##### Table of Contents

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U.S. SECURITIES AND EXCHANGE COMMISSIONWashington,
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, 2002                                         
|                                                                                 
|Commission file number 0-18868                                                   

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

|Virginia                                                       |                     | 54-1560968                          
|-------------------------------------------------------------- | ------------------- | ------------------------------------
|                                                               |                     |                                     
|(State or Other Jurisdiction Of Incorporation or Organization) |                     | (I.R.S. Employer Identification No.)
|                                                               |                     |                                     
|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:
|                                                              
|                                                               | Title of Each Class |                                     
|                                                              
|                                                               |                     |                                     
|                                                               | None                |                                     
|                                                              
|Securities registered under Section 12(g) of the Exchange Act:
|                                                              
|Common Stock, par value $1.00 per share                       
|                                                              
|(Title of Class)                                              
|                                                               |                     |                                     

Check whether the issuer:  (1) 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 | o
|--- | - | -- | -

As of November 7, 2002, there were 4,538,484 shares of
the Registrants common stock outstanding.

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##### Table of Contents

|PART I.  FINANCIAL INFORMATION |                                                                                                                
|------------------------------ | ---------------------------------------------------------------------------------------------------------------
|                               |                                                                                                                
|Item 1.                        | Financial Statements                                                                                           
|                               |                                                                                                                
|                               | The following financial statements are provided at the page numbers indicated.                                 
|                               |                                                                                                                
|                               | Consolidated Balance Sheet as of September 30, 2002 and December 31, 2001                                      
|                               |                                                                                                                
|                               | Consolidated Statements of Income for The Quarters Ended and the Nine Months Ended September 30, 2002 and 2001 
|                               |                                                                                                                
|                               | Consolidated Statement of Changes in Shareholders Equity for the Nine Months Ended September 30, 2002 and 2001
|                               |                                                                                                                
|                               | Consolidated Statements of Cash Flow for the Nine Months Ended September 30, 2002 and 2001                     
|                               |                                                                                                                
|                               | Notes to Consolidated Financial Statements                                                                     
|                               |                                                                                                                
|Item 2.                        | Managements Discussion and Analysis or Plan of Operations                                                     
|                               |                                                                                                                
|Item 3.                        | Controls and Procedures                                                                                        
|                               |                                                                                                                
|Part II.                       | OTHER INFORMATION                                                                                              
|                               |                                                                                                                
|Signatures                     | 17                                                                                                             
|Certifications                 | 18-19                                                                                                          

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##### Table of Contents

PART I. 
FINANCIAL INFORMATION

Item 1.
FINANCIAL STATEMENTS PREMIER COMMUNITY BANKSHARES, INCORPORATEDConsolidated Balance Sheets (In Thousands, Except for Share Data)

|                                                                                                                                                                             |                                              | (Unaudited) September 30, 2002 |         | December 31, 2001 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------ | ------- | ----------------- | -
|                                                                                                                                                                             |                                              |                                |         |                   |  
|Assets:                                                                                                                                                                      |                                              |                                |         |                   |  
|Cash and due from banks                                                                                                                                                      |                                              | $                              | 23,306  |                   | $
|Interest-bearing deposits in other banks                                                                                                                                     |                                              |                                | 64      |                   |  
|Federal funds sold                                                                                                                                                           |                                              |                                | 13,923  |                   |  
|Securities available for sale, at fair value                                                                                                                                 |                                              |                                | 14,154  |                   |  
|Securities held to maturity (fair value: Sept 30, 2002, $10,528  December 31, 2001  $9,838)                                                                                  |                                              |                                | 10,477  |                   |  
|Loans held for sale                                                                                                                                                          |                                              |                                | 0       |                   |  
|Loans, net of allowance for loan losses of $3,069, Sept 30, 2002, $2,459 December 31, 2001                                                                                   |                                              |                                | 297,353 |                   |  
|Bank premises and equipment, net                                                                                                                                             |                                              |                                | 6,518   |                   |  
|Accrued interest receivable                                                                                                                                                  |                                              |                                | 1,663   |                   |  
|Other real estate                                                                                                                                                            |                                              |                                | 0       |                   |  
|Other assets                                                                                                                                                                 |                                              |                                | 2,786   |                   |  
|                                                                                                                                                                             |                                              |                                |         |                   |  
|                                                                                                                                                                             |                                              | $                              | 370,244 |                   | $
|                                                                                                                                                                             |                                              |                                |         |                   |  
|Liabilities and Shareholders Equity:                                                                                                                                        |                                              |                                |         |                   |  
|Liabilities:                                                                                                                                                                 |                                              |                                |         |                   |  
|                                                                                                                                                                             | Deposits:                                    |                                |         |                   |  
|                                                                                                                                                                             | Non-interest bearing demand deposits         |                                | $       | 46,637            |  
|                                                                                                                                                                             | Savings and interest-bearing demand deposits |                                |         | 95,478            |  
|                                                                                                                                                                             | Time deposits                                |                                |         | 182,784           |  
|                                                                                                                                                                             |                                              |                                |         |                   |  
|                                                                                                                                                                             | Total deposits                               |                                |         | 324,899           |  
|Federal Home Loan Bank advances                                                                                                                                              |                                              |                                | 7,000   |                   |  
|Short-term borrowings                                                                                                                                                        |                                              |                                | 512     |                   |  
|Accounts payable and accrued expenses                                                                                                                                        |                                              |                                | 1,457   |                   |  
|Capital lease payable                                                                                                                                                        |                                              |                                | 198     |                   |  
|Trust Preferred Capital Notes                                                                                                                                                |                                              |                                | 7,000   |                   |  
|                                                                                                                                                                             |                                              |                                |         |                   |  
|                                                                                                                                                                             |                                              | $                              | 341,066 |                   | $
|                                                                                                                                                                             |                                              |                                |         |                   |  
|Shareholders Equity:                                                                                                                                                        |                                              |                                |         |                   |  
|Preferred stock, Series A, 5% noncumulative, no par  value; 1,000,000 shares authorized and unissued                                                                         |                                              | $                              | 0       |                   | $
|Common stock, $1 par value, 20,000,000 shares authorized  Sept 30, 2002, 4,538,484 shares issued and outstanding; December 31, 2001, 4,527,484
shares issued and outstanding |                                              |                                | 4,538   |                   |  
|Capital surplus                                                                                                                                                              |                                              |                                | 14,857  |                   |  
|Retained earnings                                                                                                                                                            |                                              |                                | 9,515   |                   |  
|Accumulated other comprehensive income                                                                                                                                       |                                              |                                | 268     |                   |  
|                                                                                                                                                                             |                                              |                                |         |                   |  
|                                                                                                                                                                             | Total shareholders equity                   |                                |         | 29,178            |  
|                                                                                                                                                                             |                                              | $                              | 370,244 |                   | $
|                                                                                                                                                                             |                                              |                                |         |                   |  
|                                                                                                                                                                             |                                              |                                |         |                   |  

See Accompanying Notes to Consolidated Financial Statements

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PREMIER COMMUNITY BANKSHARES, INCORPORATEDConsolidated Statements of Income (In Thousands, Except for Share Data)

|                              |                                                          | (Unaudited)                         |     | (Unaudited)                             | 
|----------------------------- | -------------------------------------------------------- | ----------------------------------- | --- | --------------------------------------- | 
|                              |                                                          | For the Quarter Ended September 30, |     | For the Nine Months Ended September 30, | 
|                              |                                                          |                                     |     |                                         | 
|                              |                                                          | 2002                                |     | 2001                                    | 
|                              |                                                          |                                     |     |                                         | 
|Interest and dividend income: |                                                          |                                     |     |                                         | 
|                              | Interest and fees on loans                               |                                     | $   | 5,638                                   | 
|                              | Interest on investment securities                        |                                     |     |                                         | 
|                              | Nontaxable                                               |                                     |     | 56                                      | 
|                              | Taxable                                                  |                                     |     | 73                                      | 
|                              | Interest and dividends on securities available for sale: |                                     |     |                                         | 
|                              | Nontaxable                                               |                                     |     | 29                                      | 
|                              | Taxable                                                  |                                     |     | 137                                     | 
|                              | Dividends                                                |                                     |     | 14                                      | 
|                              | Interest on deposits in banks                            |                                     |     | 7                                       | 
|                              | Interest on federal funds sold                           |                                     |     | 51                                      | 
|                              |                                                          |                                     |     |                                         | 
|                              | Total interest and dividend income                       |                                     | $   | 6,005                                   | 
|                              |                                                          |                                     |     |                                         | 
|Interest expense:             |                                                          |                                     |     |                                         | 
|                              | Interest on deposits                                     |                                     | $   | 1,969                                   | 
|                              | Interest on capital lease obligations                    |                                     |     | 4                                       | 
|                              | Interest on short-term borrowings                        |                                     |     | 171                                     | 
|                              |                                                          |                                     |     |                                         | 
|                              | Total interest expense                                   |                                     | $   | 2,144                                   | 
|                              |                                                          |                                     |     |                                         | 
|                              | Net interest income                                      |                                     | $   | 3,861                                   | 
|Provision for loan losses     |                                                          |                                     | 385 |                                         | 
|                              |                                                          |                                     |     |                                         | 
|                              | Net interest income after provision for loan losses      |                                     | $   | 3,476                                   | 
|                              |                                                          |                                     |     |                                         | 
|Noninterest income            |                                                          |                                     |     |                                         | 
|                              | Service charges on deposit accounts                      |                                     | $   | 397                                     | 
|                              | Commissions and fees                                     |                                     |     | 171                                     | 
|                              | Other                                                    |                                     |     | 90                                      | 
|                              |                                                          |                                     |     |                                         | 
|                              | Total noninterest income                                 |                                     | $   | 658                                     | 
|                              |                                                          |                                     |     |                                         | 
|Noninterest expense           |                                                          |                                     |     |                                         | 
|                              | Salaries and employee benefits                           |                                     | $   | 1,327                                   | 
|                              | Net occupancy expense of premises                        |                                     |     | 143                                     | 
|                              | Furniture and equipment                                  |                                     |     | 154                                     | 
|                              | Other                                                    |                                     |     | 809                                     | 
|                              |                                                          |                                     |     |                                         | 
|                              | Total noninterest expenses                               |                                     | $   | 2,433                                   | 
|                              |                                                          |                                     |     |                                         | 
|                              | Income before income taxes                               |                                     | $   | 1,701                                   | 
|Provision for income taxes    |                                                          |                                     | 554 |                                         | 
|                              |                                                          |                                     |     |                                         | 
|                              | Net income                                               |                                     | $   | 1,147                                   | 
|                              |                                                          |                                     |     |                                         | 
|Average shares:               |                                                          |                                     |     |                                         | 
|                              | Basic                                                    |                                     |     | 4,536,506                               | 
|                              | Assuming dilution                                        |                                     |     | 4,700,779                               | 
|Earnings per common share:    |                                                          |                                     |     |                                         | 
|                              | Basic                                                    |                                     |     | 0.25                                    | 
|                              | Assuming dilution                                        |                                     |     | 0.24                                    | 
|                              |                                                          |                                     |     |                                         | 

See Accompanying Notes to Consolidated Financial Statements

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PREMIER COMMUNITY BANKSHARES, INCORPORATEDConsolidated Statement of Changes in Shareholders Equity For the Nine Months Ended September 30, 2002 and 2001 (In Thousands) (Unaudited)

|                                                                |                                                                                                | Common Stock |       | Capital Surplus |   | Retained Earnings |   | Accumulated Other Comprehensive Income |       | Comprehensive Income |   | Total Shareholders Equity |    
|--------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------ | ----- | --------------- | - | ----------------- | - | -------------------------------------- | ----- | -------------------- | - | -------------------------- | ---
|                                                                |                                                                                                |              |       |                 |   |                   |   |                                        |       |                      |   |                            |    
|Balance December 31, 2000                                       |                                                                                                | $            | 4,547 |                 | $ | 15,118            |   | $                                      | 3,634 |                      | $ | 9                          |    
|Comprehensive Income                                            |                                                                                                |              |       |                 |   |                   |   |                                        |       |                      |   |                            |    
|                                                                | Net income                                                                                     |              |       |                 |   |                   |   |                                        |       | 2,446                |   |                            |    
|                                                                | Other Comprehensive Income, unrealized gain on available for sale securities (net of tax $135) |              |       |                 |   |                   |   |                                        |       |                      |   |                            | 153
|                                                                |                                                                                                |              |       |                 |   |                   |   |                                        |       |                      |   |                            |    
|                                                                | Total comprehensive income                                                                     |              |       |                 |   |                   |   |                                        |       |                      |   |                            |    
|                                                                |                                                                                                |              |       |                 |   |                   |   |                                        |       |                      |   |                            |    
|Repurchase of Common Stock (114,669 shs)                        |                                                                                                |              | (114  | )               |   | (525              | ) |                                        |       |                      |   |                            |    
|Issuance of Common Stock-exercise of stock options (92,458 shs) |                                                                                                |              | 92    |                 |   | 203               |   |                                        |       |                      |   |                            |    
|                                                                |                                                                                                |              |       |                 |   |                   |   |                                        |       |                      |   |                            |    
|Balances - September 30, 2001                                   |                                                                                                | $            | 4,525 |                 | $ | 14,796            |   | $                                      | 6,080 |                      | $ | 162                        |    
|                                                                |                                                                                                |              |       |                 |   |                   |   |                                        |       |                      |   |                            |    
|                                                                |                                                                                                |              |       |                 |   |                   |   |                                        |       |                      |   |                            |    

|                                                                   |                                                                                                    | Common Stock |       | Capital Surplus |   | Retained Earnings |  | Accumulated Other Comprehensive Income |       | Comprehensive Income |   | Total Shareholders Equity |    
|------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------- | ------------ | ----- | --------------- | - | ----------------- |  | -------------------------------------- | ----- | -------------------- | - | -------------------------- | ---
|                                                                   |                                                                                                    |              |       |                 |   |                   |  |                                        |       |                      |   |                            |    
|Balance December 31, 2001                                          |                                                                                                    | $            | 4,527 |                 | $ | 14,808            |  | $                                      | 6,342 |                      | $ | 68                         |    
|Comprehensive Income                                               |                                                                                                    |              |       |                 |   |                   |  |                                        |       |                      |   |                            |    
|                                                                   | Net income                                                                                         |              |       |                 |   |                   |  |                                        |       | 3,173                |   |                            |    
|                                                                   | Other Comprehensive Income, unrealized gain gain on available for sale securities (net of tax $38) |              |       |                 |   |                   |  |                                        |       |                      |   |                            | 200
|                                                                   |                                                                                                    |              |       |                 |   |                   |  |                                        |       |                      |   |                            |    
|                                                                   | Total comprehensive income                                                                         |              |       |                 |   |                   |  |                                        |       |                      |   |                            |    
|                                                                   |                                                                                                    |              |       |                 |   |                   |  |                                        |       |                      |   |                            |    
|Issuance of common stock-exercise of stock options (11,000 shares) |                                                                                                    |              | 11    |                 |   | 49                |  |                                        |       |                      |   |                            |    
|                                                                   |                                                                                                    |              |       |                 |   |                   |  |                                        |       |                      |   |                            |    
|Balances - September 30, 2002                                      |                                                                                                    | $            | 4,538 |                 | $ | 14,857            |  | $                                      | 9,515 |                      | $ | 268                        |    
|                                                                   |                                                                                                    |              |       |                 |   |                   |  |                                        |       |                      |   |                            |    
|                                                                   |                                                                                                    |              |       |                 |   |                   |  |                                        |       |                      |   |                            |    

See Accompanying Notes to Consolidated Financial Statements

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PREMIER COMMUNITY BANKSHARESConsolidated Statements of Cash Flows For the Nine Months Ended September 30, 2002 and 2001 (In Thousands) (Unaudited)

|                                                                                        |                                                   | 2002 |         | 2001   |  
|--------------------------------------------------------------------------------------- | ------------------------------------------------- | ---- | ------- | ------ | -
|                                                                                        |                                                   |      |         |        |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                    |                                                   |      |         |        |  
|Net income                                                                              |                                                   | $    | 3,173   |        | $
|Adjustments to reconcile net income to net cash provided by operating activities:       |                                                   |      |         |        |  
|                                                                                        | Amortization                                      |      |         | 23     |  
|                                                                                        | Depreciation                                      |      |         | 290    |  
|                                                                                        | Net amortization and (accretion) on securities    |      |         | 40     |  
|                                                                                        | Provision for loan loss                           |      |         | 805    |  
|                                                                                        | Origination of loans available for sale           |      |         | (4,624 | )
|                                                                                        | Proceeds from sale of loans available for sale    |      |         | 5,095  |  
|                                                                                        | Changes in assets and liabilities:                |      |         |        |  
|                                                                                        | (Increase) in other assets                        |      |         | (836   | )
|                                                                                        | (Increase) in accrued interest receivable         |      |         | (264   | )
|                                                                                        | Increase in accounts payable and accrued expenses |      |         | 94     |  
|                                                                                        | Increase in interest expense payable              |      |         | 184    |  
|                                                                                        |                                                   |      |         |        |  
|Net cash provided by operating activities                                               |                                                   | $    | 3,980   |        |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                    |                                                   |      |         |        |  
|Proceeds from maturities, calls and principal payments on securities held to maturity   |                                                   | $    | 1,540   |        | $
|Proceeds from maturities, calls and principal payments on securities available for sale |                                                   |      | 4,805   |        |  
|Purchase of securities available for sale                                               |                                                   |      | (7,070  | )      |  
|Purchase of securities held to maturity                                                 |                                                   |      | (2,274  | )      |  
|Net (increase) in loans                                                                 |                                                   |      | (68,857 | )      |  
|Purchase of bank premises and equipment                                                 |                                                   |      | (1,421  | )      |  
|                                                                                        |                                                   |      |         |        |  
|Net cash used in investing activities                                                   |                                                   | $    | (73,277 | )      | $
|                                                                                        |                                                   |      |         |        |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                    |                                                   |      |         |        |  
|Net increase in demand and interest bearing deposits                                    |                                                   | $    | 27,436  |        | $
|Net increase in certificates of deposits                                                |                                                   |      | 39,825  |        |  
|Net (decrease) in borrowings                                                            |                                                   |      | (47     | )      |  
|Principal payments on capital lease obligation                                          |                                                   |      | (5      | )      |  
|Cash dividends paid                                                                     |                                                   |      | (543    | )      |  
|Proceeds from issuance (repurchase) of common stock                                     |                                                   |      | 60      |        |  
|                                                                                        |                                                   |      |         |        |  
|Net cash provided by financing activities                                               |                                                   | $    | 66,726  |        | $
|                                                                                        |                                                   |      |         |        |  
|Increase (decrease) in cash and cash equivalents                                        |                                                   | $    | (2,571  | )      | $
|Beginning                                                                               |                                                   |      | 39,865  |        |  
|                                                                                        |                                                   |      |         |        |  
|Ending                                                                                  |                                                   | $    | 37,294  |        | $
|                                                                                        |                                                   |      |         |        |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                       |                                                   |      |         |        |  
|Cash payments for:                                                                      |                                                   |      |         |        |  
|                                                                                        | Interest                                          |      | $       | 6,522  |  
|                                                                                        |                                                   |      |         |        |  
|                                                                                        | Income taxes                                      |      | $       | 1,785  |  
|                                                                                        |                                                   |      |         |        |  
|Unrealized gain on securities available for sale                                        |                                                   | $    | 238     |        | $
|                                                                                        |                                                   |      |         |        |  
|                                                                                        |                                                   |      |         |        |  

See Accompanying Notes to Consolidated Financial Statements

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PREMIER COMMUNITY BANKSHARES, INC.

Notes to Consolidated Financial Statements (Unaudited)

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, Inc. (Premier or the Corporation) for the periods ending September 30, 2002 and December 31, 2001, and the results of operations and cash
flows for the nine months ended September 30, 2002 and 2001.  The statements should be read in conjunction with the Notes to Financial Statements included in Premiers Annual Report on Form 10-KSB for the year ended December 31,
2001.

Note 2.

The results of operations for the nine month period ended September 30,
2002 and 2001 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, 2002 are summarized as follows (in thousands):

|                                                |  | Amortized Cost     |        | Gross Unrealized Gains |   | Gross Unrealized (Losses) |  | Fair Value |     
|----------------------------------------------- |  | ------------------ | ------ | ---------------------- | - | ------------------------- |  | ---------- | ----
|                                                |  |                    |        |                        |   |                           |  |            |     
|                                                |  | September 30, 2002 |       
|                                                |  |                    |       
|U.S. Government and federal agencies            |  | $                  | 3,048  |                        | $ | 67                        |  | $          | 0   
|Obligations of state and political subdivisions |  |                    | 4,610  |                        |   | 153                       |  |            | (106
|Corporate bonds                                 |  |                    | 0      |                        |   | 0                         |  |            | 0   
|Mortgage-backed securities                      |  |                    | 59     |                        |   | 2                         |  |            | 0   
|Other                                           |  |                    | 2,760  |                        |   | 17                        |  |            | (82 
|                                                |  |                    |        |                        |   |                           |  |            |     
|                                                |  | $                  | 10,477 |                        | $ | 239                       |  | $          | (188
|                                                |  |                    |        |                        |   |                           |  |            |     

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Securities available for sale as of September 30, 2002 are summarized as
follows (in thousands):

|                                                |  | Amortized Cost     |        | Gross Unrealized Gains |   | Gross Unrealized (Losses) |  | Fair Value |  
|----------------------------------------------- |  | ------------------ | ------ | ---------------------- | - | ------------------------- |  | ---------- | -
|                                                |  |                    |        |                        |   |                           |  |            |  
|                                                |  | September 30, 2002 |       
|                                                |  |                    |       
|U.S. Government and federal agencies            |  | $                  | 7,828  |                        | $ | 200                       |  | $          | 0
|Obligations of state and political subdivisions |  |                    | 2,632  |                        |   | 109                       |  |            | 0
|Corporate bonds                                 |  |                    | 0      |                        |   | 0                         |  |            | 0
|Mortgage-backed securities                      |  |                    | 1,588  |                        |   | 49                        |  |            | 0
|Other                                           |  |                    | 1,700  |                        |   | 48                        |  |            | 0
|                                                |  |                    |        |                        |   |                           |  |            |  
|                                                |  | $                  | 13,748 |                        | $ | 406                       |  | $          | 0
|                                                |  |                    |        |                        |   |                           |  |            |  

Note 4. Loans.

The consolidated loan portfolio is composed of the following:

|                                                           |                                   | September 30 2002 |         | December 31, 2001 |  
|---------------------------------------------------------- | --------------------------------- | ----------------- | ------- | ----------------- | -
|                                                           |                                   |                   |         |                   |  
|                                                           |                                   | (000 Omitted)     |        
|                                                           |                                   |                   |        
|Loans secured by real estate:                              |                                   |                   |         |                   |  
|                                                           | Construction and land development |                   |         | 34,528            |  
|                                                           | Secured by farmland               |                   |         | 2,694             |  
|                                                           | Secured by 1-4 family residential |                   |         | 65,412            |  
|                                                           | Multi-family residential          |                   |         | 6,153             |  
|                                                           | Nonfarm, nonresidential           |                   |         | 117,258           |  
|Loans to farmers (except those secured by real estate)     |                                   |                   | 7       |                   |  
|Commercial loans (except those secured by real estate)     |                                   |                   | 53,663  |                   |  
|Loans to individuals (except those secured by real estate) |                                   |                   | 19,810  |                   |  
|All other loans                                            |                                   |                   | 900     |                   |  
|                                                           |                                   |                   |         |                   |  
|Total loans                                                |                                   | $                 | 300,425 |                   | $
|Less:                                                      | Unearned income                   |                   |         | 3                 |  
|                                                           | Allowance for loan losses         |                   |         | 3,069             |  
|                                                           |                                   |                   |         |                   |  
|Loans, net                                                 |                                   | $                 | 297,353 |                   | $
|                                                           |                                   |                   |         |                   |  
|                                                           |                                   |                   |         |                   |  

Impaired loans totaled $525 and $190 thousand at September 30, 2002 and December 31, 2001, respectively. Non-accrual loans excluded from impaired loans disclosure under FASB 114
amounted to $75 thousand and $21 thousand at September 30, 2002 and December 31, 2001, respectively.

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Note 5.   Reserve for Loan Losses.

The Corporation maintains the
allowance for loan losses at a sufficient level to provide for potential losses in the loan portfolio.  Loan losses are charged directly to the allowance when they occur, while recoveries are credited to the allowance.  The adequacy of the
provision for loan losses is reviewed periodically by management through consideration of several factors including changes in the character and size of the loan portfolio and related loan experience, a review and examination of overall loan quality
which includes the assessment of problem loans and an analysis of anticipated economic condition in the market area.  An analysis of the allowance for loan loss, including charge-off activity, is presented below for the nine months ended
September 30, 2002 and 2001.

|                                       |                            | September 30, |      
|-------------------------------------- | -------------------------- | ------------- | -----
|                                       |                            |               |      
|(In thousands)                         |                            | 2002          |      
|                                       |                            |               |      
|Balance, beginning of period           |                            | $             | 2,459
|Less Charge-offs:                     |                            |               |      
|                                       | Commercial                 |               |      
|                                       | Real estate-mortgage       |               |      
|                                       | Real estate-construction   |               |      
|                                       | Consumer installment loans |               |      
|                                       |                            |               |      
|                                       | Total                      |               | $    
|Plus Recoveries:                       |                            |               |      
|                                       | Commercial                 |               | $    
|                                       | Real estate-mortgage       |               |      
|                                       | Real estate-construction   |               |      
|                                       | Consumer installment loans |               |      
|                                       |                            |               |      
|                                       | Total                      |               | $    
|Additions charged to operating expense |                            | $             | 805  
|Balance, end of period                 |                            | $             | 3,069
|                                       |                            |               |      
|                                       |                            |               |      

The following is a summary of information pertaining to risk elements and impaired loans for the periods ended September 30, 2002 and December 31, 2001.

|                                                           |  | September 30, 2002 |     | December 31, 2001 |  
|---------------------------------------------------------- |  | ------------------ | --- | ----------------- | -
|                                                           |  |                    |     |                   |  
|Non-accrual loans                                          |  | $                  | 600 |                   | $
|Loans past due 90 days or more and still accruing interest |  |                    | 62  |                   |  
|Restructured loans                                         |  |                    | 0   |                   |  
|                                                           |  |                    |     |                   |  
|                                                           |  | $                  | 662 |                   | $
|                                                           |  |                    |     |                   |  

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The decrease in the 90 day category is the result of the payoff of two loans totaling in excess of $650 thousand and several other
loans being made current during the first nine months of 2002.

The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the credit is
well-secured and in process of collection.  Loans are placed on non-accrual at an earlier date or charged off if collection of principal or interest is considered doubtful.

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

Note
6.   Earnings Per Share

|                               |  | September 30, 2002 |           | September 30 2001 |  
|------------------------------ |  | ------------------ | --------- | ----------------- | -
|                               |  |                    |           |                   |  
|                               |  | Shares             |           | Amount            |  
|                               |  |                    |           |                   |  
|Basic earnings per share       |  |                    | 4,534,579 |                   | $
|Effect of dilutive securities: |  |                    |           |                   |  
|Stock options                  |  |                    | 94,454    |                   |  
|Diluted earnings per share     |  |                    | 4,629,033 |                   | $

Stock options representing 55,000 shares were not included in computing diluted EPS for September
30, 2002, because their effects were anti-dilutive.

Note 7.    Recent Accounting Pronouncements

In April 2002, the Financial Accounting Standards Board issued Statement 145, Recission of FASB No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections. This Statement rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, FASB Statement No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements. This Statement also rescinds FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers. This Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency
between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of this Statement related to the rescission of Statement 4 shall be applied in fiscal
years beginning after May 15, 2002. The provisions of this Statement related to Statement 13 are effective for transactions occurring after May 15, 2002, with early application encouraged.

In June 2002, the Financial Accounting Standards Board issued Statement 146, Accounting for Costs Associated with Exit or Disposal
Activities. This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31 2002, with early application encouraged.

The Financial Accounting Standards Board issued Statement No. 147, Acquisitions of Certain Financial Institutions, an Amendment of FASB
Statements No. 72 and 144 and FASB Interpretation No. 9 in October 2002. FASB Statement No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, and FASB Interpretation No. 9, Applying APB Opinions No. 16 and 17
When a Savings and Loan Association or a Similar Institution Is Acquired in a Business Combination Accounted for by the Purchase Method, provided interpretive guidance on the application of the purchase method to acquisitions of financial
institutions. Except for transactions between two or more mutual enterprises, this Statement removes acquisitions of financial institutions from the scope of both Statement 72 and Interpretation 9 and requires that those transactions be accounted
for in accordance with FASB Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. Thus, the requirement in paragraph 5 of Statement 72 to recognize (and subsequently amortize) any excess of the
fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset no longer applies to acquisitions with the scope of this Statement. In addition, this Statement
amends FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship
assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that Statement 144 requires for other
long-lived assets that are held and used.

Paragraph 5 of this Statement, which relates to the application of the purchase method of
accounting, is effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The provisions in paragraph 6 related to accounting for the impairment or disposal of certain long-term customer-relationship intangible
assets are effective on October 1, 2002. Transition provisions for previously recognized unidentifiable intangible assets in paragraphs 8-14 are effective on October 1, 2002, with earlier application permitted.

This Statement clarifies that a branch acquisition that meets the definition of a business should be accounted for as a business combination, otherwise the
transaction should be accounted for as an acquisition of net assets that does not result in the recognition of goodwill.

The transition
provisions state that if the transaction that gave rise to the unidentifiable intangible asset was a business combination, the carrying amount of that asset shall be reclassified to goodwill as of the later of the date of acquisition or the date
Statement 142 was first applied (fiscal years beginning after December 15, 2001). Any previously issued interim statements that reflect amortization of the unidentifiable intangible asset subsequent to the Statement 142 application date shall be
restated to remove that amortization expense. The carrying amounts of any recognized intangible assets that meet the recognition criteria of Statement 141 that have been included in the amount reported as an unidentifiable intangible asset and for
which separate accounting records have been maintained shall be reclassified and accounted for as assets apart from the unidentifiable intangible asset and shall not be reclassified to goodwill.

The Corporation is currently in the process of evaluating the impact, if any, arising from the adoption of Statement 147.

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##### Table of Contents

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 financial services, travelers checks, safe deposit boxes, collection, notary public and other customary bank services (with the exception of trust services) to its customers.  The
three principal types of loans made by Premier are: (1) commercial and industrial loans; (2) real estate loans; and (3) loans to individuals for household, family and other consumer expenditures.

Critical Accounting Policies

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

Premiers allowance for loan losses is determined by evaluating its loan portfolio on a quarterly basis.  Particular
attention is paid to individual loan performance, collateral values, borrower financial condition and overall economic conditions.  The evaluation includes a close review of the internal watch list and other non-performing loans. 
Management uses three steps in calculating the balance of the reserve.  The first step is the specific classification which examines problem loans and applies a weight factor to each category.  The weight factor is based upon historical
data and the loans within each category are reviewed on a monthly basis to determine changes in their status.  The second step applies a predetermined rate against total loans with unspecified reserves.  Again, this rate is based upon
experience and can change over time.  The third step is an unallocated allowance which is determined by economic events and conditions that may have a real, but as yet undetermined, impact upon the portfolio.  Each of these steps is based
on data that can be subjective and the actual losses may be greater or less than the amount of the allowance.  However, management feels that the allowance represents a reasonable assessment of the risk imbedded in the portfolio.

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Net Income

Net
income for the quarter ending September 30, 2002 was $1.1 million compared to $890 thousand for the same period in 2001. This is an increase of $257 thousand or 28.9% over the same period 2001. The provision for income tax expense increased $115
thousand from $439 thousand in 2001 to $554 thousand in 2002. The annualized return on assets was 1.27% for the third quarter of 2002 as compared to 1.29% for the same period 2001.  Annualized return on equity was 15.83% and 14.01% for the
third quarters of 2002 and 2001, respectively.

Net income for the nine months ending September 30, 2002 was $3.2 million compared to $2.4
million for the same period in 2001. This is an increase of $727 thousand or 29.7% over the same period 2001. The provision for income tax expense increased $323 thousand from $1.2 million in 2001 to $1.5 million in 2002. The annualized return on
assets was 1.28% for the first nine months of 2002 as compared to 1.27% for the same period 2001.  For the first nine months of 2002 the annualized return on equity was 15.51% up from 13.39% for 2001.

Total Assets

Total assets of Premier increased to $370.2 million at September 30, 2002 compared to $299.9
million at December 31, 2001 representing an increase of $70.3 million or 23.5%.  Total loans at September 30, 2002, were $300.4 million of which $226.0 million were loans secured by real estate.  The remaining loans consisted of $53.7
million in commercial loans, $19.7 million in consumer installment loans and $1 million in all other loans.  Net loans at September 30, 2002, were $297.4 million, an increase of $68.1 million or 29.7% from the December 31, 2001 balance of
$229.3 million.  The loan to deposit ratio was 92.5% as of September 30, 2002 and 90.0% as of December 31, 2001.  Steady loan demand in an expanding market generated the loan growth experienced for the first nine months of 2002.

The investment portfolio increased 15.1% to $24.7 million at September 30, 2002 compared to $21.4 million at December 31, 2001. 
Federal funds sold decreased $8.3 million to $13.9 million at September 30, 2002 compared to $22.2 million at December 31, 2001.  The decline in federal funds sold was used to fund the net shortfall between loans and deposits during the first
nine months of 2002.  Total interest earning assets increased $63.1 million or 22.9% from December 31, 2001 to September 30, 2002.  This increase was primarily the result of the increase in outstanding loan balances.

Allowance for Loan Losses

The allowance for loan losses, as of September 30, 2002, was $3.1 million.
This is an increase of $610 thousand or 24.8% from December 31, 2001.  This gives the Corporation a 1.02% 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 $324.9 million at September 30,
2002, from a balance of $257.6 million at December 31, 2001, which is an increase of $67.3 million or 26.1%.  Non-interest bearing deposits have increased to $46.6 million as of September 30, 2002, an increase of $9.9 million or 26.9% from
December 31, 2001.  During this period interest bearing checking and savings accounts increased $17.6 million or 22.5% to $95.5 million.  The balance in time deposits was $182.8 million at the end of the third quarter reflecting an
increase of $39.8 million or 27.9% over the end of the year.  As of September 30, 2002 non-interest bearing deposits represented 14.4% of total deposits as

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##### Table of Contents

compared to 14.3% at year-end 2001.  Low cost interest bearing deposits including savings and interest bearing checking were
29.4% of total deposits, a decrease of eight basis points from the 30.2% at December 31, 2001. Time deposits represented 56.3% of total deposits at September 30, 2002, an increase from 55.5% at year-end.  The increase in time deposits is the
result of Premiers ability to offer competitive rates in its market area.

Shareholders Equity

Total equity has increased by $3.4 million or 13.3% since December 31, 2001.  The increase was due to a $3.2 million net profit for the first nine months plus
exercised stock options of $60 thousand and an increase of $201 thousand in accumulated other comprehensive income.  The primary capital to assets ratio is 7.9%.

Interest
Income

Interest income totaled $16.9 million for the nine months ending September 30, 2002, $1.7 million or
11.4% higher than the nine months ending September 30, 2001.  Interest and fees on loans of $15.7 million comprise the vast majority of interest income. Interest income from investment securities was $931 thousand for the first nine month of
2002, basically unchanged from the same period 2001.  Interest income on federal funds, the third major component of the banks investments, decreased $487 thousand or 69.3%.  The decline in interest earned on federal funds balance
was the result of lower interest rates and decreased fed funds balances, as those funds were converted to meet loan demand.

Interest Expense

Total interest expense for the nine months ending September 30, 2002 was $6.3 million, $644 thousand or 9.3% lower than the nine months ending September 31,
2001.  Interest on deposits for the nine month period decreased by $843 thousand or 12.8% over the same period in 2001.  The impact of declining interest rates from September 2001 through September 2002 more than offset the additional
expense generated by an increase of $67.3 million in total deposits during the same period.  Interest on borrowings increased by $200 thousand or 67.2% over the same period last year. This increase was primarily the result of the issuance of
$7.0 million in Trust Preferred Securities in December 2001. Borrowings were also obtained from the Federal Home Loan Bank.

Net Interest
Income

Net interest income for the nine months ending September 30, 2002 was $10.6
million, $2.4 million or 28.8% higher than the nine months ending September 30, 2001. This increase is the result of the growth in earning assets of $79.6 million from September 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, 2001 to 4.62% for the same period of 2002.  Premier is liability sensitive for interest bearing balances repricing or maturing within one year.

Other Income

Total other income for the nine months ending September 30, 2002 was $1.7
million, an increase of $392 thousand or 29.2% over the 2001 balance of $1.3 million.

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##### Table of Contents

This was the result of service charges and fees for overdraft charges, check fees and ATM fees due to an increasing number of
customer accounts.

Other Expenses

Total other expenses for the nine months
ending September 30, 2002 were $6.8 million, $1.3 million or 24.0% higher than the nine months ending September 30, 2001.  Salary expense increased $686 thousand or 22.5%, and advertising and marketing expenses increased by $147 thousand over
the same period in 2001.  Advertising and marketing expenses were impacted by the publicity for a new branch opened by The Marathon Bank in downtown Winchester, Virginia in May 2002, as well as a campaign to increase market share due to the
change in the local banking environment. The net increase in other expenses is in part a result of additional staffing to handle the growth of the bank and the costs involved in processing an increasing number of accounts and transactions. The
Marathon Bank also incurred additional salary and occupancy expenses related to the opening of the new branch.  The Corporations efficiency ratio was 54.8% through September 30, 2002 compared to 57.2% for the same period 2001.

Liquidity

Premiers liquidity requirements are measured by the need to meet deposit
withdrawals, fund loans, meet reserve requirements and maintain cash levels necessary for daily operations. To meet liquidity requirements, Premier maintains cash reserves and has an adequate flow of funds from maturing loans, securities, and
short-term investments. In addition, Premiers affiliate banks have the ability to borrow additional funds from various sources.  Short-term borrowings are available from federal funds facilities at correspondent banks and from the
discount window of the Federal Reserve Bank.  Borrowings are available from the Federal Home Loan Bank. The Corporation considers its sources of liquidity to be ample to meet its estimated needs.

Capital Resources

The Corporations risk-based capital position at September 30, 2002 was $35.9 million,
or 12.02% of risk-weighted assets, for Tier I capital and $39.0 million, or 13.04% for total risk based capital. Tier I capital consists primarily of common shareholders equity and Trust Preferred Capital Notes. Total risk-based capital
includes the allowance for loan losses in addition to Tier 1 Capital. Risk-weighted assets are determined by assigning various levels of risk to different categories of assets and off-balance sheet items. Under current risk-based capital standards,
all banks are required to have Tier I capital of at least 4% and a total capital ratio of 8%.  The Corporations issuance of $7.0 million in Trust Preferred Capital Notes in the fourth quarter of 2001 is included in the Tier 1 capital
base, and will serve as a long-term source of funding.

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##### Table of Contents

Item 3.  
CONTROLS AND PROCEDURES

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

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##### Table of Contents

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) Exhibit No.                                     
|        |                                                      | 99.1 Statement of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
|        |                                                     
|        | (b) Reports on Form 8-K - None                      
|        |                                                      |                                                                                                         

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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 14, 2002 | /s/ JOHN K. STEPHENS                               
|                          |                                                    
|                          | JOHN K. STEPHENS CHAIRMAN                          
|                          |                                                    
|                          |                                                    
|DATE:   November 14, 2002 | /s/ DONALD L. UNGER                                
|                          |                                                    
|                          | DONALD L. UNGER PRESIDENT & CHIEF EXECUTIVE OFFICER
|                          |                                                    
|                          |                                                    
|DATE:   November 14, 2002 | /s/ FREDERICK A. BOARD                             
|                          |                                                    
|                          | FREDERICK A. BOARD CHIEF FINANCIAL OFFICER         
|                          |                                                    

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CERTIFICATIONS

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|Date:  November 14, 2002 | /s/ DONALD L. UNGER                                  | 
|------------------------ | ---------------------------------------------------- | 
|                         |                                                      | 
|                         | Donald L. Unger, President & Chief Executive Officer | 
|                         |                                                      | 

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CERTIFICATIONS

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|Date:  November 14, 2002 | /s/ FREDERICK A. BOARD                                             | 
|------------------------ | ------------------------------------------------------------------ | 
|                         |                                                                    | 
|                         | Frederick A. Board Senior Vice President & Chief Financial Officer | 
|                         |                                                                    | 

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EXHIBIT INDEX

Exhibit No.

99.1          Statement of Chief Executive Officer and Chief Financial Officer Pursuant  to 18 U.S.C. Section 1350

20