at September 30, 2001, from a
balance of $212.2 million at December 31, 2000, which is an increase of $35.8
million or 16.9%.  Low cost deposits have also shown almost identical percentage
growth during the first nine months of 2001.  Non-interest bearing deposits have
increased to $39.2 million as of September 30, 2001, an increase of $6.1 million
or 18.5% from December 31, 2000.  During this period interest bearing checking
and savings accounts increased $9.7 million or 15.4% to $73.0 million.  Time
deposits balance was $135.8 million at the end of three quarters reflecting an
increase of $20.0 million or 16.6%.  As of September 30, 2001 non-interest
bearing deposits represented 15.8% of total deposits as compared to 15.6% at
year-end 2000.  Low cost interest bearing deposits including savings and
interest bearing checking were 29.4% which represents a decrease of 0.4% from
the year-end December 31, 2000 balance.  Time deposits represents 54.8% at
September 30, 2001, a slight change from the 54.6% at year end


Shareholders' Equity
--------------------

    Total equity has increased by $2.3 million or 9.7% since December 31, 2000.
The increase was due to a net profit of $2.4 million for the first nine months
of 2001, and an increase in accumulated other comprehensive income of $153
thousand, net of tax.  Premier also repurchased common stock totaling $639
thousand.  Stock options totaling $295 thousand were exercised. The primary
capital to assets ratio is 9.1%.


Interest Income
---------------

    Interest income totaled $15.1 million for the nine months ending September
30, 2001, $1.7 million or 12.6% higher than the nine months ending September 30,
2000.  Interest and fees on loans comprise the vast majority of interest income
with $13.5 million for the first nine months of 2001.  The percentage of
increase in income derived from loans is less than the percentage of increase in
loan volume due to the sharp drop of interest rates during the first nine months
of this year.  Interest income from investment securities dropped by $32
thousand from the first three quarters of 2000 due to the decline in the amount
of the investment portfolio.  Federal funds, the third major component of the
bank's investments, decreased $54 thousand or 7.1% even though the principal
balance increased.  Again, this decrease is a direct result of declining
interest rates.

                                       12
<PAGE>

Interest Expense
----------------

    Total interest expense for the nine months ending September 30, 2001 was
$6.9 million, $996 thousand or 16.9% higher than the nine months ending
September 30, 2000.  Interest on deposits for the nine-month period increased by
$892 thousand or 15.7% over the same period in 2000.  This was the result of an
overall increase in deposits of 16.9%.  The increase in interest expense was
tempered by the decline in rates paid on deposits throughout the year as the
banks matched the cost of funds with the rates received from loans and
investments.   Interest on short-term borrowings increased by $105 thousand or
54.4% over the same period last year.  Borrowings are generated through an
agreement with the Federal Home Loan Bank.


Net Interest Income
-------------------

    Net interest income for the nine months ending September 30, 2001 was $8.2
million, $694 thousand or 9.2% higher than the nine months ending September 30,
2000. This increase is the result of the combination of the growth in earning
assets of $29.6 million and a decline of 3.50% in the prime rate from 9.50% on
December 31, 2000 to 6.00% as of September 30, 2001.  The combination of growth
and rate changes had the effect of increasing the net interest margin from 4.57%
for the nine months ending September 30, 2000 to 4.83% for the same period of
2001.  Since Premier is liability sensitive for interest bearing balances
repricing or maturing within one year, the immediate impact on the net interest
margin is negative. However, with the corresponding reduction in deposit rates
this negative trend has been mitigated to a certain extent

Other Income
------------

    Total other income for the nine months ending September 30, 2001 was $1.3
million, an increase of $349 thousand or 35.1% over the 2000 balance of $993
thousand. This was the result of fees charged for services such as overdraft
charges, check fees and ATM fees due to an increasing number of customer
accounts derived from a growing customer base. Another factor was a 90.8%
increase in fees derived from the secondary real estate market.

Other Expenses
--------------

      Total other expenses for the nine months ending September 30, 2001 were
$5.5 million, $433 thousand or 8.6% higher than the nine months ending September
30, 2000.  Salary expense increased $389 thousand or 14.7%, stationery, supplies
and printing increased $38 thousand or 25.7%, postage expense increased $30
thousand or 22.9%, and occupancy expenses increased by $44 thousand or 13.4%,
over the same period in 2000.  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
Corporation's efficiency ratio was 57.2% through September 30, 2001 compared to
59.2% for the same period 2000.


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<PAGE>

Net Income
----------

    Net income for the quarter ending September 30, 2001 was $890 thousand
compared to $652 thousand for the same period in 2000. This is an increase of
$238 thousand or 36.5% over the same period 2000. The provision for income tax
expense increased $65 thousand or 17.4% from $374 thousand in 2000 to $439 in
2001. The return on assets was 1.29% for the third quarter of 2001 as compared
to 1.12% for the same period 2000.  Return on equity was 14.01% and 11.33% for
the third quarters of 2001 and 2000, respectively.

    Net income for the nine months ending September 30, 2001 was $2.4 million
compared to $2.0 million for the same period in 2000. This is an increase of
$414 thousand or 20.4% over the same period 2000. The provision for income tax
expense increased $149 thousand from $1.1 million in 2000 to $1.2 in 2001. The
return on assets was 1.27% for the first nine months of 2001 as compared to
1.22% for 2000.  The return on equity was 13.39% up from 12.28% for the first
nine months of 2001 and 2000, respectively.


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.  Short-term
borrowings are available from federal funds facilities at correspondent banks
and from the discount window of the Federal Reserve Bank.  Long-term 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 September 30, 2001 was
$25.4 million, or 11.8% of risk-weighted assets, for Tier I capital and $27.7
million, or 12.9% for total risk based capital. Tier I capital consists
primarily of common shareholders' equity. Total risk-based capital includes the
allowance for loan losses in addition to total shareholders equity. 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%.

                                       14
<PAGE>

                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

         None.

Item 2.  Change in Securities.

         None

Item 3.  Defaults upon Senior Securities.

         None

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

         None

Item 5.  Other Information.

         None

Item 6.  Exhibits and Reports on Form 8-K.
         (a) Exhibits - None

         (b) Reports on Form 8-K - None


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<PAGE>

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.


                                   PREMIER COMMUNITY BANKSHARES, INC.


DATE: November 13, 2001            /s/ John K. Stephens
      -----------------            ----------------------------------
                                   JOHN K. STEPHENS
                                   CHAIRMAN




DATE: November 13, 2001            /s/ Donald L. Unger
      -----------------            -----------------------------------
                                   DONALD L. UNGER
                                   PRESIDENT & CEO


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