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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, 2001.

                                       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 $.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]

Based on the closing sales price of March 1, 2002, the aggregate market value of
the voting and nonvoting common equity held by nonaffiliates of the registrant
was $31,050,542.

The number of shares outstanding of the registrant's common stock, $.21 par
value was 2,957,194.520 at March 1, 2002.

                       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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Page 3 of 83

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, 2001, the Company and its subsidiary employed 93
full-time and 23 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 branch 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. 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 IRA's, safe deposit,
drive-up, night deposit, 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 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 $5,493,117 at cost of its investment portfolio to safeguard State
and local municipalities' deposits as of December 31, 2001.

         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,
2001, the Bank had $515,000 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 2001, 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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Page 6 of 83


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 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 five 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. 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 window, 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, 2001 was $1,160. The
office contains three teller windows. Currently, the office has no drive-up
window. 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, 2001 was $1,750. This amount can be renegotiated in
June of 2002. This office contains approximately 2,900 square feet of floor
space and operates four teller windows, a drive-up window, 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
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, 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 drive-up unit, and automatic-teller machine. The
facility is constructed of brick and is situated in a shopping center on the
north 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 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
drive-up window, and an automatic-teller machine. There is also a full basement
which is currently being utilized for storage.

ITEM 3      LEGAL PROCEEDINGS

         None

ITEM 4      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None



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Page 8 of 83


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:

                                Bid Price
                             of Common Stock

         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(1)                   $19.00
Second Quarter(1)                   19.00
Third Quarter(1)                    15.50
Fourth Quarter                      13.75

        1997(1)

First Quarter                      $ 8.88
Second Quarter                       9.63
Third Quarter                       12.50
Fourth Quarter                      15.50


         During 2001, the Company declared an $.18 per share semi-annual
dividend in June and $.18 per share semi-annual dividend in December. The
semi-annual dividends declared in 2000 amounted to $.16 per share in June and
$.18 per share in December.

         As of December 31, 2001, there were 949 stock certificates issued to
holders of record.

(1)Adjusted for a 2 for 1 stock split on October 2, 1997.
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Page 9 of 83


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, 2001, there has been no issuance of preferred stock
as authorized in the Articles of Incorporation.



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Page 10 of 83

ITEM 6      SELECTED FINANCIAL DATA

                                           Years Ended December 31,
                                 2001      2000      1999      1998      1997
                                 ----      ----      ----      ----      ----
                             (In thousands of dollars, except per share amounts)

Interest income                $ 17,401  $ 16,422  $ 15,126  $ 14,328  $ 13,653
Interest expense                  8,755     8,002     7,376     7,006     6,508
                               --------  --------  --------- --------  --------
Net interest income               8,646     8,420     7,750     7,322     7,145
Provision for loan losses           198       201       606       357       360
Other operating revenue           1,044     1,006       742       647       586
Other operating expense           5,600     5,069     4,317     3,825     3,600
                               --------  --------  --------  --------  --------

Income Before Income Taxes        3,892     4,156     3,569     3,787     3,771

Income Taxes                      1,156     1,311     1,057     1,143     1,192
                               --------  --------  --------  --------  --------

Net Income                        2,736     2,845     2,512     2,644     2,579

Per Share Data (1)
   Net income                      0.92      0.95      0.83      0.89      0.88
   Cash dividends declared         0.36      0.34      0.32      0.31      0.29

Balance Sheet Amounts
   (at end of period)
      Total assets              241,813   205,253   193,324   185,381   158,735
      Total loans (2)           176,077   163,038   150,675   133,033   125,422
      Total deposits            216,361   181,197   164,741   164,892   140,742
      Total equity               23,477    22,185    20,048    19,015    16,652

Book value per share
   (at end of period)              7.90      7.38      6.65      6.34      5.66

Selected Financial Ratios
(as a percentage)
  Net income to average equity    13.61     14.89     13.30     15.65     17.31
  Net income to average assets     1.23      1.42      1.31      1.53      1.66
  Loans to deposits (3)           82.20     90.90     92.39     81.62     90.10
  Primary capital to total assets
     (at end of period) (4)       10.30     11.46     10.65     10.95     10.99
  Net interest yield (5)           4.12      4.50      4.33      4.54      4.90
  Allowance for loan losses to
     loans (at end of period) (6)  1.00      1.01      1.00      1.16      1.00
  Nonperforming loans to loans
     (at end of period) (7)        0.70      0.92      1.04      1.05      1.12
  Net charge offs to average
     loans (3)                     0.05      0.04      0.45      0.15      0.14

(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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Page 11 of 83


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 reached out to serve an extended trade area. The
Bank experienced steady growth in loans and deposits which led to record levels
of interest earned. A majority of the increase was due to the continued growth
in the newest full-service branch offices located in Lawrenceville, Clarksville,
and Chase City.

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 $.92 in 2001
decreased $.03 or 3.16% from earnings per share of $.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.)





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Page 12 of 83


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%

         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.












<PAGE>

Page 13 of 83


                 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
                        =======   ========      ======         ========

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.



<PAGE>

Page 14 of 83


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.

         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.






<PAGE>

Page 15 of 83


         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%

         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.

Looking Forward

         The Bank has experienced tremendous success in its operation 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, they feel that the trade area provides future growth
potential as the Bank offers new financial services. The new computer 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.

         The Bank expects to utilize the newly available technologies to expand
into internet interfacing and imaging to provide additional outlets for service
and cost efficiency.


<PAGE>


Page 16 of 83


A Comparison of 2000 Versus 1999

Results of Operations and Financial Conditions

         Net income of $2,845,061 in 2000 increased $333,554 or 13.28% from net
income of $2,511,507 in 1999. Earnings per share of $.95 in 2000 increased $.12
or 14.46% from earnings per share of $.83 in 1999.

         Growth in deposits with a corresponding but lesser growth in loans
resulted in a decline in the loan to deposit ratio to 90.90% from 92.39% for the
previous year. Deposits increased $16,456,277 or 9.99% while gross loans grew
$12,508,203 or 8.18%.

         In 2000, the Bank achieved a return on average assets of 1.42% as
compared to a 1.31% return on average assets in 1999. The higher rate of return
was a result of profitable growth in loans and deposits that pushed the net
interest spread up to 4.18% on interest sensitive instruments.

         The year ended 2000 reflected an increase in return on equity as net
income to average equity rose to 14.89% as compared to the 1999 level of 13.30%.
The higher rate of return resulted from not only increases in earnings but also
a decrease in outstanding shares of common stock as the Company initiated a
stock buyback program.

Net Interest Income

         Net interest income of $8,419,817 in 2000 reflected an increase of
$670,658 or 8.65% over net interest income of $7,749,159 in 1999.

         Total interest income of $16,421,718 in 2000 grew by $1,296,178 or
8.57% over total interest income of $15,125,540 in 1999. Total interest expense
of $8,001,901 in 2000 reflected an increase of $625,520 or 8.48% over total
interest expense of $7,376,381 in 1999.

         The increase in interest income resulted from a significant increase in
loans rather than being a function of rate increases. (Refer to Table D,
"Analysis of Changes in Net Interest Income," for an analysis of the impact of
volume and rate.)

         Even though the Bank remained competitive in the marketplace, the Bank
was able to increase loan rates by an average of 3 basis points. During the same
period of time, deposit rates increased on average by 22 basis points as
slightly higher market rates were the norm for the industry. (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)                    12.03%
        Consumer (Installment)                          16.70%
        Real Estate (Construction)                        .74%
        Real Estate (Mortgage)                          70.53%

         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 70.53% 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.




<PAGE>

Page 17 of 83


Allowance for Loan Losses

         The 2000 year ending level of the allowance for loan losses amounted to
$1,667,723. This amount represented an increase of $145,091 or 9.53% over the
1999 level of $1,522,632. 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 2000, the Bank's allowance
for loan losses represented 1.01% of gross loans.

         The Bank incurred net charge offs for loan losses for the year of
$56,096. As a result of the low level of net charge offs, the current year
provision was $404,843 lower when compared to the prior year. The year 2000
level represented a 66.80% decrease over the amount expended in 1999.

Noninterest Income and Noninterest Expense

         Total noninterest income, i.e., fees charged for customer services, for
2000 was $1,006,638. This represents an increase of $264,266 or 35.60% over the
1999 level of $742,372. The increase was directly related to an increase in
other operating income as the Bank continued to experience the effect of
diversification into the area of investments, expanded automatic-teller machine
markets, and the increase in full-service branches in the extended trade area.

         Total noninterest expense in 2000 of $5,068,832 reflects an increase of
$751,689 or 17.41% over the 1999 level of $4,317,143. The increase resulted from
normal increases in operations and salaries and benefits, as the Bank's three
loan production offices converted to full-service banking offices.

Premises and Equipment

         The Bank's premises and equipment increased $604,714 during the year.

                         Increase in Capitalized Premises and Equipment


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

Kenbridge                  $      -   $      -       $  -          $ 11,045
Victoria                          -          -          -            12,397
Farmville #1                      -          -          -             4,140
South Hill                        -          -        869            16,027
Farmville #2                      -          -          -             8,613
Crewe                             -          -          -             4,638
Lawrenceville                82,500    232,367          -           142,107
Clarksville                  35,558          -          -             3,904
Chase City                        -          -          -            21,476
Construction in Progress -
   Net                            -     29,073          -                 -
                           --------   --------       ----          --------

     Total                 $118,058   $261,440       $869          $224,347
                           ========   ========       ====          ========

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.


<PAGE>

Page 18 of 83


         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 $.04, 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 $7.38, while the book value per
share is $7.42 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, 2000, the Bank had $1,397,471 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 $22,875,073.

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 $2,803,185 or 16.93% in
2000. These deposits currently represent 10.69% 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 2001 is $10,453,237, while $8,910,874 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
deposits. The GAP analysis shows a net negative gap of $3,911,000 when
immediately maturing interest-bearing liabilities are deducted from immediately
maturing interest-earning assets. The cumulative gap increases to a negative gap
of $13,986,000 when comparing assets and liabilities maturing up to one year;
however, the cumulative gap shifts to a positive position of $28,475,000 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.



<PAGE>

Page 19 of 83


         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 16,932 shares of stock amounting to
$155,297 during the year of 2000. The Company continued to experience strong
earnings through the operation of the Bank. Through earnings, the Company
generated an additional $1,820,232 in capital. This activity, plus the sale of
$55,985 common stock through the stock option plan, raised year end capital
exclusive of unrealized security gains net of tax effect to a level of
$22,316,522 or an 8.38% increase over the 1999 year ending level of $20,590,290.

         The primary capital to total assets ratio stands at 10.81% as of
December 31, 2000. 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, 2000, the Bank maintained the following capital ratios:

        Total Risk-Based Capital Ratio                   13.07%
        Tier I Risk-Based Capital Ratio                  11.97%
        Tier I Leverage Ratio                             8.73%

         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 2000 was a period of rising interest
rates as the Federal Reserve attempted to slow down the economy by raising the
Federal discount window rate. The interest spread margin for the year was 4.18%
versus a 4.12% margin spread for 1999. Refer to Table C.







<PAGE>

Page 20 of 83


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 2000, the loan-to-deposit ratio remained strong as loan and
deposit growth grew at parallel rates.




<PAGE>


Page 21 of 83

TABLE A.  COMPARATIVE SUMMARY OF EARNINGS
                                           Years Ending December 31,
                                       2001           2000           1999
                                       ----           ----           ----
                                (In thousands of dollars, except per share data)
Interest Income
   Interest and fees on loans      $      15,611  $      14,557  $      13,209
   Interest on investment securities
     U. S. Government agencies               721            980            931
     State and political subdivisions        579            451            616
     Other securities                         10             24              6
     Interest on Federal funds sold          481            410            363
                                   -------------  -------------  -------------

          Total Interest Income           17,402         16,422         15,125

Interest Expense
   Interest-bearing checking deposits        626            768            811
   Savings deposits                          250            287            299
   Time deposits                           7,879          6,892          6,225
   Federal funds purchased                     -             54             41
   Other                                       -              1              -
                                   -------------  -------------  -------------

          Total Interest Expense           8,755          8,002          7,376
                                   -------------  -------------  -------------

Net Interest Income                        8,647          8,420          7,749

Provision for Loan Losses                    198            201            606
                                   -------------  -------------  -------------

          Net Interest Income
            After Provision for
            Loan Losses                    8,449          8,219          7,143

Noninterest Income
   Service charges on deposit
      accounts                               555            509            450
   Other operating income                    482            456            292
   Net investment securities gains
      (losses)                                 2             (3)            (1)
   Gain (Loss) on sale of other assets         4             45             (4)
   Rental                                      -              -              5
                                   -------------  -------------  -------------

          Total Noninterest Income         1,043          1,007            742

Noninterest Expense
   Salaries                                2,837          2,661          2,300
   Employee benefits                         652            600            517
   Occupancy expense                         327            297            226
   Other operating expense                 1,784          1,512          1,274
                                   -------------  -------------  -------------

          Total Noninterest Expense        5,600          5,070          4,317
                                   -------------  -------------  -------------

Net Income Before Taxes                    3,892          4,156          3,568
Provision for Income Tax                   1,155          1,311          1,056
                                   -------------  -------------  -------------

               Net Income          $       2,737  $       2,845  $       2,512
                                   =============  =============  =============

Per Share - Based on Weighted Average
   Net income                      $        0.92  $        0.95  $        0.83
   Average shares outstanding      2,970,003.060  3,008,522.578  3,011,913.354


<PAGE>

Page 22 of 83


TABLE B.  AVERAGE BALANCE SHEETS

                            (In thousands of dollars)

                                          Years Ended December 31,
                                  2001              2000              1999
                                  ----              ----              ----

                            Amount      %     Amount      %     Amount      %
                            ------      -     ------      -     ------      -

Assets
   Cash and due from banks $  6,491    2.92  $  5,480    2.74  $  5,924    3.10
   Investment securities     24,282   10.94    24,529   12.28    27,657   14.47
   Federal funds sold        14,225    6.41     6,351    3.18     7,557    3.95
   Loans (net)              169,434   76.31   156,089   78.13   143,610   75.12
   Bank premises and
      equipment               3,981    1.79     3,673    1.84     3,273    1.71
   Accrued interest           1,599    0.72     1,578    0.79     1,462    0.76
   Other assets               2,014    0.91     2,072    1.04     1,682    0.89
                           --------  ------  --------  ------  --------  ------

                           $222,026  100.00  $199,772  100.00  $191,165  100.00
                           ========  ======  ========  ======  ========  ======

Liabilities and Stockholders' Equity
   Deposits
      Demand               $ 44,599   20.09  $ 41,582   20.81  $ 38,866   20.33
      Savings and MMA        19,859    8.94    17,591    8.81    18,454    9.65
      Time                  136,054   61.28   119,671   59.90   113,178   59.20
   Federal funds purchased        -       -       867    0.43       822    0.43
   Accrued interest             929    0.42       810    0.41       726    0.38
   Other liabilities            485    0.22       150    0.08       225    0.12
   Stockholders' equity      20,100    9.05    19,101    9.56    18,894    9.89
                           --------  ------  --------  ------  --------  ------

                           $222,026  100.00  $199,772  100.00  $191,165  100.00
                           ========  ======  ========  ======  ========  ======




<PAGE>



Page 23 of 83


TABLE C.  INTEREST RATES EARNED AND PAID (In thousands of dollars)

<TABLE>
<CAPTION>
<S>                                  <C>        <C>       <C>      <C>        <C>       <C>      <C>        <C>       <C>
                                                  2001                          2000                          1999
                                                  ----                          ----                          ----
                                      Average             Yield/    Average             Yield/    Average             Yield/
Description                           Balance   Interest   Rate     Balance   Interest   Rate     Balance   Interest   Rate
-----------                           -------   --------   ----     -------   --------   ----     -------   --------   ----

Interest-Earning Assets
   Investment securities             $ 24,282   $ 1,309    5.39%   $ 24,529   $ 1,455    5.93%   $ 27,657   $ 1,502    5.43%
   Federal funds sold                  14,225       481    3.38%      6,351       410    6.46%      7,557       363    4.80%
   Loans (1) (2)                      171,145    15,611    9.12%    157,671    14,557    9.23%    143,610    13,209    9.20%
                                     --------   -------    -----   --------   -------    -----   --------   -------    -----

                                     $209,652    17,401    8.30%   $188,551    16,422    8.71%   $178,824    15,074    8.43%
                                     ========                      ========                      ========

Interest-Bearing Liabilities
   Deposits                          $200,512     8,755    4.37%   $178,844     7,948    4.52%   $170,498     7,335    4.30%
   Federal funds purchased                  -         -    0.00%        867        54    6.23%        822        41    4.99%
                                     --------   -------    -----   --------   -------    -----   --------   -------    -----

            Total Interest-Bearing
               Liabilities           $200,512     8,755    4.37%   $179,711     8,002    4.53%   $171,320     7,376    4.31%
                                     ========   -------            ========   -------            ========   -------

Net interest income/yield (3) (4)               $ 8,646                       $ 8,420                       $ 7,698
                                                =======                       =======                       =======

Interest spread (5)                                        3.93%                         4.18%                         4.12%
</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 83


TABLE D.  ANALYSIS OF CHANGE IN NET INTEREST INCOME (In thousands of dollars)

<TABLE>
<CAPTION>
<S>                            <C>       <C>          <C>         <C>       <C>          <C>
                                    Year 2001 over 2000                Year 2000 over 1999
                              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        $   50    $(197)       $ (147)     $ (185)   $  87        $  (98)
  Federal funds sold              510     (438)           72         (78)     124            46
  Loans                         1,240     (186)        1,054       1,298       50         1,348
                               -------   ------       -------     -------   ------       -------

          Total                 1,800     (821)          979       1,035      261         1,296

Interest Expense
   Deposit accounts             1,108     (301)          807         242      370           612
   Federal funds purchased        (54)       -           (54)          3       10            13
                               -------   ------       -------     -------   ------       -------

          Total                 1,054     (301)          753         245      380           625
                               -------   ------       -------     -------   ------       -------

Increase (Decrease) in
   Net Interest Income         $  746    $(520)       $  226      $  790    $(119)       $  671
                               =======   ======       =======     =======   ======       =======


                                    Year 1999 over 1998
                              Increase (Decrease)      Total
                               Due to Change In:     Increase
                               Volume      Rate     (Decrease)
Increase (Decrease) in
  Investment securities        $   389   $  (15)      $  374
  Federal funds sold              (288)     (42)        (330)
  Loans                          1,515     (761)         754
                               --------  -------      -------

          Total                  1,616     (818)         798

Interest Expense
   Deposit accounts                689     (360)         329
   Federal funds purchased          41        -           41
                               --------  -------      -------

          Total                    730     (360)         370
                               --------  -------      -------

Increase (Decrease) in
  Net Interest Income          $   886   $ (458)      $  428
                               ========  =======      =======
</TABLE>





<PAGE>


Page 25 of 83


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

                               $35,256,959   $149,666    $375,140   $35,031,485
                               ===========   ========    ========   ===========

  December 31, 2000
     U. S. Government agencies $ 9,289,397   $  1,795    $ 88,572   $ 9,202,620
     State and political
        subdivisions             8,741,141     58,556     146,928     8,652,769
     Pooled securities           1,645,364        830      24,667     1,621,527
     Other securities              200,492          -           -       200,492
                               -----------   --------    --------   -----------

                               $19,876,394   $ 61,181    $260,167   $19,677,408
                               ===========   ========    ========   ===========
Held-to-Maturity
  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
                               ===========   ========    ========   ===========

  December 31, 2000
     U. S. Government agencies $ 4,500,000   $      -    $ 65,455   $ 4,434,545
     State and political
        subdivisions               744,718      1,745      13,143       733,320
                               -----------   --------    --------   -----------

                               $ 5,244,718   $  1,745    $ 78,598   $ 5,167,865
                               ===========   ========    ========   ===========

         The maturities of investment securities at December 31, 2001 were as
follows:

                                  Book Value       Market Value

Available-for-Sale
   Due in one year or less       $   149,920       $   152,780
   Due from one to five years      4,095,748         3,925,614
   Due from five to ten years     12,755,375        12,567,678
   After ten years                18,255,916        18,189,923
   Other securities                  195,490           195,490

Held-to-Maturity
   Due from one to five years        513,266           522,607
   Due from five to ten years        500,000           500,900
   After ten years                   500,000           500,000

         Securities having a market value of $5,736,895 and $5,222,596 at
December 31, 2001 and 2000, 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 83


         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, 2001 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)
                       ------    -----        ------     -----         ------     -----         ------     -----

U. S. Government
   Securities         $      -   0.000%     $  497,917   5.351%     $   500,000   6.500%     $   500,000   7.000%
State and Political
   Subdivisions        149,920   8.159%        653,266   6.004%      10,043,669   6.393%       6,716,036   6.541%
Pooled Securities            -   0.000%      3,457,831   5.341%       2,711,706   5.404%      11,344,390   5.748%
Other                        -   0.000%              -   0.000%               -   0.000%         195,490   4.949%
                      --------              ----------              -----------              -----------

          Total(1)    $149,920              $4,609,014              $13,255,375              $18,755,916
                      ========              ==========              ===========              ===========
</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 2001.

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




<PAGE>


Page 27 of 83


TABLE F.  LOAN PORTFOLIO

         The table below classifies gross loans by major category and percentage
distribution at December 31 for 2001, 2000, and 1999:

                             2001                2000                1999
                        Amount      %       Amount      %       Amount      %

Commercial          $ 19,293,070  10.85  $19,810,083  12.03  $23,423,032  15.38
Installment           32,954,231  18.53   27,509,990  16.70   26,232,943  17.23
Real Estate -
   Construction          947,775   0.53    1,211,625   0.74    1,132,526   7.44
Real Estate -
   Mortgage          124,657,873  70.09  116,185,571  70.53  101,474,226  59.95


         The following table shows maturities of the major loan categories and
their sensitivity to changes in investment rates at December 31, 2001 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                  $18,910,034  $    349,146  $    33,890  $ 19,293,070
Installment                   2,637,460    22,434,980    7,212,152    32,284,592
Real Estate - Construction      947,775             -            -       947,775
Real Estate - Mortgage       20,239,031    84,334,822   12,329,790   116,903,643
                            -----------  ------------  -----------  ------------

     Total                  $42,734,300  $107,118,948  $19,575,832  $169,429,080
                            ===========  ============  ===========  ============


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

Commercial              $         -   $          -    $         -   $          -
Installment                       -        669,639              -        669,639
Real Estate - Mortgage    7,609,600        144,630              -      7,754,230
                        -----------   ------------    -----------   ------------

     Total              $ 7,609,600   $    814,269    $         -   $  8,423,869
                        ===========   ============    ===========   ============



<PAGE>


Page 28 of 83


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,
                                                       2001    2000     1999
                                                       ----    ----     ----
                                                      (In thousands of dollars)

Commercial
  Nonaccrual                                           $  -   $    -   $   49
  Contractually past due 90 days or more                 18        6       14

Installment
  Nonaccrual                                             74       22      212
  Contractually past due 90 days or more                  -       40       54

Real Estate
  Nonaccrual                                            604      393      534
  Contractually past due 90 days or more                273      989      629
                                                       ----   ------   ------

                                                       $969   $1,450   $1,492
                                                       ====   ======   =======

Nonperforming loans to gross loans at year end        0.54%    0.92%    1.04%

Effect of nonaccrual loans on interest revenue         $ 34   $   37   $   54










<PAGE>

Page 29 of 83


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, 2001, 2000, and 1999:

                                                  2001       2000       1999
                                                  ----       ----       ----
                                                   (In thousands of dollars)

Allowance for loan losses at beginning of year  $  1,668   $  1,523   $  1,559

Loan Charge Offs
   Commercial                                         (1)       (35)       (23)
   Installment                                      (242)      (181)      (622)
   Real Estate                                        (9)       (60)      (109)
                                                ---------  ---------  ---------

               Total Charge Offs                    (252)      (276)      (754)

Recoveries of Loans Previously Charged Off
   Commercial                                          -        107          -
   Installment                                       118        100         91
   Real Estate                                        43         13         21
                                                ---------  ---------  ---------

               Total Recoveries                      161        220        112
                                                ---------  ---------  ---------

Net loans charged off                                (91)       (56)      (642)

Provision for loan losses                            198        201        606
                                                ---------  ---------  ---------

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

Average total loans (net of unearned income)    $171,149   $157,671   $145,139
Total loans (net of unearned income) at
   year end                                      177,852    164,706    152,198

Selected Loan Loss Ratios
   Net charge offs to average loans                 0.05%      0.04%     0.442%
   Provision for loan losses to average loans       0.12%      0.13%     0.42%
   Provision for loan losses to net
      charge offs %                               217.58%    358.93%    94.39%
   Allowance for loan losses to year end loans      1.00%      1.01%     1.02%
   Loan loss coverage(1)                           44.95X     77.81X     6.50X












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



<PAGE>



Page 30 of 83


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

<TABLE>
<CAPTION>
<S>                          <C>        <C>        <C>          <C>        <C>        <C>          <C>        <C>        <C>
                                          2001                               2000                               1999
                                          ----                               ----                               ----
                                                   Percentage                         Percentage                         Percentage
                             Allowance  Breakdown   of Loans    Allowance  Breakdown   of Loans    Allowance  Breakdown   of Loans
                              Amount        %      Outstanding   Amount        %      Outstanding   Amount        %      Outstanding
                              ------        -      -----------   ------        -      -----------   ------        -      -----------

Commercial                    $   90       5.00       10.85         215      12.89       12.03          61       4.01       15.38
Installment                      990      55.00       18.53         689      41.31       16.70       1,249      82.01       17.23
Real Estate - Construction         -          -        0.53           -          -        0.74           -          -        0.75
Real Estate - Mortgage           720      40.00       70.09         764      45.80       70.53         213      13.98       66.64
                              ------     ------      ------      ------     ------      ------      ------     ------      ------

          Total               $1,800     100.00      100.00      $1,668     100.00      100.00      $1,523     100.00      100.00
                              ======     ======      ======      ======     ======      ======      ======     ======      ======
</TABLE>




<PAGE>


Page 31 of 83


TABLE J.  DEPOSITS

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

                                    2001              2000             1999
                                    ----              ----             ----
                               Average           Average          Average
                               Balance   Rate    Balance   Rate   Balance  Rate

Noninterest-bearing demand
   deposits                   $ 25,221      -    $ 21,816     -  $ 18,113     -
Interest-bearing demand
   deposits                     19,378   1.80      19,766  2.59    20,753   2.63
Money market accounts            9,543   2.97       7,544  3.38     8,303   3.13
Savings                         10,316   2.43      10,047  2.85    10,151   2.93
Time                           136,054   5.83     119,671  5.77   113,178   5.36
                              --------           --------        --------

                              $200,512           $178,844        $170,498
                              ========           ========        ========


         Remaining maturities of time certificates of deposit of $100,000 or
more at December 31, 2001 are shown below (in thousands of dollars):

                   Maturity                                  December 31, 2001

Three months or less                                              $ 8,460
Three to six months                                                 6,112
Six to twelve months                                                5,960
One to three years                                                  5,953
Three to five years                                                 3,199
Five or more years                                                  1,418
                                                                  -------

                    Total                                         $31,102
                                                                  =======




<PAGE>


Page 32 of 83


TABLE K.  RETURN ON EQUITY AND ASSETS

         The following table highlights certain ratios for the three years ended
December 31, 2001, 2000, and 1999 (in thousands of dollars):

                                                        2001     2000     1999
                                                        ----     ----     ----

Income before securities gains and losses to
   Average total assets                                 1.23%    1.43%    1.31%
   Average stockholders' equity                        13.60%   14.91%   13.29%

Net income to
   Average total assets                                 1.23%    1.42%    1.31%
   Average stockholders' equity                        13.61%   14.91%   13.29%

Dividend pay out ratio (dividends declared per
   share divided by net income per share)              39.13%   35.93%   38.55%

Average stockholders' equity to average total
   assets ratio                                         9.05%    9.56%    9.88%



<PAGE>



Page 33 of 83


TABLE L.
                                  GAP Analysis
                                December 31, 2001


         The following table reflects interest-rate sensitive assets and
liabilities only. The following table sets forth at December 31, 2001
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                           $    31    $21,329     $28,984    $50,375    $56,352       $20,781    $177,852
Investment securities (1)                   -          -         153        513      2,336        33,347      36,349
Federal funds sold                     12,740          -           -          -          -             -      12,740
                                      -------    --------    --------   --------   --------      -------    --------

     Total Interest-Earning Assets    $12,771    $21,329     $29,137    $50,888    $58,688       $54,128    $226,941
                                      =======    ========    ========   ========   ========      =======    ========

Interest-Bearing Liabilities
  Interest-bearing demand deposits(2) $ 2,031    $     -     $     -    $     -    $18,274       $     -    $ 20,305
  Money market deposits(2)              1,094          -           -          -      9,845             -      10,939
  Savings(2)                            1,116          -           -          -     10,044             -      11,160
  Time deposits                             -     29,670      56,375     33,994     26,414             -     146,453
                                      -------    --------    --------   --------   --------      -------    --------

      Total Interest-Bearing Deposits $ 4,241    $29,670     $56,375    $33,994    $64,577       $     -    $188,857
                                      =======    ========    ========   ========   ========      =======    ========

Difference Between Interest-Earning
   Assets and Interest-Bearing Liabilities
      Period (GAP)                    $ 8,530    $(8,341)   $(27,238)   $16,894    $(5,889)      $54,128    $ 38,084
      Cumulative (GAP)                  8,530        189     (27,049)   (10,155)   (16,044)       38,084
      Cumulative interest-earning
         assets to interest-bearing
         liabilities                   301.13%    100.36%      70.04%     91.83%     91.50%       120.17%
</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 83


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, 2001 and 2000
     Consolidated Statements of Income - Years Ended December 31, 2001, 2000,
        and 1999
     Consolidated Statements of Changes in Stockholders' Equity - Years
        Ended December 31, 2001 and 2000
     Consolidated Statements of Cash Flows - Years Ended December 31, 2001,
        2000, and 1999
     Notes to Consolidated Financial Statements - December 31, 2001, 2000,
        and 1999



<PAGE>


Page 35 of 83


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 83



















                           Benchmark Bankshares, Inc.

                     Report on Audit of Financial Statements




<PAGE>


Page 37 of 83



                           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 83












                                January 18, 2002


                          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, 2001 and 2000, 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, 2001 and 2000, 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



<PAGE>


Page 39 of 83
                                                                      Exhibit A
                                                                         Page 1

                     Benchmark Bankshares, Inc.

           Consolidated Statements of Financial Condition

                     December 31, 2001 and 2000


                             A S S E T S

                                                     2001            2000
                                                     ----            ----

Cash and due from banks                          $  8,215,994    $  5,587,737
Federal funds sold                                 12,740,000       4,281,000
Investment securities                              36,544,751      24,922,126

Loans                                             177,852,949     164,717,269
  Less
    Unearned interest income                             (970)        (10,982)
    Allowance for loan losses                      (1,774,632)     (1,667,723)
                                                 -------------   -------------

               Net Loans                          176,077,347     163,038,564

Premises and equipment - net                        4,283,656       3,752,830
Accrued interest receivable                         1,425,945       1,578,538
Deferred income taxes                                 560,315         489,635
Other real estate                                   1,156,464         808,508
Other assets                                          808,517         793,598
                                                 -------------   -------------

               Total Assets                      $241,812,989    $205,252,536
                                                 =============   =============




<PAGE>


Page 40 of 83
                                                                     Exhibit A
                                                                        Page 2

                           Benchmark Bankshares, Inc.

                 Consolidated Statements of Financial Condition

                           December 31, 2001 and 2000


                      Liabilities and Stockholders' Equity


                                                     2001            2000
                                                     ----            ----

Deposits
   Demand (noninterest-bearing)                  $ 27,504,768    $ 20,033,199
   NOW accounts                                    20,304,603      22,356,687
   Money market accounts                           10,939,010       7,384,741
   Savings                                         11,160,289       9,665,332
   Time, $100,000 and over                         31,101,575      19,364,111
   Other time                                     115,350,866     102,392,747
                                                 -------------   -------------

               Total Deposits                     216,361,111     181,196,817

Accrued interest payable                            1,002,261         984,159
Accrued income tax payable                             39,405          11,441
Dividends payable                                     534,600         541,120
Other liabilities                                     398,451         333,808
                                                 -------------   -------------

               Total Liabilities                  218,335,828     183,067,345

Stockholders' Equity
   Common stock, par value $.21 per share,
      authorized 4,000,000 shares; issued
      and outstanding 12-31-01 2,970,003.06,
      issued and outstanding 12-31-00
      3,006,219.501 shares                            623,701         631,307
   Capital surplus                                  4,056,859       4,404,047
   Retained earnings                               18,945,412      17,281,168
   Unrealized security gains net of tax effect       (148,811)       (131,331)
                                                 -------------   -------------

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

               Total Liabilities and
                  Stockholders' Equity           $241,812,989    $205,252,536
                                                 =============   =============










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



<PAGE>


Page 41 of 83
                                                                      Exhibit B
                                                                         Page 1

                           Benchmark Bankshares, Inc.

                        Consolidated Statements of Income

                  Years Ended December 31, 2001, 2000, and 1999


                                             2001         2000         1999
                                             ----         ----         ----
Interest Income
   Interest and fees on loans             $15,610,703  $14,556,973  $13,209,176
   Interest on investment securities
      U. S. Government agencies               720,685      980,155      931,242
      State and political subdivisions        578,611      451,320      615,887
      Other securities                          9,674       23,537        5,845
      Interest on Federal funds sold          481,393      409,733      363,390
                                          -----------  -----------  -----------

          Total Interest Income            17,401,066   16,421,718   15,125,540

Interest Expense
   Interest-bearing checking deposits         625,880      768,009      811,399
   Savings deposits                           250,242      286,908      298,675
   Time deposits                            7,878,935    6,892,050    6,225,469
   Federal funds purchased                          -       54,283       40,838
   Other                                            -          651            -
                                          -----------  -----------   ----------

          Total Interest Expense            8,755,057    8,001,901    7,376,381
                                          -----------  -----------   ----------

Net Interest Income                         8,646,009    8,419,817    7,749,159

Provision for Loan Losses                     197,886      201,187      606,030
                                          -----------  -----------   ----------

Net Interest Income After Provision
   for Loan Losses                          8,448,123    8,218,630    7,143,129

Other Income
   Service charges on deposit accounts        555,495      508,704      449,641
   Other operating income                     481,636      455,775      292,618
   Net investment securities gains (losses)     2,434       (3,308)        (547)
   Gain (Loss) on sale of other assets          3,823       45,467       (3,854)
   Rental                                           -            -        4,514
                                          -----------  -----------   ----------
          Total Other Income                1,043,388    1,006,638      742,372
Other Expenses
   Salaries                                 2,837,297    2,660,892    2,300,266
   Employee benefits                          651,720      599,515      517,009
   Occupancy expense                          327,230      296,888      225,530
   Other operating expenses                 1,783,590    1,511,537    1,274,338
                                          -----------  -----------   ----------
          Total Other Expenses              5,599,837    5,068,832    4,317,143
                                          -----------  -----------   ----------
Income Before Income Taxes                  3,891,674    4,156,436    3,568,358
Provision for Income Taxes                  1,155,906    1,311,375    1,056,851
                                          -----------  -----------   ----------
          Net Income                        2,735,768    2,845,061    2,511,507


<PAGE>

Page 42 of 83
                                                                      Exhibit B
                                                                         Page 2


                                         2001           2000           1999
                                         ----           ----           ----

Other Comprehensive Income, Net of Tax
   Net unrealized holding losses arising
      during period                      (148,811)      (131,331)      (705,644)
                                     -------------  -------------  -------------

Comprehensive Income                 $   2,586,957  $   2,713,730  $   1,805,863
                                     =============  =============  =============

Earnings Per Share of Common Stock   $        0.92  $        0.95  $        0.83
                                     =============  =============  =============

Average Shares Outstanding           2,982,679.694  3,008,522.578  3,011,913.354
                                     =============  =============  =============











































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



<PAGE>


Page 43 of 83
                                                                      Exhibit C


                           Benchmark Bankshares, Inc.

           Consolidated Statements of Changes in Stockholders' Equity

                     Years Ended December 31, 2001 and 2000

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

Balance January 1, 2000           3,015,579.656   $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                         7,586.000      1,593        54,391                                      55,984
Redemption of Stock                     (12.091)        (3)         (111)                                       (114)
Stock repurchase                    (16,932.000)    (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                              (2.064)                                  2,713                        2,713

Other Comprehensive Income
  (Net of Tax)
     Unrealized Security Gains
        (Losses)                                                                             411,213         411,213
                                  -------------   ---------   -----------   ------------   ----------    ------------

Balance December 31, 2000         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
                                  =============   =========   ===========   ============   ==========    ============
</TABLE>

(1) Net of tax effect.

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

<PAGE>


Page 44 of 83
                                                                      Exhibit D
                                                                         Page 1

                           Benchmark Bankshares, Inc.

                      Consolidated Statements of Cash Flows

                  Years Ended December 31, 2001, 2000, and 1999


                                           2001          2000          1999
                                           ----          ----          ----

Cash Flows from Operating Activities
   Interest received                   $17,553,659   $15,400,186   $15,297,744
   Fees and commissions received         1,028,469       833,005       556,706
   Interest paid                        (8,746,489)   (7,997,952)   (7,417,701)
   Cash paid to suppliers and employees (5,383,602)   (3,813,312)   (4,270,751)
   Income taxes paid                    (1,178,176)   (1,381,930)     (950,460)
                                       ------------  ------------  ------------

               Net Cash Provided by
                  Operating Activities   3,273,861     3,039,997     3,215,538

Cash Flows from Investing Activities
   Proceeds from sale of investment
      securities available-for-sale        200,719     4,958,619       280,167
   Proceeds from maturity or calls of
      investments                       13,435,348       105,000     1,087,343
   Purchase of investment securities   (25,667,579)   (1,235,466)   (8,070,160)
   Loans originated                    (90,687,195)  (92,018,273)  (90,308,177)
   Principal collected on loans         77,541,503    79,574,713    72,863,670
   Purchase premises and equipment      (1,100,702)     (795,249)     (494,982)
                                       ------------  ------------  ------------

               Net Cash (Used) by
                  Investing Activities (26,277,906)   (9,410,656)  (24,642,139)

Cash Flows from Financing Activities
   Net increase (decrease) in Federal
      funds purchased                            -    (7,035,000)    7,035,000
   Net increase in demand deposits and
      savings accounts                  10,468,711     5,510,983     1,486,879
   Payments for maturing certificates
      of deposit                       (34,598,237)  (50,604,717)  (41,821,954)
   Proceeds from sales of certificates
      of deposit                        59,293,820    61,550,011    40,183,459
   Dividends paid                       (1,078,044)     (963,489)     (961,020)
   Proceeds from sale of common stock       22,140        55,985       458,174
   Payments to reacquire stock            (376,934)     (155,410)     (267,411)
   Proceeds from sale of other assets      359,846       347,753       196,624
                                       ------------  ------------  ------------

               Net Cash Provided by
                  Financing Activities  34,091,302     8,706,116     6,309,751
                                       ------------  ------------  ------------
Net Increase (Decrease) in Cash and
   Cash Equivalents                     11,087,257     2,335,457    (15,116,850)

Cash and Cash Equivalents -
   Beginning of Year                     9,868,737     7,533,280     22,650,130
                                       ------------  ------------  ------------
Cash and Cash Equivalents -
   End of Year                         $20,955,994   $ 9,868,737   $  7,533,280
                                       ============  ============  ============

<PAGE>

Page 45 of 83
                                                                      Exhibit D
                                                                         Page 2


                                           2001          2000          1999
                                           ----          ----          ----

Reconciliation of Net Income to Net
   Cash Provided by Operating Activities
      Net income                       $ 2,735,768   $ 2,845,061   $ 2,511,507
      Adjustments to reconcile net
         income to net cash provided
         by operating activities
            Depreciation                   346,621       288,909       271,594
            Provision for probable credit
               losses and recoveries       358,977       145,091       718,293
            (Increase) Decrease in
               Refundable taxes                  -             -        33,961
               Interest receivable         152,593      (188,528)      172,204
               Other real estate          (347,956)     (140,700)     (166,570)
               Other assets                (14,919)     (118,928)     (306,906)
               Deferred taxes exclusive
                  of unrealized security
                  gains (losses)           (61,675)      (58,991)      (48,124)
            Increase (Decrease) in
               Interest payable             18,102       217,195       (41,320)
               Taxes payable                27,964       (11,564)       23,005
               Other liabilities            64,643       104,611        43,493
            (Gain) Loss on sale of
               securities                   (2,434)        3,308           547
            (Gain) Loss on sale of other
               assets                       (3,823)      (45,467)        3,854
                                       ------------  ------------  ------------

               Net Cash Provided by
                  Operating Activities $ 3,273,861   $ 3,039,997   $ 3,215,538
                                       ============  ============  ============

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 2001 net gains of $1,855 and during 2000 net losses of $3,308 in
securities available-for-sale resulted from sales of mortgage-backed securities
that had experienced significant paydowns. Capitalized interest amounted to
$9,534.















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



<PAGE>



Page 46 of 83


                           Benchmark Bankshares, Inc.

                   Notes to Consolidated Financial Statements

                  Years Ended December 31, 2001, 2000, and 1999


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 loss on securities negatively impacted
                  stockholders' equity in the amount of $148,811 as of December
                  31, 2001.

                  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). Unearned interest on certain
                  installment loans is recognized as income using the Rule of
                  78ths Method, which materially approximates the effective
                  interest method. The Bank has initiated a policy that no
                  longer provides for the Rule of 78ths for any new credit.
                  There is only $970.13 in unearned interest reflected on the
                  books as of December 31, 2001 as a result of the Rule of 78ths
                  Method of accounting for earned interest.



<PAGE>

Page 47 of 83


                  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.

         (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.












<PAGE>

Page 48 of 83


        The table below reflects the components of the Net Deferred
        Tax Asset account as of December 31, 2001:

         Deferred tax assets resulting from loan loss
            reserves                                        $499,406
         Deferred tax asset resulting from deferred
            compensation                                     104,720
         Deferred tax asset resulting from unrealized
            security losses                                   76,660
         Deferred tax liabilities resulting from
            depreciation                                    (120,471)
                                                            ---------

                       Net Deferred Tax Asset               $560,315
                                                            =========

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

                                $35,256,959   $149,666   $375,140   $35,031,485
                                ===========   ========   ========   ===========
  December 31, 2000
     U. S. Government agencies  $ 9,289,397   $  1,795   $ 88,572   $ 9,202,620
     State and political
        subdivisions              8,741,141     58,556    146,928     8,652,769
     Pooled securities            1,645,364        830     24,667     1,621,527
     Other securities               200,492          -          -       200,492
                                -----------   --------   --------   -----------

                                $19,876,394   $ 61,181   $260,167   $19,677,408
                                ===========   ========   ========   ===========
Held-to-Maturity
  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
                                ===========   ========   ========   ===========
  December 31, 2000
     U. S. Government agencies  $ 4,500,000   $      -   $ 65,455   $ 4,434,545
     State and political
        subdivisions                744,718      1,745     13,143       733,320
                                -----------   --------   --------   -----------

                                $ 5,244,718   $  1,745   $ 78,598   $ 5,167,865
                                ===========   ========   ========   ===========







<PAGE>

Page 49 of 83


                  The maturities of investment securities at December 31, 2001
        were as follows:

                                          Book Value      Market Value

Available-for-Sale
   Due in one year or less                $   149,920    $      152,780
   Due from one to five years               4,095,748         3,925,614
   Due from five to ten years              12,755,375        12,567,678
   After ten years                         18,255,916        18,189,923
   Other securities                           195,490           195,490

Held-to-Maturity
   Due from one to five years                 513,266           522,607
   Due from five to ten years                 500,000           500,900
   After ten years                            500,000           500,000

                  Securities having a market value of $5,736,895 and $5,222,596
         at December 31, 2001 and 2000, 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.

                  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:

                                        2001              2000
                                        ----              ----

                Commercial          $ 19,293,070      $ 19,810,083
                Consumer              32,954,231        27,509,990
                Real estate          125,605,648       117,397,196
                                    ------------      ------------

                                    $177,852,949      $164,717,269
                                    ============      ============

                  Demand deposit overdrafts amounting to $30,506 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:

                                           2001          2000          1999
                                           ----          ----          ----

         Balance - Beginning of Year    $1,667,723    $1,522,632    $1,558,741
         Provision for loan losses         197,886       201,187       606,030
         Recoveries on loans               161,091       219,806       112,263
         Loans charged off                (252,068)     (275,902)     (754,402)
                                        -----------   -----------   -----------

         Balance - End of Year          $1,774,632    $1,667,723    $1,522,632
                                        ===========   ===========   ===========


<PAGE>

Page 50 of 83


                  As of December 31, 2001, the Bank had no restructured loans in
         the portfolio. There were $603,508 in nonaccrual loans and $11,288,755
         in loans identified by management as having various degrees of
         weakness. As of the same date in 2000, the Bank had $464,226 in
         restructured loans, $414,516 in nonaccrual loans, and $11,430,863 in
         loans with weaknesses.

5.       Office Buildings, Equipment, and Leasehold Improvements

                  Major classifications of these assets are summarized as
         follows:

                                        Estimated
                                          Useful
                                      Lives (Years)       2001          2000
                                      -------------       ----          ----

Land                                                  $   963,060   $   917,748
Buildings and improvements                 6-40         3,024,568     2,633,457
Furniture and equipment                    2-10         2,014,306     2,257,534
Leasehold improvements                     5-6             66,854       167,390
Buildings under construction                                    -       230,104
                                                      -----------   ------------

                                                        6,068,788     6,206,233
Less:  Accumulated depreciation                        (1,785,132)   (2,453,403)
                                                      ------------  ------------

                                                      $ 4,283,656   $ 3,752,830
                                                      ============  ============

                  The cost basis of fully depreciated assets totaled $84,280 at
         December 31, 2001.

6.       Other Real Estate

                As of December 31, 2001, the Bank held other real estate in the
         amount of $1,156,464. 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                      $14,571,315     $ 40,933,605
         Due from six months to one year          5,960,288       24,576,813
         Due from one year to three years         5,952,516       28,041,401
         Due from three years to five years       3,198,995       14,346,840
         Due from five to ten years               1,418,461        7,452,207
                                                -----------     ------------

                       Total                    $31,101,575     $115,350,866
                                                ===========     ============

                  Interest expense on time deposits greater than or equal to
         $100,000 was $1,463,302 in 2001.





<PAGE>

Page 51 of 83


8.       Federal Income Taxes

                  Federal income taxes payable, as of December 31, 2001 and
         2000, were as follows:

                                                  2001         2000

                 Currently payable             $  39,405    $  11,440
                 Deferred                       (560,315)    (489,635)
                                               ----------   ----------

                                               $(520,910)   $(478,195)
                                               ==========   ==========

                  The components of applicable income taxes are as follows:

                                                  2001           2000
                                                  ----           ----

                 Current                       $1,094,231     $1,464,221
                 Deferred from income and
                    expense items                  61,675       (152,846)
                                               ----------     -----------

                               Total           $1,155,906     $1,311,375
                                               ==========     ===========

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

                                                  2001            2000

Accelerated depreciation                       $   11,654      $    (568)
Excess (Deficiency) of provision for loan
   losses over deduction for Federal
   income tax purposes                             35,872         36,907
Deferred compensation                              23,154         22,652
                                               ----------      ----------

           Total Tax Impact of Temporary
             Differences in Recognition
             of Income and Expenses                70,680         58,991

Tax impact of balance sheet recognition
   of unrealized security losses                   (9,005)      (211,837)
                                               -----------     ----------
           Total Change to Deferred Tax
             for the Year                      $   61,675      $(152,846)
                                               ===========     ==========

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

                                                  2001            2000
                                                  ----            ----

         Statutory rates                           34%             34%
         Income tax expense at statutory
            rates                              $1,155,906      $1,311,375
         Increase (Decrease) due to
            Tax exempt income                    (184,205)        (50,251)
            Other                                 245,880         109,242
                                               -----------     -----------

                                               $1,217,581      $1,370,366
                                               ===========     ===========



<PAGE>

Page 52 of 83


                  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, 2001 and 2000, commitments under standby
         letters of credit aggregated $914,814 and $1,397,471, 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, 2001, the Bank incurred
         operating lease expense amounting to $39,799 in addition to $7,116
         depreciated for leasehold improvements.

                  Minimum lease payments at December 31, 2001 under
         noncancelable real property operating lease commitments for succeeding
         years are:

                         2002               $35,300
                         2003                33,050
                         2004                10,350
                                            -------

                         Total              $78,700
                                            =======

                  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 2001 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. The amount of payments can be
         adjusted annually based on labor cost. The terms based on current rates
         are as follows:

                         2002                $  255
                         2003                   255
                         2004                   255
                         2005                   255
                         2006                   255
                                             ------

                         Total               $1,275
                                             ======


                  At year end, the Bank had entered into several purchase
         commitments amounting to $65,223. These commitments relate to the
         imaging and loan/deposit processing projects.

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.




<PAGE>

Page 53 of 83


                  During 2001, Bank payments through matching and discretionary
         contributions totaled $126,801 while employees' salary reduction
         amounted to $140,757. The cost of administration for the 401(k) plan
         paid in 2001 amounted to $10,463.

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 $90,030 and $179,022 for the years ended
         December 31, 2001 and 2000, respectively.

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
         $5,540,819 and $4,444,931 at December 31, 2001 and 2000, respectively.
         During the year of 2001, new loans to the group totaled $2,385,493,
         while repayments amounted to $1,289,605. 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, 2001, W. J. Callis, Director, had
         outstanding loans in excess of 5% of stockholders' equity. The
         beginning balance of loans was $2,433,923 with current year activity
         consisting of $1,112,942 in advances and $225,350 in repayments for an
         ending balance of $3,321,515.

         Deposits

                  As of December 31, 2001, the Bank held deposits of Directors,
         Executive Officers, and their related interest amounting to $1,909,630.

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, 2001, 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, 2001, the Bank also had unused commitments
         resulting from credit line deeds of trust, home equity lines, and an
         unfunded business loan. The total amount of these commitments amounted
         to $29,349,224.

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





<PAGE>

Page 54 of 83


         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 $3,500,000.

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:

                                               2001      2000
                                              Actual    Actual     Minimum
                                               Rate      Rate     Standards

Total Capital to Risk Weighted Assets         13.10%    13.07%      8.00%
                                              ======    ======      =====

Tier I Capital to Risk Weighted Assets        12.02%    11.97%      4.00%
                                              ======    ======      =====

Tier I Capital to Total Average Assets         8.33%     8.73%      4.00%
                                               =====     =====      =====

                  Despite the reduction in the growth rate of earnings, the
         capital ratios continued to exceed minimum standards and, in fact,
         strengthened due to 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 39,200 shares of common stock in 2001.

                  The Company also sold stock through the employee stock option
         plan. The sales for the year amounted to 3,000 shares of common stock.
         The net result of the stock plans resulted in a decline of $7,606 in
         common stock and $347,188 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 83


                  The table below details the status of the shares in the plan
         as of December 31, 2001 and 2000:

                                      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


                                      2000

                            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     138,157    13,000     1,586     20,000    121,928
Directors          80,000      54,000    12,000     6,000          -     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 83


         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:

                                      2001                       2000
                                      ----                       ----

                              Carrying      Fair         Carrying      Fair
                               Amount       Value         Amount       Value
Financial Assets
   Cash and due from banks $  8,215,994 $  8,215,994  $  5,587,737 $  5,587,737
   Federal funds sold        12,740,000   12,740,000     4,281,000    4,281,000
   Investments
      Available-for-sale     35,031,485   35,031,485    19,876,394   19,677,408
      Held-to-maturity        1,513,266    1,523,507     5,244,718    5,167,865
   Loans
      Commercial loans       19,293,070   20,189,688    20,969,201   20,968,201
      Consumer loans         32,954,230   31,503,862    27,509,990   28,181,606
      Real estate loans     125,605,649  128,450,993   120,839,070  103,831,473
      Participation loans -
         out                  3,606,970    3,606,970    (4,600,992)  (4,600,992)

Financial Liabilities
   Deposits
      Demand (noninterest-
         bearing)            27,504,768   27,504,768    20,033,199   20,033,199
      Demand (interest-
         bearing)            31,243,613   31,243,613    29,741,428   29,741,428
      Savings                11,160,289   11,160,289     9,665,332    9,665,332
      Certificates of
         deposit            146,452,441  146,442,943   121,756,858  119,871,696

Unrecognized Financial
   Instruments
     Unused loan commitments 29,349,224   29,349,224    22,875,073   22,875,073
     Unissued letters of
        credit                  914,814      914,814     1,397,471    1,397,471


















<PAGE>

Page 57 of 83


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.


                           Benchmark Bankshares, Inc.

                         Fair Value of Financial Assets

                                December 31, 2001


<TABLE>
<CAPTION>
<S>                        <C>           <C>           <C>           <C>           <C>           <C>           <C>
                                                                                                                  Current
Categories                     2002          2003          2004          2005          2006      Thereafter        Value
----------                     ----          ----          ----          ----          ----      ----------        -----

Loans
  Commercial               $20,948,954   $         -   $         -   $         -   $         -   $         -   $ 20,189,688
  Consumer                  14,713,458    10,580,708     6,885,202     3,289,476     2,649,738       190,529     31,503,862
  Mortgage                  44,534,591    26,779,169    27,400,696    17,565,058    30,124,282     8,066,420    128,450,993

Investments
  U. S. Government Agencies     93,750        93,750        93,750        93,750       593,750       756,250      1,502,499
  Municipals
   Nontaxable                1,100,410     1,994,599       690,480       690,480     1,330,480    12,887,204     16,506,986
   Taxable                      61,693        61,693       556,572        31,450        31,450       610,075      1,020,322
  Mortgage Backed
     Securities              3,086,092     2,677,595     2,335,320     1,108,327     2,441,461     7,093,394     17,329,695
</TABLE>



<PAGE>



Page 58 of 83



<TABLE>
<CAPTION>
<S>                        <C>          <C>          <C>         <C>          <C>          <C>          <C>
                                                                                                          Current
Categories                    2002         2003        2004         2005         2006      Thereafter      Value
----------                    ----         ----        ----         ----         ----      ----------      -----

Certificates of Deposits
  < 182 days                5,626,646            -           -            -            -          -      5,581,604
  182 - 364 days            7,631,027            -           -            -            -          -      7,521,183
  1 year - 2 years         60,629,203    3,024,080           -            -            -          -     60,942,062
  2 years - 3 years         8,783,524    7,044,233     124,714            -            -          -     15,236,650
  3 years - 4 years         1,180,486    4,624,535   3,426,630      674,542            -          -      9,437,337
  4 years - 5 years           587,030      773,928     882,551      873,768            -          -      2,815,715
  5 years and over          4,095,920   11,176,550   6,323,552   19,839,956   10,491,448     73,334     44,908,392
</TABLE>

                  In Table Two, the cash flows are present value discounted by
         predetermined factors to measure the impact on the financial products
         portfolio at six and twelve month intervals.


                           Benchmark Bankshares, Inc.

                        Variable Interest Rate Disclosure

                                December 31, 2001


<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                   $ 20,386,740    $ 20,287,736   $ 20,189,688   $ 20,092,580   $ 19,996,399
  Consumer                       32,732,956      32,107,684     31,503,862     30,920,474     30,356,563
  Mortgage                      135,341,762     131,819,788    128,450,993    125,226,700    122,138,819

Investments
  U. S. Government Agencies       1,612,989       1,575,994      1,502,499      1,499,533      1,375,780
  Municipals
    Nontaxable                   18,446,114      17,520,467     16,506,986     15,398,652     14,363,880
    Taxable                       1,112,075       1,064,289      1,020,322        980,005        943,188
  Pooled Securities              18,893,490      18,111,593     17,329,695     16,547,800     15,765,904

Certificates of Deposit
  < 182 days                      5,623,482       5,602,474      5,581,604      5,560,872      5,540,277
  182 - 364 days                  7,615,315       7,568,015      7,521,183      7,474,814      7,428,901
  1 year - 2 years               62,191,038      61,560,222     60,942,062     60,336,182     59,742,220
  2 years - 3 years              15,675,616      15,453,306     15,236,650     15,025,445     14,819,499
  3 years - 4 years               9,713,008       9,573,333      9,437,337      9,304,884      9,175,841
  4 years - 5 years               2,962,855       2,887,832      2,815,715      2,746,360      2,679,631
  5 years and over               47,926,730      46,382,293     44,908,392     43,501,029     42,156,470
</TABLE>

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


<PAGE>

Page 59 of 83


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 83
                           Benchmark Bankshares, Inc.

                              (Parent Company Only)

                                 Balance Sheets

                        December 31, 2001, 2000, and 1999

                                     Assets

                                           2001          2000          1999
                                           ----          ----          ----

Cash                                    $ 3,867,818   $ 4,324,894   $ 3,111,052
Investment in subsidiary                 20,143,862    18,401,336    17,419,106
Receivable - reimbursement                       81            81            81
                                        -----------   -----------   -----------

               Total Assets             $24,011,761   $22,726,311   $20,530,239
                                        ===========   ===========   ===========

                      Liabilities and Stockholders' Equity

Liabilities
   Dividends payable                    $   534,600   $   541,120   $   482,493

Stockholders' Equity
   Common stock, par value $.21 per
      share, authorized 4,000,000
      shares; issued and outstanding
      12-31-01 2,970,003.06, issued
      and outstanding 12-31-00
      3,006,219.501, issued and
      outstanding 12-31-99
      3,015,577.591                         623,701       631,307       633,272
   Surplus                                4,056,859     4,404,047     4,501,508
   Retained earnings                     18,796,601    17,149,837    14,912,966
                                        -----------   -----------   -----------

              Total Stockholders'
                 Equity                  23,477,161    22,185,191    20,047,746
                                        -----------   -----------   -----------

              Total Liabilities and
                 Stockholders' Equity   $24,011,761   $22,726,311   $20,530,239
                                        ===========   ===========   ===========

                              Statements of Income

                  Years Ended December 31, 2001, 2000, and 1999

                                           2001          2000          1999
                                           ----          ----          ----
Income
   Dividends from subsidiary            $ 1,000,000   $ 2,300,000   $ 2,000,000
                                        -----------   -----------   -----------

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

Expenses
   Professional fees                         12,872        11,500        20,038
   Supplies, printing, and postage           10,515        10,809         7,410
   Taxes - miscellaneous                        850           900           825
                                        -----------   -----------   -----------

               Total Expenses                24,237        23,209        28,273
                                        -----------   -----------   -----------

Income (Loss) Before Equity in
   Undistributed Income of Subsidiary       975,763     2,276,791     1,971,727

Equity in Income of Subsidiary
   (includes tax benefit of parent
    company operating loss)                       -       568,270       739,780
                                        -----------   -----------   -----------

               Net Income               $   975,763   $ 2,845,061   $ 2,711,507
                                        ===========   ===========   ===========



<PAGE>



Page 61 of 83
                           Benchmark Bankshares, Inc.
                              (Parent Company Only)

                  Statements of Changes in Stockholders' Equity

                  Years Ended December 31, 2001, 2000, and 1999

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

Balance January 1, 1999                 $629,678    $4,314,339    $13,908,096    $ 163,100      $19,015,213
Net Income
   Parent                                                           1,971,727                     1,971,727
   Equity in income of subsidiary                                     539,780                       539,780
Sale of Stock                              8,072       450,102                                      458,174
Redemption of Stock                           (5)         (312)                                        (317)
Stock repurchase                          (4,473)     (262,621)                                    (267,094)
Semi-Annual Cash
   Dividend Declared
      June 17, 1999, $.16 per share                                  (481,426)                     (481,426)
      December 16, 1999, $.16 per share                              (482,493)                     (482,493)

Adjustments                                                              (174)                         (174)
Unrealized Security Gains (Losses)                                                (705,644)        (705,644)
                                        ---------   -----------   ------------   ----------     ------------

Balance December 31, 1999                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
                                        =========   ===========   ============   ==========     ============
</TABLE>

* Net of tax effect.




<PAGE>

Page 62 of 83


                           Benchmark Bankshares, Inc.

                              (Parent Company Only)

                            Statements of Cash Flows

                  Years Ended December 31, 2001, 2000, and 1999


                                           2001          2000          1999
                                           ----          ----          ----
Cash Flows from Operating Activities
   Net income                           $2,735,768    $2,845,061    $2,711,507
   Increase in receivable                        -             -           (81)
                                        -----------   -----------   -----------

               Net Cash Provided by
                  Operating Activities   2,735,768     2,845,061     2,711,426

Cash Flows from Investing Activities
  (Un)distributed earnings of
     subsidiary                         (1,760,005)     (568,270)     (739,972)
  Capital adjustment                            (1)          (34)            -
                                        -----------   -----------   -----------

               Net Cash (Used) by
                  Investing Activities  (1,760,006)     (568,304)     (739,972)

Cash Flows from Financing Activities
   Sale of stock                            22,140        55,984       458,174
   Redemption of stock                        (165)         (114)     (267,411)
   Stock repurchase                       (376,769)     (155,296)            -
   Dividends paid                       (1,078,044)     (963,489)     (961,020)
                                        -----------   -----------   -----------

               Net Cash (Used) by
                  Financing Activities  (1,432,838)   (1,062,915)     (770,257)
                                        -----------   -----------   -----------

Net Increase (Decrease) in Cash           (457,076)    1,213,842     1,201,197

Cash - Beginning of Year                 4,324,894     3,111,052     1,909,855
                                        -----------   -----------   -----------

Cash - End of Year                      $3,867,818    $4,324,894    $3,111,052
                                        ===========   ===========   ===========





<PAGE>


Page 63 of 83


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

                  None


<PAGE>


Page 64 of 83


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, 2001:

<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             Pharmacist                                                               1978
   (61)                         Principal, Smith's Pharmacy, Inc.
                                Pharmacy Associates, Inc.
                                Chairman of Board, Company and Subsidiary

Mark F. Bragg                   Principal, Atlantic Medical, Inc.                                        1999
   (40)

Lewis W. Bridgforth             Physician                                                                1971
   (62)

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

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

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

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

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

Wayne J. Parrish                Principal, Parrish Trucking Co., Inc.                                    1979
   (63)

Ben L. Watson, III              President and CEO,                                                       1976
   (58)                         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
   (58)

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

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



<PAGE>


Page 65 of 83


(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, and to his
current position of Senior Vice President in 1993.

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        2001   $121,812    $22,022       $3,000         6,000(3)         None
President and Chief       2000    116,004     24,039        5,050         6,000(3)         None
Executive Officer         1999    116,004     21,442        4,200         7,000(3)         None

Michael O. Walker         2001     89,268     15,835        1,800         6,000            None
Senior Vice President     2000     85,008     16,709        1,950         6,000            None
                          1999     85,008     15,167        1,800         6,000            None

Janice W. Pernell         2001     89,268     15,835         None         5,850(3)         None
Senior Vice President     2000     85,008     16,709         None         5,850(3)         None
                          1999     85,008     15,167         None         5,850(3)         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 1,000 options on March 2, 1998 and 1,000
                options on February 5, 1999 and Mrs. Pernell exercised 150
                options on January 27, 1998.

B.       Compensation to Directors

                  No fees are paid to Directors for service on the Board of the
         Company. During 2001, each Director was paid $250 for each Board
         meeting and, with the exception of Mr. Watson, each Director received
         $175 for each Committee meeting attended during the year.


<PAGE>

Page 66 of 83


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 1, 2002:

<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          Pharmacist                                 1978               83,113.704(1)
   (61)                                                                                        2.81%

Mark F. Bragg                Principal, Atlantic                        1999               2,397.409(2)
   (40)                      Medical, Inc.                                                      .08%

Lewis W. Bridgforth          Physician                                  1971               35,680.657(3)
   (62)                                                                                        1.21%

William J. Callis            Building Contractor                        1989               32,620.974(4)
   (59)                                                                                        1.11%

Earl H. Carter, Jr.          Principal, Taylor-Forbes                   2000                  755.000
   (53)                      Equipment Company, Inc.                                           .03%

Earl C. Currin, Jr.          Provost                                    1986                13,178.000
   (58)                                                                                        .45%

C. Edward Hall               Pharmacist                                 1971               36,185.037(5)
   (61)                                                                                        1.23%

J. Ryland Hamlett            Retired Personnel Manager                  1986               44,977.000(6)
   (59)                                                                                        1.52%

Wayne J. Parrish             Principal, Parrish                         1979               28,878.872(7)
   (63)                      Trucking Co., Inc.                                                .98%

Ben L. Watson, III           President and CEO                          1971               17,471.508(8)
   (58)                      Company and Subsidiary                                            .59%

All Directors and                                                                         346,944.536(9)
Executive Officers as                                                                         11.74%
A Group
</TABLE>











<PAGE>

Page 67 of 83


(1) Includes 2,114.494 shares held jointly with Mr. Berryman's wife and
    45,073.704 shares owned solely by her.

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

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

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

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

(6) 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 Revocable Trust.

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

(8) Includes 457.508 shares owned solely by Mr. Watson's wife.

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, 2001. 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                             864,370                  29.1%
Box 20
Bowling Green Station
New York, New York  10081




<PAGE>


Page 68 of 83


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:

                                            2001         2000         1999
                                            ----         ----         ----

Executive Officers and their families    $  297,313   $  377,564   $  235,034
Directors and their families (1)            522,267      679,499      188,610
Corporations in which Directors and
   Officers had an interest               4,721,239    3,387,868    2,788,577
                                         ----------   ----------   ----------

               Total                     $5,540,819   $4,444,931   $3,212,221
                                         ==========   ==========   ==========

(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 2001, Directors and Executive Officers had been granted
lines of credit in the amount of $2,662,500. As of December 31, 2001, $1,881,388
of these lines was unexercised and available.

Stock Sales to Related Parties

         The current Directors and Executive Officers acquired 5,255 shares of
Company stock during 2001 through exercising of stock options and purchases of
shares on the open market. The average price of shares purchased was $9.33.




<PAGE>


Page 69 of 83


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, 2001 are included in Item 8:

                  Consolidated Statements of Financial Condition - December 31,
                     2001 and 2000
                  Consolidated Statements of Income - Years Ended
                     December 31, 2001, 2000, and 1999
                  Consolidated Statements of Changes in Stockholders' Equity -
                     Years Ended December 31, 2001 and 2000
                  Consolidated Statements of Cash Flows - Years Ended December
                     31, 2001, 2000, and 1999
                  Notes to Consolidated Financial Statements - December 31,
                     2001, 2000, and 1999

     (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 83


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)
                                            of Incorporation 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





<PAGE>


Page 71 of 83


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 83


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 15, 2002.

                           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 15, 2002.


R. Michael Berryman           03-15-02     C. Edward Hall               03-15-02
--------------------------------------     -------------------------------------




Wayne J. Parrish              03-15-02     Earl H. Carter, Jr.          03-15-02
--------------------------------------     -------------------------------------




Mark F. Bragg                 03-15-02     William J. Callis            03-15-02
--------------------------------------     -------------------------------------




Lewis W. Bridgforth           03-15-02     Earl C. Currin, Jr.          03-15-02
--------------------------------------     -------------------------------------




Ben L. Watson, III            03-15-02
--------------------------------------




J. Ryland Hamlett             03-15-02
--------------------------------------



<PAGE>


Page 73 of 83


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 74 of 83


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

                          Year Ended December 31, 2001

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

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



                          Year Ended December 31, 1999

Executive Officers,
   Directors, and Their
   Related Interest             $2,330,282    $1,890,791  $1,008,852  $3,212,221

W. J. Callis, Director(1)(2)(3)  1,405,724       912,963     322,063   1,996,624















(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 75 of 83


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


                           Benchmark Bankshares, Inc.

                          Year Ended December 31, 2001


<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                              $  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
                                  ==========    ==========   ============   ==========     ==========


                          Year Ended December 31, 2000


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 76 of 83


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


                          Year Ended December 31, 1999


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

Land                               $  689,261   $110,429   $         -    $       -    $  799,690

Buildings and improvements          2,351,090     50,000             -            -     2,401,090
Leasehold improvements                166,521          -             -            -       166,521
Construction in progress                    -    187,969             -            -       187,969
                                   ----------   --------   ------------   ----------   ----------

                                    2,517,611    237,969             -            -     2,755,580

Equipment, furniture, and
   fixtures                         1,886,461    146,541             -            -     2,033,002
                                   ----------   --------   ------------   ----------   ----------

               Total               $5,093,333   $494,939   $         -    $       -    $5,588,272
                                   ==========   ========   ===========    ==========   ==========
</TABLE>




<PAGE>


Page 77 of 83


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


                           Benchmark Bankshares, Inc.

                          Year Ended December 31, 2001

<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        $  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
                                 ----------   --------     ------------      -----       ----------

                                 $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
                                 ==========   ========     ============      =====       ==========


                          Year Ended December 31, 1999

Building and improvements        $  685,890   $ 98,785     $         -       $  -        $  784,675
Leasehold improvements              115,820      6,589               -          -           122,409
                                 ----------   --------     ------------      -----       ----------

               Total                801,710    105,374               -          -           907,084

Equipment, furniture, and
   fixtures                       1,091,232    166,220               -        (43)        1,257,409
                                 ----------   --------     ------------      -----       ----------

               Total             $1,892,942   $271,594     $         -       $(43)       $2,164,493
                                 ==========   ========     ============      =====       ==========
</TABLE>




<PAGE>


Page 78 of 83


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

                           Benchmark Bankshares, Inc.

                              (Parent Company Only)

                Balance Sheet, December 31, 2001, 2000, and 1999


                                     Assets

                                           2001          2000          1999
                                           ----          ----          ----

Cash                                    $ 3,867,818   $ 4,324,894   $ 3,111,052
Investment in subsidiary                 20,143,862    18,401,336    17,419,106
Receivable - reimbursement                       81            81            81
                                        -----------   -----------   -----------

               Total Assets             $24,011,761   $22,726,311   $20,530,239
                                        ===========   ===========   ===========


                      Liabilities and Stockholders' Equity

Liabilities
   Dividends payable                    $   534,600   $   541,120   $   482,493

Stockholders' Equity
   Common stock, par value $.21
      per share, authorized 4,000,000
      shares; issued and outstanding
      12-31-01 2,970,003.06, issued and
      outstanding 12-31-00 3,006,219.501,
      issued and outstanding 12-31-99
      3,015,577.591                         623,701       631,307       633,272
   Surplus                                4,056,859     4,404,047     4,501,508
   Retained earnings                     18,796,601    17,149,837    14,912,966
                                        -----------   -----------   -----------

               Total Stockholders'
                  Equity                 23,477,161    22,185,191    20,047,746
                                        -----------   -----------   -----------

               Total Liabilities and
                  Stockholders' Equity  $24,011,761   $22,726,311   $20,530,239
                                        ===========   ===========   ===========


















<PAGE>


Page 79 of 83


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, 2001, 2000, and 1999


                                            2001          2000          1999
                                            ----          ----          ----

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

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

Expenses
   Professional fees                         12,872        11,500        20,038
   Supplies, printing, and postage           10,515        10,809         7,410
   Taxes - miscellaneous                        850           900           825
                                         ----------    ----------    ----------

               Total Expenses                24,237        23,209        28,273
                                         ----------    ----------    ----------

Income (Loss) Before Equity in
   Undistributed Income of Subsidiary       975,763     2,276,791     1,971,727

Equity in Income of Subsidiary (includes
   tax benefit of parent company
   operating loss)                                -       568,270       739,780
                                         ----------    ----------    ----------

               Net Income                $  975,763    $2,845,061    $2,711,507
                                         ==========    ==========    ==========




<PAGE>


Page 80 of 83

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, 2001, 2000, and 1999

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

Balance January 1, 1999             $629,678    $4,314,339    $13,908,096    $ 163,100       $19,015,213

Net Income
   Parent                                                       1,971,727                      1,971,727
   Equity in income of subsidiary                                 539,780                        539,780

Sale of Stock                          8,072       450,102                                       458,174
Redemption of Stock                       (5)         (312)                                         (317)
Stock Repurchase                      (4,473)     (262,621)                                     (267,094)

Semi-Annual Cash
   Dividend Declared
      June 17, 1999, $.16 per share                              (481,426)                      (481,426)
      December 16, 1999, $.16 per
         share                                                   (482,493)                      (482,493)

Adjustments                                                          (174)                          (174)
Unrealized Security Gains (Losses)                                            (705,644)         (705,644)
                                    ---------   -----------   ------------   ----------      ------------

Balance December 31, 1999            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 of tax effect.
</TABLE>


<PAGE>


Page 81 of 83


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, 2001, 2000, and 1999


                                           2001          2000          1999
                                           ----          ----          ----

Cash Flows from Operating Activities
   Net income                           $2,735,768    $2,845,061    $2,711,507
   Increase in receivable                        -             -           (81)
                                        ----------    ----------    -----------

               Net Cash Provided by
                  Operating Activities   2,735,768     2,845,061     2,711,426

Cash Flows from Investing Activities
   Undistributed earnings of subsidiary (1,760,005)     (568,270)     (739,972)
   Capital adjustment                           (1)          (34)            -
                                        -----------   -----------   -----------

               Net Cash (Used) by
                  Investing Activities  (1,760,006)     (568,304)     (739,972)

Cash Flows from Financing Activities
   Sale of stock                            22,140        55,984       458,174
   Redemption of stock                        (165)         (114)     (267,411)
   Stock repurchase                       (376,769)     (155,296)            -
   Dividends paid                       (1,078,044)     (963,489)     (961,020)
                                        -----------   -----------   -----------

               Net Cash (Used) by
                  Financing Activities  (1,432,838)   (1,062,915)     (770,257)
                                        -----------   -----------   -----------

Net Increase (Decrease) in Cash           (457,076)    1,213,842     1,201,197

Cash - Beginning of Year                 4,324,894     3,111,052     1,909,855
                                        -----------   -----------   -----------

Cash - End of Year                      $3,867,818    $4,324,894    $3,111,052
                                        ===========   ===========   ===========





<PAGE>


Page 82 of 83


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, 2001
   U. S. Government Agencies                      $    -      $    -
   Pooled Securities                                   -           -
   State and Political Subdivisions                2,434           -
                                                  ------      ------

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

For the Year Ended December 31, 2000
   U. S. Government Agencies                      $    -      $    -
   Pooled Securities                                 300       2,428
   State and Political Subdivisions                3,199       4,379
                                                  ------      ------

               Total                              $3,499      $6,807
                                                  ======      ======




<PAGE>


Page 83 of 83


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                              13.07%

Tier 1 Risk-Based Capital Ratio                             11.97%

Tier 1 Leverage Ratio                                        8.73%