<PAGE>

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

                                   FORM 10-QSB

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

                  For the Quarterly Period Ended June 30, 2001

                        Commission File Number: 33-77568


                          VALLEY FINANCIAL CORPORATION


         VIRGINIA                                       54-1702380
(State of Incorporation)                             (I.R.S. Employer
                                                   Identification Number)


                             36 Church Avenue, S.W.
                             Roanoke, Virginia 24011
                    (Address of principal executive offices)

                                 (540) 342-2265
                (Issuer's telephone number, including area code)

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X   No
         ---    ---

At July 31, 2001, 1,213,207 shares of the issuer's common stock, no par value,
were outstanding.

Transitional small business disclosure format:  Yes      No  x  .
                                                   ----    -----
<PAGE>

                          VALLEY FINANCIAL CORPORATION
                                   FORM 10-QSB
                                  June 30, 2001

                                      INDEX


Part I.  FINANCIAL INFORMATION

         Item 1.  Financial Statements

                           Consolidated Balance Sheets                         3
                           Consolidated Statements of Income                   4
                           Consolidated Statements of Cash Flows               6
                           Notes to Consolidated Financial Statements          7

         Item 2.  Management's Discussion and Analysis                        10


Part II.  OTHER INFORMATION

         Item 4.  Submission of Matters to a Vote of Security Holders         22

         Item 5.  Other Information                                           23

         Item 6.  Exhibits and Reports on Form 8-K                            23


SIGNATURES                                                                    24

                                       2
<PAGE>

                         PART 1 - FINANCIAL INFORMATION

Item 1.  Financial Statements.

                          VALLEY FINANCIAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                (Unaudited)
                                                                                  June 30        December 31
                                                                                    2001            2000
                                                                                -----------      ------------
Assets
<S>                                                                             <C>              <C>
Cash and due from banks                                                         $     4,146      $      3,988
Money market investments:
         Federal funds sold                                                           2,676                 -
         Interest-bearing deposits in other banks                                       235               113
                                                                                -----------      ------------
                  Total money market investments                                      2,911               113

Securities available for sale                                                        32,909            36,873
Restricted equity securities                                                          1,327             1,010
Loans:
         Commercial and industrial loans                                             33,105            30,070
         Commercial real estate loans                                                45,224            43,146
         Real estate construction                                                     7,896             5,879
         Residential real estate loans                                               23,598            18,926
         Loans to individuals                                                        19,196            16,467
                                                                                -----------      ------------
                  Total loans                                                       129,019           114,488
Less unearned income                                                                    (31)              (51)
Less allowance for loan losses                                                       (1,303)           (1,190)
                                                                                -----------      ------------
                  Net loans                                                         127,685           113,247
Premises and equipment                                                                3,469             3,075
Accrued interest receivable                                                           1,013             1,266
Other assets                                                                            549               592
                                                                                -----------      ------------
                  Total assets                                                     $174,009      $    160,164
                                                                                ===========      ============

Liabilities and Shareholders' Equity
Deposits:
         Non-interest bearing demand deposits                                   $    21,247      $     17,254
         Interest bearing demand deposits                                             8,149             7,293
         Money market deposits                                                       18,384            19,302
         Other savings deposits                                                       1,688             1,836
         Certificates of deposits >100,000                                           25,001            16,668
         Other time deposits                                                         61,744            67,521
                                                                                -----------      ------------
                  Total deposits                                                    136,213           129,874
                                                                                -----------      ------------

Short-term borrowings                                                                     -             1,762
Securities sold under agreements to repurchase                                        5,383             1,983
Accrued interest payable                                                              1,749             1,523
Other liabilities                                                                       208               367
Federal Home Loan Bank advances                                                      15,000            10,000
                                                                                -----------      ------------
                  Total liabilities                                                 158,553           145,509
                                                                                ===========      ============

Commitments and other contingencies

Preferred stock, no par value. Authorized 10,000,000
         shares; none issued and outstanding.
Common stock, no par value.  Authorized 10,000,000
         shares; issued and outstanding 1,213,207 at
         June 30, 2001 and 1,213,207 at December
         31, 2000                                                                    12,299            12,299
Accumulated retained earnings                                                         3,088             2,401
Accumulated other comprehensive income (loss)                                            69               (45)
                                                                                -----------      ------------
                  Total shareholders' equity                                         15,456            14,655
                                                                                -----------      ------------
                  Total liabilities and shareholders' equity                       $174,009          $160,164
                                                                                ===========      ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

                          VALLEY FINANCIAL CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                             For the Period    For the Period
                                                                             January 1, 2001   January 1, 2000
                                                                                 Through           Through
                                                                              June 30, 2001     June 30, 2000
                                                                              -------------     -------------
Interest Income:
<S>                                                                               <C>                <C>
         Interest and fees on loans                                               $   5,253          $  4,395
         Interest on money market investments                                            21                25
         Interest on securities - taxable                                               938               907
         Interest on securities - nontaxable                                            190               195
                                                                                  ---------          --------
                  Total interest income                                               6,402             5,522
                                                                                  =========          ========

Interest Expense:
         Interest on certificates of deposit (greater than) 100,000                     633               363
         Interest on other deposits                                                   2,429             2,034
         Interest on Federal Home Loan Bank advances                                    398               265
         Interest on repurchase agreements                                               94                64
         Interest on borrowed funds                                                      40                84
                                                                                  ---------          --------
                  Total interest expense                                              3,594             2,810
                                                                                  =========          ========

                  Net interest income                                                 2,808             2,712

Provision for loan losses                                                               120               163
                                                                                  ---------          --------

         Net interest income after provision for loan losses                          2,688             2,549
                                                                                  ---------          --------
Noninterest  income:
         Service charges on deposit accounts                                            181               152
         Other fee income                                                                47                26
         Securities gains (losses)                                                       40                 -
                                                                                  ---------          --------
                  Total noninterest income                                              268               178
                                                                                  ---------          --------
Noninterest expense:
         Compensation expense                                                         1,043               944
         Occupancy                                                                      149               118
         Data processing and equipment                                                  227               197
         Other expense                                                                  601               514
                                                                                  ---------          --------
                  Total noninterest expense                                           2,020             1,773
                                                                                  ---------          --------
Net income before taxes                                                                 936               954

Provision for income taxes                                                              249               270
                                                                                  ---------          --------

Net income                                                                        $     687          $    684
                                                                                  =========          ========

Basic earnings per share                                                          $    0.57          $   0.68
                                                                                  =========          ========

Diluted earnings per share                                                        $    0.55          $   0.65
                                                                                  =========          ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                          VALLEY FINANCIAL CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                             For the Period    For the Period
                                                                              April 1, 2001     April 1, 2000
                                                                                 Through           Through
                                                                              June 30, 2001     June 30, 2000
                                                                              -------------     -------------
Interest Income:
<S>                                                                           <C>               <C>
         Interest and fees on loans                                           $       2,658     $       2,343
         Interest on money market investments                                             5                 5
         Interest on securities - taxable                                               455               452
         Interest on securities - nontaxable                                             94                97
                                                                              -------------     -------------
                  Total interest income                                               3,212             2,897
                                                                              -------------     -------------
Interest Expense:
         Interest on certificates of deposit > 100,000                                  339               194
         Interest on other deposits                                                   1,186             1,057
         Interest on Federal Home Loan Bank advances                                    214               133
         Interest on repurchase agreements                                               45                41
         Interest on borrowed funds                                                       8                69
                                                                              -------------     -------------
                  Total interest expense                                              1,792             1,494
                                                                              -------------     -------------

                  Net interest income                                                 1,420             1,403

Provision for loan losses                                                                83                99
                                                                              -------------     -------------

         Net interest income after provision for loan losses                          1,337             1,304
                                                                              -------------     -------------
Noninterest  income:
         Service charges on deposit accounts                                             95                88
         Other fee income                                                                26                14
         Securities gains (losses)                                                       42                 -
                                                                              -------------     -------------
                  Total noninterest income                                              163               102
                                                                              -------------     -------------
Noninterest expense:
         Compensation expense                                                           514               467
         Occupancy                                                                       77                59
         Data processing and equipment                                                  117                98
         Other expense                                                                  305               277
                                                                              -------------     -------------
                  Total noninterest expense                                           1,013               901
                                                                              -------------     -------------
Net income before taxes                                                                 487               505

Provision  for income taxes                                                             139               145
                                                                              -------------     -------------

Net income                                                                    $         348     $         360
                                                                              =============     =============

Basic earnings per share                                                      $        0.29     $        0.36
                                                                              =============     =============

Diluted earnings per share                                                    $        0.28     $        0.34
                                                                              =============     =============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

                          VALLEY FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                             For the Period    For the Period
                                                                             January 1, 2001   January 1, 2000
                                                                                 Through           Through
                                                                              June 30, 2001     June 30, 2000
                                                                              -------------     -------------
Cash Flows From Operating Activities:
<S>                                                                            <C>              <C>
         Net income                                                            $        687     $         684
         Adjustments to reconcile net income to net
         cash provided by operating activities:
                  Provision for loan losses                                             120               163
                  Depreciation and amortization of bank
                   premises and equipment                                               144               133
                  Net gains on sale of securities                                       (40)                -
                  Amortization (accretion) of premiums and
                   discounts                                                             20                12
                  Increase (decrease) in unearned fees                                  (20)                1
                  (Increase) decrease in interest receivable                            253              (146)
                  Increase in other assets                                              (32)              (12)
                  Increase in accrued interest payable                                  226                 -
                  Decrease in other liabilities                                        (159)             (387)
                                                                              -------------     -------------
Net cash provided by operating activities                                             1,199               448
                                                                              -------------     -------------

Cash Flows From Investing Activities:
         (Increase) decrease in money market investments                             (2,798)            4,721
         Purchases of premises and equipment                                           (522)              (45)
         Purchases of securities available-for-sale                                 (13,683)           (3,367)
         Purchases of restricted equity securities                                     (317)             (171)
         Proceeds from sales, calls, and maturities of
           securities available-for-sale                                             17,840               573
         Increase in loans                                                          (14,538)          (15,544)
                                                                              -------------     -------------
Net cash used in investing activities                                               (14,018)          (13,833)
                                                                              -------------     -------------

Cash Flows From Financing Activities:
         Increase in time deposits greater than $100,000                              8,333             1,183
         Increase (decrease) in other time deposits                                  (5,777)            2,062
         Increase in other deposits                                                   3,783             2,785
         Increase (decrease) in short-term borrowings                                (1,762)            3,000
         Proceeds from subordinated capital note                                          -             2,300
         Increase in securities sold under agreements
          to repurchase                                                               3,400             3,175
         Proceeds from Federal Home Loan Bank advances                                5,000                 -
                                                                              -------------     -------------
Net cash provided by financing activities                                            12,977            14,505
                                                                              -------------     -------------

Net increase in Cash and Due From Banks                                                 158             1,120

Cash and Due From Banks at Beginning of Period                                        3,988             4,027
                                                                              -------------     -------------
Cash and Due From Banks at End of Period                                      $       4,146     $       5,147
                                                                              =============     =============

Supplemental disclosure of cash flow information:
         Cash paid during the period for interest                             $       3,368     $       2,810
                                                                              =============     =============
         Cash paid during the period for taxes                                $         286     $         650
                                                                              =============     =============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       6
<PAGE>

                          VALLEY FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements
                                  June 30, 2001
                                   (Unaudited)

(In thousands, except share and per share data)

         (1)      Organization and Summary of Significant Accounting Policies

                           Valley Financial Corporation (the "Company") was
                  incorporated under the laws of the Commonwealth of Virginia on
                  March 15, 1994, primarily to serve as a holding company for
                  Valley Bank (the "Bank"), which opened for business on May 15,
                  1995. The Company's fiscal year end is December 31.

                           The consolidated financial statements of the Company
                  conform to generally accepted accounting principles and to
                  general banking industry practices. The interim period
                  consolidated financial statements are unaudited; however, in
                  the opinion of management, all adjustments of a normal
                  recurring nature which are necessary for a fair presentation
                  of the consolidated financial statements herein have been
                  included. The consolidated financial statements herein should
                  be read in conjunction with the Company's 2000 Annual Report
                  on Form 10-KSB.

                           The Company reports its activities as a single
                  business segment. In determining the appropriateness of
                  segment definition, the Company considers components of the
                  business about which financial information is available and
                  regularly evaluated relative to resource allocation and
                  performance assessment.

         (2)      Cash and Cash Equivalents

                           For purposes of reporting cash flows, cash and cash
                  equivalents include cash and due from banks.

                                       7
<PAGE>

         (3)      Securities

                           The carrying values, unrealized gains, unrealized
                  losses and approximate fair values of investment securities at
                  June 30, 2001 are shown in the table below. The entire
                  investment portfolio is classified as available-for-sale in
                  order to provide maximum liquidity for funding needs. As of
                  June 30, 2001, investments with amortized costs and fair
                  values of $15,600 and $15,660, respectively, were pledged as
                  collateral for public deposits, a line of credit available
                  from the Federal Home Loan Bank, customer sweep accounts, and
                  for other purposes as required or permitted by law.

                  Investment Portfolio - Category Distribution
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                         Amortized       Unrealized    Unrealized    Approximate
                                                           Costs           Gains         Losses      Fair Values
                                                           -----           -----         ------      -----------
<S>                                                      <C>             <C>           <C>           <C>
          U.S. Treasury                                      $198             $2            $0             $200

          U.S. Government agencies                          8,278             28            (6)           8,300

          Mortgage-backed securities                        7,366             54            (3)           7,417

          Collateralized mortgage obligations               7,717             23            (7)           7,733

          States and political subdivisions                 7,831             63           (48)           7,846

          Corporate debt securities                         1,414              5            (6)           1,413

          Restricted equity securities                      1,327              0              0           1,327
                                                            -----              -              -           -----

               Total securities available for sale        $34,131           $175          ($70)         $34,236
                                                          =======           ====          =====         =======
</TABLE>

         (4)      Allowance for Loan Losses

                           The following table summarizes the loan loss
                  experience for the six-month periods ended June 30, 2001 and
                  2000.

<TABLE>
<CAPTION>
                            Allowance for Loan Losses
                             (dollars in thousands)

                                                                         2001              2000
                                                                         ----              ----
                           <S>                                         <C>                 <C>
                           Balance at January 1                        $1,190              $910
                           Provision for loan losses                      120               163
                           Recoveries                                       0                 0
                           Charged off loans
                              Commercial                                  (7)                 0
                                                                          ---                 -
                           Balance at June 30                          $1,303            $1,073
                                                                       ======            ======
</TABLE>

                                       8
<PAGE>

         (5)      Earnings Per Share

                           Basic earnings per share is based upon the weighted
                  average number of common shares outstanding during the period.
                  The weighted average shares outstanding for the diluted
                  earnings per share computations were adjusted to reflect the
                  assumed conversion of shares available under stock options.
                  The following table summarizes the shares utilized in the
                  computations:

                  Weighted Average Shares Outstanding
                  -----------------------------------

<TABLE>
<CAPTION>
                  Three months ending June 30:                     Basic                       Diluted
                                                                   -----                       -------
<S>                                                              <C>                          <C>
                                    2001                         1,213,207                    1,250,404
                                                                 =========                    =========

                                    2000                         1,013,207                    1,061,838
                                                                 =========                    =========

                  Six months ending June 30:

                                    2001                         1,213,207                    1,249,123
                                                                 =========                    =========

                                    2000                         1,013,207                    1,060,405
                                                                 =========                    =========
</TABLE>


          (6)      Comprehensive Income

                           On January 1, 1998, The Company adopted Statement of
                  Financial Accounting Standards No. 130, Reporting
                  Comprehensive Income. This Statement establishes standards for
                  reporting and presentation of comprehensive income and its
                  components in a full set of general purpose financial
                  statements. This Statement was issued to address concerns over
                  the practice of reporting elements of comprehensive income
                  directly in equity.

                           The Company is required to classify items of "Other
                  Comprehensive Income" (such as net unrealized gains (losses)
                  on securities available for sale) by their nature in a
                  financial statement. It does not require a specific format for
                  that financial statement but requires the Company to display
                  an amount representing comprehensive income for the period in
                  that financial statement. The Company is required to present
                  the accumulated balance of other comprehensive income
                  separately from retained earnings and additional
                  paid-in-capital in the equity section of a statement of
                  financial position. It does not require per share amounts of
                  comprehensive income to be disclosed.

                           The adoption of Statement 130 on January 1, 1998 did
                  not have any effect on the consolidated financial position,
                  results of operations or liquidity of the Company. However,
                  Statement 130 does have an effect on financial statement
                  displays presented by the Company since the Company has net
                  unrealized gains

                                       9
<PAGE>

                  (losses) on available-for-sale securities, an item of other
                  comprehensive income (loss). For the six months ended June
                  30, 2001 and 2000, total comprehensive income was $801 and
                  $679, respectively. For the three months ended June 30, 2001
                  and 2000, total comprehensive income was $284 and $366,
                  respectively.

                           The information that follows discloses the
                  reclassification adjustments and the income taxes related to
                  securities available-for-sale that are included in other
                  comprehensive income (loss), net of income taxes for the six
                  and three month periods ended June 30, 2001 and 2000.

<TABLE>
<CAPTION>
                                                                     For the Six Months Ended     For the Six Months Ended
                                                                           June 30, 2001               June 30, 2000
                                                                           -------------               -------------
<S>                                                                  <C>                        <C>
Net unrealized gains (losses) on securities available-for-sale:
  Net unrealized holding gains (losses) during the year                    $         186               $         (7)
    Less reclassification adjustments for gains included
      in net income                                                                   (9)                         -
  Income tax benefit (expense)                                                       (63)                         2
                                                                                    -----                      -----
        Other comprehensive income (loss), net of income taxes             $         114               $         (5)
                                                                                    =====                      =====

<CAPTION>
                                                                     For the Three Months Ended  For the Three Months Ended
                                                                           June 30, 2001               June 30, 2000
                                                                           -------------               -------------

Net unrealized gains (losses) on securities available-for-sale:
<S>                                                                  <C>                        <C>
  Net unrealized holding gains (losses) during the quarter                 $        (71)               $           9
    Less reclassification adjustments for gains included
      in net income                                                                 (17)                           -
  Income tax benefit (expense)                                                       24                           (3)
                                                                                     --                            -
        Other comprehensive income (loss), net of income taxes             $        (64)               $           6
                                                                                     ==                            =
</TABLE>

Item 2.  Management's Discussion and Analysis.

         The following is management's discussion and analysis of the financial
condition and results of operations of the Company as of and for the six months
and three months ended June 30, 2001 and 2000. The discussion should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto.

Overview

         The Company was incorporated as a Virginia stock corporation on March
15, 1994, primarily to own and control all of the capital stock of the Bank. The
Bank opened for business on May 15, 1995.

         Total assets at June 30, 2001 were $174.0 million, up 8.6% from $160.2
million at December 31, 2000. The principal components of the Company's assets
at the end of the period were $34.2 million in securities available-for-sale,
including restricted equity securities, and $129.0 million in gross loans.

                                      10
<PAGE>

         Total liabilities at June 30, 2001 were $158.6 million, up 9.0% from
$145.5 million at December 31, 2000 with the increase represented by a $6.3
million growth in deposits, a $3.4 million growth in securities sold under
agreements to repurchase, and a $5.0 million advance from the Federal Home Loan
Bank of Atlanta finalized in the first quarter, partially offset by a $1.8
million decrease in short-term borrowings.

         Total shareholders' equity at June 30, 2001 was $15.5 million
consisting of $9.1 million in net proceeds from the Company's initial public
offering, $3.2 million in net proceeds from the Company's secondary offering,
$10,000 in proceeds from the exercise of stock options, increased by accumulated
retained earnings of $3.1 million and $69,000 of net unrealized gains on
securities available-for-sale, net of related deferred tax liability. At
December 31, 2000 total shareholders' equity was $14.7 million. Exclusive of
unrealized gains (losses) on investment securities, shareholders' equity was
$15.4 million at June 30, 2001 and $14.7 million at December 31, 2000.

         The Company had net income of $687,000 for the six months ended June
30, 2001 compared with $684,000 recorded for the six months ended June 30, 2000,
a .4% increase. Net income for the three months-ended June 30, 2001 was
$348,000, a 3.3% decrease over the $360,000 recorded for the second quarter of
2000. A shrinking net interest margin is a primary factor in the essentially-
flat earnings for the first six months of 2001 as compared to the same period in
2000. Also contributing to flat earnings year-to-date was an increase in
noninterest income, offset by increases in noninterest expense in all
categories.

         Profitability as measured by the Company's return on average assets
("ROA") was .83% for the six months ended June 30, 2001 compared to .97% for the
same period in 2000. ROA for the second quarter of 2001 was .83% versus 1.00% in
the second quarter of 2000. Return on average equity ("ROE") was 9.17% for the
six months ended June 30, 2001 compared to 13.22% for the same period in 2000.
ROE for the second quarter of the year was 9.10% in 2001 and 13.71% in 2000. The
calculation of ROE excludes the effect of any unrealized gains or losses on
investment securities.

Net Interest Income

         Net interest income is the amount by which interest and fees generated
from loans and investments exceeds the interest expense associated with funding
those assets, and represents the principal source of earnings for the Company.
Changes in the volume and mix of earning assets and interest-bearing
liabilities, as well as their respective yields and rates, have a significant
impact on the level of net interest income. Changes in the interest rate
environment and the Company's cost of funds also affect net interest income.

         Net interest income was $2.8 million for the six months ended June 30,
2001 and is attributable to interest income from loans and securities exceeding
the cost of interest paid on deposits and borrowed funds. Net interest income
for the first six months of 2001 increased 3.7% from $2.7 million for the same
period in 2000. The net interest margin on a fully taxable

                                      11
<PAGE>

equivalent ("FTE ") basis was 3.69% for the first six months of 2001, a decrease
of 45 basis points from the 4.14% reported for the same period in 2000. During
the first six months of 2001, the Federal Reserve has cut rates by 2.75%.
Approximately one third of the Bank's loan portfolio is comprised by adjustable
rate loans which repriced immediately in response to Federal Reserve action,
while the Bank's certificates of deposits, the largest category of deposits, are
fixed rate and locked in for a year or longer. As a result, the Company's net
interest margin has declined adversely impacting the net interest income and net
income presented for the year ended June 30, 2001.

         For the three months ended June 30, 2001 net interest income was $1.4
million and the FTE net interest margin was 3.66%. Net interest income was $1.4
million and the net interest margin was 4.16% for the second quarter of 2000.

Noninterest Income

          Noninterest income of $268,000 in the six months ended June 30, 2001
consisted of service charges and fees on accounts, other fee income and
securities gains and losses, and represented an increase of $90,000 or 50.6%
over the $178,000 reported for the same period one year earlier. Securities
gains and losses totaled $40,000 for the six months ended June 30, 2001 and is
comprised of $20,000 from sales of securities and a $20,000 gain generated from
the pushdown of securities from the parent company to the Bank at fair market
value in a capital injection effective April 20, 2001. For the three months
ended June 30, 2001 noninterest income was $163,000 an increase of $61,000 or
59.8% over the $102,000 reported for the second quarter of 2000. Future levels
of noninterest income are expected to increase as a direct result of business
growth and expansion.

Noninterest Expense

          Noninterest expense for the first six months of 2001 was $2.0 million,
an increase of $200,000 or 11.1% over the $1.8 million reported for the same
period in 2000. Two large contributors to the increase in noninterest expense
are expenses associated with the opening of the Bank's fifth full-service branch
on May 7, 2001 and $35,000 in a rezoning request denied in connection with an
attempted acquisition of a parcel of property for a future branch site.
Noninterest expense for the quarter ended June 30, 2001 was $1.0 million, an
increase of $112,000 or 12.4% over the second quarter of 2000. Noninterest
expenses are expected to increase in future years as a direct result of business
growth and expansion.

Income Taxes

         To reflect the Company's anticipated federal income tax liability, an
expense of $249,000 and $270,000 at an effective tax rate of 26.6% and 28.3% was
recognized in the six months ended June 30, 2001 and June 30, 2000,
respectively. The provision for income taxes was $139,000 and $145,000 for the
second quarter of 2001 and 2000, respectively. The second quarter expense for
2001 and 2000 equated to an effective tax rate of 28.5% and 28.7%, respectively.

                                      12
<PAGE>

Investment Securities

         The Company's investment portfolio is used both for investment income
and liquidity purposes. Funds not used for capital expenditures or lending
activities are invested in securities of the U.S. Government and its agencies,
mortgage-backed securities, municipal bonds, corporate bonds and equity
securities. Obligations of the U.S. Government and its agencies include treasury
notes and callable or noncallable agency bonds. Mortgage-backed securities and
collateralized mortgage obligations include pools issued by government agencies.
Municipal bonds include taxable and tax-exempt general obligation and revenue
issues. Corporate bonds are investment grade issue. Equity securities include
shares of the Federal Reserve Bank of Richmond, Federal Home Loan Bank of
Atlanta, and Community Bankers Bank. The Company does not invest in derivatives
or other types of high-risk securities. The entire investment portfolio is
classified as available-for-sale in order to provide maximum liquidity for
funding needs.

         Investment securities, including restricted equity securities, at June
30, 2001 were $34.2 million, a decrease of $3.7 million or 9.8% from their level
of $37.9 million on December 31, 2000. The decrease of $3.7 million is primarily
due to principal payments in the amount of $2.5 million and excess proceeds from
called and sold securities, which were not reinvested in the securities
portfolio, of approximately $1.4 million. For more information on the investment
portfolio, see Note 3 to the Consolidated Financial Statements.

Loan Portfolio

         The Company's total loans were $129.0 million at June 30, 2001, an
increase of $14.5 million or 12.7% from the $114.5 million reported at December
31, 2000. The Company's ratio of total loans to total deposits stood at 94.7% at
June 30, 2001 and 88.1% at December 31, 2000. The ratio clearly reflects
stronger loan growth than deposit growth during the first six months of 2001.
Management seeks to maintain the ratio of loans to deposits in a range of 70% to
85%.

         The loan portfolio primarily consists of commercial, real estate
(including real estate term loans, construction loans and other loans secured by
real estate) and loans to individuals for household, family and other consumer
purposes. The Company adjusts its mix of lending and the terms of its loan
programs according to economic and market conditions, asset/liability management
considerations and other factors. Loans typically (in excess of 90%) are made to
businesses and individuals located within the Company's primary market area,
most of whom maintain deposit accounts with the Bank. There is no concentration
of loans exceeding 10% of total loans which is not disclosed in the Consolidated
Financial Statements and the Notes thereto or discussed below. The Company has
not made any loans to any foreign entities, including governments, banks,
businesses or individuals. Commercial and construction loans and home equity
lines of credit in the loan portfolio are primarily variable rate loans and have
little interest rate risk.

         The following table summarizes the loan portfolio by category as of the
six-month periods ended June 30, 2001 and 2000 and the year ended December 31,
2000.

                                       13
<PAGE>

                             Loan Portfolio Summary
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                          June 30,           December 31,                June 30,
                                                           2001                  2000                     2000
                                                           ----                  ----                     ----
<S>                                                       <C>                   <C>                    <C>
Commercial and industrial                                 $33,105               $30,070                $27,771
Commercial real estate                                     45,224                43,146                 37,673
Real estate construction                                    7,896                 5,879                  7,596
Residential real estate                                    23,598                18,926                 18,404
Loans to individuals                                       19,196                16,467                 15,490
                                                           ------                ------                 ------
Total loans                                              $129,019              $114,488               $106,934
                                                         ========              ========               ========
</TABLE>


Loan Category Analysis

         Commercial Loans. Commercial and industrial loans accounted for 25.7%
of the loan portfolio as of June 30, 2001 and stood at $33.1 million versus
$30.1 million six months earlier. Such loans generally are made to provide
operating lines of credit, to finance the purchase of inventory or equipment,
and for other business purposes. The credit worthiness of the borrower is
analyzed and re-evaluated on a periodic basis. Most commercial loans are
collateralized with business assets such as accounts receivable, inventory and
equipment. Even with substantial collateral such as all the assets of the
business and personal guarantees, commercial lending involves considerable risk
of loss in the event of a business downturn or failure of the business.

         Commercial Real Estate Loans. Commercial real estate construction and
commercial real estate mortgages represent interim and permanent financing of
commercial properties that are secured by real estate, and were 35.0% of total
loans at June 30, 2001. Outstanding loans in this category equaled $45.2 million
and $43.1 million at June 30, 2001 and December 31, 2000, respectively. The
Company prefers to make commercial real estate loans secured by owner-occupied
properties. These borrowers are engaged in business activities other than real
estate, and the primary source of repayment is not solely dependent on
conditions in the real estate market.

         Real Estate Construction Loans. Real estate construction loans
represent interim financing on residential and commercial properties under
construction, and are secured by real estate. Once construction is completed and
the loan becomes permanent, the loans are reclassified as commercial real estate
loans which are secured by commercial property or residential real estate loans
which are secured by first deeds of trust. Outstanding loans in this category
totaled $7.9 million (6.1% of total loans) at June 30, 2001 as compared to $5.9
million at December 31, 2000.

         Residential Real Estate Loans. Residential real estate loans are
secured by first deeds of trust on 1-4 family residential properties. This
category had $23.6 million in loans (18.3% of total loans) at June 30, 2001 and
$18.9 million in such loans at December 31, 2000. To mitigate

                                       14
<PAGE>

interest rate risk, the Company usually limits the final maturity of residential
real estate loans held for its own portfolio to 15-20 years and offers a
bi-weekly payment option to encourage faster repayment. Residential real estate
lending involves risk elements when there is lack of timely payment and/or a
decline in the value of the collateral.

         Loans to Individuals. Loans to individuals include installment loans
and home equity lines of credit/loans secured by junior liens on residential
real estate. The loan proceeds typically are used to purchase vehicles, finance
home remodeling or higher education, or for other consumer purposes. Loans to
individuals totaled $19.2 million (14.9% of total loans) at June 30, 2001
compared to $16.5 million at December 31, 2000.

Summary of Allowance for Loan Losses

         Certain credit risks are inherent in making loans. The Company
prudently assesses these risks and attempts to manage them effectively.
Repayment risks are reduced by adhering to our internal credit policies and
procedures. These policies and procedures include officer and customer limits,
periodic loan documentation review, and follow-up on exceptions to credit
policies.

         The allowance for loan losses is maintained at a level adequate to
absorb probable losses. Some of the factors which management considers in
determining the appropriate level of the allowance for loan losses are an
evaluation of the current loan portfolio, identified loan problems, loan volume
outstanding, past loss experience, present and expected industry and economic
conditions and, in particular, how such conditions relate to our market area.
Bank regulators also periodically review the loan portfolio and other assets to
assess their quality. The provision for loan loses is charged to income in an
amount necessary to maintain an allowance for loan losses adequate to provide
for expected losses in the loan portfolio. Loans deemed uncollectible are
charged to the allowance for loan losses and recoveries on loans previously
charged off are added to the allowance for loan losses. The Company believes the
allowance for loan losses is adequate to provide for any losses in the loan
portfolio.

         No assurance can be given that unforeseen adverse economic conditions
or other circumstances will not result in increased provisions in the future.
Additionally, regulatory examiners may require the Company to recognize
additions to the allowance based upon their judgment about the loan portfolio
and other information available to them at the time of their examinations.

         A provision for loan losses of $120,000 was provided during the six
months ended June 30, 2001, a decrease of $43,000 or 26.4% over the same period
in 2000, in recognition of management's estimate of inherent risks associated
with lending activities. The allowance for loan losses was $1.3 million as of
June 30, 2001 and represented approximately 1.0% of net loans outstanding versus
1.1% of net loans at December 31, 2000 (see Note 4 to the Consolidated Financial
Statements). A total of $30,000 in specific reserves, on one commercial loan
placed on nonaccrual status in April 1999 is included in the balance of the
allowance for loan losses as of June 30, 2001. Of the $30,000 specific reserve,
$20,000 was accrued during

                                       15
<PAGE>

the second quarter of 2000. During the first quarter of 2001, $25,000 of
specific reserves accrued during 2000 on a second commercial loan were reversed
when the loan was repaid.

Nonperforming Assets and Impaired Loans

         Nonperforming Assets. Nonperforming assets include nonaccrual loans,
loans past due 90 days or more, restructured loans and foreclosed/repossessed
property. A loan will be placed on nonaccrual status when collection of all
principal or interest is deemed unlikely. A loan will automatically be placed on
nonaccrual status when principal or interest is past due 90 days or more, unless
the loan is both well secured and in the process of being collected. In this
case, the loan will continue to accrue interest despite its past due status.

         A restructured loan is a loan in which the original contract terms have
been modified due to a borrower's financial condition or there has been a
transfer of assets in full or partial satisfaction of the loan. A modification
of original contractual terms is generally a concession to a borrower that a
lending institution would not normally consider. The entire balance of
restructured loans as disclosed below is comprised of one loan customer. Due to
a good loan to value ratio, a timely and proper review of credit quality and
restructuring of the loans, the Company believes at the present time that all
amounts of principal and interest will be collected. However, the Company cannot
give assurance that unforeseen economic conditions or other circumstances will
not result in impairment.

         An impaired loan as defined in SFAS 114 is a loan when, based on
current information and events, it is likely that a lending institution will be
unable to collect all amounts, including both principal and interest, due
according to the contractual terms of the loan agreement.

         Once a quarter the board of directors will review all loans on the
Bank's watch list to determine proper action and reporting of any loans
identified as substandard by the credit quality review.

         Nonperforming assets at June 30, 2001, December 31, 2000 and June 30,
2000 are presented in the following table.

                              Nonperforming Assets
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                         June 30,          December 31,           June 30,
                                                           2001                2000                 2000
                                                           ----                ----                 ----
<S>                                                     <C>              <C>                  <C>
Nonaccrual loans                                           $ 84                $102               $  402
Loans past due 90 days or more                              391                  54                    1
Restructured loans                                          400                 230                  770
                                                           ----                ----               ------
Total nonperforming loans                                   875                 386                1,173
                                                           ----                ----               ------

Foreclosed, repossessed and idled properties                  -                   -                    -
                                                           ----                ----               ------
Total nonperforming assets                                 $875                $386               $1,173
                                                           ====                ====               ======
</TABLE>

                                       16
<PAGE>

         If the nonaccrual loans disclosed above had performed in accordance
with their original terms, additional interest income in the amount of $4,000,
$9,000, and $5,000, respectively would have been recorded for the six month
period ended June 30, 2001, the year ended December 31, 2000 and the six month
period ended June 30, 2000.

         The total recorded investment in impaired loans was $875,000, $851,000
and $1.4 million, respectively for the six month period ended June 30, 2001, the
year ended December 31, 2000 and the six-month period ended June 30, 2000. The
loan loss allowance related to impaired loans was $30,000, $55,000 and $30,000,
respectively for the above-referenced time periods.

Deposits

         As of June 30, 2001 total deposits were $136.2 million, an increase of
$6.3 million or 4.8% from their level of $129.9 million at December 31, 2000.
The major categories of increases were non-interest bearing demand deposits,
time deposits, and NOW accounts in the amounts of $4.0 million, $2.6 million,
and $856,000, respectively, offset by declines in money market deposits and
savings accounts in the amounts of $918,000 and $148,000, respectively.

         At June 30, 2001 noninterest-bearing demand deposits were $21.2 million
or 15.6% of total deposits. On December 31, 2000 noninterest-bearing demand
deposits were $17.3 million or 13.3% of total deposits. Nonmaturity deposits
(noninterest bearing demand deposits, interest bearing demand deposits, money
market accounts and savings accounts) were $49.5 million or 36.3% of total
deposits at June 30, 2001, compared with $45.7 million or 35.2% of total
deposits at December 31, 2000. Total interest bearing deposits stood at $115.0
million at June 30, 2001, an increase of $2.4 million or 2.1% over their level
of $112.6 million at December 31, 2000.

         The levels and mix of deposits are influenced by such factors as
customer service, interest rates paid, service charges and the convenience of
banking locations. Competition for deposits is intense from other depository
institutions and money market funds, some of which offer interest rates higher
than those paid by the Company. Management attempts to identify and implement
pricing and marketing strategies designed to control the overall cost of
deposits and to maintain a stable deposit mix.

Short-Term Borrowings

         The Company placed in service a commercial sweep account program in
third quarter 1999. The balance in the program grew by $3.4 million from its
level of $2.0 million at December 31, 2000 to a total of $5.4 million as of June
30, 2001. The program consists of establishing a demand deposit account in which
the Bank invests available balances daily in securities on an overnight basis
subject to repurchase. On the following business day, the Bank will repurchase
from the customer the securities for an amount equal to the amount of available
balances invested in the securities. Interest is calculated daily at the rate
applicable for each overnight period; however, it is posted to the customer
accounts only once per month. The contractual agreement states that a repurchase
agreement is not a deposit and therefore is not

                                       17
<PAGE>

insured by the Federal Deposit Insurance Corporation. Therefore, these
repurchase balances are not reported as deposits but as short-term borrowings.

         The Company's short-term borrowings decreased by $1.8 million during
the first six months of 2001 to a balance of $0. See the liquidity section of
this discussion and analysis for further information on the preceding
borrowings.

Other Debt

         The Company has outstanding debt with the Federal Home Loan Bank of
Atlanta in the amount of $15.0 million, represented by three advances in the
amount of $5.0 million each. The oldest advance was drawn on December 2, 1999
with a maturity date of December 2, 2009. Interest payments at a fixed rate of
5.46% began on March 2, 2000 and will continue quarterly on the second day of
each anniversary month. The Federal Home Loan Bank of Atlanta has the option to
convert in whole this transaction to a three-month LIBOR-based floating rate
advance effective December 4, 2000. The second outstanding advance was drawn on
May 24, 2000 with a maturity date of May 24, 2010. Interest payments at a fixed
rate of 6.49% began on August 24, 2000 and will continue quarterly on the
twenty-fourth day of each anniversary month. The Federal Home Loan Bank of
Atlanta also has the option to convert this transaction in whole to a
three-month LIBOR-based floating rate advance effective May 24, 2001. The newest
outstanding advance was drawn on February 9, 2001 with a maturity date of
February 9, 2011. Interest payments at a fixed rate of 4.97% began on May 9,
2001 and will continue quarterly on the ninth day of each anniversary month. The
Federal Home Loan Bank of Atlanta also has the option to convert in whole this
transaction to a three-month LIBOR-based floating rate advance effective
February 9, 2004.

Interest Rate Risk

         Interest rate risk is the risk to earnings or capital generated by
movement of interest rates. It can come from differences between the timing of
rate changes and the timing of cash flows (repricing risk); from changing rate
relationships among yield curves that affect bank activities (basis risk); from
changing rate relationships across the spectrum of maturities (yield curve
risk); and from interest rate related options imbedded in bank products (option
risk).

         While no single measure can completely identify the impact of changes
in interest rates on net interest income, a commonly used technique within the
industry is to assess the differences in the amounts of rate-sensitive assets
and rate-sensitive liabilities. These differences or "gaps" provide an
indication of the extent to which net interest income may be affected by future
changes in interest rates. A "positive gap" exists when rate-sensitive assets
exceed rate-sensitive liabilities and indicates that a greater volume of assets
than liabilities will reprice during a given period. A positive gap may enhance
earnings in a rising interest rate environment and may inhibit earnings in a
declining interest rate environment. Conversely, when rate-sensitive liabilities
exceed rate-sensitive assets (a "negative gap"), a greater volume of liabilities
than assets will reprice within the period. In such a case, a rising interest
rate environment may inhibit earnings and a declining interest rate environment
may enhance earnings.

                                       18
<PAGE>

         Some financial institutions evaluate their "gaps" strictly from a
balance sheet perspective, calculating the absolute difference between the
volumes of assets and liabilities that have the contractual ability to reprice
within a given period in response to changes in interest rates. Company
management believes this "balance sheet gap" methodology does not adequately
take into consideration the differences in the way various balance sheet items
react to changing interest rates. For example, the rate on savings accounts does
not move in direct tandem with changes in the prime rate, but typically
increases or decreases to a much lesser extent. On the other hand, home equity
lines and many commercial loans are tied directly to prime and immediately
reprice to the full extent of any changes in the prime rate. Accordingly, the
Company utilizes an "income statement gap" methodology that analyzes the various
asset and liability categories and assigns them a "change ratio" that estimates
their relative change in response to a change in the prime rate, based on
industry trends and the Company's own experience. At least quarterly, the
Company calculates the Bank's "income statement gap" to estimate how many assets
and liabilities would reprice and to what extent within a one year period in
response to changes in the prime rate, and compares the results to internal
policy guidelines.

Capital Adequacy

         The Company's financial position at June 30, 2001 reflects liquidity
and capital levels currently adequate to fund anticipated near-term business
expansion. Capital ratios are in excess of required regulatory minimums for a
well-capitalized institution. The adequacy of the Company's capital is reviewed
by management on an ongoing basis. Management seeks to maintain a capital
structure adequate to support anticipated asset growth and serve as a cushion to
absorb potential losses.

         Total shareholders' equity was $15.5 million at June 30, 2001 compared
with $14.7 million at December 31, 2000, an increase of $800,000 or 5.4%. The
increase is attributable to net income for the first six months of $687,000 and
a $114,000 increase in accumulated other comprehensive income. Exclusive of
unrealized gains (losses) on investment securities, shareholders' equity was
$15.4 million at June 30, 2001 and $14.7 million at December 31, 2000.

         For the periods indicated, the Company had the following risk-based
capital and leverage ratios relative to regulatory minimums:

                                 Capital Ratios


Ratio              6/30/01            12/31/00          6/30/00         Minimum
-----              -------            --------          -------         -------

Tier 1              11.2%              11.7%             9.2%             4%

Total               12.1%              12.6%             12.1%            8%

Leverage             9.1%               9.3%             7.3%             4%

                                       19
<PAGE>

Liquidity

         Asset/liability management activities are designed to ensure that
adequate liquidity is available to meet loan demand or deposit outflows and,
through the management of the Company's interest sensitivity position, to manage
the impact of interest rate fluctuations on net interest income.

         Liquidity measures the ability of the Company to meet its maturing
obligations and existing commitments, to withstand fluctuations in deposit
levels, to fund its operations and to provide for customers' credit needs.
Liquidity represents a financial institution's ability to meet present and
future financial obligations through either the sale or maturity of existing
assets or the acquisition of additional funds from alternative funding sources.

         The Company's asset liquidity is provided by cash and due from banks,
federal funds sold, investments available for sale, and through management of
investment maturities/prepayments and loan repayments. The Company's ratio of
liquid assets to deposits and short-term borrowings was 29.2% at June 30, 2001
and 31.4% at December 31, 2000. The Company sells excess funds as overnight
federal funds sold to provide an immediate source of liquidity. The Company had
federal funds sold of $2.7 million and $0 at June 30, 2001 and December 31,
2000, respectively. During the first six months of 2001, deposit growth and
securities sold under agreements to repurchase growth in the amounts of $6.3
million and $3.4 million, or a total of $9.7 million, have not kept pace with
loan growth in the amount of $14.5 million. In order to fund the Company's
growth, an additional Federal Home Loan Bank advance in the amount of $5.0
million was drawn during the first quarter of 2001. Proceeds from called and
sold securities and principal payments on securities, which were not reinvested
in the securities portfolio, in the amount of $3.9 million contributed to the
increase in federal funds sold in the amount of $2.7 million.

         The level of deposits may fluctuate, perhaps significantly so, due to
seasonal cycles of depositing customers and the promotional activities of
competitor financial institutions. Similarly, the level of demand for loans may
vary significantly and at any given time may increase or decrease substantially.
However, unlike the level of deposits, management has more direct control over
lending activities and if necessary can adjust the level of those activities
according to the amounts of available funds.

         In addition to asset liquidity, the Company would have liquidity
available to it through increasing certain categories of liabilities. It could
purchase overnight federal funds, borrow from correspondent banks, sell
securities under a repurchase agreement or obtain advances from the Federal Home
Loan Bank. The Bank has established a credit line through the discount window of
the Federal Reserve Bank of Richmond as an additional source of cash flow. As a
result of the Company's management of liquid assets and the ability to generate
liquidity through alternative funding sources, management believes the Company
maintains overall liquidity sufficient to meet its depositors' requirements and
satisfy its customers' credit needs.

                                       20
<PAGE>

Impact of Inflation

         The Consolidated Financial Statements and Notes thereto presented
herein have been prepared in accordance with generally accepted accounting
principles, which requires the measurement of financial position and operating
results in terms of historical dollars without considering changes in the
relative purchasing power of money over time due to inflation. Unlike most
industrial companies, nearly all the assets and liabilities of the Company and
the Bank are monetary in nature. As a result, interest rates have a greater
impact on the Company's performance than do the effects of changes in the
general rate of inflation and changes in prices. In addition, interest rates do
not necessarily move in the same direction or in the same magnitude as do the
prices of goods and services. Management seeks to manage the relationship
between interest-sensitive assets and liabilities in order to protect against
wide interest rate fluctuations, including those resulting from inflation.

Recent and Future Accounting Considerations

         In September 2000, the Financial Accounting Standards Board (FASB)
adopted Statement No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, as a replacement for FASB Statement
No. 125, which has the same title. Statement No. 140 revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral, but it carries over most of the provisions of Statement No. 125
without change.

         Statement No. 140 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after March 31, 2001. The
statement is effective for recognition and reclassification of collateral for
fiscal years ending after December 15, 2000. The adoption of Statement No. 140
on January 1, 2001 did not have any effect on the Bank's consolidated financial
position, results of operation or liquidity.

         In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. Statement 133 established standards for
accounting and reporting for derivative instruments, including certain
instruments embedded in other contracts and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Statement 133 was issued to establish guidelines over the accounting and
reporting of derivative instruments and hedging activities.

         Statement 133 shall be effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. Initial application of this Statement shall
be as of the beginning of an entity's fiscal quarter. Earlier application of all
of the provisions of this Statement is encouraged but is permitted only as of
the beginning of any fiscal quarter that begins after issuance of this
Statement. Earlier application of selected provisions of this Statement is not
permitted. This Statement shall not be applied retroactively to financial
statements of prior periods. Adoption of Statement 133 on January 1, 2000 did
not have any effect on the Bank's consolidated financial position, results of
operation or liquidity.

                                       21
<PAGE>

PART II.  OTHER INFORMATION

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

         The Company held its 2001 Annual Meeting of Shareholders on April 25,
2001, at which meeting four Class A directors were re-elected to new three-year
terms. The following table indicates the total votes in favor of, and withheld
from voting on, the re-election of each nominee, and provides certain
information with respect to those directors not standing for re-election whose
term of office continued past the 2001 Annual Meeting of Shareholders:

<TABLE>
<CAPTION>
---------------------------------- ------------------------- ---------------------------- ----------------------------

  DIRECTOR NAME                           TERM OF                   AFFIRMATIVE                      VOTES
                                           OFFICE                      VOTES                        WITHHELD
---------------------------------- ------------------------- ---------------------------- ----------------------------
Class A Directors

---------------------------------- ------------------------- ---------------------------- ----------------------------
<S>                                     <C>                                    <C>                              <C>
Eddie F. Hearp                          2001-2004                              1,069,615                        2,902
---------------------------------- ------------------------- ---------------------------- ----------------------------
Anna L. Lawson                          2001-2004                              1,069,615                        2,902
---------------------------------- ------------------------- ---------------------------- ----------------------------
John W. Starr, M.D.                     2001-2004                              1,069,615                        2,902
---------------------------------- ------------------------- ---------------------------- ----------------------------
Michael E. Warner                       2001-2004                              1,069,615                        2,902
---------------------------------- ------------------------- ---------------------------- ----------------------------
Class B Directors
---------------------------------- ------------------------- ---------------------------- ----------------------------
Abney S. Boxley, III                    1999-2002
---------------------------------- ------------------------- ---------------------------- ----------------------------
William D. Elliot                       1999-2002
---------------------------------- ------------------------- ---------------------------- ----------------------------
Barbara B. Lemon                        1999-2002
---------------------------------- ------------------------- ---------------------------- ----------------------------
Ward W. Stevens, M.D.                   1999-2002
---------------------------------- ------------------------- ---------------------------- ----------------------------
Class C Directors
---------------------------------- ------------------------- ---------------------------- ----------------------------
Ellis L. Gutshall                       2000-2003
---------------------------------- ------------------------- ---------------------------- ----------------------------
Mason Haynesworth                       2000-2003
---------------------------------- ------------------------- ---------------------------- ----------------------------
A. Wayne Lewis                          2000-2003
---------------------------------- ------------------------- ---------------------------- ----------------------------
George W. Logan                         2000-2003
---------------------------------- ------------------------- ---------------------------- ----------------------------
</TABLE>

                                       22
<PAGE>

Item 5.  Other Information.

None.

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

(a)      The Company filed the following exhibits for the quarter ended June 30,
         2001:

         None.

(b)      The Company filed one report on Form 8-K during the quarter ended June
         30, 2001. The report, dated May 2, 2001, reported the Company's
         consolidated financial results for the quarter ended March 31, 2001.

                                       23
<PAGE>

                                   SIGNATURES

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



                                          VALLEY FINANCIAL CORPORATION



August 14, 2001                                /s/ Ellis L. Gutshall
------------------------                  --------------------------------------
Date                                               Ellis L. Gutshall, President
                                                   and Chief Executive Officer



August 14, 2001                                /s/ A. Wayne Lewis
--------------------------                --------------------------------------
Date                                               A. Wayne Lewis, Executive
                                                   Vice President and Chief
                                                   Financial Officer

                                       24