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                                    FORM 10-K
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 For the fiscal year ended December 31, 2002.

                                       OR

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 For the transition period from _____________ to
      _____________.

Commission file number 000-18445.

                           Benchmark Bankshares, Inc.
             (Exact name of registrant as specified in its charter)

           Virginia                                    54-1380808
           --------                                    ----------
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
 incorporation or organization)

     100 South Broad Street
       Kenbridge, Virginia                                           23944
       -------------------                                           -----
(Address of principal executive offices)                           (Zip Code)

Registrant's telephone number, including area code (434)676-8444.

Securities registered pursuant to Section 12(b) of the Act:  None

    Title of each class               Name of each exchange on which registered
    -------------------               -----------------------------------------

----------------------------                  -----------------------------

           Securities registered pursuant to Section 12(g) of the Act:

                      Common Stock, Par Value $0.21 a share
                                (Title of Class)

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

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).  [  ] Yes  [  ] No

The number of shares outstanding of the registrant's common stock, $0.21 par
value was 2,959,718.059 at March 1, 2003.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None




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                           Benchmark Bankshares, Inc.

                                Table of Contents


                                                                      Page No.

Part I
     Item 1.      Business                                                   3
     Item 2.      Properties                                                 6
     Item 3.      Legal Proceedings                                          7
     Item 4.      Submission of Matters to a Vote of Security Holders        7

Part II
     Item 5.      Market for Registrant's Common Equity and Related
                     Stockholder Matters                                     8
     Item 6.      Selected Financial Data                                   10
     Item 7.      Management's Discussion and Analysis of Financial
                     Condition and Results of Operations                    11
     Item 7A.     Quantitative and Qualitative Disclosures About
                     Market Risk                                            34
     Item 8.      Financial Statements and Supplementary Data               34
     Item 9.      Changes in and Disagreements with Accountants on
                     Accounting and Financial Disclosure                    63

Part III
     Item 10.     Directors and Executive Officers of the Registrant        64
     Item 11.     Executive Compensation                                    65
     Item 12.     Security Ownership of Certain Beneficial Owners and
                     Management                                             66
     Item 13.     Certain Relationships and Related Transactions            68

Part IV
     Item 14.     Exhibits, Financial Statement Schedules, and Reports
                     on Form 8-K                                            69



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PART I

ITEM I    BUSINESS

Benchmark Bankshares, Inc.

         Benchmark Bankshares, Inc. (the "Company"), formerly Lunenburg
Community Bankshares, Inc., is a bank holding company incorporated under the
laws of the Commonwealth of Virginia on March 7, 1986. The Company became a one
bank holding company under the Bank Holding Company Act of 1956 on January 1,
1987 subsequent to its acquiring all of the issued and outstanding shares of The
Lunenburg County Bank's, now Benchmark Community Bank (the "Bank"), common
stock. The Company does not own or operate any other businesses.

         At December 31, 2002, the Company and its subsidiary employed 92
full-time and 11 part-time persons.

Benchmark Community Bank

         The Bank opened for business on September 8, 1971 under its original
name of The Lunenburg County Bank. It started business in temporary quarters and
in 1974 moved to its present location at 100 South Broad Street, Kenbridge,
Virginia 23944.

         Also in 1974, the Bank opened its first full-service branch in the Town
of Victoria, Virginia. Today, the Bank has nine full-service banking offices in
the Towns of Kenbridge and Victoria in Lunenburg County, the Town of Farmville
(two offices) in Prince Edward County, the Town of Crewe in Nottoway County, the
Towns of South Hill, Clarksville, and Chase City in Mecklenburg County, and the
Town of Lawrenceville in Brunswick County. The Bank is also in the process of
establishing a new branch location in the Town of Blackstone in Nottoway County.
All offices are located in the State of Virginia.

         The Bank offers a wide range of banking and related financial services
to individuals and small to medium ranged businesses. The services offered are
in the form of checking, savings accounts, NOW and money market accounts,
certificates of deposit, business loans, personal loans, mortgage loans, and
other consumer oriented financial services including IRAs, safe deposit,
drive-up, night deposit, internet banking, and automatic-teller machines at each
office. The Bank does not offer any trust services.

Competition

         The Bank encounters strong competition for its banking services within
its primary market area. There are eight commercial banks actively engaged in
business in the market area, including five major statewide banking
organizations. The Bank is the only community bank actively engaged in business
in Lunenburg and Brunswick Counties, and one of two such banks in the Town of
Farmville, Prince Edward County, and one of three such banks in Mecklenburg
County. Finance companies, mortgage companies, credit unions, and savings banks
also compete with the Bank for loans and deposits. In addition, the Bank must
compete for deposits with money market mutual funds that are marketed
nationally.

Supervision and Regulation

         The summaries of statutes and regulations included in the information
provided below do not purport to be complete and are qualified in their entirety
by reference to the pertinent statutes and regulations.

         The Company is subject to the Bank Holding Company Act of 1956. As
such, the Company is required to file with the Federal Reserve Board annual
reports and other information regarding the business operations of itself and
its subsidiaries and is subject to examination by the Federal Reserve Board.




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         A bank holding company is required to obtain Federal Reserve Board
approval prior to acquiring ownership or control of the voting shares of any
bank if, after the acquisition, it would own or control more than 5% of the
voting stock of that bank, unless it already owns a majority of the voting stock
of the bank. A bank holding company is, with limited exceptions, prohibited from
acquiring ownership or control of voting stock of any company which is not a
bank or a bank holding company and must engage only in the business of banking,
managing or controlling banks, or furnishing services to or performing services
for subsidiary banks. The Federal Reserve Board is authorized to approve the
ownership of shares by a bank holding company in any company, the activities of
which the Federal Reserve Board has determined to be so closely related to
banking or to managing or controlling banks as to be a proper incident thereto.
The Federal Reserve Board has determined that certain activities are closely
related to banking, including making loans that would be made by mortgage,
finance, credit card, or factoring companies; acting as an investment or
financial advisor; performing the functions of a trust company; providing
certain data processing services; leasing certain personal property; and acting
as an insurance agent or broker for insurance directly related to the extension
of credit or other financial services. Although, a bank holding company may file
an application for approval of other nonbanking activities involved in a
particular case, the Federal Reserve Board has stated that, at present,
permissible nonbanking activities do not include real estate brokerage and
syndication, land development, property management, underwriting, operation of
savings and loan associations, management consulting, or industrial development
corporations.

         A bank holding company and its subsidiaries are also prohibited from
acquiring any voting shares of, or interest in, any banks located outside of the
state in which the operations of the bank holding company's banking subsidiaries
are located unless the acquisition is specifically authorized by the statutes of
the state in which the bank to be acquired is located. Further, a bank holding
company and its subsidiaries generally may not extend credit, lease or sell
property, or furnish any services on the condition that the customer obtain or
provide some additional credit, property, or services from or to the bank
holding company or its subsidiaries, or that the customer obtain some other
credit, property, or services from a competitor.

Bank Supervision and Regulation

         The Bank is a member of the Federal Reserve System and is subject to
regulation and supervision, of which regular bank examinations are a part, by
the Virginia Bureau of Financial Institutions and the Federal Reserve Bank as
are all state member banks. The Bank by virtue of its Federal Reserve membership
qualifies for Federal Deposit Insurance Corporation (FDIC) insurance coverage of
up to a maximum of $100,000 per depositor. For the deposit insurance protection,
the Bank pays a semi-annual statutory assessment and is subject to the rules and
regulations of the FDIC. The Company is an "affiliate" of the Bank, and that
status imposes restrictions on loans by the Bank to the Company, on investment
by the Bank in the Company, and on the use of Company stock or securities as
collateral security for loans by the Bank to any borrower. The Company is also
subject to certain restrictions on its engaging in the business of issuing,
floatation, underwriting, public sale, and distribution of securities.

Government Monetary Policies and Economic Controls

         The monetary policies of regulatory authorities, most notably the
Federal Reserve Bank, have a significant effect on the operating results of bank
holding companies and banks. In particular, the Federal Reserve Board regulates
money and credit conditions and interest rates in order to influence general
economic conditions. These policies have a significant influence on the overall
growth and distribution of bank loans, investments and deposits, and affect
interest rates charged on loans or paid for time and savings deposits. Federal
Reserve Board monetary policies have had a significant effect on the operating
results of commercial banks in the past and are expected to continue to do so in
the future; however, the Company and its subsidiary bank are unable to predict
the specific nature or extent of these effects on their business and earnings.






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Restrictions

Investments

         As required by the Virginia Security for Public Deposits Act, the Bank
has pledged $8,869,362 at cost of its investment portfolio to safeguard State
and local municipalities' deposits as of December 31, 2002.

         By virtue of the Bank holding deposits for the Federal government, it
is subject to Section 31CFR202 of the Code of Federal Regulation, which
requires, in part, the collateralization of Federal deposits. As of December 31,
2002, the Bank had $124,651 pledged for Federal deposits.

         The Bank is required by Section 19 of the Federal Reserve Act to
maintain a certain level of reserves consisting of cash and other liquid assets
in proportion to types of deposit accounts held. At year end 2002, the Bank's
vault cash met the statutory requirement so designated by the Act.

Anti-Takeover Provisions

         The Articles of Incorporation and Bylaws of the Company contain certain
anti-takeover provisions. Said provisions provide (i) for division of the Board
of Directors into three classes, with one class elected each year to serve a
three year term; (ii) that Directors may be removed only upon the affirmative
vote of the holders of 80% of the outstanding voting stock; (iii) that any
vacancy on the Board may be filled by the remaining Directors; (iv) that advance
notification is required for a stockholder to bring business before a
stockholders' meeting or to nominate a person for election as a Director; and
(v) that the affirmative vote of the holders of 80% of the outstanding voting
stock is required to alter, amend, or repeal the foregoing provisions.

         The Articles also contain a "fair price" provision that requires the
affirmative vote of the holders of 80% of the outstanding voting stock as a
condition for certain mergers or business combinations, unless the transaction
is either approved by a majority of the disinterested Directors or certain
minimum price and procedural requirements are met.

         The foregoing provisions of the Articles and Bylaws are intended to
prevent inequitable stockholder treatment in a two-tier takeover and to reduce
the possibility that a third party could effect a sudden or surprise change in
majority control of the Board of Directors without the support of the incumbent
Board, even if such a change were desired by or would be beneficial to a
majority of the Company's stockholders. Such provisions may have the effect of
discouraging certain unsolicited tender offers for the Company's capital stock
and, at the same time, may provide for a continuation of current Company's
philosophy and leadership style.

Limitation on Liability

         The Company's Articles of Incorporation provide, in part in accordance
with the provisions of a recent amendment to the Virginia Stock Corporation Act
(the "Act"), that in every instance permitted by the Act, the liability of a
Director or Officer of the Company for monetary damages arising out of a single
transaction, occurrence, or course of conduct shall be limited to one dollar.
This limit on damages does not apply in the event of willful misconduct or a
knowing violation of the criminal law or any Federal or State securities law.
The limitation does not change or eliminate a Director's or Officer's duty of
care to the Company; it only eliminates, in certain circumstances, monetary
damages occasioned by a breach of that duty. It should also be noted that such
limitation of liability in no way limits or otherwise affects liability for the
violation of, or otherwise relieves the Company or its Directors or Officers
from the necessity of complying with, the Federal or State securities laws.






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Indemnification

         The Articles of Incorporation of the Company mandate indemnification of
Directors and Officers as a result of liability incurred by them in proceedings
instituted against them by third parties, or by or on behalf of the Company
itself, relating to the manner in which they have performed their duties unless
they have been guilty of "willful misconduct or a knowing violation of the
criminal law" in the performance of their duties. The indemnification provision
is consistent with another recent amendment to the Corporation Act. Thus, the
protection of the proposed amendment will extend to grossly negligent conduct
but not to willful misconduct.

         The Company's Board of Directors is authorized to contract in advance
to indemnify any Director or Officer and to indemnify or contract in advance to
indemnify other persons including Directors and Officers of subsidiaries and
employees and agents of the Company and its subsidiaries, to the same extent
that it is required to indemnify Directors and Officers of the Company.

         The Act and the Company's Articles of Incorporation permit the
advancement of expenses incurred by a Director or Officer in a proceeding.

         The Company has entered into indemnification agreements with each of
its Directors and Officers, entitling them to (i) indemnification to the full
extent permitted by the Act, and (ii) reimbursement of all expense advancements,
including attorneys' fees, paid or incurred in connection with any claim
relating to any indemnifiable event.

Executive Officers

         For information concerning the Executive Officers of the Company, refer
to Part III, Item 10, found on pages 64 and 65 of this report.

ITEM 2    PROPERTIES

         The main office of the Bank, which is owned by the Bank, consists of
three contiguous buildings. The combined office is a two-story building of
masonry construction and contains approximately 6,200 square feet of space on
the first floor, all of which is used for a full-service banking operation,
including four teller windows, loan offices, an automatic-teller machine, and
customer service for Kenbridge. The bookkeeping and computer operations for the
entire bank are located on the second floor of the office, which has 3,200
square feet of floor space. Administrative offices for the entire Bank are also
located in this building. Additionally, there is an adjacent, but separate,
three-lane drive-up facility located just behind the office.

         The Victoria branch office, also owned by the Bank, was constructed in
1982 and contains approximately 2,500 square feet of floor space. It houses four
teller windows, has a drive-up unit, which serves two lanes of traffic, and an
automatic-teller machine.

         The Farmville branch office, which opened in June of 1989, contains
approximately 1,650 square feet of floor space and is a leased facility. The
Bank signed a new lease effective October 15, 1998. The lease has a five year
original term with five additional options to renew for additional twelve month
terms. The current monthly lease amount as of December 31, 2002 was $1,150. The
office contains three teller windows. Currently, the office has no drive-up
unit. The Bank added a third office to the Branch in 1998.

         The South Hill office, which opened for business in September, 1989, is
also housed in a leased facility. During 2000, the Bank renegotiated its lease
to extend the agreement to June 30, 2005. The lease provides for renewal options
of twelve month periods for an additional five years. The current monthly lease
amount as of December 31, 2002 was $1,850. This amount can be renegotiated in
August of 2003. This office contains approximately 2,900 square feet of floor
space and operates four teller windows, a drive-up unit, which serves two lanes
of traffic, and an automatic-teller machine.



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         In 1993, the Bank opened a second office in the Town of Farmville on
South Main Street at Milnwood Road. The office is a two story structure of
modern design. The first floor contains 3,967 square feet and provides space for
the operation of three loan offices, four teller windows, a large customer lobby
and new accounts area, a three-lane drive-up unit, and an automatic-teller
machine. The branch office's second floor has 2,240 square feet of space
available for future expansion.

         On May 31, 1996, the Bank opened a full-service branch in Crewe. The
office is a one story brick structure. The office contains 2,600 square feet of
floor space, which provides for an open lobby with three teller windows, two
loan offices, and a new accounts area. The office has a three-lane drive-up unit
with an automatic-teller machine.

         During 1999, the Bank opened three offices, one each in the Towns of
Chase City, Clarksville, and Lawrenceville.

         In Chase City, the Bank has remodeled a former banking office of a
state-wide financial institution facility and opened a full-service office in
January of 2001. The branch building consists of 2,142 square feet and contains
a lobby, teller windows, a two-lane drive-up unit, and automatic-teller machine.
The facility is constructed of brick and is situated in a shopping center on the
east side of town.

         During 2001, the Bank opened a full-service banking facility on Highway
15 South in Clarksville. The branch building consists of 1,680 square feet and
contains a lobby, teller windows, three offices, a two-lane drive-up and
automatic-teller unit. The facility is a modular unit.

         During 1999, the Bank began operating a full-service bank in a
temporary location in Lawrenceville. In 2000, the Bank moved to a permanent
banking facility which is a one-story brick building. The facility contains
2,021 square feet on the ground level which houses a lobby, teller stations, a
two-lane drive-up unit, and an automatic-teller machine. There is also a full
basement which is currently being utilized for storage.

         As of December 31, 2002, the Bank had begun negotiations to acquire
three adjoining lots in Blackstone, Virginia upon which a new facility, similar
in size and structure to the Bank's facility in Crewe, would be constructed.
Plans are to lease an adjacent lot and begin operating out of a leased,
temporary facility during the construction of the new branch building.

         A lease for the temporary Bank facility was entered into on December 9,
2002 and has a monthly payment of $775 for a term of no less than 12 months. The
lease for the vacant lot was entered into on December 11, 2002 and has a monthly
payment of $600. This lease terminates on January 2, 2004.

         The construction period is anticipated to last 12 months, after which
time the Bank would move its banking operations in Blackstone from the temporary
facility into the new building.

ITEM 3      LEGAL PROCEEDINGS

         None

ITEM 4      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None



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PART II

ITEM 5      MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS

Market for Common Equity

         The Company's stock is listed and quoted daily in the Virginia Over the
Counter Section. This information is supplied daily by the National Association
of Security Dealers to Virginia newspapers.

         The following table sets forth information concerning the closing
market price of the stock since its initial listing:

                              Closing Price
                             of Common Stock

         2002

First Quarter                      $10.60
Second Quarter                      13.00
Third Quarter                       12.00
Fourth Quarter                      12.60

          2001

First Quarter                      $ 9.25
Second Quarter                      10.00
Third Quarter                       10.00
Fourth Quarter                      10.00

          2000

First Quarter                      $ 9.00
Second Quarter                       8.88
Third Quarter                        9.75
Fourth Quarter                       9.25

         1999

First Quarter                      $12.50
Second Quarter                      12.75
Third Quarter                       12.00
Fourth Quarter                      10.75

         1998

First Quarter                      $19.00
Second Quarter                      19.00
Third Quarter                       15.50
Fourth Quarter                      13.75



         During 2002, the Company declared an $0.18 per share semi-annual
dividend in June and $0.20 per share semi-annual dividend in December. The
semi-annual dividends declared in 2001 amounted to $0.18 per share in June and
$0.18 per share in December.

         As of December 31, 2002, there were 950 stock certificates issued to
holders of record.


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Related Stockholder Matters

         Article III, Section 1 of the Articles of Incorporation of the Company
authorize the issuance of 200,000 shares of a preferred class stock with a par
value of $25.00. Except to the extent to which the Board of Directors shall have
specified voting power with respect to the preferred stock of any series and
except as otherwise provided by law, the exclusive voting power shall be vested
in the common stock. The dividends of the preferred stock shall have a fixed
rate of dividends if and when declared by the Board of Directors. Such dividends
shall be cumulative.

         As of December 31, 2002, there has been no issuance of preferred stock
as authorized in the Articles of Incorporation.





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ITEM 6      SELECTED FINANCIAL DATA
                                           Years Ended December 31,
                                 2002      2001      2000      1999      1998
                                 ----      ----      ----      ----      ----
                             (In thousands of dollars, except per share amounts)

Interest income                $ 17,047  $ 17,401  $ 16,422  $ 15,126  $ 14,328
Interest expense                  7,200     8,755     8,002     7,376     7,006
                               --------  --------  --------  --------  --------
Net interest income               9,847     8,646     8,420     7,750     7,322
Provision for loan losses           419       198       201       606       357
Other operating revenue           1,395     1,044     1,006       742       647
Other operating expense           6,085     5,600     5,069     4,317     3,825
                               --------  --------  --------  --------  --------

Income Before Income Taxes        4,738     3,892     4,156     3,569     3,787

Income Taxes                      1,340     1,156     1,311     1,057     1,143
                               --------  --------  --------  --------  --------

Net Income                        3,398     2,736     2,845     2,512     2,644

Per Share Data (1)
   Net income                      1.15      0.92      0.95      0.83      0.89
   Cash dividends declared         0.38      0.36      0.34      0.32      0.31

Balance Sheet Amounts
   (at end of period)
      Total assets              265,058   241,813   205,253   193,324   185,381
      Total loans (2)           198,256   176,077   163,038   150,675   133,033
      Total deposits            236,544   216,361   181,197   164,741   164,892
      Total equity               26,546    23,477    22,185    20,048    19,015

Book value per share
(at end of period)                 8.96      7.90      7.38      6.65      6.34

Selected Financial Ratios
(as a percentage)
 Net income to average equity     15.45     13.61     14.89     13.30     15.65
 Net income to average assets      1.39      1.23      1.42      1.31      1.53
 Loans to deposits (3)            83.81     82.20     90.90     92.39     81.62
 Primary capital to total
   assets (at end of
   period) (4)                    10.28     10.30     11.46     10.65     10.95
 Net interest yield (5)            4.37      4.12      4.50      4.33      4.54
 Allowance for loan losses
   to loans (at end of
   period) (6)                     1.00      1.00      1.01      1.00      1.16
 Nonperforming loans to loans
   (at end of period) (7)          0.05      0.70      0.92      1.04      1.05
 Net charge offs to average
   loans (3)                       0.11      0.05      0.04      0.45      0.15

(1) Average shares outstanding.
(2) Total loans net of unearned discount on installment loans and reserve for
       loan losses.
(3) For purposes of this ratio, loans represent gross loans less unearned
       interest income.
(4) Equity exclusive of unrealized securities gains (losses) plus allowance
       for loan loss less the deferred taxes related to loan losses to assets.
(5) Net interest income to total average earning assets.
(6) The difference of gross loans minus unearned interest income divided into
       the allowance for loan losses.
(7) Nonperforming loans are loans accounted for on a nonaccrual basis and loans
       which are contractually past due 90 days or more. Average loans are gross
       average loans minus the average unearned interest income.


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ITEM 7    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

         This section of the report should be read in conjunction with the
statistical information, financial statements and related notes, and the
selected financial data appearing elsewhere in the report. Since the Bank is the
only subsidiary of the Company, all operating data will be referred to in this
discussion as that of the Bank.

Overview

         The Company continued to grow through its subsidiary, Benchmark
Community Bank, as the Bank experienced steady growth in both loans and
deposits. As a result of record low interest rates, the Bank's overall cost of
deposits declined during the year, thus reducing interest expense which lead to
increased profitability. Loan growth, led by the Bank's Clarksville branch,
outpaced the growth of deposits, increasing the Bank's loan to deposit ratio. As
a result, earnings were enhanced through this increased utilization of resources
into high-yielding loans, as opposed to being placed in Federal funds or
investment securities. The decrease in the cost of deposits, coupled with
increased loan demand, served to increase net income to a record level in 2002,
surpassing the $3,000,000 mark for the first time in the Bank's history.

         Management continues to focus on growth by researching ways to improve
existing services, by implementing new services such as internet banking, and by
looking for additional expansion opportunities throughout Southside Virginia.
With this in mind, the Bank has made plans to establish a new branch location in
Blackstone, Virginia during the first quarter of 2003, increasing the total
number of office locations to ten.

A Comparison of 2002 Versus 2001

Results of Operations and Financial Conditions

         Net income of $3,398,040 in 2002 was an increase of $662,272 or 24.21%
from net income of $2,735,768 in 2001. Earnings per share of $1.15 in 2002
increased $0.23 or 25.00% from earnings per share of $0.92 in 2001.

         Growth in loans, with a corresponding but lesser growth in deposits,
resulted in an increase in the loan to deposit ratio to 83.81% from 82.20% for
the previous year. Gross loans grew $20,402,716 or 11.47% while deposits
increased $20,183,329 or 9.33% during the year.

         In 2002, the Bank achieved a return on average assets of 1.39% as
compared to a 1.23% return on average assets in 2001. Increased loan demand,
which provided a higher yielding alternative for incoming funds than short-term
investments, combined with a lower cost of funds due to declining interest
rates, accounted for the higher rate of return.

         Return on equity of 15.45% for the year ended 2002 reflected an
increase over the 2001 level of 13.61%. The higher rate of return resulted from
an increase in earnings due to the continued decline in interest rates, which
lowered the Bank's cost of funds, along with an increase in noninterest income
that served to offset a decline in interest income.

Net Interest Income

         Net interest income of $9,846,151 in 2002 reflected an increase of
$1,200,142 or 13.88% over net interest income of $8,646,009 in 2001.

         Total interest income of $17,046,551 in 2002 was down $354,515 or 2.04%
from total interest income of $17,401,066 in 2001. Total interest expense of
$7,200,400 in 2002 reflected a decrease of $1,554,657 or 17.76% from total
interest expense of $8,755,057 in 2001.





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         The increase in net interest income resulted from a continued decline
in interest rates, which, despite the negative impact on interest received from
loans, served to reduce the Bank's cost of funds. (Refer to Table D, "Analysis
of Changes in Net Interest Income," for an analysis of the impact of volume and
rate.)

         Although market rates declined in 2002, the Bank experienced a higher
interest margin. The cost of deposits dropped 126 basis points while the decline
in interest income rates amounted to 80 basis points, resulting in an interest
rate spread of 3.77% in 2002 versus an interest rate spread of 3.31% in 2001.
(Refer to Table C, "Interest Rates Earned and Paid," for further analysis of
interest rate activity.)

Loans

         The Bank utilizes the following types of loans in servicing the trade
area:

                Commercial (Time and Demand)            11.03%
                Consumer (Installment)                  15.08%
                Real Estate (Construction)               0.82%
                Real Estate (Mortgage)                  73.07%

         These types of loans have traditionally provided the Bank with a steady
source of quality interest-earning assets. The maturities of these loans range
from commercial loans and real estate construction loans maturing in less than
one year to installment and real estate credits that may exceed five years. With
the exception of home equity loans, which are short-term in nature, mortgage
loans, which represent 73.07% of the portfolio, are typically fifteen to twenty
year payback loans with three to five year balloon options. By setting
maturities of loans for a short-term, the Bank can effectively manage its
asset/liability mix, as most deposit accounts mature in one year or less.

Allowance for Loan Losses

         The 2002 year ending level of the allowance for loan losses amounted to
$1,982,559. This amount represented an increase of $207,927 or 11.72% over the
2001 level of $1,774,632. Loans collateralized by real estate represented a
majority of the loans. By obtaining a high degree of collateral, the Bank has
avoided a portion of credit risk; however, the Bank constantly monitors its loan
portfolio for credit weaknesses. As of the year end 2002, the Bank's allowance
for loan losses represented 1.00% of gross loans.

         The Bank incurred net charge offs for loan losses for the year of
$210,655. As a result of the increased level of net charge offs, the current
year provision was $220,696 higher when compared to the prior year. The year
2002 level represented a 111.53% increase over the amount expended in 2001.

Noninterest Income and Noninterest Expense

         Total noninterest income, i.e., fees charged for customer services, for
2002 was $1,395,329. This represents an increase of $351,941 or 33.73% over the
2001 level of $1,043,388. Gains were experienced in service charges on deposit
accounts and other operating income as the Bank increased its customer base due
to the continued growth of the Bank's branches.

         Total noninterest expense in 2002 of $6,084,979 reflects an increase of
$485,142 or 8.66% over the 2001 level of $5,599,837. The increase resulted from
normal increases in operating expenses, salaries, and employee benefits.

Premises and Equipment

         The Bank's premises and equipment increased $447,021 during the year.



<PAGE>

Page 13 of 87


              Increase in Capitalized Premises and Equipment


                                                         Equipment,
                                         Leasehold     Furniture, and
   Office/Area      Land     Building   Improvements      Fixtures

Kenbridge         $51,500    $     -      $     -         $ 57,333
Victoria                -          -            -           45,507
Farmville #1            -          -            -           43,102
South Hill              -          -            -           55,834
Farmville #2            -          -            -           50,237
Crewe                   -          -            -           18,934
Lawrenceville           -     28,921            -           26,287
Clarksville             -     27,162            -           17,776
Chase City              -          -            -           24,429
                  -------    -------      -------         --------

    Total         $51,500    $56,083      $     -         $339,439
                  =======    =======      =======         ========

Securities

         Pursuant to guidelines established in FAS 115, the Bank has elected to
classify a majority of its current portfolio as securities available-for-sale.
This category refers to investments that are not actively traded but are not
anticipated by management to be held-to-maturity. Typically, these types of
investments will be utilized by management to meet short-term asset/liability
management needs.

         For purposes of financial statement reporting, securities classified as
available-for-sale are to be reported at fair market value as of the date of the
statements; however, unrealized holding gains and losses are to be excluded from
earnings and reported as a net amount in a separate component of stockholders'
equity until realized. The impact of this unrealized gain on securities
positively impacted stockholders' equity in the amount of $701,647, therefore,
affecting the book value of the Company's stock. The book value per share of the
stock inclusive of the FAS 115 adjustment was $8.96, while the book value per
share is $8.72 when reported exclusive of the FAS 115 impact.

Off-Balance-Sheet Instruments/Credit Concentrations

         The Bank is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to facilitate the transaction of business
between these parties where the exact financial amount of the transaction is
unknown, but a limit can be projected. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. There is a fee charged for this service.

         As of December 31, 2002, the Bank had $1,152,056 in outstanding letters
of credit. These instruments are based on the financial strength of the customer
and the existing relationship between the Bank and the customer.

         At current year end, the Bank also had unused commitments resulting
from credit line deeds of trust, home equity lines, construction loans, and
unfunded business loans. The total amount of these commitments amounted to
$37,149,451.





<PAGE>

Page 14 of 87


Concentrations

         The Bank has no concentrations of credit involving an individual
borrower and his related interest. The Bank does have a concentration in loan
type in that a majority of the loan portfolio is secured by noncommercial real
estate. Due to the subjectivity of the real estate market to the condition of
the economy and sensitivity to interest rate fluctuation, there is an inherent
risk; however, the Bank has, as a matter of policy, a loan-to-collateral
percentage that allows for a level of decline in collateral value without
affecting the quality of the loan.

Liquidity

         The Bank's funding requirements are supplied by a wide range of
traditional banking sources, including various types of demand, money market,
savings, certificates of deposit, and Federal funds purchased. Large
certificates of deposit of $100,000 or more increased by $6,228,093 or 20.03% in
2002. These deposits currently represent 15.78% of the total deposit base. The
Bank feels that the large certificates are more of a function of customer
service than a competitive bid situation. The amount of these certificates of
deposit maturing during 2003 is $9,936,497, while $15,810,498 matures between
one and five years.

         A GAP analysis is presented in Table L. This analysis reflects the
difference between maturing and repricing of interest-earning assets and
interest-bearing liabilities. A positive gap indicates more assets are maturing
than liabilities. Conversely, a negative gap indicates more liabilities mature
than assets during a given period. Assets classified as immediately maturing are
those assets which can be repriced or converted to cash immediately upon demand.
Liabilities classified as immediately maturing are those which can be withdrawn
on demand except that the Bank has assigned a 90% retention rate on core
savings, money market, and checking deposits. The GAP analysis shows a net
positive gap of $11,894 when immediately maturing interest-bearing liabilities
are deducted from immediately maturing interest-earning assets. The cumulative
gap changes to a negative gap of $15,298 when comparing assets and liabilities
maturing up to one year; however, the cumulative gap shifts to a positive
position of $32,546 for the "over five years" period. The deficit gap results
from the customer preference for short-term liquidity in the current period of
fluctuating rates, which affects not only deposits but also callable
investments.

         The nature of the large gap deficit is an industry-wide situation that
is typical of the banking industry where a bulk of the assets is financed by
short-term deposits. To further compound the situation, Bank customers have
shown a preference for longer terms on loans versus deposits as financial rates
have continued to decline.

         The Bank is satisfied that it can meet the liquidity needs by utilizing
three to five year balloon notes for real estate financing and a one year
maturity for commercial loans. This strategy, while not meeting exact liquidity
needs on a dollar for dollar asset/liability mix, does provide a near match
without sacrificing a positive interest rate spread.

         To compensate for the resultant mismatching of assets and liabilities,
the Bank has invested in highly liquid investments. In the unlikely event of a
liquidity hardship, these investments are available to be sold to fund assets
currently being supported by deposit liabilities.

         The GAP model does not consider the impact of core deposit loyalty.
Management feels that these core deposits along with the highly marketable
securities available will provide sufficient reserves to fund any short-term
loss of deposits. As mentioned previously, management has factored in
anticipated retention levels for core deposits.

Capital Resources and Adequacy

         In the past, the Company has blended internally generated retained
earnings with capital stock sales to maintain a strong capital position
necessary to support future growth.




<PAGE>

Page 15 of 87


         The Company began a capital buyback program during 1999. Through this
program, the Company has repurchased 14,000 shares of stock amounting to
$141,500 during the year of 2002. The Company continued to experience strong
earnings through the operation of the Bank. Through earnings, the Company
generated an additional $2,270,446 in capital. This activity, plus the sale of
$89,450 common stock through the stock option plan, raised year end capital
exclusive of unrealized security gains net of tax effect to a level of
$25,844,260 or a 9.39% increase over the 2001 year ending level of $23,625,972.

         The primary capital to total assets ratio stands at 10.28% as of
December 31, 2002. This amount is well above current industry standards. Refer
to Item 14(d)(5) for additional capital ratio analysis. Due to the increase in
earnings, subsequent earnings retention, and sale of common stock, the Company's
capital position was strengthened and, as a result, the Company remains well
capitalized for the banking industry even after initiating a stock buyback
program.

         Pursuant to regulations of the Federal Reserve Board, the Company is
required to maintain certain minimum levels of capital in its bank subsidiary.
At December 31, 2002, the Bank maintained the following capital ratios:

         Total Risk-Based Capital Ratio                  11.46%
         Tier I Risk-Based Capital Ratio                 10.54%
         Tier I Leverage Ratio                            8.87%

         These ratios exceed the minimum ratios required by regulatory
authorities for the Bank to be considered well capitalized.

Inflationary Factors

         The Bank's earnings are greatly impacted by inflation and the actions
of the Federal Reserve Board. The year 2002 was a period of falling interest
rates as the Federal Reserve attempted to stimulate the economy by lowering the
Federal discount window rate and the targeted Federal funds rate. The interest
spread margin for the year was 3.77% versus a 3.31% margin spread for 2001.
Refer to Table C.

Lending and Funding Strategies

         The Bank relies on traditional sources of funding such as demand
deposits, interest- bearing checking, money market deposit accounts, savings
accounts, and certificates of deposit for funding its activities. These funds
are subsequently loaned to the local community, with the exception of cash and
prudent liquidity needs. Traditionally, the Bank has experienced a strong loan
demand.

         At year end 2002, the loan-to-deposit ratio had risen as the rate of
loan growth exceeded inflow of deposits.

Looking Forward

         The Bank has experienced tremendous success in its operation,
particularly since 1989 when it moved into two new market areas and raised
additional capital. The capital provided a solid foundation upon which to grow
by affording the Bank a degree of aggressiveness in operation during a favorable
economic climate for banks and banking services. This aggressiveness took the
form of expansion and competitive pricing of services. Management plans to
utilize this capital in a way that will increase market share without
sacrificing quality of service to its customers.

         The Bank experienced significant growth during the last decade. By
expanding the trade area into neighboring counties and towns, the Bank has been
able to attract quality loans and deposits at profitable levels. As management
looks to the future, it feels that the trade area provides future growth
potential as the Bank offers new financial services. The new data processing
system acquired during 1998 has the capability to expand the Bank's services
beyond the traditional services offered, thus providing a solid technological
platform upon which to grow.




<PAGE>

Page 16 of 87


         During 2002, the Bank also completed the installation of a wide area
computer network, linking all of its offices, and introduced internet banking
for its customers. Additionally, the implementation of a check imaging system,
along with new lending and deposit documentation software, will allow the Bank
to realize operational efficiencies moving forward. The Bank has also
implemented a technology plan to allow for the periodic review of emerging
technologies that may provide additional opportunities for improved service and
cost efficiency.

A Comparison of 2001 Versus 2000

Results of Operations and Financial Conditions

         Net income of $2,735,768 in 2001 resulted in a decrease of $109,293 or
3.84% from net income of $2,845,061 in 2000. Earnings per share of $0.92 in 2001
decreased $0.03 or 3.16% from earnings per share of $0.95 in 2000.

         Growth in deposits with a corresponding but lesser growth in loans
resulted in a decline in the loan to deposit ratio to 82.20% from 90.90% for the
previous year. Deposits increased $35,164,294 or 19.41% while gross loans grew
$13,145,692 or 7.98%.

         In 2001, the Bank achieved a return on average assets of 1.23% as
compared to a 1.42% return on average assets in 2000. The lower rate of return
was a result of two factors. First, the demand for loans did not grow as fast as
deposits resulting in a drop in the loan to deposit ratio, and, secondly, the
market rates fell putting pressure on the interest margin spread.

         The year ended 2001 reflected a decrease in return on equity as net
income to average equity declined to 13.61% as compared to the 2000 level of
14.89%. The lower rate of return resulted from a decline in earnings as the
nationwide economic growth dipped after a sustained level of growth throughout
the 1990's.

Net Interest Income

         Net interest income of $8,646,009 in 2001 reflected an increase of
$226,192 or 2.69% over net interest income of $8,419,817 in 2000.

         Total interest income of $17,401,066 in 2001 grew by $979,348 or 5.96%
over total interest income of $16,421,718 in 2000. Total interest expense of
$8,755,057 in 2001 reflected an increase of $753,156 or 9.41% over total
interest expense of $8,001,901 in 2000.

         The increase in interest income resulted from an increase in loans
despite a decline in interest rates. (Refer to Table D, "Analysis of Changes in
Net Interest Income," for an analysis of the impact of volume and rate.)

         Due to a decline in market rates, the Bank experienced a lower interest
margin. The cost of deposits dropped 25 basis points while the decline in
interest income rates amounted to 41 basis points. (Refer to Table C, "Interest
Rates Earned and Paid," for further analysis of interest rate activity.)

Loans

         The Bank utilizes the following types of loans in servicing the trade
area:

         Commercial (Time and Demand)                   10.85%
         Consumer (Installment)                         18.53%
         Real Estate (Construction)                       .53%
         Real Estate (Mortgage)                         70.09%






<PAGE>

Page 17 of 87

         These types of loans have traditionally provided the Bank with a steady
source of quality interest-earning assets. The maturities of these loans range
from commercial loans and real estate construction loans maturing in less than
one year to installment and real estate credits that may exceed five years. With
the exception of home equity loans, which are short-term in nature, mortgage
loans, which represent 70.09% of the portfolio, are typically fifteen to twenty
year payback loans with three to five year balloon options. By setting
maturities of loans for a short-term, the Bank can effectively manage its
asset/liability mix, as most deposit accounts mature in one year or less.

Allowance for Loan Losses

         The 2001 year ending level of the allowance for loan losses amounted to
$1,774,632. This amount represented an increase of $106,909 or 6.41% over the
2000 level of $1,667,723. Loans collateralized by real estate represented a
majority of the loans. By obtaining a high degree of collateral, the Bank has
avoided a portion of credit risk; however, the Bank constantly monitors its loan
portfolio for credit weaknesses. As of the year end 2001, the Bank's allowance
for loan losses represented 1.0% of gross loans.

         The Bank incurred net charge offs for loan losses for the year of
$90,977. As a result of the low level of net charge offs, the current year
provision was $3,301 lower when compared to the prior year. The year 2001 level
represented a 1.64% decrease over the amount expended in 2000.

Noninterest Income and Noninterest Expense

         Total noninterest income, i.e., fees charged for customer services, for
2001 was $1,043,388. This represents an increase of $36,750 or 3.65% over the
2000 level of $1,006,638. Gains were experienced in service charges on deposit
accounts and other operating income as the Bank increased its customer base due
to the growth of the new full-service branches.

         Total noninterest expense in 2001 of $5,599,837 reflects an increase of
$531,005 or 10.48% over the 2000 level of $5,068,832. The increase resulted from
normal increases in operations and salaries and benefits, as the Bank's three
newest offices were in full operation throughout the year.

Premises and Equipment

         The Bank's premises and equipment increased $1,100,702 during the year.
The activity herein detailed includes a transfer of $55,848 from construction in
progress.

              Increase in Capitalized Premises and Equipment


                                                         Equipment,
                                         Leasehold     Furniture, and
   Office/Area      Land     Building   Improvements      Fixtures

Kenbridge         $     -    $  2,911     $    -          $ 45,097
Victoria                -       2,017          -            41,192
Farmville #1            -           -          -            43,010
South Hill              -           -      2,735            42,278
Farmville #2            -      19,750          -            41,288
Crewe                   -           -          -            35,342
Lawrenceville           -           -          -            39,860
Clarksville        45,312     320,673          -           134,627
Chase City              -     191,180          -           149,278
                  -------    --------     ------          --------

     Total        $45,312    $536,531     $2,735          $571,972
                  =======    ========     ======          ========

<PAGE>

Page 18 of 87


Securities

         Pursuant to guidelines established in FAS 115, the Bank has elected to
classify a majority of its current portfolio as securities available-for-sale.
This category refers to investments that are not actively traded but are not
anticipated by management to be held-to-maturity. Typically, these types of
investments will be utilized by management to meet short-term asset/liability
management needs.

         For purposes of financial statement reporting, securities classified as
available-for-sale are to be reported at fair market value as of the date of the
statements; however, unrealized holding gains and losses are to be excluded from
earnings and reported as a net amount in a separate component of stockholders'
equity until realized. The impact of this unrealized loss on securities
negatively impacted stockholders' equity in the amount of $148,811, therefore,
affecting the book value of the Company's stock. The book value per share of the
stock inclusive of the FAS 115 adjustment was $7.90, while the book value per
share is $7.95 when reported exclusive of the FAS 115 impact.

Off-Balance-Sheet Instruments/Credit Concentrations

         The Bank is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to facilitate the transaction of business
between these parties where the exact financial amount of the transaction is
unknown, but a limit can be projected. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. There is a fee charged for this service.

         As of December 31, 2001, the Bank had $914,814 in outstanding letters
of credit. These instruments are based on the financial strength of the customer
and the existing relationship between the Bank and the customer.

         At current year end, the Bank also had unused commitments resulting
from credit line deeds of trust, home equity lines, and unfunded business loans.
The total amount of these commitments amounted to $29,349,224.

Concentrations

         The Bank has no concentrations of credit involving an individual
borrower and his related interest. The Bank does have a concentration in loan
type in that a majority of the loan portfolio is secured by noncommercial real
estate. Due to the subjectivity of the real estate market to the condition of
the economy and sensitivity to interest rate fluctuation, there is an inherent
risk; however, the Bank has, as a matter of policy, a loan-to-collateral
percentage that allows for a level of decline in collateral value without
affecting the quality of the loan.

Liquidity

         The Bank's funding requirements are supplied by a wide range of
traditional banking sources, including various types of demand, money market,
savings, certificates of deposit, and Federal funds purchased. Large
certificates of deposit of $100,000 or more increased by $11,737,464 or 60.61%
in 2001. These deposits currently represent 14.37% of the total deposit base.
The Bank feels that the large certificates are more of a function of customer
service than a competitive bid situation. The amount of these certificates of
deposit maturing during 2002 is $20,531,603, while $10,569,972 matures between
one and five years.








<PAGE>

Page 19 of 87


         A GAP analysis is presented in Table L. This analysis reflects the
difference between maturing and repricing of interest-earning assets and
interest-bearing liabilities. A positive gap indicates more assets are maturing
than liabilities. Conversely, a negative gap indicates more liabilities mature
than assets during a given period. Assets classified as immediately maturing are
those assets which can be repriced or converted to cash immediately upon demand.
Liabilities classified as immediately maturing are those which can be withdrawn
on demand except that the Bank has assigned a 90% retention rate on core
deposits. The GAP analysis shows a net positive gap of $8,530 when immediately
maturing interest-bearing liabilities are deducted from immediately maturing
interest-earning assets. The cumulative gap changes to a negative gap of $27,049
when comparing assets and liabilities maturing up to one year; however, the
cumulative gap shifts to a positive position of $38,084 for over five years. The
deficit gap results from the customer preference for short-term liquidity in the
current period of fluctuating rates, which affects not only deposits but also
callable investments.

         The nature of the large gap deficit is an industry-wide situation that
is typical of the banking industry where a bulk of the assets is financed by
short-term deposits. To further compound the situation, Bank customers have
shown a preference for longer terms on loans versus deposits as financial rates
fluctuate.

         The Bank is satisfied that it can meet the liquidity needs by utilizing
three to five year balloon notes for real estate financing and a one year
maturity for commercial loans. This strategy, while not meeting exact liquidity
needs on a dollar for dollar asset/liability mix, does provide a near match
without sacrificing a positive interest rate spread.

         To compensate for the resultant mismatching of assets and liabilities,
the Bank has invested in highly liquid investments. In the unlikely event of a
liquidity hardship, these investments are available to be sold to fund assets
currently being supported by deposit liabilities.

         The GAP model does not consider the impact of core deposit loyalty.
Management feels that these core deposits along with the highly marketable
securities available will provide sufficient reserves to fund any short-term
loss of deposits. As mentioned previously, management has factored in an
anticipated retention level for core deposits.

Capital Resources and Adequacy

         In the past, the Company has blended internally generated retained
earnings with capital stock sales to maintain a strong capital position
necessary to support future growth.

         The Company began a capital buyback program during 1999. Through this
program, the Company has repurchased 39,200 shares of stock amounting to
$376,769 during the year of 2001. The Company continued to experience strong
earnings through the operation of the Bank. Through earnings, the Company
generated an additional $1,664,244 in capital. This activity, plus the sale of
$22,140 common stock through the stock option plan, raised year end capital
exclusive of unrealized security gains net of tax effect to a level of
$23,625,972 or a 5.87% increase over the 2000 year ending level of $22,316,522.

         The primary capital to total assets ratio stands at 10.30% as of
December 31, 2001. This amount is well above current industry standards. Refer
to Item 14(d)(5) for additional capital ratio analysis. Due to the increase in
earnings, subsequent earnings retention, and sale of common stock, the Company's
capital position was strengthened and, as a result, the Company remains well
capitalized for the banking industry even after initiating a stock buyback
program.

         Pursuant to regulations of the Federal Reserve Board, the Company is
required to maintain certain minimum levels of capital in its bank subsidiary.
At December 31, 2001, the Bank maintained the following capital ratios:

         Total Risk-Based Capital Ratio                 13.10%
         Tier I Risk-Based Capital Ratio                12.02%
         Tier I Leverage Ratio                          08.33%



<PAGE>

Page 20 of 87


         These ratios exceed the minimum ratios required by regulatory
authorities for the Bank to be considered well capitalized.

Inflationary Factors

         The Bank's earnings are greatly impacted by inflation and the actions
of the Federal Reserve Board. The year 2001 was a period of falling interest
rates as the Federal Reserve attempted to stimulate the economy by lowering the
Federal discount window rate. The interest spread margin for the year was 3.93%
versus a 4.18% margin spread for 2000. Refer to Table C.

Lending and Funding Strategies

         The Bank relies on traditional sources of funding such as demand
deposits, interest- bearing checking, money market deposit accounts, savings
accounts, and certificates of deposit for funding its activities. These funds
are subsequently loaned to the local community, with the exception of cash and
prudent liquidity needs. Traditionally, the Bank has experienced a strong loan
demand.

         At year end 2001, the loan-to-deposit ratio had fallen as the rate of
deposit growth exceeded loan production.





<PAGE>


Page 21 of 87
TABLE A.  COMPARATIVE SUMMARY OF EARNINGS
                                            Years Ending December 31,
                                        2002           2001           2000
                                (In thousands of dollars, except per share data)

Interest Income
  Interest and fees on loans        $      15,383  $      15,611  $      14,557
  Interest on investment securities
    U. S. Government agencies
      and mortgage backed securities          806            721            980
    State and political subdivisions          746            579            451
    Other securities                            -             10             24
    Interest on Federal funds sold            112            481            410
                                    -------------  -------------  -------------

          Total Interest Income            17,047         17,402         16,422

Interest Expense
  Interest-bearing checking deposits          430            626            768
  Savings deposits                            183            250            287
  Time deposits                             6,577          7,879          6,892
  Federal funds purchased                      10              -             54
  Other                                         -              -              1
                                    -------------  -------------  -------------

          Total Interest Expense            7,200          8,755          8,002
                                    -------------  -------------  -------------

Net Interest Income                         9,847          8,647          8,420

Provision for Loan Losses                     419            198            201
                                    -------------  -------------  -------------

          Net Interest Income
            After Provision for
            Loan Losses                     9,428          8,449          8,219

Noninterest Income
  Service charges on deposit accounts         641            555            509
  Other operating income                      646            482            456
  Net investment securities gains
     (losses)                                   9              2             (3)
  Gain (Loss) on sale of other assets          58              4             45
  Dividends                                    41              -              -
                                    -------------  -------------  -------------

          Total Noninterest Income          1,395          1,043          1,007

Noninterest Expense
  Salaries                                  3,085          2,837          2,661
  Employee benefits                           866            652            600
  Occupancy expense                           338            327            297
  Other operating expense                   1,796          1,784          1,512
                                    -------------  -------------  -------------

          Total Noninterest Expense         6,085          5,600          5,070
                                    -------------  -------------  -------------
Net Income Before Taxes                     4,738          3,892          4,156
Provision for Income Tax                    1,340          1,155          1,311
                                    -------------  -------------  -------------
          Net Income                $       3,398  $       2,737  $       2,845
                                    =============  =============  =============
Per Share - Based on Weighted Average
   Net income                       $        1.15           0.92           0.95
   Average shares outstanding       2,967,443.297  2,970,003.060  3,008,522.578


<PAGE>

Page 22 of 87


TABLE B.  AVERAGE BALANCE SHEETS

                            (In thousands of dollars)

                                          Years Ended December 31,
                                  2002              2001              2000
                                  ----              ----              ----

                            Amount     %      Amount     %      Amount     %

Assets
  Cash and due from banks  $  8,652    3.55  $  6,491    2.92  $  5,480    2.74
  Investment securities      31,843   13.05    24,282   10.94    24,529   12.28
  Federal funds sold          7,543    3.09    14,225    6.41     6,351    3.18
  Loans (net)               186,078   76.28   169,434   76.31   156,089   78.13
  Bank premises and
     equipment                4,319    1.77     3,981    1.79     3,673    1.84
  Accrued interest            1,395    0.57     1,599    0.72     1,578    0.79
  Cash value life insurance   1,972    0.81         -       -         -       -
  Other assets                2,150    0.88     2,014    0.91     2,072    1.04
                           --------  ------  --------  ------  --------  ------

                           $243,952  100.00  $222,026  100.00  $199,772  100.00
                           ========  ======  ========  ======  ========  ======

Liabilities and Stockholders' Equity
  Deposits
    Demand                 $ 47,728   19.57  $ 44,599   20.09  $ 41,582   20.81
    Savings and MMA          26,613   10.91    19,859    8.94    17,591    8.81
    Time                    145,881   59.80   136,054   61.28   119,671   59.90
  Federal funds purchased       427    0.18         -       -       867    0.43
  Accrued interest              767    0.31       929    0.42       810    0.41
  Other liabilities             546    0.22       485    0.22       150    0.08
  Stockholders' equity       21,990    9.01    20,100    9.05    19,101    9.56
                           --------  ------  --------  ------  --------  ------

                           $243,952  100.00  $222,026  100.00  $199,772  100.00
                           ========  ======  ========  ======  ========  ======



<PAGE>



Page 23 of 87


TABLE C.  INTEREST RATES EARNED AND PAID (In thousands of dollars)
<TABLE>
<CAPTION>
<S>                                    <C>       <C>       <C>      <C>       <C>       <C>     <C>       <C>       <C>

                                                  2002                         2001                        2000
                                                  ----                         ----                        ----
                                        Average            Yield/    Average            Yield/   Average            Yield/
Description                             Balance  Interest   Rate     Balance  Interest   Rate    Balance  Interest   Rate
-----------                             -------  --------   ----     -------  --------   ----    -------  --------   ----

Interest-Earning Assets
   Investment securities               $ 31,843  $ 1,552    4.87%   $ 24,282  $ 1,309    5.39%  $ 24,529  $ 1,455    5.93%
   Federal funds sold                     7,543      112    1.48%     14,225      481    3.38%     6,351      410    6.46%
   Loans (1) (2)                        187,950   15,383    8.18%    171,145   15,611    9.12%   157,671   14,557    9.23%
                                       --------  -------            --------  -------           --------  -------

                                       $227,336   17,047    7.50%   $209,652   17,401    8.30%  $188,551   16,422    8.71%
                                       ========                     ========                    ========

Interest-Bearing Liabilities
   Deposits                            $192,655    7,190    3.73%   $175,291    8,755    4.99%  $157,028    7,948    5.06%
   Federal funds purchased                  427       10    2.34%          -        -    0.00%       867       54    6.23%
                                       --------  -------    -----   --------  -------    -----  --------  -------    -----

          Total Interest-Bearing
             Liabilities               $193,082    7,200    3.73%   $175,291    8,755    4.99%  $157,895    8,002    5.07%
                                       ========  -------            ========  -------           ========  -------

Net interest income/yield (3) (4)                $ 9,847                      $ 8,646                     $ 8,420
                                                 =======                      =======                     =======

Interest spread (5)                                         3.77%                        3.31%                       3.64%
</TABLE>




(1) Loans net of unearned income.

(2) These figures do not reflect interest and fees to be collected on nonaccrual
    loans. To date, the impact of nonaccrual loans on the interest income
    earned has been minimal.  Refer to Table G.

(3) Net interest income is the difference between income from earning assets and
    interest expense.

(4) Net interest yield is net interest income divided by total average earning
    assets.

(5) Interest spread is the difference between the average interest rate received
    on earning assets and the average interest rate paid for interest-earning
    liabilities.



<PAGE>


Page 24 of 87


TABLE D.  ANALYSIS OF CHANGE IN NET INTEREST INCOME (In thousands of dollars)
<TABLE>
<CAPTION>
<S>                                     <C>       <C>        <C>          <C>       <C>        <C>

                                              Year 2002 over 2001               Year 2001 over 2000
                                        Increase (Decrease)    Total      Increase (Decrease)    Total
                                         Due to Change In:    Increase     Due to Change In:    Increase
                                         Volume     Rate     (Decrease)    Volume    Rate      (Decrease)

Increase (Decrease) in
   Investment securities                $   369   $ (126)      $  243      $   50   $(197)       $ (147)
   Federal funds sold                      (226)    (143)        (369)        510    (438)           72
   Loans                                    157     (385)        (228)      1,240    (186)        1,054
                                        --------  -------      -------     -------  ------       -------

          Total                             300     (654)        (354)      1,800    (821)          979

Interest Expense
   Deposit accounts                       1,343   (2,908)      (1,565)      1,108    (301)          807
   Federal funds purchased                   10        -           10         (54)      -           (54)
                                        --------  -------      -------     -------  ------       -------

          Total                           1,353   (2,908)      (1,555)      1,054    (301)          753
                                        --------  -------      -------     -------  ------       -------
Increase (Decrease) in
   Net Interest Income                  $(1,053)  $2,254       $1,201      $  746   $(520)       $  226
                                        ========  =======      =======     =======  ======       =======


                                              Year 2000 over 1999
                                        Increase (Decrease)    Total
                                         Due to Change In:    Increase
                                         Volume     Rate     (Decrease)
Increase (Decrease) in
   Investment securities                $  (185)  $   87       $  (98)
   Federal funds sold                       (78)     124           46
   Loans                                  1,298       50        1,348
                                        --------  -------      -------

          Total                           1,035      261        1,296

Interest Expense
   Deposit accounts                         242      370          612
   Federal funds purchased                    3       10           13
                                        --------  -------      -------

          Total                             245      380          625
                                        --------  -------      -------

Increase (Decrease) in
   Net Interest Income                  $   790   $ (119)      $  671
                                        ========  =======      =======
</TABLE>



<PAGE>


Page 25 of 87


TABLE E.  INVESTMENT SECURITIES

         The carrying amount and approximate market values of investment
securities are summarized below:

                                  Book      Unrealized  Unrealized     Market
                                  Value        Gains      Losses       Value

Available-for-Sale
  December 31, 2002
   Mortgage backed securities  $10,849,727  $  363,783   $      -   $11,213,510
   State and political
     subdivisions               14,858,319     699,318          -    15,557,637
   Other securities                195,490           -          -       195,490
                               -----------  ----------   --------   -----------

                               $25,903,536  $1,063,101   $      -   $26,966,637
                               ===========  ==========   ========   ===========

  December 31, 2001
   U. S. Government agencies   $   497,917  $    3,682   $      -   $   501,599
   Mortgage backed securities   17,513,927      29,082    213,314    17,329,695
   State and political
      subdivisions              17,049,625     116,902    161,826    17,004,701
   Other securities                195,490           -          -       195,490
                               -----------  ----------   --------   -----------

                               $35,256,959  $  149,666   $375,140   $35,031,485
                               ===========  ==========   ========   ===========
Held-to-Maturity
  December 31, 2002
   Mortgage backed securities  $         -  $        -   $      -   $         -
   State and political
      subdivisions                 511,809      17,497          -       529,306
                               -----------  ----------   --------   -----------

                               $   511,809  $   17,497   $      -   $   529,306
                               ===========  ==========   ========   ===========
  December 31, 2001
   U. S. Government agencies   $ 1,000,000  $      900   $      -   $ 1,000,900
   State and political
      subdivisions                 513,266       9,341          -       522,607
                               -----------  ----------   --------   -----------

                               $ 1,513,266  $   10,241   $      -   $ 1,523,507
                               ===========  ==========   ========   ===========

         The maturities of investment securities at December 31, 2002 were as
follows:

                                   Book Value      Market Value

Available-for-Sale
   Due in one year or less        $ 1,265,289     $   1,281,024
   Due from one to five years       8,960,758         9,236,404
   Due from five to ten years      13,076,683        13,749,587
   After ten years                  2,405,316         2,504,132
   Other securities                   195,490           195,490

Held-to-Maturity
   Due from one to five years         511,809           529,306


         Securities having a market value of $8,994,013 and $5,736,895 at
December 31, 2002 and 2001, respectively, were pledged to secure public deposits
and for other purposes.

         In the event of the sale of securities, the cost basis of the security,
adjusted for the amortization of premium or discounts, will be used when
calculating gains or losses.



<PAGE>

Page 26 of 87


         The maturity distribution, book value, and approximate tax equivalent
yield (assuming a 34% Federal income tax rate) of the investment securities
portfolio at December 31, 2002 is presented in the following table (in thousands
of dollars):

<TABLE>
<CAPTION>
<S>                     <C>      <C>       <C>      <C>        <C>       <C>       <C>      <C>
                                                       Maturity

                                            After One but       After Five but
                        Within One Year      Within Five          Within Ten          After Ten
                        Amount  Yield(2)   Amount   Yield(2)   Amount   Yield(2)   Amount  Yield(2)

Mortgage Backed
   Securities           $    -   0.000%    $  442   5.630%     $10,408   5.450%    $    -   0.000%
State and Political
   Subdivisions              -   0.000%     2,301   6.580%       9,139   6.367%     3,930   6.577%
Other                        -   0.000%         -   0.000%           -   0.000%         -   0.000%
                      --------             ------              -------             ------
          Total(1)    $      -   0.000%    $2,743   0.000%     $19,547   0.000%    $3,930   0.000%
                      ========             ======              =======             ======
</TABLE>



(1) Values stated at book value, exclusive of other securities, which include
    Federal Reserve Bank stock, Community Bankers' Bank stock, and Bankers'
    Title, which amount to $195,490 at year end 2002.

(2) The yield is the weighted average Federal Tax Equivalent yield on cost.




<PAGE>


Page 27 of 87


TABLE F.  LOAN PORTFOLIO

         The table below classifies gross loans by major category and percentage
distribution at December 31 for 2002, 2001, and 2000:

                          2002                 2001                 2000
                     Amount       %       Amount       %       Amount        %

Commercial        $ 21,872,278  11.03  $ 19,293,070  10.85  $ 19,810,083  12.03
Installment         29,903,542  15.08    32,954,231  18.53    27,509,990  16.70
Real Estate -
   Construction      1,619,807   0.82       947,775   0.53     1,211,625   0.74
Real Estate -
   Mortgage        144,860,038  73.07   124,657,873  70.09   116,185,571  70.53


         The following table shows maturities of the major loan categories and
their sensitivity to changes in investment rates at December 31, 2002 for fixed
interest rate and floating interest rate loans:

                                          Due After
                                          One Year
                             One Year     but Within   Due After
                             or Less      Five Years   Five Years
                            Fixed Rate    Fixed Rate   Fixed Rate     Total

Commercial                 $19,980,563  $  1,031,196  $         -  $ 21,011,759
Installment                  2,703,565    26,381,740      765,111    29,850,416
Real Estate - Construction   1,619,807             -            -     1,619,807
Real Estate - Mortgage      28,840,350    95,020,192   14,398,859   138,259,401
                           -----------  ------------  -----------  ------------

     Total                 $53,144,285  $122,433,128  $15,163,970  $190,741,383
                           ===========  ============  ===========  ============


                                       Over One
                                       Year but
                         One Year     Within Five       Over
                         or Less        Years         Five Years
                      Floating Rate  Floating Rate  Floating Rate      Total

Commercial             $   765,105   $     95,414    $         -   $    860,519
Installment                 15,932         37,194              -         53,126
Real Estate - Mortgage   5,476,853      1,123,784              -      6,600,637
                       -----------   ------------    -----------   ------------

     Total             $ 6,257,890   $  1,256,392    $         -   $  7,514,282
                       ===========   ============    ===========   ============


<PAGE>


Page 28 of 87


TABLE G.  NONPERFORMING LOANS

         The loan portfolio of the Bank is reviewed by senior officers to
evaluate loan performance. The frequency of the review is based on predefined
guidelines approved by the Board of Directors that include individual review of
certain loans by the Loan Committee and the Board if certain past due or
nonperformance criteria are met. The areas of criteria include in part net
worth, credit history, and customer relationship. The evaluations emphasize
different factors depending upon the type of loan involved. Commercial and real
estate loans are reviewed on the basis of estimated net realizable value through
an evaluation of collateral and the financial strength of the borrower.
Installment loans are evaluated largely on the basis of delinquency data because
of the large number of such loans and relatively small size of each individual
loan.

         Management's review of commercial and other loans may result in a
determination that a loan should be placed on a nonaccrual basis. Nonaccrual
loans consist of loans which are both contractually past due 90 days or more and
are not considered fully secured or in the process of liquidation. It is the
policy of the Bank to discontinue the accrual of interest of any loan on which
full collection of principal and/or interest is doubtful. Subsequent collection
of interest is recognized as income on a cash basis upon receipt. Placing a loan
on nonaccrual status for the purpose of income recognition is not in itself a
reliable indication of potential loss of principal. Other factors, such as the
value of the collateral securing the loan and the financial condition of the
borrower, serve as more reliable indications of potential loss of principal.

         Nonperforming loans consist of loans accounted for on a nonaccrual
basis and loans which are contractually past due 90 days or more as to interest
and/or principal payments regardless of the amount of collateral held. The
following table presents information concerning nonperforming loans for the
periods indicated:

                                                              December 31,
                                                         2002     2001    2000
                                                         ----     ----    ----
                                                       (In thousands of dollars)

Commercial
  Nonaccrual                                            $    -   $   -   $    -
  Contractually past due 90 days or more                     -      18        6

Installment
  Nonaccrual                                                 -      74       22
  Contractually past due 90 days or more                    53       -       40

Real Estate
  Nonaccrual                                             1,048     604      393
  Contractually past due 90 days or more                    97     273      989
                                                        ------   -----   ------

                                                        $1,198   $ 969   $1,450
                                                        ======   =====   ======

Nonperforming loans to gross loans at year end           0.60%   0.54%    0.92%

Effect of nonaccrual loans on interest revenue          $    9   $  34   $   37



<PAGE>


Page 29 of 87


TABLE H.  SUMMARY OF LOAN LOSS EXPERIENCE

         Loan losses have not been a significant negative factor for the Bank.
The following table presents the Bank's loan loss experience and selected loan
ratios for the three years ended December 31, 2002, 2001, and 2000:

                                                   2002       2001       2000
                                                   ----       ----       ----
                                                    (In thousands of dollars)

Allowance for loan losses at beginning of year   $  1,775   $  1,668   $  1,523

Loan Charge Offs
   Commercial                                           -         (1)       (35)
   Installment                                       (192)      (242)      (181)
   Real Estate                                        (82)        (9)       (60)
                                                 ---------  ---------  ---------

               Total Charge Offs                     (274)      (252)      (276)

Recoveries of Loans Previously Charged Off
   Commercial                                           -          -        107
   Installment                                         63        118        100
   Real Estate                                          -         43         13
                                                 ---------  ---------  ---------

               Total Recoveries                        63        161        220
                                                 ---------  ---------  ---------

Net loans charged off                                (211)       (91)       (56)

Provision for loan losses                             418        198        201
                                                 ---------  ---------  ---------

Allowance for loan losses at end of year         $  1,982   $  1,775   $  1,668
                                                 =========  =========  =========

Average total loans (net of unearned income)     $187,950   $171,149   $157,671
Total loans (net of unearned income) at
   year end                                       198,255    177,852    164,706

Selected Loan Loss Ratios
   Net charge offs to average loans                 0.11%      0.05%      0.04%
   Provision for loan losses to average loans       0.22%      0.12%      0.13%
   Provision for loan losses to net
      charge offs %                               198.10%    217.58%    358.93%
   Allowance for loan losses to year end loans      1.00%      1.00%      1.01%
   Loan loss coverage(1)                           24.44X     44.95X     77.81X












(1) Income before income taxes plus provision for loan losses, divided by net
    charge offs.



<PAGE>



Page 30 of 87


TABLE I.  COMPOSITION OF ALLOWANCE FOR LOAN LOSSES (In thousands of dollars)

<TABLE>
<CAPTION>
<S>                        <C>        <C>        <C>          <C>        <C>         <C>          <C>        <C>        <C>
                                        2002                               2001                                2000
                                        ----                               ----                                ----
                                                 Percentage                          Percentage                         Percentage
                           Allowance  Breakdown   of Loans    Allowance  Breakdown    of Loans    Allowance  Breakdown   of Loans
                            Amount        %      Outstanding   Amount        %       Outstanding   Amount        %      Outstanding
                            ------        -      -----------   ------        -       -----------   ------        -      -----------

Commercial                  $   99       4.99       11.03          90       5.00        10.85         215      12.89       12.03
Installment                    693      34.96       15.08         990      55.00        18.53         689      41.31       16.70
Real Estate - Construction       -          -        0.82           -          -         0.53           -          -        0.74
Real Estate - Mortgage       1,190      60.05       73.07         720      40.00        70.09         764      45.80       70.53
                            ------     ------      ------      ------     ------       ------      ------     ------      ------

          Total             $1,982     100.00      100.00      $1,800     100.00       100.00      $1,668     100.00      100.00
                            ======     ======      ======      ======     ======       ======      ======     ======      ======
</TABLE>



<PAGE>


Page 31 of 87


TABLE J.  DEPOSITS

         The breakdown on average deposits for the years indicated is as follows
(in thousands of dollars):

                                     2002             2001             2000
                                     ----             ----             ----
                                Average          Average          Average
                                Balance  Rate    Balance  Rate    Balance  Rate

Noninterest-bearing demand
   deposits                    $ 27,567     -   $ 25,221     -   $ 21,816     -
Interest-bearing demand
   deposits                      20,161  0.90     19,378  1.80     19,766  2.59
Money market accounts            13,794  1.74      9,543  2.97      7,544  3.38
Savings                          12,819  1.44     10,316  2.43     10,047  2.85
Time                            145,881  4.51    136,054  5.83    119,671  5.77
                               --------         --------         --------

                               $220,222         $200,512         $178,844
                               ========         ========         ========


         Remaining maturities of time certificates of deposit of $100,000 or
more at December 31, 2002 are shown below (in thousands of dollars):

                   Maturity                                  December 31, 2002

Three months or less                                              $ 4,421
Three to six months                                                 7,162
Six to twelve months                                                9,936
One to three years                                                  8,478
Three to five years                                                 7,332
                                                                  -------

                    Total                                         $37,329
                                                                  =======



<PAGE>


Page 32 of 87


TABLE K.  RETURN ON EQUITY AND ASSETS

         The following table highlights certain ratios for the three years ended
December 31, 2002, 2001, and 2000 (in thousands of dollars):

                                                        2002     2001     2000
                                                        ----     ----     ----

Income before securities gains and losses to
   Average total assets                                 1.39%    1.23%    1.43%
   Average stockholders' equity                        15.45%   13.60%   14.91%

Net income to
   Average total assets                                 1.39%    1.23%    1.42%
   Average stockholders' equity                        15.45%   13.61%   14.91%

Dividend pay out ratio (dividends declared per
   share divided by net income per share)              33.04%   39.13%   35.93%

Average stockholders' equity to average total
   assets ratio                                         9.01%    9.05%    9.56%



<PAGE>



Page 33 of 87


TABLE L.
                                  GAP Analysis
                                December 31, 2002


         The following table reflects interest-rate sensitive assets and
liabilities only. The following table sets forth at December 31, 2002
interest-earning assets and interest-bearing liabilities scheduled to mature or
reprice within a specific period (in thousands of dollars):

<TABLE>
<CAPTION>
<S>                                     <C>          <C>         <C>          <C>         <C>         <C>            <C>
                                                       Scheduled Maturity or Repricing

                                       Immediately   3 Months
                                        Adjusted     or Less    3-12 Months   1-3 Years   3-5 Years   Over 5 Years    Total
                                        --------     -------    -----------   ---------   ---------   ------------    -----

Gross loans                             $    39      $23,346     $ 36,056      $43,227     $80,462       $15,049     $198,179
Investment securities (1)                     -            -            -          640       2,103        24,540       27,283
Federal funds sold                       17,255            -            -            -           -             -       17,255
                                        -------      -------     ---------     --------    --------      -------     --------

     Total Interest-Earning Assets      $17,294      $23,346     $ 36,056      $43,867     $82,565       $39,589     $242,717
                                        =======      =======     =========     ========    ========      ========    ========

Interest-Bearing Liabilities
   Interest-bearing demand deposits(2)  $ 2,326      $     -     $      -      $     -     $20,932       $     -     $ 23,258
   Money market deposits(2)               1,739            -            -            -      15,655             -       17,394
   Savings(2)                             1,335            -            -            -      12,013             -       13,348
   Time deposits                              -       20,212       66,382       41,438      28,139             -      156,171
                                        -------      -------      --------     --------    --------      -------     --------

        Total Interest-Bearing Deposits $ 5,400      $20,212     $ 66,382      $41,438     $76,739       $     -     $210,171
                                        =======      =======      ========     ========    ========      =======     ========

Difference Between Interest-Earning
   Assets and Interest-Bearing Liabilities
      Period (GAP)                      $11,894      $ 3,134     $(30,326)     $ 2,429     $ 5,826       $39,589     $ 32,546
      Cumulative (GAP)                   11,894       15,028      (15,298)     (12,869)     (7,043)       32,546
      Cumulative interest-earning
         assets to interest-bearing
         liabilities                    320.26%      158.68%        83.37%       90.36%      96.65%      115.49%
</TABLE>

(1) Does not include $87,000 in Federal Reserve stock, $50,000 in Community
    Bankers' Bank stock, and $58,000 in Bankers' Title. (2) Assumes core
    deposits will retain 90% up to five years.



<PAGE>


Page 34 of 87


ITEM 7A       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Refer to Footnote 18 in the annual financial statements included in
this document on page 57.


ITEM 8        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management's Report on Financial Statements
Independent Auditor's Report

Financial Statements

     Consolidated Statements of Financial Condition - December 31, 2002 and 2001
     Consolidated Statements of Income - Years Ended December 31, 2002, 2001,
        and 2000
     Consolidated Statements of Changes in Stockholders' Equity - Years
        Ended December 31, 2002 and 2001
     Consolidated Statements of Cash Flows - Years Ended December 31, 2002,
        2001, and 2000
     Notes to Consolidated Financial Statements - December 31,
        2002, 2001, and 2000



<PAGE>


Page 35 of 87


Management's Report on Financial Statements

         The following consolidated financial statements and related notes of
Benchmark Bankshares, Inc. and its subsidiary, Benchmark Community Bank, were
prepared by management which has the primary responsibility for the integrity of
the financial information. The statements have been prepared in conformity with
accounting principles generally accepted in the United States of America
appropriate in the circumstances and include amounts that are based on
management's best estimates and judgments. Financial information elsewhere in
the Annual Report is presented on a basis consistent with that in the financial
statements.

         In meeting its responsibility for the accuracy of the financial
statements, management relies on the Company's internal accounting controls.
This system provides reasonable assurance that assets are safeguarded and
transactions are recorded to permit the preparation of appropriate financial
information.

         The financial statements have been audited by Creedle, Jones, and Alga,
P. C., the Company's independent certified public accountants. Their audit is
conducted in accordance with auditing standards generally accepted in the United
States of America and includes a review of internal controls and a test of
transactions in sufficient detail to allow them to report on the fair
presentation of the consolidated operating results and financing condition of
Benchmark Bankshares, Inc. and its subsidiary, Benchmark Community Bank.



<PAGE>


Page 36 of 87



















                           Benchmark Bankshares, Inc.

                     Report on Audit of Financial Statements




<PAGE>


Page 37 of 87



                           Benchmark Bankshares, Inc.

                                Table of Contents


                                                                          Pages

Independent Auditor's Report                                                 38

Exhibits

     A            Consolidated Statements of Financial Condition          39-40

     B            Consolidated Statements of Income                       41-42

     C            Consolidated Statements of Changes in
                     Stockholders' Equity                                    43

     D            Consolidated Statements of Cash Flows                   44-45

Notes to Consolidated Financial Statements                                46-62



<PAGE>





Page 38 of 87












                          Independent Auditor's Report


Board of Directors
Benchmark Bankshares, Inc.
Kenbridge, Virginia


         We have audited the accompanying consolidated statements of financial
condition of Benchmark Bankshares, Inc. (a Virginia corporation) and Subsidiary,
as of December 31, 2002 and 2001, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for each of the three
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Benchmark Bankshares, Inc. and Subsidiary, as of December 31, 2002 and 2001, and
the consolidated results of their operations and their cash flows for each of
the three years then ended, in conformity with accounting principles generally
accepted in the United States of America.





                          Creedle, Jones, and Alga, P. C.
                          Certified Public Accountants

South Hill, Virginia
January 20, 2003



<PAGE>


Page 39 of 87
                                                                      Exhibit A
                                                                         Page 1

                     Benchmark Bankshares, Inc.

           Consolidated Statements of Financial Condition

                     December 31, 2002 and 2001


                             A S S E T S

                                                      2002            2001
                                                      ----            ----

Cash and due from banks                           $ 13,340,576    $  8,215,994
Federal funds sold                                  17,255,000      12,740,000
Investment securities                               27,478,446      36,544,751

Loans                                              198,255,665     177,852,949
  Less
    Unearned interest income                                 -            (970)
    Allowance for loan losses                       (1,982,559)     (1,774,632)
                                                  -------------   -------------

               Net Loans                           196,273,106     176,077,347

Premises and equipment - net                         4,285,102       4,283,656
Accrued interest receivable                          1,292,070       1,425,945
Deferred income taxes                                  195,611         560,315
Other real estate                                      502,734       1,156,464
Cash value life insurance                            3,632,755               -
Other assets                                           802,744         808,517
                                                  -------------   -------------

               Total Assets                       $265,058,144    $241,812,989
                                                  =============   =============



<PAGE>


Page 40 of 87
                                                                      Exhibit A
                                                                         Page 2

                           Benchmark Bankshares, Inc.

                 Consolidated Statements of Financial Condition

                           December 31, 2002 and 2001


                      Liabilities and Stockholders' Equity

                                                       2002           2001
                                                       ----           ----

Deposits
   Demand (noninterest-bearing)                    $ 26,372,882   $ 27,504,768
   NOW accounts                                      23,258,069     20,304,603
   Money market accounts                             17,394,138     10,939,010
   Savings                                           13,347,995     11,160,289
   Time, $100,000 and over                           37,329,668     31,101,575
   Other time                                       118,841,688    115,350,866
                                                   ------------   -------------

               Total Deposits                       236,544,440    216,361,111

Accrued interest payable                                803,167      1,002,261
Accrued income tax payable                               32,516         39,405
Dividends payable                                       593,088        534,600
Other liabilities                                       539,026        398,451
                                                   ------------   -------------

               Total Liabilities                    238,512,237    218,335,828

Stockholders' Equity
   Common stock, par value $.21 per share,
      authorized 4,000,000 shares; issued
      and outstanding 12-31-02 2,967,443.301,
      issued and outstanding 12-31-01
      2,970,003.06 shares                               623,164        623,701
   Capital surplus                                    4,005,238      4,056,859
   Retained earnings                                 21,215,858     18,945,412
   Unrealized security gains net of tax effect          701,647       (148,811)
                                                   ------------   -------------

               Total Stockholders' Equity            26,545,907     23,477,161
                                                   ------------   -------------

               Total Liabilities and
                  Stockholders' Equity             $265,058,144   $241,812,989
                                                   ============   =============










See independent auditor's report and accompanying notes to financial statements.



<PAGE>


Page 41 of 87
                                                                      Exhibit B
                                                                         Page 1

                           Benchmark Bankshares, Inc.

                        Consolidated Statements of Income

                  Years Ended December 31, 2002, 2001, and 2000


                                            2002         2001         2000
                                            ----         ----         ----

Interest Income
   Interest and fees on loans            $15,383,312  $15,610,703  $14,556,973
   Interest on investment securities
      U. S. Government agencies and
         mortgage backed securities          806,026      720,685      980,155
      State and political subdivisions       745,723      578,611      451,320
      Other securities                             -        9,674       23,537
      Interest on Federal funds sold         111,490      481,393      409,733
                                         -----------  -----------  ------------

          Total Interest Income           17,046,551   17,401,066   16,421,718

Interest Expense
   Interest-bearing checking deposits        429,474      625,880      768,009
   Savings deposits                          183,290      250,242      286,908
   Time deposits                           6,577,285    7,878,935    6,892,050
   Federal funds purchased                    10,351            -       54,283
   Other                                           -            -          651
                                         -----------  -----------  ------------

          Total Interest Expense           7,200,400    8,755,057    8,001,901
                                         -----------  -----------  ------------

Net Interest Income                        9,846,151    8,646,009    8,419,817

Provision for Loan Losses                    418,582      197,886      201,187
                                         -----------  -----------  ------------
Net Interest Income After Provision
   for Loan Losses                         9,427,569    8,448,123    8,218,630

Other Income
   Service charges on deposit accounts       641,399      555,495      508,704
   Other operating income                    646,362      481,636      455,775
   Net investment securities gains (losses)    8,879        2,434       (3,308)
   Gain on sale of other assets               58,272        3,823       45,467
   Dividends                                  40,417            -            -
                                         -----------  -----------  ------------

          Total Other Income               1,395,329    1,043,388    1,006,638

Other Expenses
   Salaries                                3,085,290    2,837,297    2,660,892
   Employee benefits                         865,803      651,720      599,515
   Occupancy expense                         337,523      327,230      296,888
   Other operating expenses                1,796,363    1,783,590    1,511,537
                                         -----------  -----------  ------------
          Total Other Expenses             6,084,979    5,599,837    5,068,832
                                         -----------  -----------  ------------

Income Before Income Taxes                 4,737,919    3,891,674    4,156,436
Provision for Income Taxes                 1,339,879    1,155,906    1,311,375
                                         -----------  -----------  ------------
          Net Income                     $ 3,398,040  $ 2,735,768  $ 2,845,061
                                         ===========  ===========  ============

<PAGE>

Page 42 of 87
                                                                      Exhibit B
                                                                         Page 2


                                         2002           2001           2000
                                         ----           ----           ----

Earnings Per Share of Common Stock  $        1.15  $        0.92  $        0.95
                                    =============  =============  =============

Average Shares Outstanding          2,967,443.297  2,982,679.694  3,008,522.578
                                    =============  =============  =============


















































See independent auditor's report and accompanying notes to financial statements.



<PAGE>


Page 43 of 87
                                                                      Exhibit C


                           Benchmark Bankshares, Inc.

           Consolidated Statements of Changes in Stockholders' Equity

                     Years Ended December 31, 2002 and 2001

<TABLE>
<CAPTION>
<S>                                  <C>             <C>         <C>           <C>            <C>           <C>
                                                                                              Unrealized
                                                                                              Securities
                                                      Common                    Retained        Gain
                                         Shares       Stock        Surplus      Earnings      (Loss)(1)        Total

Balance January 1, 2001              3,006,219.501   $631,307    $4,404,047    $17,281,168    $(131,331)    $22,185,191

Net Income
  Parent                                                                        2,735,768                    2,735,768
  Equity in income of subsidiary                                                        -                            -

Sale of Stock                            3,000.000       630        21,510                                      22,140
Redemption of Stock                        (16.441)       (4)         (161)                                       (165)
Stock repurchase                       (39,200.000)   (8,232)     (368,537)                                   (376,769)

Semi-Annual Cash
   Dividend Declared
      June 21, 2001, $.18 per
         share                                                                   (536,528)                    (536,528)
      December 20, 2001, $.18 per
         share                                                                   (534,600)                    (534,600)

Adjustments                                                                          (396)                        (396)

Other Comprehensive Income
  (Net of Tax)
    Unrealized Security Gains
      (Losses)                                                                                  (17,480)        (17,480)
                                     --------------  ---------   -----------   ------------   ----------    ------------

Balance December 31, 2001            2,970,003.060    623,701     4,056,859     18,945,412     (148,811)     23,477,161

Net Income
   Parent                                                                          (25,897)                     (25,897)
   Equity in income of subsidiary                                                3,423,937                    3,423,937

Sale of Stock                           11,450.000      2,405        87,045                                      89,450
Redemption of Stock                         (9.759)        (2)         (106)                                       (108)
Stock repurchase                       (14,000.000)    (2,940)     (138,560)                                   (141,500)

Semi-Annual Cash
   Dividend Declared
      June 20, 2002, $.18 per
         share                                                                    (532,988)                    (532,988)
      December 19, 2002, $.20
         per share                                                                (593,088)                    (593,088)

Adjustments                                                                         (1,518)                      (1,518)

Other Comprehensive Income
  (Net of Tax)
    Unrealized Security Gains
       (Losses)                                                                                 850,458         850,458
                                     --------------  ---------   -----------   ------------   ----------    ------------

Balance December 31, 2002            2,967,443.301   $623,164    $4,005,238    $21,215,858    $ 701,647     $26,545,907
                                     ==============  =========   ===========   ============   ==========    ============
</TABLE>

(1) Net of tax effect.

See independent auditor's report and accompanying notes to financial statements.


<PAGE>


Page 44 of 87
                                                                      Exhibit D
                                                                         Page 1

                           Benchmark Bankshares, Inc.

                      Consolidated Statements of Cash Flows

                  Years Ended December 31, 2002, 2001, and 2000

                                           2002          2001          2000
                                           ----          ----          ----

Cash Flows from Operating Activities
   Interest received                   $16,258,101   $17,553,659   $15,400,186
   Fees and commissions received         2,610,393     1,028,469       833,005
   Interest paid                        (7,399,494)   (8,746,489)   (7,997,952)
   Cash paid to suppliers and employees (6,084,979)   (5,383,602)   (3,813,312)
   Income taxes paid                    (1,378,385)   (1,178,176)   (1,381,930)
                                       ------------  ------------  ------------

               Net Cash Provided by
                  Operating Activities   4,005,636     3,273,861     3,039,997

Cash Flows from Investing Activities
   Proceeds from sale of investment
      securities available-for-sale      4,542,862       200,719     4,958,619
   Proceeds from maturity or calls of
      investments                        6,063,889    13,435,348       105,000
   Purchase of investment securities      (509,913)  (25,667,579)   (1,235,466)
   Loans originated                    (98,624,431)  (90,687,195)  (92,018,273)
   Principal collected on loans         78,221,715    77,541,503    79,574,713
   Purchase premises and equipment        (455,579)   (1,100,702)     (795,249)
   Cash value life insurance            (3,632,755)            -             -
                                       ------------  ------------  ------------

               Net Cash (Used) by
                  Investing Activities (14,394,212)  (26,277,906)   (9,410,656)

Cash Flows from Financing Activities
   Net increase (decrease) in Federal
      funds purchased                            -             -    (7,035,000)
   Net increase in demand deposits and
      savings accounts                  10,464,414    10,468,711     5,510,983
   Payments for maturing certificates
      of deposit                       (57,686,984)  (34,598,237)  (50,604,717)
   Proceeds from sales of certificates
      of deposit                        67,405,899    59,293,820    61,550,011
   Dividends paid                       (1,067,588)   (1,078,044)     (963,489)
   Proceeds from sale of common stock       89,450        22,140        55,985
   Payments to reacquire stock            (141,608)     (376,934)     (155,410)
   Proceeds from sale of other assets      964,575       359,846       347,753
                                       ------------  ------------  ------------
               Net Cash Provided by
                  Financing Activities  20,028,158    34,091,302     8,706,116
                                       ------------  ------------  ------------
Net Increase (Decrease) in Cash and
   Cash Equivalents                      9,639,582    11,087,257     2,335,457

Cash and Cash Equivalents -
   Beginning of Year                    20,955,994     9,868,737     7,533,280
                                       ------------  ------------  ------------
Cash and Cash Equivalents -
   End of Year                         $30,595,576   $20,955,994   $ 9,868,737
                                       ============  ============  ============

<PAGE>

Page 45 of 87
                                                                      Exhibit D
                                                                         Page 2


                                           2002          2001          2000
                                           ----          ----          ----

Reconciliation of Net Income to Net
   Cash Provided by Operating Activities
      Net income                       $ 3,398,040   $ 2,735,768   $ 2,845,061
      Adjustments to reconcile net
         income to net cash provided
         by operating activities
            Depreciation                   440,854       346,621       288,909
            Provision for probable credit
               losses and recoveries       481,711       358,977       145,091
            (Increase) Decrease in
               Interest receivable         133,875       152,593      (188,528)
               Other real estate          (249,647)     (347,956)     (140,700)
               Other assets                  5,773       (14,919)     (118,928)
               Deferred taxes exclusive
                  of unrealized security
                  gains (losses)           (72,411)      (61,675)      (58,991)
            Increase (Decrease) in
               Interest payable           (199,094)       18,102       217,195
               Taxes payable                (6,889)       27,964       (11,564)
               Other liabilities           140,575        64,643       104,611
            (Gain) Loss on sale of
               securities                   (8,879)       (2,434)        3,308
            (Gain) Loss on sale of other
               assets                      (58,272)       (3,823)      (45,467)
                                       ------------  ------------  ------------

               Net Cash Provided by
                  Operating Activities $  4,005,636  $ 3,273,861   $ 3,039,997
                                       ============= ============  ============

For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, and Federal funds sold. Generally, Federal funds
sold are purchased and sold for one day periods.

During 2002 net gains of $1,727 and during 2001 net gains of $1,855 in
securities available-for-sale resulted from sales of mortgage backed securities
that had experienced significant paydowns. There was no capitalized interest
during the year.















See independent auditor's report and accompanying notes to financial statements.



<PAGE>



Page 46 of 87


                           Benchmark Bankshares, Inc.

                   Notes to Consolidated Financial Statements

                  Years Ended December 31, 2002, 2001, and 2000


1.       Significant Accounting Policies and Practices

                  The accounting policies and practices of Benchmark Bankshares,
         Inc. conform to generally accepted accounting principles and general
         practice within the banking industry. Certain of the more significant
         policies and practices follow:

         (a)      Consolidated Financial Statements. The consolidated financial
                  statements of Benchmark Bankshares, Inc. and its wholly-owned
                  subsidiary, Benchmark Community Bank, include the accounts of
                  both companies. All material inter-company balances and
                  transactions have been eliminated in consolidation.

         (b)      Use of Estimates in Preparation of Financial Statements. The
                  preparation of the accompanying combined financial statements
                  in conformity with generally accepted accounting principles
                  requires management to make certain estimates and assumptions
                  that directly affect the results of reported assets,
                  liabilities, revenue, and expenses. Actual results may differ
                  from these estimates.

         (c)      Cash and Cash Equivalents. The term cash as used in the
                  Condensed Consolidated Statement of Cash Flows refers to all
                  cash and cash equivalent investments. For purposes of the
                  statement, Federal funds sold, which have a one day maturity,
                  are classified as cash equivalents.

         (d)      Investment Securities. Pursuant to guidelines established in
                  FAS 115, Accounting for Certain Investments in Debt and Equity
                  Securities, the Company has elected to classify a majority of
                  its current portfolio as securities available-for-sale. This
                  category refers to investments that are not actively traded
                  but are not anticipated by management to be held-to-maturity.
                  Typically, these types of investments will be utilized by
                  management to meet short-term asset/liability management
                  needs.

                  For purposes of financial statement reporting, securities
                  classified as available-for-sale are to be reported at fair
                  market value as of the date of the statements; however,
                  unrealized holding gains or losses are to be excluded from
                  earnings and reported as a net amount in a separate component
                  of stockholders' equity until realized. The impact of this
                  unrealized gain on securities positively impacted
                  stockholders' equity in the amount of $701,647 as of December
                  31, 2002.

                  Premiums and discounts are amortized or accreted over the life
                  of the related security as an adjustment to yield using
                  methods that approximate the interest method.

          (e)     Loans. Interest on loans is computed by methods which
                  generally result in level rates of return on principal amounts
                  outstanding (simple interest).

                  In December, 1986, the Financial Accounting Standards Board
                  issued Statement of Financial Accounting Standards No. 91,
                  Accounting for Nonrefundable Fees and Costs Associated with
                  Originating or Acquiring Loans and Initial Direct Costs of
                  Leases. This statement requires loan origination and
                  commitment fees and certain direct loan origination costs to
                  be deferred and the net amount amortized as an adjustment of
                  the related loan's yield. This standard has been adopted for
                  all loan types with an original maturity greater than one
                  year.


<PAGE>

Page 47 of 87


         (f)      Allowance for Loan Losses.  The allowance for loan losses is
                  increased by provisions charged to expense and decreased by
                  loan losses net of recoveries.  The provision for loan losses
                  is based on the Bank's loan loss experience and management's
                  detailed review of the loan portfolio which considers economic
                  conditions, prior loan loss experience, and other factors
                  affecting the collectibility of loans.  With the exception of
                  loans secured by 1-4 family residential property, accrual of
                  interest is discontinued on loans past due 90 days or more
                  when collateral is inadequate to cover principal and interest
                  or immediately if management believes, after considering
                  economic and business conditions and collection efforts, that
                  the borrower's financial condition is such that collection is
                  doubtful.

         (g)      Premises and Equipment. Premises and equipment are stated at
                  cost less accumulated depreciation. Depreciation is computed
                  generally by the straight-line method over the estimated
                  useful lives of the assets. Additions to premises and
                  equipment and major betterments and replacements are added to
                  the accounts at cost. Maintenance, repairs, and minor
                  replacements are expensed as incurred. Gains and losses on
                  dispositions are reflected in current earnings.

         (h)      Other Real Estate. As a normal course of business, the Bank
                  periodically has to foreclose on property used as collateral
                  on nonperforming loans. The assets are recorded at cost plus
                  capital improvement cost.

         (i)      Depreciation. For financial reporting, property and equipment
                  are depreciated using the straight-line method; for income tax
                  reporting, depreciation is computed using statutory
                  accelerated methods. Leasehold improvements are amortized on
                  the straight-line method over the estimated useful lives of
                  the improvements. Income taxes in the accompanying financial
                  statements reflect the depreciation method used for financial
                  reporting and, accordingly, include a provision for the
                  deferred income tax effect of depreciation which will be
                  recognized in different periods for income tax reporting.

         (j)      Earnings Per Share. Earnings per share of common stock are
                  calculated on the basis of the weighted average number of
                  shares outstanding during the period.

         (k)      Income Taxes. Deferred income taxes are reported for temporary
                  differences between items of income or expense reported in the
                  financial statements and those reported for income tax
                  purposes. Deferred taxes also reflect the impact of the
                  unrealized security losses which are reflected on the balance
                  sheet only, pursuant to FAS 115 guidelines. The differences
                  relate principally to the provision for loan losses,
                  depreciation, and unrealized security losses.

                  The table below reflects the components of the Net Deferred
                  Tax Asset account as of December 31, 2002:

Deferred tax assets resulting from loan loss
   reserves                                                    $577,960
Deferred tax asset resulting from deferred
   compensation                                                 127,874
Deferred tax liability resulting from unrealized
   security gains                                              (361,454)
Deferred tax liabilities resulting from
   depreciation                                                (167,362)
Deferred tax asset resulting from insurance investment           18,593
                                                               ---------

               Net Deferred Tax Asset                          $195,611
                                                               =========


<PAGE>

Page 48 of 87


2.      Investment Securities

                  The carrying amount and approximate market values of
        investment securities are summarized below:

                                   Book      Unrealized  Unrealized    Market
                                   Value        Gains      Losses       Value

Available-for-Sale
  December 31, 2002
   Mortgage backed securities   $10,849,727  $  363,783   $      -   $11,213,510
   State and political
      subdivisions               14,858,319     699,318          -    15,557,637
   Other securities                 195,490           -          -       195,490
                                -----------  ----------   --------   -----------

                                $25,903,536  $1,063,101   $      -   $26,966,637
                                ===========  ==========   ========   ===========

  December 31, 2001
   U. S. Government agencies    $   497,917  $    3,682   $      -   $   501,599
   Mortgage backed securities    17,513,927      29,082    213,314    17,329,695
   State and political
      subdivisions               17,049,625     116,902    161,826    17,004,701
   Other securities                 195,490           -          -       195,490
                                -----------  ----------   --------   -----------

                                $35,256,959  $  149,666   $375,140   $35,031,485
                                ===========  ==========   ========   ===========
Held-to-Maturity
  December 31, 2002
   Mortgage backed securities   $         -  $        -   $      -   $         -
   State and political
      subdivisions                  511,809      17,497          -       529,306
                                -----------  ----------   --------   -----------

                                $   511,809      17,497   $          $   529,306
                                ===========  ==========   ========   ===========
  December 31, 2001
   U. S. Government agencies    $ 1,000,000  $      900   $      -   $ 1,000,900
   State and political
      subdivisions                  513,266       9,341          -       522,607
                                -----------  ----------   --------   -----------

                                $ 1,513,266  $   10,241   $      -   $ 1,523,507
                                ===========  ==========   ========   ===========

                  The maturities of investment securities at December 31, 2002
        were as follows:

                                  Book Value      Market Value

Available-for-Sale
   Due in one year or less       $ 1,265,289     $   1,281,024
   Due from one to five years      8,960,758         9,236,404
   Due from five to ten years     13,076,683        13,749,587
   After ten years                 2,405,316         2,504,132
   Other securities                  195,490           195,490

Held-to-Maturity
   Due from one to five years        511,809           529,306

                  Securities having a market value of $8,994,013 and $5,736,895
         at December 31, 2002 and 2001, respectively, were pledged to secure
         public deposits and for other purposes.

                  In the event of the sale of securities, the cost basis of the
         security, adjusted for the amortization of premium or discounts, will
         be used when calculating gains or losses.


<PAGE>

Page 49 of 87


                  Other securities consist of required investments in Federal
         Reserve Bank stock, a regional bankers' bank stock, and a title opinion
         company. All of these investments are booked at cost. These investments
         are recorded at original cost.

3.      Loans

                  A summary of loans net of participation-out activity by type
        follows:

                                     2002              2001
                                     ----              ----

                Commercial       $ 21,872,278      $ 19,293,070
                Consumer           29,903,542        32,954,231
                Real estate       146,479,845       125,605,648
                                 ------------      ------------

                                 $198,255,665      $177,852,949

                  Demand deposit overdrafts amounting to $25,786 have been
        reclassified as short-term loans for reporting purposes.

4.      Allowance for Loan Losses

                An analysis of the transactions in the allowance for loan losses
        follows:

                                           2002          2001          2000
                                           ----          ----          ----

Balance - Beginning of Year             $1,774,632    $1,667,723    $1,522,632
Provision for loan losses                  418,582       197,886       201,187
Recoveries on loans                         63,129       161,091       219,806
Loans charged off                         (273,784)     (252,068)     (275,902)
                                        -----------   -----------   -----------

Balance - End of Year                   $1,982,559    $1,774,632    $1,667,723
                                        ===========   ===========   ===========

                  As of December 31, 2002, the Bank had no restructured loans in
         the portfolio. There were $98,630 in nonaccrual loans and $10,920,663
         in loans identified by management as having various degrees of
         weakness. As of the same date in 2001, the Bank had no restructured
         loans, $603,508 in nonaccrual loans, and $11,288,755 in loans with
         weaknesses.

5.      Office Buildings, Equipment, and Leasehold Improvements

                  Major classifications of these assets are summarized as
        follows:
                                        Estimated
                                          Useful
                                      Lives (Years)      2002          2001
                                      -------------      ----          ----

Land                                                  $1,014,560    $  963,060
Buildings and improvements                 6-40        3,080,651     3,024,568
Furniture and equipment                    2-10        2,353,744     2,014,306
Leasehold improvements                     5-6            66,854        66,854
                                                      -----------   ----------
                                                       6,515,809     6,068,788
Less:  Accumulated depreciation                       (2,230,707)   (1,785,132)
                                                      -----------   -----------

                                                      $4,285,102    $4,283,656
                                                      ===========   ===========


<PAGE>

Page 50 of 87


                  The cost basis of fully depreciated assets totaled $541,113 at
        December 31, 2002.

6.      Other Real Estate

                As of December 31, 2002, the Bank held other real estate in the
         amount of $502,734. The amount represents cost related to converting
         collateral on nonperforming loans from the customer to the Bank. All
         properties are being marketed or being prepared for marketing.

7.      Time Deposits

                  The maturities of time deposits are as follows:

                                         $100,000 or        Less Than
                                           Greater          $100,000

Due in six months                        $11,582,673      $38,413,912
Due from six months to one year            9,936,497       26,661,656
Due from one year to three years           8,478,548       32,958,833
Due from three years to five years         7,331,950       20,807,287
                                         -----------     ------------

               Total                     $37,329,668     $118,841,688
                                         ===========     ============

                  Interest expense on time deposits greater than or equal to
        $100,000 was $1,364,468 in 2002.

8.      Federal Income Taxes

                  Federal income taxes payable, as of December 31, 2002 and
        2001, were as follows:

                                          2002         2001

                Currently payable      $  32,516     $  39,405
                Deferred                (195,611)     (560,315)
                                       ----------    ----------

                                       $(163,095)    $(520,910)
                                       ==========    ==========

                  The components of applicable income taxes are as follows:

                                                  2002           2001
                                                  ----           ----

                Current                        $1,704,583     $1,094,231
                Deferred from income and
                   expense items                 (364,704)        61,675
                                               -----------    -----------

                               Total           $1,339,879     $1,155,906
                                               ===========    ===========









<PAGE>

Page 51 of 87


                  Temporary differences in the recognition of income and
         expenses for tax and financial reporting purposes resulted in the
         deferred income tax asset as follows:

                                                        2002        2001

Accelerated depreciation                             $ (47,572)   $11,654
Excess (Deficiency) of provision for loan
   losses over deduction for Federal
   income tax purposes                                  79,236     35,872
Deferred compensation                                   23,154     23,154
Cash value life insurance                               18,593          -
                                                     ----------   --------

               Total Tax Impact of Temporary
                  Differences in Recognition
                  of Income and Expenses                73,411     70,680

Tax impact of balance sheet recognition
   of unrealized security losses                      (438,115)    (9,005)
                                                     ----------   --------

               Total Change to Deferred Tax
                  for the Year                       $(364,704)   $61,675
                                                     ==========   ========

                  The reasons for the difference between income tax expense and
         the amount computed by applying the statutory Federal income tax rates
         are as follows:

                                                        2002          2001
                                                        ----          ----

Statutory rates                                          34%           34%

Income tax expense at statutory
   rates                                             $1,610,892    $1,155,906

Increase (Decrease) due to
   Tax exempt income                                   (252,770)     (184,205)
   Other                                                 52,779       245,880
                                                     -----------   -----------

                                                     $1,410,901    $1,217,581
                                                     ===========   ===========

                  Federal income tax returns are subject to examination for all
         years which are not barred by the statute of limitations.

9.      Commitments and Contingent Liabilities

                  At December 31, 2002 and 2001, commitments under standby
         letters of credit aggregated $1,152,056 and $914,814, respectively.
         These commitments are an integral part of the banking business and the
         Bank does not anticipate any losses as a result of these commitments.
         These commitments are not reflected in the consolidated financial
         statements. (See Note 13).

                  During the year ended December 31, 2002, the Bank incurred
         operating lease expense amounting to $36,980 in addition to $7,175
         depreciated for leasehold improvements.



<PAGE>

Page 52 of 87


                  Minimum lease payments at December 31, 2002 under
         noncancelable real property operating lease commitments for succeeding
         years are:

                         2003                $33,050
                         2004                 23,900
                         2005                 14,350
                                             -------

                         Total               $71,300
                                             =======

                  The Bank has options to renew the leased properties. The
         additional lease expense resulting from the future exercising of these
         options is not included in the 2002 totals listed herein.

                  The Bank has entered into several agreements to service and
         maintain equipment. The only long-term commitment relates to a
         maintenance agreement on the elevator and internet banking equipment
         and service. The amount of payments can be adjusted annually based on
         labor cost. The terms based on current rates are as follows:

                         2003                $15,655
                         2004                 15,655
                         2005                 15,655
                         2006                 11,805
                                             --------

                         Total               $58,770
                                             ========

                  At year end, the Bank had entered into several purchase
         commitments amounting to $173,000. These commitments relate to the
         establishment of a new full- service branch banking office in
         Blackstone, Virginia.

10.      Retirement Plan

                  The Bank provides for a retirement program for all qualified
         employees through a 401(k) plan. The plan offers a salary reduction
         election of up to 14% of W-2 compensation less incentive pay. The plan
         also has a proportional matching feature by the Company. In addition,
         the plan provides for the Company to make discretionary contributions.
         Both the percentage of the employer match and the annual discretionary
         contribution are based on the Bank's performance.

                  During 2002, Bank payments through matching and discretionary
         contributions totaled $163,130 while employees' salary reduction
         amounted to $152,620. The cost of administration for the 401(k) plan
         paid in 2002 amounted to $4,948.

11.      Incentive Compensation

                  The Bank offers its employees incentive compensation and/or
         bonus arrangements based on the Bank's annual financial performance and
         other criteria such as length of service and officer classification.
         Incentive compensation totaled $163,974 and $90,030 for the years ended
         December 31, 2002 and 2001, respectively.









<PAGE>

Page 53 of 87


12.      Related Parties

         Loans

                  Loans to Directors and Executive Officers of the Bank and
         loans to companies in which they have a significant interest are made
         on substantially the same terms as those prevailing at the time for
         other loan customers. The balances of such loans outstanding were
         $7,637,532 and $5,540,819 at December 31, 2002 and 2001, respectively.
         During the year of 2002, new loans to the group totaled $3,058,727,
         while repayments amounted to $962,014. Certain Directors and Executive
         Officers have home equity loans. The net activity of these open-end
         credits has been reported herein.

                  As of December 31, 2002, W. J. Callis, Director, had
         outstanding loans in excess of 5% of stockholders' equity. The
         beginning balance of loans was $3,321,515 with current year activity
         consisting of $1,401,297 in advances and $505,633 in repayments for an
         ending balance of $4,217,179.

         Deposits

                  As of December 31, 2002, the Bank held deposits of Directors,
         Executive Officers, and their related interest amounting to $2,414,448.

13.      Off-Balance-Sheet Instruments/Credit Concentrations

                  The Bank is a party to financial instruments with
         off-balance-sheet risk in the normal course of business to meet the
         financing needs of its customers. Unless noted otherwise, the Bank does
         not require collateral or other security to support these financial
         instruments. Standby letters of credit are conditional commitments
         issued by the Bank to guarantee the performance of a customer to a
         third party. Those guarantees are primarily issued to facilitate the
         transaction of business between these parties where the exact financial
         amount of the transaction is unknown but a limit can be projected. The
         credit risk involved in issuing letters of credit is essentially the
         same as that involved in extending loan facilities to customers. There
         is a fee charged for this service.

                  As noted in Note 9 on December 31, 2002, the Bank had
         outstanding letters of credit. These instruments are based on the
         financial strength of the customer and the existing relationship
         between the Bank and the customer.

                  As of December 31, 2002, the Bank also had unused commitments
         resulting from credit line deeds of trust, home equity lines,
         construction lines, and an unfunded business loan. The total amount of
         these commitments amounted to $37,149,451.

                  For related information concerning contract commitments not
         reflected in the balance sheet refer to Note 9.

         Concentrations

                  The Bank has no concentrations of credit concerning an
         individual borrower or economic segment. The Bank confines its lending
         activities to within the state and more specifically its local
         geographic areas. The concentrations of credit by loan type are set
         forth in Note 3. Regulatory requirements limit the Bank's aggregate
         loans to any one borrower to a level of approximately $3,875,000.







<PAGE>

Page 54 of 87


14.      Regulatory Matters

                  Pursuant to regulations of the Federal Reserve Board, the
         banking operation of the Company is required to maintain certain
         minimum levels of capital. The Bank maintained the following capital
         ratios as of December 31:

                                               2002     2001
                                              Actual   Actual    Minimum
                                               Rate     Rate    Standards

Total Capital to Risk Weighted Assets         11.46%   13.10%    10.00%
                                              ======   ======    ======

Tier I Capital to Risk Weighted Assets        10.54%   12.02%     6.00%
                                              ======   ======     =====

Tier I Capital to Total Average Assets         8.87%    8.33%     5.00%
                                               =====    =====     =====

                  The capital ratios continued to exceed minimum standards and
         were strengthened due to both increased earnings and the stock
         repurchase program.

15.      Capital

                  Beginning in 2000, the Company discontinued the dividend
         reinvestment plan. The Company continued the stock repurchase program
         initiated in 1999. Through the repurchase program, the Company bought
         back 14,000 shares of common stock in 2002.

                  The Company also sold stock through the employee stock option
         plan. The sales for the year amounted to 11,450 shares of common stock.
         The net result of the stock plans resulted in a decline of $537 in
         common stock and $51,621 in capital surplus.

                  The Company is authorized to issue 200,000 shares of preferred
         stock with a par value of $25.00. To date, no preferred stock has been
         issued by the Company. Currently, management has no plans to utilize
         this second class of stock.

16.      Stock Option Plan

           On April 20, 1995, the stockholders retroactively approved two
         incentive stock option plans with an effective date of March 16, 1995.
         One plan, consisting of option awards to purchase 120,000 shares of the
         Company's common stock, was approved for the employees of the Company,
         while the second plan consisting of option awards to purchase 80,000
         shares of the Company's common stock was approved for the "outside"
         Directors of the Company. All participants must have been employed for
         two calendar years.

                  At the annual stockholders meeting held on April 15, 1999, the
         stockholders approved a plan that increased the number of shares in the
         Employee Stock Option Plan from 120,000 shares by an additional 150,000
         shares for a total of 270,000 shares. All of the options expire ten
         years from the date of grant.









<PAGE>

Page 55 of 87


                  The table below details the status of the shares in the plan
        as of December 31, 2002 and 2001:

                                      2002

                            Prior Year           Current Year Activity
                            Exercised
                               and
Incentive Stock  Original  Outstanding  Options   Options   Options   Remaining
  Option Plan      Pool      Options    Granted  Exercised  Canceled   in Pool

Employees        270,000     129,928    10,000     6,450     8,800     110,328
Directors         80,000      69,000    12,000     5,000         -       2,000


                                      2001

                            Prior Year           Current Year Activity
                            Exercised
                               and
Incentive Stock  Original  Outstanding  Options   Options   Options   Remaining
 Option Plan       Pool      Options    Granted  Exercised  Canceled   in Pool

Employees        270,000     121,928    17,000         -     9,000     113,928
Directors         80,000      66,000         -     3,000         -      14,000

                  The Company has elected to report the results of the plan
         pursuant to APB Opinion Number 25. Due to the pricing schedule, there
         is no impact on earnings under the fair value based method.

17.      Disclosures about Fair Value of Financial Instruments

           The intent of FAS 107 is to depict the market's assessment of the
         present value of net future cash flows discounted to reflect current
         interest rates.

                  The following methods and assumptions were used to estimate
         the fair value of each class of financial instruments for which it is
         practicable to estimate that value.

         Cash and Short-Term Investments

                  For those short-term investments, the carrying amount is a
         reasonable estimate of fair value. For reporting purposes, the Bank has
         included Cash and Due from Banks as well as Federal Funds Sold in this
         category.

         Investment Securities

                  For marketable equity securities classified as
         available-for-sale and held-to- maturity, fair values are based on
         quoted market prices or dealer quotes. If a quoted market price is not
         available, fair value is estimated using quoted market prices for
         similar securities.

         Loans Receivable

                  The fair value of the basic loan groups is estimated by
         discounting the future cash flows using the current rates at which
         similar loans would be made to borrowers with similar credit ratings
         and for the same remaining maturities. For open-end revolving loans,
         the carrying amount is a reasonable estimate of fair value.


<PAGE>

Page 56 of 87


         Deposit Liabilities

                  The fair value of demand deposits, savings accounts, and
         certain money market deposits is the amount payable on demand at the
         reporting date. The fair value of fixed-maturity certificates of
         deposit is estimated using the rates currently offered for deposits of
         similar remaining maturities.

         Commitments to Extend Credit and Letters of Credit

                  The fair value of commitments and letters of credit is the
         amount of the unfunded commitment, as a market rate will be set at the
         time of the funding of the commitment.

                  The estimated fair values of the Bank's financial instruments
         are as follows:

                                      2002                        2001
                                      ----                        ----

                             Carrying        Fair        Carrying      Fair
                              Amount         Value        Amount       Value
Financial Assets
   Cash and due from banks $ 13,340,576  $ 13,340,576  $ 8,215,994  $ 8,215,994
   Federal funds sold        17,255,000    17,255,000   12,740,000   12,740,000
   Investments
      Available-for-sale     26,966,637    26,966,637   35,031,485   35,031,485
      Held-to-maturity          511,809       529,306    1,513,266    1,523,507
   Loans
      Commercial loans       21,872,278    20,988,557   19,293,070   20,189,688
      Consumer loans         29,903,542    29,906,419   32,954,230   31,503,862
      Real estate loans     147,321,191   127,340,941  125,605,649  128,450,993
      Participation loans -
         out                    841,346       841,346    3,606,970    3,606,970

Financial Liabilities
   Deposits
      Demand (noninterest-
         bearing)            26,372,882    26,372,882   27,504,768   27,504,768
      Demand (interest-
         bearing)            40,652,207    40,652,207   31,243,613   31,243,613
      Savings                13,347,995    13,347,995   11,160,289   11,160,289
      Certificates of
         deposit            156,171,356   156,963,338  146,452,441  146,442,943

Unrecognized Financial Instruments
   Unused loan commitments   37,149,451    37,149,451   29,349,224   29,349,224
   Unissued letters of
      credit                  1,152,056     1,152,056      914,814      914,814

















<PAGE>

Page 57 of 87


18.      Quantitative and Qualitative Disclosures About Market Risk

           As with the banking industry in general, market risk is inherent in
         the Company's operation. A majority of the business is built around
         financial products, which are sensitive to changes in market rates.
         Such products, categorized as loans, investments, and deposits are
         utilized to transfer financial resources. These products have varying
         maturities, however, and this provides an opportunity to match assets
         and liabilities so as to offset a portion of the market risk.

                  Management follows an operating strategy that limits the
         interest rate risk by offering only shorter-term products that
         typically have a term of no more than five years. By effectively
         matching the maturities of inflows and outflows, management feels it
         can effectively limit the amount of exposure that is inherent in its
         financial portfolio.

                  As a separate issue, there is also the inherent risk of loss
         related to loans and investments. The impact of loss through default
         has been considered by management through the utilization of an
         aggressive loan loss reserve policy and a conservative investment
         policy that limits investments to higher quality issues; therefore,
         only the risk of interest rate variations is considered in the
         following analysis.

                  The Company does not currently utilize derivatives as part of
         its investment strategy.

                  The tables below present principal amounts of cash flow as it
         relates to the major financial components of the Company's balance
         sheet. The cash flow totals represent the amount that will be generated
         over the life of the product at its stated interest rate. The present
         value discount is then applied to the cash flow stream at the current
         market rate for the instrument to determine the current value of the
         individual category. Through this two-tiered analysis, management has
         attempted to measure the impact not only of a rate change, but also the
         value at risk in each financial product category. Only financial
         instruments that do not have price adjustment capabilities are herein
         presented.

                  In Table One, the cash flows are spread over the life of the
         financial products in annual increments as of December 31 each year
         with the final column detailing the present value discounting of the
         cash flows at current market rates.

                  For purposes of this footnote disclosure, the other
         investments which consist of nonliquid stocks and investments are not
         included.

                           Benchmark Bankshares, Inc.

                         Fair Value of Financial Assets

                                December 31, 2002

<TABLE>
<CAPTION>
<S>                             <C>           <C>           <C>           <C>           <C>           <C>           <C>
                                                                                                                       Current
Categories                          2003          2004          2005          2006          2007      Thereafter        Value
----------                          ----          ----          ----          ----          ----      ----------        -----

Loans
  Commercial                    $21,848,089   $         -   $         -   $         -   $         -   $         -   $ 20,988,557
  Consumer                       13,809,515     9,637,365     5,843,069     3,887,101     1,027,981       185,733     29,906,419
  Mortgage                       31,757,081    27,318,914    22,476,011    30,797,257    33,005,845     8,008,940    126,499,595

Investments
  Mortgage Backed Securities      2,803,007     2,181,202     1,730,939     1,544,203     1,055,736     3,020,734     11,213,509
  Municipals
    Nontaxable                    1,917,874       613,755       613,755     1,253,755     2,150,678    10,157,201     15,026,686
    Taxable                          61,693       556,572        31,450        31,450        31,450       578,625      1,060,259
</TABLE>


<PAGE>

Page 58 of 87


<TABLE>
<CAPTION>
<S>                             <C>           <C>           <C>           <C>           <C>           <C>           <C>
                                                                                                                       Current
Categories                          2003          2004          2005          2006          2007      Thereafter        Value
----------                          ----          ----          ----          ----          ----      ----------        -----

Certificates of Deposits
  < 182 days                      4,228,981             -             -             -             -             -      4,210,026
  182 - 364 days                 11,971,785             -             -             -             -             -     11,882,532
  1 year - 2 years               49,072,641     1,508,865             -             -             -             -     49,565,709
  2 years - 3 years               6,905,702    10,229,870       824,281             -             -             -     17,178,635
  3 years - 4 years               4,426,632     3,316,516     3,926,872        63,354             -             -     11,029,969
  4 years - 5 years                 667,112       849,717       721,577       706,359             -             -      2,707,359
  5 years and over               11,109,200     6,221,500    19,260,168    10,400,979    21,429,646       270,485     60,389,108
</TABLE>

                  In the above table, the cash flows are spread over the life of
         the financial products in annual increments as of December 31 of each
         year with the final column, current value, detailing the present value
         discounting of the cash flows at current market rates.

                           Benchmark Bankshares, Inc.

                        Variable Interest Rate Disclosure

                                December 31, 2002


<TABLE>
<CAPTION>
<S>                                   <C>             <C>            <C>            <C>             <C>
                                         Valuation of Securities          No           Valuation of Securities
                                         Given an Interest Rate        Change In       Given an Interest Rate
                                      Decrease of (x) Basis Points     Interest     Increase of (x) Basis Points
Categories                              (200 BPS)       (100 BPS)        Rate          100 BPS         200 BPS
----------                              ---------       ---------        ----          -------         -------

Loans
   Commercial                         $ 21,247,169    $ 21,117,227   $ 20,988,557   $ 20,861,141    $ 20,734,964
   Consumer                             31,075,155      30,480,627     29,906,419     29,351,571      28,815,180
   Mortgage                            134,212,495     130,263,454    126,499,595    122,909,659     119,483,216

Investments
   Mortgage Backed Securities           11,977,057      11,595,283     11,213,510     10,831,736      10,449,963
   Municipals
     Nontaxable                         16,462,912      15,749,943     15,026,686     14,247,216      13,377,751
     Taxable                             1,140,681       1,098,912      1,060,259      1,024,619         991,870

Certificates of Deposit
   < 182 days                            4,241,701       4,225,811      4,210,026      4,194,346       4,178,769
   182 - 364 days                       12,031,884      11,956,835     11,882,532     11,808,966      11,736,127
   1 year - 2 years                     50,586,717      50,071,013     49,565,709     49,070,494      48,585,069
   2 years - 3 years                    17,747,203      17,458,942     17,178,635     16,905,938      16,640,696
   3 years - 4 years                    11,459,487      11,241,234     11,029,969     10,825,393      10,627,222
   4 years - 5 years                     2,841,089       2,772,936      2,707,359      2,644,232       2,583,435
   5 years and over                     64,405,339      62,349,093     60,389,108     58,519,766      53,735,836
</TABLE>

                  Only financial instruments that do not have daily price
        adjustment capabilities are herein presented.



<PAGE>

Page 59 of 87


19.      Parent Company

                  Financial statements for Benchmark Bankshares, Inc. (not
         consolidated) are herein presented.  Since the parent company has not
         entered into any substantial transactions, only the parent company's
         statements are presented.





<PAGE>





Page 60 of 87


                           Benchmark Bankshares, Inc.

                              (Parent Company Only)

                                 Balance Sheets

                        December 31, 2002, 2001, and 2000

                                     Assets

                                            2002          2001         2000
                                            ----          ----         ----

Cash                                    $ 3,720,694   $ 3,867,818   $ 4,324,894
Investment in subsidiary                 23,418,301    20,143,862    18,401,336
Receivable - reimbursement                        -            81            81
                                        -----------   -----------   -----------

               Total Assets             $27,138,995   $24,011,761   $22,726,311
                                        ===========   ===========   ===========

                      Liabilities and Stockholders' Equity

Liabilities
   Dividends payable                    $   593,088   $   534,600   $   541,120

Stockholders' Equity
   Common stock, par value $.21 per
      share, authorized 4,000,000 shares;
      issued and outstanding 12-31-02
      2,967,443.301, issued and
      outstanding 12-31-01 2,970,003.06,
      issued and outstanding 12-31-00
      3,006,219.501                         623,164       623,701       631,307
   Surplus                                4,005,238     4,056,859     4,404,047
   Retained earnings                     21,917,505    18,796,601    17,149,837
                                        -----------   -----------   -----------

              Total Stockholders'
                 Equity                  26,545,907    23,477,161    22,185,191
                                        -----------   -----------   -----------

              Total Liabilities and
                 Stockholders' Equity   $27,138,995   $24,011,761   $22,726,311
                                        ===========   ===========   ===========

                              Statements of Income

                  Years Ended December 31, 2002, 2001, and 2000

                                            2002          2001          2000
                                            ----          ----          ----
Income
   Dividends from subsidiary            $ 1,000,000   $ 1,000,000   $ 2,300,000
                                        -----------   -----------   -----------

               Total Income               1,000,000     1,000,000     2,300,000

Expenses
   Professional fees                         12,550        12,872        11,500
   Supplies, printing, and postage           13,347        10,515        10,809
   Taxes - miscellaneous                          -           850           900
                                        -----------   -----------   -----------

               Total Expenses                25,897        24,237        23,209
                                        -----------   -----------   -----------

Income Before Equity in Undistributed
   Income of Subsidiary                     974,103       975,763     2,276,791

Equity in Income of Subsidiary
   (includes tax benefit of parent
   company operating loss)                2,423,937     1,760,005       568,270
                                        -----------   -----------   -----------

               Net Income               $ 3,398,040   $ 2,735,768   $ 2,845,061
                                        ===========   ===========   ===========


<PAGE>


Page 61 of 87
                           Benchmark Bankshares, Inc.
                              (Parent Company Only)

                  Statements of Changes in Stockholders' Equity

                  Years Ended December 31, 2002, 2001, and 2000

<TABLE>
<CAPTION>
<S>                                           <C>         <C>           <C>            <C>            <C>
                                                                                       Unrealized
                                               Common                     Retained     Securities
                                                Stock       Surplus       Earnings     Gain (Loss)*      Total

Balance January 1, 2000                       $633,272    $4,501,508    $15,455,510    $(542,544)     $20,047,746

Net Income
   Parent                                                                 2,276,791                     2,276,791
   Equity in income of subsidiary                                           568,270                       568,270

Sale of Stock                                    1,593        54,391                                       55,984
Redemption of Stock                                 (3)         (111)                                        (114)
Stock repurchase                                (3,555)     (151,741)                                    (155,296)

Semi-Annual Cash
   Dividend Declared
      June 15, 2000, $.16 per share                                        (480,996)                     (480,996)
      December 21, 2000, $.18 per share                                    (541,120)                     (541,120)

Adjustments                                                                   2,713                         2,713
Unrealized Security Gains (Losses)                                                       411,213          411,213
                                               ---------   -----------   ------------  ----------     ------------

Balance December 31, 2000                       631,307     4,404,047     17,281,168    (131,331)      22,185,191
Net Income
   Parent                                                                    975,763                      975,763
   Equity in income of subsidiary                                          1,760,005                    1,760,005

Sale of Stock                                       630        21,510                                      22,140
Redemption of Stock                                  (4)         (161)                                       (165)
Stock repurchase                                 (8,232)     (368,537)                                   (376,769)

Semi-Annual Cash
   Dividend Declared
      June 21, 2001, $.18 per share                                         (536,528)                    (536,528)
      December 20, 2001, $.18 per share                                     (534,600)                    (534,600)

Adjustments                                                                     (396)                        (396)
Unrealized Security Gains (Losses)                                                       (17,480)         (17,480)
                                               ---------   -----------   ------------   ---------     ------------
Balance December 31, 2001                       623,701     4,056,859     18,945,412    (148,811)      23,477,161
Net Income
   Parent                                                                    974,103                      974,103
   Equity in income of subsidiary                                          2,423,937                    2,423,937

Sale of Stock                                     2,405        87,045                                      89,450
Redemption of Stock                                  (2)         (106)                                       (108)
Stock repurchase                                 (2,940)     (138,560)                                   (141,500)

Semi-Annual Cash
   Dividend Declared
      June 20, 2002, $.18 per share                                        (532,988)                     (532,988)
      December 19, 2002, $.20 per share                                    (593,088)                     (593,088)

Adjustments                                                                  (1,518)                       (1,518)
Unrealized Security Gains (Losses)                                                       850,458          850,458
                                               ---------   -----------   ------------   ---------      ------------

Balance December 31, 2002                      $623,164    $4,005,238    $21,215,858    $701,647       $26,545,907
                                               =========   ===========   ============   =========      ============
</TABLE>

* Net of tax effect.



<PAGE>

Page 62 of 87


                           Benchmark Bankshares, Inc.

                              (Parent Company Only)

                            Statements of Cash Flows

                  Years Ended December 31, 2002, 2001, and 2000


                                           2002          2001          2000
                                           ----          ----          ----
Cash Flows from Operating Activities
   Net income                           $3,398,040    $2,735,768    $2,845,061
   Decrease in payables                        (81)            -             -
                                        -----------   -----------   -----------

               Net Cash Provided by
                  Operating Activities   3,397,959     2,735,768     2,845,061

Cash Flows from Investing Activities
   (Un)distributed earnings of
      subsidiary                        (2,423,937)   (1,760,005)     (568,270)
   Capital adjustment                       (1,400)           (1)          (34)
                                        -----------   -----------   -----------

               Net Cash (Used) by
                  Investing Activities  (2,425,337)   (1,760,006)     (568,304)

Cash Flows from Financing Activities
   Sale of stock                            89,450        22,140        55,984
   Redemption of stock                        (108)         (165)         (114)
   Stock repurchase                       (141,500)     (376,769)     (155,296)
   Dividends paid                       (1,067,588)   (1,078,044)     (963,489)
                                        -----------   -----------   -----------

               Net Cash (Used) by
                  Financing Activities  (1,119,746)   (1,432,838)   (1,062,915)
                                        -----------   -----------   -----------

Net Increase (Decrease) in Cash           (147,124)     (457,076)    1,213,842

Cash - Beginning of Year                 3,867,818     4,324,894     3,111,052
                                        -----------   -----------   -----------

Cash - End of Year                      $3,720,694    $3,867,818    $4,324,894
                                        ===========   ===========   ===========



<PAGE>


Page 63 of 87


ITEM 9    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
          AND FINANCIAL DISCLOSURE

                  None


<PAGE>


Page 64 of 87


PART III

ITEM 10    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The Directors of the Company, their ages, and principal occupations are
set forth in the table below as of December 31, 2002:

<TABLE>
<CAPTION>
<S>                             <C>                                                   <C>
                                Principal Occupation for Last Five Years              Director of the Company
          Name (Age)            Position Held with Company and Subsidiary               or Subsidiary Since

R. Michael Berryman             Retired Pharmacist                                              1978
   (62)                         Principal, Smith's Pharmacy, Inc.
                                Pharmacy Associates, Inc.
                                Chairman of Board, Company and Subsidiary

David K. Biggs                  Principal, Biggs Construction Co., Inc.                         2002
   (46)

Mark F. Bragg                   Principal, Atlantic Medical, Inc.                               1999
   (41)

Lewis W. Bridgforth             Physician                                                       1971
   (63)

William J. Callis               Building Contractor                                             1989
   (60)                         Vice President, Kenbridge Construction Co., Inc.
                                Vice Chairman of Board, Company and Subsidiary

Earl H. Carter, Jr.             Principal, Taylor-Forbes Equipment                              2000
   (54)                         Company, Inc.

Earl C. Currin, Jr.             Provost,                                                        1986
   (59)                         John H. Daniel Campus of Southside
                                Virginia Community College

Mary Jane Elkins                Dean of Institutional Advancement,                              2002
   (51)                         Southside Virginia Community College

C. Edward Hall                  Pharmacist                                                      1971
   (62)                         Partner, Victoria Drug Company

J. Ryland Hamlett               Retired Personnel Manager,                                      1986
   (60)                         Southside Electric Cooperative

Wayne J. Parrish                Principal, Parrish Trucking Co., Inc.                           1979
   (64)

Ben L. Watson, III              President and CEO,                                              1976
   (59)                         Company and Subsidiary

Executive Officers of the Company

         The Executive Officers of the Bank and their positions are set forth
below:

          Name (Age)            Position Held with Subsidiary                              Officer Since

Ben L. Watson, III  (A)         Director, President and CEO                                     1971
   (59)

Michael O. Walker (B)           Executive Vice President for Branch Administration and          1975
   (52)                         Marketing and Recording Secretary

Janice W. Pernell  (C)          Senior Vice President, Cashier, Assistant                       1976
   (56)                         Secretary, and Compliance Officer
</TABLE>


<PAGE>




Page 65 of 87


(A) Mr. Watson serves in a dual capacity of President and CEO for both the
    Company and the subsidiary.

(B) Mr. Walker also serves as Recording Secretary of the Company.

(C) Mrs. Pernell also serves as Cashier and Treasurer of the Company.

         Mr. Watson and Mrs. Pernell have served the Bank since it commenced
business in 1971. Mr. Watson started with the Bank as Operations Officer, was
appointed Cashier in 1973, appointed Executive Vice President in 1975, and
appointed to his current position in March of 1990. Mrs. Pernell was appointed
Operations Officer and Cashier in 1978, Assistant Vice President and Cashier in
1980, Vice President, Cashier, and Compliance Officer in 1988, and to her
current position of Senior Vice President, Cashier, Assistant Secretary, and
Compliance Officer in 1993.

         Mr. Walker came to the Bank in 1974 as Branch Manager of the Victoria
office. He was appointed Assistant Vice President in 1980, Vice President in
1988, Vice President for Branch Administration and Marketing in 1989, Senior
Vice President in 1993, and to his current position of Executive Vice President
in 2002.

ITEM 11    EXECUTIVE COMPENSATION

A. Summary of Cash and Certain Other Compensation to Executive Officer

<TABLE>
<CAPTION>
<S>                       <C>      <C>         <C>          <C>              <C>               <C>
                                                                              Long-Term
                                     Annual Compensation                     Compensation
                                                              (1) (2)         Number of
                                                               Other          Securities
   Name and Principal                         Incentive        Annual         Underlying        All Other
        Position          Year      Salary      Bonus       Compensation        Option         Compensation
        --------          ----      ------      -----       ------------        ------         ------------

Ben L. Watson, III        2002     $126,684    $35,063         $3,600           4,000(3)           None
President and Chief       2001      121,812     22,022          3,000           6,000(3)           None
Executive Officer         2000      116,004     24,039          5,050           6,000(3)           None

Michael O. Walker         2002       96,552     22,790          2,100           6,000              None
Executive                 2001       89,268     15,835          1,800           6,000              None
Vice President            2000       85,008     16,709          1,950           6,000              None

Janice W. Pernell         2002       92,844     22,790          None            5,850              None
Senior Vice President     2001       89,268     15,835          None            5,850              None
                          2000       85,008     16,709          None            5,850              None
</TABLE>

         (1)    The value of perquisites and other personal benefits did not
                exceed the lesser of $50,000 or 10% of total annual salary and
                incentive bonus.

         (2)    Other Annual Compensation represents Director's fees paid to Mr.
                Watson for services performed as a Director of the Bank, and
                fees paid to Mr. Walker for services performed as Recording
                Secretary of the Board of the Bank.

         (3)    Mr. Watson exercised 500 options on January 7, 2002, 500 on
                January 25, 2002, 500 on August 7, 2002, and 500 on December 13,
                2002.

B.       Compensation to Directors

                  No fees are paid to Directors for service on the Board of the
         Company. During 2002, each Director was paid $300 for each Board
         meeting and, with the exception of Mr. Watson, each Director received
         $225 for each Committee meeting attended during the year.


<PAGE>


Page 66 of 87


C.       Employment Agreements

                  The Company, or its subsidiary, has no employment agreements
         with any of its employees.

ITEM 12    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT

         The following table sets forth information regarding the beneficial
ownership of the Company's common stock as of March 3, 2003:
<TABLE>
<CAPTION>
<S>                          <C>                                  <C>                        <C>
                                                                                                Shares
                                                                                             Beneficially
                                                                                                 Owned
                                                                                              % of Shares
                                                                  Director/Officer of        Beneficially
Name and Age                 Principal Occupation                 Company/Subsidiary            Owned

R. Michael Berryman          Retired Pharmacist                           1978               85,113.000(1)
   (62)                                                                                          2.88%

David K. Biggs               Principal,                                   2002                2,600.000(2)
   (46)                      Biggs Construction Co., Inc.                                         .09%

Mark F. Bragg                Principal, Atlantic                          1999                5,597.409(3)
   (41)                      Medical, Inc.                                                        .19%

Lewis W. Bridgforth          Physician                                    1971               35,680.657(4)
   (63)                                                                                          1.21%

William J. Callis            Building Contractor                          1989               36,620.974(5)
   (60)                                                                                          1.24%

Earl H. Carter, Jr.          Principal, Taylor-Forbes                     2000                2,305.000
   (54)                      Equipment Company, Inc.                                              .08%

Earl C. Currin, Jr.          Provost                                      1986               13,178.000
   (59)                                                                                           .45%

Mary Jane Elkins             Dean of Institutional                        2002                  700.000
   (51)                      Advancement,                                                         .03%
                             Southside Virginia
                             Community College

C. Edward Hall               Pharmacist                                   1971               36,185.037(6)
   (62)                                                                                          1.23%

J. Ryland Hamlett            Retired Personnel Manager                    1986               44,977.000(7)
   (60)                                                                                          1.52%

Wayne J. Parrish             Principal, Parrish                           1979               28,878.872(8)
   (64)                      Trucking Co., Inc.                                                   .98%

Ben L. Watson, III           President and CEO,                           1971               22,471.508(9)
   (59)                      Company and Subsidiary                                               .76%
</TABLE>







<PAGE>

Page 67 of 87


<TABLE>
<CAPTION>
<S>                          <C>                                          <C>               <C>

Janice W. Pernell            Senior Vice President                        1976               11,536.375(10)
   (56)                                                                                           .39%

Michael O. Walker            Executive Vice President                     1975               52,000.000(11)
   (52)                                                                                          1.76%

All Directors and                                                                           377,843.832
Executive Officers as                                                                           12.77%
a Group
</TABLE>


(1)  Includes 45,073 shares owned solely by Mr. Berryman's wife.

(2)  Includes 1,400 shares owned by Biggs Construction Co., Inc.

(3)  Includes 97.409 shares held jointly with Mr. Bragg's wife.

(4)  Includes 20,337.218 shares owned solely by Dr. Bridgforth's wife.

(5)  Includes 21,640.644 shares held jointly with Mr. Callis's wife.

(6)  Includes 260 shares owned solely by Mr. Hall's wife and 5,040 shares held
     jointly with his mother.

(7)  Includes 17,128 shares held as trustee for the John A Cordle Family Trust
     and 17,128 shares held as trustee for the Mary F. Cordle Marital Trust.

(8)  Includes 6,971.168 shares held jointly with Mr. Parrish's wife and
     7,419.035 shares owned solely by her.

(9)  Includes 457.508 shares owned solely by Mr. Watson's wife and 4,000
     unexercised option shares for him.

(10) Includes 4,650 unexercised option shares.

(11) Includes 25,000 shares held jointly with Mr. Walker's wife and 6,000
     unexercised option shares for him.

The share ownership listed above reflects the shares necessary to meet the
ownership requirements for bank directors pursuant to the Virginia Banking Act.

No person owned of record or was known to own beneficially more than 5.0% of the
outstanding common stock of the Company as of December 31, 2002. The following
table details information concerning a stock certificate holder that is in the
business of marketing investments.

Actual ownership of shares or partial shares by investors through this company
is not known by management. The following table provides certificate holder
information:

                                     No. of Shares                 Percentage
               Name                 in Certificates              of Shares Held

CEDE & Company                          957,378                      32.26%
Box 20
Bowling Green Station
New York, New York  10081




<PAGE>


Page 68 of 87


ITEM 13    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Loans to Related Parties

         During the past year, Directors and Executive Officers of the Company,
their affiliates, and members of their immediate families were customers of, and
had borrowing transactions with, the Company's banking subsidiary in the normal
course of business. All outstanding loans and commitments included in such
transactions are made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than normal risk of collectivity or
present other unfavorable features.

         Balances, as of December 31, of the year are summarized below:

                                             2002         2001         2000
                                             ----         ----         ----

Executive Officers and their families     $  300,198   $  297,313   $  377,564
Directors and their families (1)             652,248      522,267      679,499
Corporations in which Directors and
   Officers had an interest                6,685,086    4,721,239    3,387,868
                                          ----------   ----------   ----------

               Total                      $7,637,532   $5,540,819   $4,444,931
                                          ==========   ==========   ==========

(1)   Loans to Mr. Watson that are reported as loans to Executive Officers are
      not included in loans to Directors.

Refer to Item 14(a) - Financial Statement Schedules

         At year end 2002, Directors and Executive Officers had been granted
lines of credit in the amount of $3,587,500. As of December 31, 2002, $2,686,897
of these lines was unexercised and available.

Stock Sales to Related Parties

         The current Directors and Executive Officers acquired 13,444 shares of
Company stock during 2002 through exercising of stock options and purchases of
shares on the open market. The average price of shares purchased was $9.48.




<PAGE>


Page 69 of 87


PART IV

ITEM 14    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
           ON FORM 8-K

(a) (1)    The following consolidated financial statements of Benchmark
           Bankshares, Inc. and its subsidiary, Benchmark Community Bank,
           included in the annual report of the registrant to its stockholders
           for the year ended December 31, 2002 are included in Item 8:

                  Consolidated Statements of Financial Condition - December 31,
                  2002 and 2001
                  Consolidated Statements of Income - Years Ended December 31,
                     2002, 2001, and 2000
                  Consolidated Statements of Changes in Stockholders' Equity -
                     Years Ended December 31, 2002 and 2001
                  Consolidated Statements of Cash Flows - Years Ended
                     December 31, 2002, 2001, and 2000
                  Notes to Consolidated Financial Statements - December 31,
                     2002, 2001, and 2000

     (2)   The following consolidated financial statement schedules of Benchmark
           Bankshares, Inc. and its subsidiary, Benchmark Community Bank, are
           included in Item 14 (d):

                  Schedule II - Indebtedness to Related Parties

                  Schedule V - Property, Plant, and Equipment

                  Schedule VI - Accumulated Depreciation, Depletion, and
                     Amortization of Property, Plant, and Equipment

                  Supplemental Information to the Audited Financial Statements
                     pursuant to SEC regulations.

                  All other schedules for which provision is made in the
           applicable accounting regulation of the Securities and Exchange
           Commission are not required under the related instructions or are
           inapplicable and, therefore, have been omitted.



<PAGE>


Page 70 of 87


ITEM 14 (a) (3)    LISTING OF EXHIBITS INCLUDED IN 14 (c)

                                                       Page Number of
                                                Incorporation by Reference to

( 1)  Articles of Incorporation             Page 57 - Item 14(c) - Exhibit 1 of
                                            Form 10K, December 31, 1989

( 2)  (a)  Amendments to Articles of        Page 76 - Item 14(c) - Exhibit 2 of
             Incorporation                  Form 10K, December 31, 1989

       (b)   Amendments to Articles of      Page 58 - Item 14(c) - Exhibit 2(b)
             Incorporation                  of Form 10K, December 31, 1990

       (c)   Amendment to Articles of       Page 68 - Item 14(c) - Exhibit 2(c)
             Incorporation                  of Form 10K, December 31, 1992

( 3)  Bylaws of Incorporation               Page 83 - Item 14(c) - Exhibit 3 of
                                            Form 10K, December 31, 1989

( 4)  Amendments to Bylaws                  Page 106 - Item 14(c) - Exhibit 4 of
                                            Form 10K, December 31, 1989

( 5)  Indemnity Agreement                   Page II-11-26 in Exhibit 10.1 of
                                            Form S-1 filed September 1, 1989

( 6)  List of Subsidiaries

( 7)  Bonus Plans of Bank Officers          Page 60 - Item 14(c) - Exhibit 7(a)
                                            -7(b) of Form 10K, December 31, 1990

( 8)  Directors Performance                 Page 72 - Item 14(c) - Exhibit 8 of
         Compensation Schedule              Form 10K, December 31, 1992

( 9)  Resolution to Amend the Articles      Page 71 - Item 14(c) - Exhibit 9(a)
         of Incorporation to increase the   of Form 10K, December 31, 1993
         number of authorized shares
         from 2,000,000 to 4,000,000
         concurrent with the Directors
         election to have a 2 for 1 stock
         split

(10)  Stock Option Plans                    Exhibits A and B of 1995 Proxy and
                                            Information Statement for the
                                            April 20, 1995 Annual Meeting of
                                            Stockholders

(11)  Section 906 Certification

(12)  Controls and Procedures
      Certification




<PAGE>


Page 71 of 87


ITEM 14(b)    REPORTS ON FORM 8-K

         There was no required filing of Form 8-K warranted as a result of
action taken by the Company during the reporting period.



<PAGE>




Page 72 of 87


ITEM 14(c)    EXHIBIT 6

         The only subsidiary of the Registrant is Benchmark Community Bank, a
Virginia banking corporation, located in Kenbridge, Lunenburg County, Virginia.
It is owned 100% by Registrant.



<PAGE>



Page 73 of 87









Item 14(c)10




               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
Benchmark Bankshares, Inc.


         We have audited the consolidated balance sheets of Benchmark
Bankshares, Inc. and Subsidiary as of December 31, 2002 and 2001, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
2002. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

         We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Benchmark
Bankshares, Inc. and Subsidiary as of December 31, 2002 and 2001 and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2002, in conformity with generally accepted accounting
principles.

         Our audits referred to above included audits of the financial statement
schedules listed under Item 14(a)(2). In our opinion, those financial statement
schedules present fairly, in all material respects, in relation to the financial
statements taken as a whole, the information required to be stated therein.





                          Creedle, Jones, and Alga, P. C.
                          Certified Public Accountants

South Hill, Virginia
March 17, 2003




<PAGE>




Page 74 of 87


Item 14(c)11


                    STATEMENT OF CHIEF EXECUTIVE OFFICER AND
           CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350


         In connection with the Form 10-K of Benchmark Bankshares, Inc. for the
year ended December 31, 2002, we, Ben L. Watson, III, President and Chief
Executive Officer of Benchmark Bankshares, Inc., and Janice W. Pernell, Senior
Vice President, Treasurer, and Assistant Secretary of Benchmark Bankshares,
Inc., hereby certify pursuant to 18 U.S.C.ss.1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge:

         (a)      such Form 10-K for the year ended December 31, 2002 fully
                  complies with the requirements of Section 13(a) of the
                  Securities Exchange Act of 1934, as amended; and

         (b)      the information contained in such Form 10-K for the year ended
                  December 31, 2002 fairly presents, in all material respects,
                  the financial condition and results of operations of Benchmark
                  Bankshares, Inc. as of, and for, the year presented in such
                  Form 10-K.



By:      Ben L. Watson, III                              Date:  March 17, 2003
         President and Chief Executive Officer



By:      Janice W. Pernell                               Date:  March 17, 2003
         Senior Vice President, Treasurer,
         and Assistant Secretary




<PAGE>


Page 75 of 87


Item 14(c)12      Section 302 Certification

I, Ben L. Watson, III, certify that:

1.       I have reviewed this annual report on Form 10-K of Benchmark
         Bankshares, Inc.;

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

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

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

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

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

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

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

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

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

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


Date:    March 17, 2003                   Ben L. Watson, III
                                          President and Chief Executive Officer



<PAGE>


Page 76 of 87


Item 14(c)12      Section 302 Certification

I, Janice W. Pernell, certify that:

1.       I have reviewed this annual report on Form 10-K of Benchmark
         Bankshares, Inc.;

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

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

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

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

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

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

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

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

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

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


Date:    March 17, 2003                   Janice W. Pernell
                                          Senior Vice President, Treasurer, and
                                          Assistant Secretary



<PAGE>


Page 77 of 87


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant had duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 17, 2003.

                           Benchmark Bankshares, Inc.
                 (formerly Lunenburg Community Bankshares, Inc.)
                                  (Registrant)




By       Ben L. Watson, III                     By          Janice W. Pernell
               President                                  Cashier and Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons on behalf of the registrant and in the capacities have signed
this report on March 17, 2003.


C. Edward Hall                03-17-03    Wayne J. Parrish             03-17-03
--------------------------------------    -------------------------------------




Mark F. Bragg                 03-17-03    Earl C. Currin, Jr.          03-17-03
--------------------------------------    -------------------------------------




Mary Jane Elkins              03-17-03    David K. Biggs               03-17-03
--------------------------------------    -------------------------------------




J. Ryland Hamlett             03-17-03    Lewis W. Bridgforth          03-17-03
--------------------------------------    -------------------------------------




William J. Callis             03-17-03    R. Michael Berryman          03-17-03
--------------------------------------    -------------------------------------




Earl H. Carter, Jr.           03-17-03    Ben L. Watson, III           03-17-03
--------------------------------------    -------------------------------------



<PAGE>


Page 78 of 87


ITEM 14(d)    SCHEDULE II - INDEBTEDNESS TO RELATED PARTIES

                          Year Ended December 31, 2002

                                  Balance                             Balance
                                at Beginning                         at End of
        Name of Person           of Period   Additions  Deductions    Period

Executive Officers,
   Directors, and Their
   Related Interest             $5,540,819  $3,058,728  $  962,015   $7,637,532

W. J. Callis, Director(1)(2)(3)  3,321,515   1,401,297     505,633    4,217,179



                          Year Ended December 31, 2001

Executive Officers,
   Directors, and Their
   Related Interest             $4,444,931  $2,407,743  $1,311,855   $5,540,819

W. J. Callis, Director(1)(2)(3)  2,433,923   1,112,942     225,350    3,321,515



                          Year Ended December 31, 2000

Executive Officers,
   Directors, and Their
   Related Interest             $3,212,221  $2,117,778  $  885,068   $4,444,931

W. J. Callis, Director(1)(2)(3)  1,996,624     790,000     352,701    2,433,923















(1)   Loans to related parties that exceed 5% of the capital of the Company.

(2)   Loans to business interest.

(3)   Loans are included in the totals presented for the Executive Officers,
      Directors, and their interest.



<PAGE>


Page 79 of 87


ITEM 14(d)        SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT
Page 1


                           Benchmark Bankshares, Inc.

                          Year Ended December 31, 2002

<TABLE>
<CAPTION>
<S>                               <C>          <C>          <C>            <C>            <C>

             Col. A                 Col. B       Col. C       Col. D         Col. E         Col. F
                                  Balance at                                  Other         Balance
                                  Beginning     Additions                    Changes       at End of
         Classification           of Period      at Cost     Retirement    Add (Deduct)     Period

Land                              $  963,060   $   51,500   $         -     $       -     $1,014,560

Buildings and improvements         3,024,568       56,083             -             -      3,080,651
Leasehold improvements                66,854            -             -             -         66,854
Construction in progress                   -            -             -             -              -
                                  ----------   ----------   ------------    ----------    ----------

                                   3,091,422       56,083             -             -      3,147,505

Equipment, furniture, and
   fixtures                        2,014,306      397,856       (58,418)            -      2,353,744
                                  ----------   ----------   ------------   -----------    ----------

               Total              $6,068,788   $  505,439   $   (58,418)   $        -     $6,515,809
                                  ==========   ==========   ============   ===========    ==========


                                       Year Ended December 31, 2001


Land                              $  917,748   $   45,312   $         -    $        -     $  963,060

Buildings and improvements         2,633,457      491,218      (100,107)            -      3,024,568
Leasehold improvements               167,390        2,734      (103,270)            -         66,854
Construction in progress             217,042            -             -      (217,042)             -
                                  ----------   ----------   ------------   -----------    ----------

                                   3,017,889      493,952      (203,377)     (217,042)     3,091,422

Equipment, furniture, and
   fixtures                        2,257,349      599,330      (842,373)            -      2,014,306
                                  ----------   ----------   ------------   -----------    ----------

               Total              $6,192,986   $1,138,594   $(1,045,750)   $ (217,042)    $6,068,788
                                  ==========   ==========   ============   ===========    ==========
</TABLE>



<PAGE>


Page 80 of 87


ITEM 14(d)        SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT
Page 2


                          Year Ended December 31, 2000


<TABLE>
<CAPTION>
<S>                               <C>          <C>          <C>            <C>            <C>

Land                              $  799,690   $  118,058   $         -    $        -     $  917,748

Buildings and improvements         2,401,090      232,367             -             -      2,633,457
Leasehold improvements               166,521          869             -             -        167,390
Construction in progress             187,969      430,668             -      (401,595)       217,042
                                  ----------   ----------   ------------   -----------    ----------

                                   2,755,580      663,904             -      (401,595)     3,017,889

Equipment, furniture, and
   fixtures                        2,033,002      224,347             -             -      2,257,349
                                  ----------   ----------   ------------   -----------    ----------

               Total              $5,588,272   $1,006,309   $         -    $ (401,595)    $6,192,986
                                  ==========   ==========   ============   ===========    ==========
</TABLE>




<PAGE>


Page 81 of 87


ITEM 14(d)    SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION, AND
              AMORTIZATION OF PROPERTY, PLANT, AND EQUIPMENT


                           Benchmark Bankshares, Inc.

                          Year Ended December 31, 2002

<TABLE>
<CAPTION>
<S>                             <C>          <C>          <C>            <C>            <C>
                                             Additions
                                 Balance at  Charged to                     Other       Balance at
                                 Beginning    Cost and                     Changes        End of
          Description            of Period    Expenses     Retirements   Add (Deduct)     Period

Building and improvements       $  901,133   $132,967     $         -     $      -      $1,034,100
Leasehold improvements              32,886      7,175               -            -          40,061
                                ----------   --------     ------------    --------      ----------

               Total               934,019    140,142               -            -       1,074,161

Equipment, furniture, and
   fixtures                        851,113    363,851         (58,418)           -       1,156,546
                                ----------   --------     ------------    --------      ----------

               Total            $1,785,132   $503,993     $   (58,418)    $      -      $2,230,707
                                ==========   ========     ============    ========      ==========


                                      Year Ended December 31, 2001

Building and improvements       $  886,356   $114,884     $  (100,107)    $      -      $  901,133
Leasehold improvements             129,040      7,116        (103,270)           -          32,886
                                ----------   --------     ------------    --------      ----------

               Total             1,015,396    122,000        (203,377)           -         934,019

Equipment, furniture, and
   fixtures                      1,438,006    224,621        (811,514)           -         851,113
                                ----------   --------     ------------    --------      ----------

               Total            $2,453,402   $346,621     $(1,014,891)    $      -      $1,785,132
                                ==========   ========     ============    ========      ==========


                                      Year Ended December 31, 2000


Building and improvements       $  784,675   $101,681     $         -     $      -      $  886,356
Leasehold improvements             122,409      6,631               -            -         129,040
                                ----------   --------     ------------    --------      ----------

               Total               907,084    108,312               -            -       1,015,396

Equipment, furniture, and
   fixtures                      1,257,409    180,597               -            -       1,438,006
                                ----------   --------     ------------    --------      ----------

               Total            $2,164,493   $288,909     $         -     $      -      $2,453,402
                                ==========   ========     ============    ========      ==========
</TABLE>





<PAGE>


Page 82 of 87


ITEM 14(d)(1)    SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
                 PURSUANT TO SEC REGULATIONS

                           Benchmark Bankshares, Inc.

                              (Parent Company Only)

                Balance Sheet, December 31, 2002, 2001, and 2000


                                     Assets

                                            2002          2001          2000
                                            ----          ----          ----

Cash                                    $ 3,720,694   $ 3,867,818   $ 4,324,894
Investment in subsidiary                 23,418,301    20,143,862    18,401,336
Receivable - reimbursement                        -            81            81
                                        -----------   -----------   -----------

               Total Assets             $27,138,995   $24,011,761   $22,726,311
                                        ===========   ===========   ===========


                      Liabilities and Stockholders' Equity

Liabilities
   Dividends payable                    $   593,088   $   534,600   $   541,120

Stockholders' Equity
   Common stock, par value $.21 per
      share, authorized 4,000,000 shares;
      issued and outstanding 12-31-02
      2,967,443.301, issued and outstanding
      12-31-01 2,970,003.06, issued and
      outstanding 12-31-00 3,006,219.501    623,164       623,701       631,307
   Surplus                                4,005,238     4,056,859     4,404,047
   Retained earnings                     21,917,505    18,796,601    17,149,837
                                        -----------   -----------   -----------

               Total Stockholders'
                  Equity                 26,545,907    23,477,161    22,185,191
                                        -----------   -----------   -----------

               Total Liabilities and
                  Stockholders' Equity  $27,138,995   $24,011,761   $22,726,311
                                        ===========   ===========   ===========


















<PAGE>


Page 83 of 87


ITEM 14(d)(2)     SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
Page 1            PURSUANT TO SEC REGULATIONS


                           Benchmark Bankshares, Inc.

                              (Parent Company Only)

                              Statements of Income

                  Years Ended December 31, 2002, 2001, and 2000


                                            2002          2001          2000
                                            ----          ----          ----

Income
   Dividends from subsidiary             $1,000,000    $1,000,000    $2,300,000
                                         ----------    ----------    ----------

               Total Income               1,000,000     1,000,000     2,300,000

Expenses
   Professional fees                         12,550        12,872        11,500
   Supplies, printing, and postage           13,347        10,515        10,809
   Taxes - miscellaneous                          -           850           900
                                         ----------    ----------    ----------

               Total Expenses                25,897        24,237        23,209
                                         ----------    ----------    ----------

Income Before Equity in Undistributed
   Income of Subsidiary                     974,103       975,763     2,276,791

Equity in Income of Subsidiary (includes
   tax benefit of parent company
   operating loss)                        2,423,937             -       568,270
                                         ----------    ----------    ----------

               Net Income                $3,398,040    $  975,763    $2,845,061
                                         ==========    ==========    ==========



<PAGE>


Page 84 of 87

ITEM 14(d)(2)     SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
Page 2            PURSUANT TO SEC REGULATIONS

                           Benchmark Bankshares, Inc.
                              (Parent Company Only)

                  Statement of Changes in Stockholders' Equity

                  Years Ended December 31, 2002, 2001, and 2000

<TABLE>
<CAPTION>
<S>                                 <C>         <C>           <C>           <C>            <C>

                                                                            Unrealized
                                     Common                     Retained    Securities
                                      Stock       Surplus       Earnings    Gain (Loss)*      Total

Balance January 1, 2000             $633,272    $4,501,508    $15,455,510   $(542,544)     $20,047,746

Net Income
   Parent                                                       2,276,791                    2,276,791
   Equity in income of subsidiary                                 568,270                      568,270

Sale of Stock                          1,593        54,391                                      55,984
Redemption of Stock                       (3)         (111)                                       (114)
Stock Repurchase                      (3,555)     (151,741)                                   (155,296)

Semi-Annual Cash
   Dividend Declared
      June 15, 2000, $.16 per share                              (480,996)                    (480,996)
      December 21, 2000, $.18 per                                (541,120)                    (541,120)

Adjustments                                                         2,713                        2,713
Unrealized Security Gains (Losses)                                            411,213          411,213
                                    ---------   -----------   ------------  ----------     ------------

Balance December 31, 2000            631,307     4,404,047     17,281,168    (131,331)      22,185,191
Net Income
   Parent                                                         975,763                      975,763
   Equity in income of subsidiary                               1,760,005                    1,760,005

Sale of Stock                            630        21,510                                      22,140
Redemption of Stock                       (4)         (161)                                       (165)
Stock Repurchase                      (8,232)     (368,537)                                   (376,769)

Semi-Annual Cash
   Dividend Declared
      June 21, 2001, $.18 per share                              (536,528)                    (536,528)
      December 20, 2001, $.18 per
         share                                                   (534,600)                    (534,600)

Adjustments                                                          (396)                        (396)
Unrealized Security Gains (Losses)                                            (17,480)         (17,480)
                                    ---------   -----------   ------------  ----------     ------------

Balance December 31, 2001            623,701     4,056,859     18,945,412    (148,811)      23,477,161

Net Income
   Parent                                                         974,103                      974,103
   Equity in income of subsidiary                               2,423,937                    2,423,937

Sale of Stock                          2,405        87,045                                      89,450
Redemption of Stock                       (2)         (106)                                       (108)
Stock Repurchase                      (2,940)     (138,560)                                   (141,500)

Semi-Annual Cash
   Dividend Declared
      June 20, 2002, $.18 per share                              (532,988)                    (532,988)
      December 19, 2002, $.20 per
         share                                                   (593,088)                    (593,088)

Adjustments                                                        (1,518)                      (1,518)
Unrealized Security Gains (Losses)                                            850,458          850,458
                                    ---------   -----------   ------------  ----------     ------------

Balance December 31, 2002           $623,164    $4,005,238    $21,215,858   $ 701,647      $26,545,907
                                    =========   ===========   ============  ==========     ============
</TABLE>

* Net of tax effect.


<PAGE>


Page 85 of 87


ITEM 14(d)(3)    SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
                 PURSUANT TO SEC REGULATIONS

                           Benchmark Bankshares, Inc.

                              (Parent Company Only)

                            Statements of Cash Flows

                  Years Ended December 31, 2002, 2001, and 2000


                                           2002          2001          2000
                                           ----          ----          ----

Cash Flows from Operating Activities
   Net income                           $3,398,040    $2,735,768    $2,845,061
   Decrease in payables                        (81)            -             -
                                        -----------   -----------   -----------

               Net Cash Provided by
                  Operating Activities   3,397,959     2,735,768     2,845,061

Cash Flows from Investing Activities
   (Un)distributed earnings of
      subsidiary                        (2,423,937)   (1,760,005)     (568,270)
   Capital adjustment                       (1,400)           (1)          (34)
                                        -----------   -----------   -----------

               Net Cash (Used) by
                  Investing Activities  (2,425,337)   (1,760,006)     (568,304)

Cash Flows from Financing Activities
   Sale of stock                            89,450        22,140        55,984
   Redemption of stock                        (108)         (165)         (114)
   Stock repurchase                       (141,500)     (376,769)     (155,296)
   Dividends paid                       (1,067,588)   (1,078,044)     (963,489)
                                        -----------   -----------   -----------

               Net Cash (Used) by
                  Financing Activities  (1,119,746)   (1,432,838)   (1,062,915)
                                        -----------   -----------   -----------

Net Increase (Decrease) in Cash           (147,124)     (457,076)    1,213,842

Cash - Beginning of Year                 3,867,818     4,324,894     3,111,052
                                        -----------   -----------   -----------

Cash - End of Year                      $3,720,694    $3,867,818    $4,324,894
                                        ===========   ===========   ===========





<PAGE>


Page 86 of 87


ITEM 14(d)(4)    SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
                 PURSUANT TO SEC REGULATIONS

Investment Securities - Realized Gains and Losses

                                                 Realized     Realized
                                                  Gains        Losses

For the Year Ended December 31, 2002
   U. S. Government Agencies                     $ 1,890      $     -
   Pooled Securities                               6,584       (4,857)
   State and Political Subdivisions                9,814       (4,552)
                                                 -------      --------

               Total                             $18,288      $(9,409)
                                                 =======      ========

For the Year Ended December 31, 2001
   U. S. Government Agencies                     $     -      $     -
   Pooled Securities                                   -            -
   State and Political Subdivisions                2,434            -
                                                 -------      --------

               Total                             $ 2,434      $     -
                                                 =======      ========






<PAGE>


Page 87 of 87


ITEM 14(d)(5)    SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
                 PURSUANT TO SEC REGULATIONS


Capital Ratios for the Bank Subsidiary

                                                      Bank
                                                     Ratios

Total Risk-Based Capital Ratio                       11.46%

Tier 1 Risk-Based Capital Ratio                      10.54%

Tier 1 Leverage Ratio                                 8.87%