SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-K/A
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission file number 0-27622
HIGHLANDS BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1796693
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
P.O. Box 1128
Abingdon, Virginia 24212
(Address of principal executive offices) (Zip Code)
(540) 628-9181
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $2.50 per share
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. YES_____ NO_____
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common Stock: 1,217,594
<PAGE>
Highlands Bankshares, Inc.
FORM 10-K/A
For the Year Ended December 31, 1995
PART II
Item 6. Selected Financial Data.
(a) Certain Statistical Information is attached hereto as
Exhibit 6-A.*
(b) The Highlands Bankshares, Inc. and Subsidiary
Consolidated Financial Report, dated
December 31, 1995, is attached hereto as Exhibit 6-B.
Item 8. Financial Statements and Supplementary Data.
(a) The Highlands Bankshares, Inc. and Subsidiary
Consolidated Financial Report, dated
December 31, 1995, is attached hereto as Exhibit 6-B.
(b) The Registrant's definitive Proxy Statement is
attached hereto as Exhibit 8-E.*
PART III
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) Exhibits.
1. The Highlands Bankshares, Inc. and
Subsidiary Consolidated Financial Report,
dated December 31, 1995, is attached hereto
as Exhibit 6-B.
2. The Registrant's definitive Proxy Statement
is attached hereto as Exhibit 8-E.*
(b) Reports on Form 8-K -- None.
- --------------------
* Filed with Form 10-K.
<PAGE>
Exhibit 6-B
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1995
<PAGE>
C O N T E N T S
Page
INDEPENDENT AUDITORS' REPORT F1
FINANCIAL STATEMENTS
Consolidated Balance Sheets F2
Consolidated Statements of Income F3
Consolidated Statements of Stockholders' Equity F4
Consolidated Statements of Cash Flows F5 - F6
Notes to Consolidated Financial Statements F7 - F23
<PAGE>
Page F1
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Highlands Bankshares, Inc. and Subsidiary
Abingdon, Virginia
We have audited the accompanying consolidated balance sheets of Highlands
Bankshares, Inc. and Subsidiary as of December 31, 1995, and 1994, and 1993 and
the related consolidated statements of income, stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Highlands
Bankshares, Inc. and Subsidiary as of December 31, 1995, 1994 and 1993 and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
As discussed in Note 2 of the Notes to Consolidated Financial Statements, during
the year Highlands Bankshares, Inc. exchanged common stock for all the
outstanding common stock of Highlands Union Bank. The merger has been accounted
for as a pooling of interests. Restatement of prior year financial statements
was not deemed necessary due to immateriality.
/s/ BROWN, EDWARDS & COMPANY, L.L.P.
CERTIFIED PUBLIC ACCOUNTANTS
468 East Main Street
Abingdon, VA 24210
February 28, 1996
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F2
CONSOLIDATED BALANCE SHEETS
December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1995 1994 1993
<S> <C> <C> <C>
Cash and due from banks (Note 18) $ 5,618 $ 3,883 $ 3,145
Federal funds sold 5,535 - 7,825
Time balances with banks - - 99
Investment securities held to
maturity (Note 3) - - 24,573
Investment securities
available for sale (Note 3) 32,276 27,389 -
Loans, net of allowance for credit
losses of $908, $836, and $782
thousand for 1995, 1994 and 1993,
respectively (Notes 4 and 5) 112,835 92,902 66,430
Bank premises and equipment (Note 6) 4,346 2,605 2,418
Interest receivable 1,068 806 503
Other assets (Note 9) 865 1,164 527
--- ----- ---
Total Assets $ 162,543 $ 128,749 $105,520
========= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 7)
Interest bearing $ 127,024 $ 101,162 $ 82,315
Noninterest bearing 20,303 16,152 12,538
------ ------ ------
Total Deposits 147,327 117,314 94,853
------- ------- ------
Short term borrowings (Note 8) 1,000 327 -
Interest, taxes and other liabilities 1,404 865 625
----- --- ---
2,404 1,192 625
----- ----- ---
Total Liabilities 149,731 118,506 95,478
------- ------- ------
STOCKHOLDERS' EQUITY
Unrealized gains (losses)
on securities available
for sale 18 ( 1,092) -
Common stock (Notes 11 and 13) 3,044 3,038 3,014
Surplus 5,120 5,116 5,007
Undivided profits 4,630 3,181 2,021
----- ----- -----
Total Stockholders' Equity 12,812 10,243 10,042
------ ------ ------
Total Liabilities and Stockholders'
Equity $ 162,543 $ 128,749 $105,520
========= ========= ========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F3
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1995, 1994 and 1993
(In thousands)
INTEREST INCOME 1995 1994 1993
Interest and fees on loans $ 9,590 $ 6,765 $ 5,103
Interest on securities being held
to maturity
Taxable - - 1,123
Exempt from taxable income - - 60
Interest on securities available
for sale
Taxable 1,735 1,509 -
Exempt from taxable income 58 70 -
Interest on Federal funds sold 202 76 138
Interest on deposits with banks - 5 9
-------- ------- -------
Total Interest Income 11,585 8,425 6,433
INTEREST EXPENSE
Interest on deposits 6,161 3,985 3,064
------- ------- -------
Net interest income 5,424 4,440 3,369
Provision for loan losses (Note 5) 143 120 150
------- ------- -------
Net interest income after provision
for loan losses 5,281 4,320 3,219
------- ------- -------
NON-INTEREST INCOME
Securities gains (losses), net ( 1) 15 58
Service charges on deposit accounts 371 291 242
Insurance commissions 25 29 25
Other service charges, commissions
and fees 58 65 49
Other operating income, rents 35 25 21
------ ------- -------
Total Non-Interest Income 488 425 395
------ ------- -------
NON-INTEREST EXPENSES
Salaries and employee benefits (Note 12) 1,904 1,555 1,220
Compensation related to stock options
granted (Note 13) 4 78 83
Occupancy expense of bank premises 212 177 121
Furniture and equipment expense 510 308 193
Other operating expenses (Note 20) 911 886 647
------ ------- -------
Total Non-Interest Expenses 3,541 3,004 2,264
------ ------- -------
Income Before Taxes on Income 2,228 1,741 1,350
Income Tax Expense (Note 9) 779 581 442
------ ------- -------
Net Income $ 1,449 $ 1,160 $ 908
========= ========= ========
Net Income Per Share (Note 11) $ 1.19 $ .96 $ .98
========= ========= ========
The Notes to Consolidated Financial Statements are an integral part of these
statements.
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993
(In thousands)
Unrealized
Gain (loss)
Securities
Common Stock Undivided Available
Shares Par Value Surplus Profits for sale
Balance, December 31,
1992, as restated 912 $ 2,279 $ 2,218 $ 1,113 $ -
Net income - - - 908 -
Proceeds from sale
of stock 294 735 2,734 - -
Stock options out-
standing (Note 13) - - 55 - -
------- ------- ------- ------- -------
Balance, December 31,
1993, as restated 1,206 3,014 5,007 2,021 -
Net income - - - 1,160 -
Proceeds from sale
of stock 10 24 62 - -
Stock options out-
standing (Note 13) - - 47 - -
Unrealized gains
(losses) - - - - (1,092)
------- ------- ------- ------- -------
Balance, December 31,
1994, as restated 1,216 3,038 5,116 3,181 (1,092)
Net income - - - 1,449 -
Proceeds from sale
of stock 2 6 4 - -
Stock options out-
standing (Note 13) - - - - -
Unrealized gains
(losses) - - - - 1,110
------- ------- ------- ------- -------
Balance, December 31,
1995 1,218 $ 3,044 $ 5,120 $ 4,630 $ 18
======= ======= ======= ======= =======
The Notes to Consolidated Financial Statements are an integral part of these
statements.
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F5
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994, and 1993
(In thousands)
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,449 $ 1,160 $ 908
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 143 120 150
Provision for deferred income taxes 596 ( 589) ( 74)
Deferred compensation expense 4 78 -
Depreciation 157 124 102
Securities (gains) losses 1 ( 15) ( 58)
Net amortization on securities 76 103 68
Increase in interest receivable ( 262) ( 303) ( 48)
(Increase) decrease in other assets 299 ( 48) ( 123)
Increase (decrease) in interest,
taxes and other liabilities ( 58) 240 ( 92)
---------- --------- ---------
Net Cash Provided by Operating
Activities 2,405 870 833
---------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in time
balances with banks - 100 -
Securities held to maturity:
Proceeds from sale of
securities - - 2,516
Proceeds from maturities of
debt securities - - 3,500
Purchase of securities - - ( 13,237)
Securities available for sale:
Proceeds from sale of securities 586 1,349 -
Proceeds from maturities of
debt securities 3,209 720 -
Purchase of securities ( 7,648) ( 6,066) -
Net(increase) decrease in
federal funds sold ( 5,534) 7,825 ( 2,725)
Net increase in loans ( 20,077) ( 26,592) ( 16,731)
Premises and equipment
expenditures ( 1,899) ( 310) ( 868)
----------- --------- ---------
Net Cash Used in
Investing Activities ( 31,363) ( 22,974) ( 27,545)
----------- --------- ---------
(Continued)
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F6
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994, and 1993
(In thousands)
Continued
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in certificates
of deposit 22,582 17,136 13,773
Net increase in demand, savings
and other deposits 7,432 5,324 9,383
Increase (decrease) in federal
funds purchased ( 327) 327 -
Net proceeds from Federal Home Loan
Bank Advances 1,000 - -
Proceeds from issuance of
common stock 6 55 3,524
-------- -------- --------
Net cash provided by
financing activities 30,693 22,842 26,680
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents 1,735 738 ( 32)
Cash and cash equivalents at
beginning of year 3,883 3,145 3,177
-------- -------- --------
Cash and cash equivalents at
end of year $ 5,618 $ 3,883 $ 3,145
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
TRANSACTIONS
Unrealized gain (loss) in value
of securities available for
sale (net of tax
effects of
$572,293 and $(562,753) at
December 31, 1995 and 1994,
respectively $ 1,111 $( 1,092) $ -
======== ======== ========
Investment securities transferred
to available for sale $ - $ 24,733 $ -
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 5,629 $ 3,755 $ 3,047
Income taxes $ 783 $ 579 $ 567
The Notes to Consolidated Financial Statements are an integral part of these
statements.
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(In thousands)
Note 1. Summary of Significant Accounting Policies
The accounting and reporting policies of the Highlands
Bankshares, Inc. and Subsidiary conform to generally accepted
accounting principles and the predominant practices within the
banking industry. The accompanying consolidated financial
statements have been prepared on the accrual basis.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Highlands Bankshares, Inc. and Subsidiary (the
"Company") and its wholly-owned subsidiary, Highlands Union
Bank (the "Bank"). All significant intercompany balances and
transactions have been eliminated in consolidation.
Nature of Operations
Highlands Bankshares, Inc. and Subsidiary operates in
Abingdon, Virginia and surrounding Southwest Virginia, under
the laws of the Commonwealth of Virginia. The Company was
organized December 29, 1995. Highlands Union Bank, its
wholly-owned subsidiary, began banking operations on April
27, 1985.
Securities Held to Maturity:
Securities classified as held to maturity are those debt
securities the Company has both the intent and ability to hold
to maturity regardless of changes in market conditions,
liquidity needs or changes in general economic conditions.
These securities are carried at cost adjusted for amortization
of premium and accretion of discount, computed by the interest
method over their contractual lives.
Securities Available for Sale:
Securities classified as available for sale are those debt
securities that the Company intends to hold for an indefinite
period of time, but not necessarily to maturity. Any decision
to sell a security classified as available for sale would be
based on various factors, including significant movements in
interest rates, changes in the maturity mix of the Company's
assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors.
(Continued)
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(In thousands)
Note 1. Summary of Significant Accounting Policies (Continued)
Securities Available for Sale (Continued):
Securities available for sale are carried at fair value.
Unrealized gains or losses are reported as increases or
decreases in stockholders' equity, net of the related deferred
tax effect. Realized gains or losses, determined on the basis
of the cost of specific securities sold, are included in
earnings.
Reserve for Possible Loan Losses:
The reserve for possible loan losses for financial statement
purposes is based upon management's evaluation of amounts
required to maintain the reserve at an adequate level upon
consideration of losses charged to the reserve, current
economic conditions, changes in the size and character of the
loan portfolio, and other relevant factors which, in
management's judgement, deserve current recognition.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on the straight-line
method over estimated useful lives. Maintenance and repairs
are charged to current operations while improvements are
capitalized. Disposition gains and losses are reflected in
current operations.
Cash and Cash Equivalents:
For purposes of reporting cash flows, cash and cash
equivalents include cash on hand and amounts due from banks.
Income Taxes
Deferred taxes are provided on differences between the
financial reporting and tax basis of certain assets and
liabilities.
(Continued)
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(In thousands)
Note 1. Summary of Significant Accounting Policies (Continued)
Income on Loans and Loan Fees:
Accrual of interest on commercial loans, mortgages and
consumer single-payment loans is based generally on the daily
amount of principal outstanding. Interest on installment loans
is reported as income over the term of the loan under the
simple interest method and the sum-of-the-months'-digits (Rule
of 78's) method. The Rule of 78's method is not materially
different from the interest method. It is the Bank's policy to
discontinue the accrual of interest on loans based on their
delinquency status and evaluation of the related collateral
and the financial strength of the borrower. The accrual of
interest income is normally discontinued when a loan becomes
90 days past due as to principal or interest. Management may
elect to continue the accrual of interest when the net
realizable value of collateral is sufficient to cover the
principal balance and accrued interest. When interest accruals
are discontinued, interest accrued not collected in the
current year is reversed and interest accrued not collected in
prior years is charged to the allowance for loan losses.
For mortgage loans, the portion of loan origination fees that
exceeds the direct costs of underwriting and closing loans is
deferred. The deferred fees received are amortized to income
over the estimated lives of the mortgage loans using a
straight line method. The deferred fees received in connection
with installment loans are amortized over the life of the
loan. The aforementioned amortization methods are not
materially different from the interest method.
Earnings Per Share:
Earnings per share are calculated based on the weighted
average outstanding shares during the year.
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain reported
amounts and disclosures. Actual results could differ from
those estimates.
(Continued)
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(In thousands)
Note 1. Summary of Significant Accounting Policies (Continued)
Reclassification of Financial Statement Presentation
Certain reclassifications have been made to the 1994 and 1993
financial statements to conform with the 1995 financial
statement presentation. Such reclassifications have had no
effect on net income as previously reported.
Note 2. Business Combination
On December 29, 1995 Highlands Bankshares, Inc. and Subsidiary
issued approximately 1.2 million shares of its common stock in
exchange for all the outstanding common stock of Highlands
Union Bank. In addition, outstanding employee stock options to
purchase Highlands Union Bank common stock were converted into
options to purchase shares of Highlands Bankshares, Inc. and
Subsidiary The merger has been accounted for as a pooling of
interests. Restatement of prior year financial statements was
not deemed necessary due to immateriality.
Note 3. Investment Securities
The amortized cost, gross unrealized gains, gross unrealized
losses and estimated fair values of securities being held to
maturity and securities available for sale are shown in the
following schedules:
(Continued)
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(In thousands)
Note 3. Investment Securities (Continued)
Securities being held to maturity:
<TABLE>
<CAPTION>
1993
---------------------------------------------
Approx-
Gross Gross imate
Amortized Unrealized Unrealized Market
Cost Gains Losses Values
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury
securities $ 5,021 $ 25 $ 16 $ 5,030
U.S. Government
agencies and
corporations 1,773 18 8 1,783
State and
political
subdivisions 1,269 71 - 1,340
Mortgage Backed
securities 15,630 115 47 15,698
Other securities 880 2 - 882
-------- --------- --------- -------
$ 24,573 $ 231 $ 71 $ 24,733
======== ========= ========= =======
</TABLE>
Investment securities being held to maturity with a carrying
value of $0, $0 and $2,503 at December 31, 1995, 1994 and
1993, respectively, were pledged as collateral on public
deposits and for other purposes as required or permitted by
law.
Gross realized gains and losses for the years ended December
31, 1995, 1994 and 1993 on investment securities held to
maturity are as follows:
1995 1994 1993
---- ---- ----
Realized gains $ - $ - $ 68
Realized losses $ - $ - $( 10)
(Continued)
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(In thousands)
Note 3. Investment Securities (Continued)
Securities available for sale:
<TABLE>
<CAPTION>
1995
--------------------------------------------
Approx-
Gross Gross imate
Amortized Unrealized Unrealized Market
Cost Gains Losses Values
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury
securities $ 3,008 $ - $ 20 $ 2,988
U.S. Government
agencies and
corporations 8,139 68 67 8,140
State and
political
subdivisions 1,331 77 - 1,408
Mortgage Backed
securities 18,861 152 182 18,831
Other securities 909 - - 909
-------- --------- -------- -------
$ 32,248 $ 297 $ 269 $ 32,276
======== ========= ========= =======
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------------------
Approx-
Gross Gross imate
Amortized Unrealized Unrealized Market
Cost Gains Losses Values
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury
securities $ 4,513 $ - $ 178 $ 4,335
U.S. Government
agencies and
corporations 7,987 - 618 7,369
State and
political
subdivisions 816 8 6 818
Mortgage Backed
securities 14,946 26 873 14,099
Other securities 768 - - 768
-------- --------- --------- -------
$ 29,030 $ 34 $ 1,675 $ 27,389
======== ========= ========= =======
</TABLE>
(Continued)
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(In thousands)
Note 3. Investment Securities (Continued)
Investment securities available for sale with a carrying value
of $3,808, $2,503 and $0 thousand at December 31, 1995, 1994
and 1993 respectively, and a market value of $3,782, $2,443,
and $0 thousand at December 31, 1995, 1994 and 1993 were
pledged as collateral on public deposits and for other
purposes as required or permitted by law.
The amortized cost and estimated fair value of securities
available for sale at December 31, 1995 by contractual
maturity are shown below. Expected maturities may differ from
contractual maturities, because borrowers may have the right
to call or prepay obligations with or without call or
prepayment penalties.
Approx-
imate
Amortized Market
Cost Value
--------- -------
Due in one year or less $ 2,127 $ 2,112
Due after one year through five years 6,139 6,084
Due after five years through ten years 4,212 4,340
------- -------
Due after ten years - -
12,478 12,536
------- -------
Mortgage-backed securities 18,861 18,831
Other securities 909 909
------- -------
19,770 19,740
------- -------
$ 32,248 $ 32,276
======== ========
Gross realized gains and losses for the years ended December
31, 1995, 1994 and 1993 on investment securities available for
sale are as follows:
1995 1994 1993
------- ------- -------
Realized gains $ 3 $ 25 $ -
Realized losses $( 4) $( 10) $ -
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(In thousands)
Note 4. Loans
The composition of the net loans is as follows:
1995 1994 1993
---- ---- ----
Commercial $ 12,699 $ 8,538 $ 3,512
Real estate 76,590 62,955 45,394
Installment 23,342 21,890 17,559
Other 2,743 2,166 2,077
------- ------- -------
115,374 95,549 68,542
------- ------- -------
Deduct:
Unearned discount 1,377 1,550 1,141
Allowance for loan losses 908 836 782
Unearned net loan fees 254 261 189
------- ------- -------
2,539 2,647 2,112
------- ------- -------
$112,835 $ 92,902 $ 66,430
======== ======== ========
In May 1993, the Financial Accounting Standards Board issued
Statement No. 114, "Accounting by Creditors for the Impairment
of a Loan" which is effective for fiscal years beginning after
December 15, 1994. In October 1994, certain provisions of
Statement No. 114 were amended by Statement No. 118.
Statements 114 and 118 address the methods to be used by a
creditor to measure the impairment of a loan and the proper
recognition of a change in the value of an impaired loan. The
Company has no loans that are considered impaired in
conformity with SFAS 114.
Nonaccruing loans totaling $235, $0, $77 thousand at December
31, 1995, 1994 and 1993 are included in the above loans.
Interest income lost on these nonaccruing loans was
approximately $12, $0, $8 for December 31, 1995, 1994 and
1993, respectively.
Loans have been pledged as part of the floating blanket lien
to secure Federal Home Loan Bank advances. (Note 8)
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(In thousands)
Note 5. Allowance for Credit Losses
Activity in the allowance for credit losses is as follows for
the periods ended December 31, 1995, 1994, 1993:
1995 1994 1993
---- ---- ----
Balance, beginning $ 836 $ 782 $ 636
Provisions charged to
operations 143 120 150
Loans charged to reserve ( 188) ( 87) ( 22)
Recoveries 117 21 18
------ ------ ------
Balance, ending $ 908 $ 836 $ 782
======= ======= =======
Note 6. Premises and Equipment
Premises and equipment, stated at cost, are comprised of the
following:
1995 1994 1993
---- ---- ----
Land $ 1,301 $ 765 $ 544
Bank premises 2,876 1,785 1,604
Equipment 1,053 783 872
------ ------ ------
5,230 3,333 3,020
Less accumulated
depreciation 884 728 602
------ ------ ------
$ 4,346 $ 2,605 $ 2,418
======= ======= =======
The depreciation expense is $157, $124, and $102 thousand for
1995, 1994, and 1993, respectively.
Note 7. Deposits
The composition of deposits is as follows:
December 31,
------------
1995 1994 1993
---- ---- ----
Demand $ 31,968 $ 27,587 $ 21,954
Savings 17,010 18,257 21,284
Time deposits, $100,000 or
more 26,297 18,836 15,112
Other time deposits 72,052 52,634 36,503
------- ------- -------
$147,327 $117,314 $ 94,853
======== ======== ========
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(In thousands)
Note 8. Short Term Borrowings
Borrowed funds consist of Federal Home Loan Bank advances
which are secured by a floating blanket lien on assets of the
Bank, including loans. Short-term borrowings for December 31,
1995, 1994 and 1993 were $1,000, $327 and $0 thousand,
respectively.
Note 9. Income Taxes
The components of the net deferred tax asset at December 31,
1995, 1994 and 1993 were as follows:
1995 1994 1993
---- ---- ----
Deferred tax assets:
Allowance for loan
loss $ 245 $ 254 $ 236
Deferred compensation
accruals 78 77 61
Gain (loss) on securities
available for sale - 563 -
------ ------ ------
323 894 297
------ ------ ------
Deferred tax liability:
Depreciation
differences ( 106) ( 90) ( 82)
Gain (loss) on securities
available for sale ( 9) - -
------ ------ ------
( 115) ( 90) ( 82)
------ ------ ------
Net deferred tax asset $ 208 $ 804 $ 215
======= ======= =======
The net deferred tax asset is included in the balance sheet
under the caption "Other Assets".
The components of income tax expense (benefit) related to
continuing operations are as follows:
1995 1994 1993
---- ---- ----
Federal:
Current $ 755 $ 607 $ 515
Deferred 24 ( 26) ( 73)
------ ------ ------
Total $ 779 $ 581 $ 442
======= ======= =======
(Continued)
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(In thousands)
Note 9. Income Taxes (Continued)
The Bank's income tax expense differs from the statutory
federal rate of 34% as follows:
1995 1994 1993
---- ---- ----
Statutory rate applied to
earnings before income taxes $ 758 $ 592 $ 459
Tax exempt interest ( 20) ( 24) ( 20)
Other, net 41 13 3
------ ------ ------
$ 779 $ 581 $ 442
======= ======= =======
Note 10. Operating Leases
The following is a schedule by years of future minimum rental
payments required under operating leases that have initial or
remaining noncancelable terms in excess of one year as
follows:
Year ending December 31:
1996 $ 303
1997 303
1998 198
1999 111
2000 -
-------
Total minimum payments required $ 915
========
Total operating lease expense was $261, $158 and $75 for
December 31, 1995, 1994 and 1993 respectively.
Note 11. Common Stock, Stock Split, and Net Income Per Share
On April 13, 1995, the Board authorized a 2 for 1 stock split
to be distributed to all shareholders of record as of April
12, 1995. As a result, authorized shares increased from
5,000,000 to 10,000,000 and par value decreased from $5.00 to
$2.50 per share. All references in the financial statements to
number of shares, per share amounts and market prices of the
Bank's common stock have been retroactively restated to
reflect the increased number of common shares outstanding.
(Continued)
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(In thousands)
Note 11. Common Stock, Stock Split, and Net Income Per Share(Continued)
At December 31, 1995, 1994 and 1993, the Bank had 1,218, 1,216
and 1,206 thousand shares of common stock issued and
outstanding, respectively. Net income per share is computed
using the weighted average outstanding shares of 1,214, 1,208
and 926 thousand for the periods ended December 31, 1995, 1994
and 1993, respectively. The stock options (Note 12) have an
antidilutive effect on earnings per share.
Note 12. Profit Sharing Plan
Effective January 1, 1986, the Bank adopted a profit sharing
plan covering substantially all employees with over one year
of service. The plan provides for contributions in such
amounts as the Board of Directors may annually determine, but
not in excess of the amount permitted under the Internal
Revenue Code as a deductible expense. The Bank accrued to the
plan $92, $88 and $70 thousand for the years ended December
31, 1995, 1994 and 1993, respectively, which represents
approximately 7%, 8% and 8% of qualifying salaries and wages
of the Bank.
Note 13. Stock Option Plan
In 1986, the Bank adopted a non-qualified stock incentive
option plan for key employees, officers, and directors and
reserved 100,000 shares of common stock for issuance
thereunder. Options granted under the plan expire ten years
from date of grant.
Shares under options which subsequently expire, or are
cancelled are available for subsequent grant. Option prices
are determined by the Board of Directors, but shall not be
less than the greater of the par value of such stock or 100%
of the book value of such stock as shown by the Bank's last
published statement prior to granting of the option. Proceeds
received upon exercise of options are credited to common
stock, to the extent of par value of the related shares, and
the balance is credited to surplus. During 1995, 1994 and 1993
700, 18,600 and 15,500 shares were granted at $9.333, $8.330
and $6.155 per share at grant date, respectively.
(Continued)
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(In thousands)
Note 13. Stock Option Plan (Continued)
Options outstanding at option price for the years ended
December 31, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
Dollars Number of Dollars Number of Dollars Number of
(Thousands) Shares (Thousands) Shares (Thousands) Shares
----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding January 1 $ 225 66,742 $ 179 66,678 $ 124 61,426
Granted 4 700 78 9,600 83 15,500
Exercised ( 3) ( 2,360) ( 32) ( 9,536) ( 28) ( 10,248)
------- -------- ------- ------- ------ --------
Options outstanding December 31 $ 226 65,082 $ 225 66,742 $ 179 66,678
======== ====== ======== ====== ======= ======
</TABLE>
At the time options are granted, the difference in market
value and the option price is recorded as an expense and the
related accrual is established. For 1995, 1994 and 1993 $4,
$78 and $83 thousand was recorded as compensation as a result
of options granted. As of December 31, 1995, 1994 and 1993
$226, $225 and $179 thousand remained as accrued stock options
outstanding.
Note 15. Commitments, Contingencies and Concentrations of Credit
The Bank is party to various financial instruments with
off-balance sheet risk arising in the normal course of
business to meet the financing needs of their customers. Those
financial instruments include commitments to extend credit and
standby letters of credit. These commitments include standby
letters of credit of approximately $218, $341, and $25
thousand and unused portions of credit lines of $8,202, $7,085
and $4,851 thousand for the years ended December 31, 1995,
1994 and 1993, respectively. These instruments contain various
elements of credit and interest rate risk in excess of the
amount recognized in the statements of financial condition.
The Bank's exposure to credit loss, in the event of
non-performance by the other party to the financial instrument
for commitments to extend credit and standby letters of
credit, is the contractual amount of those instruments. The
Bank uses the same credit policies in making commitments and
conditional obligations that they do for on-balance sheet
instruments.
The Bank has made arrangements with and has available from
other corresponding banks, approximately $28,000,000 of unused
lines of credit to fund any necessary cash requirements, the
Bank has $1,000,000 of Federal Home Loan Bank advances
outstanding as of December 31, 1995.
(Continued)
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(In thousands)
Note 15. Commitments, Contingencies and Concentrations of Credit
(Continued)
The Bank grants various types of credit including but not
limited to, agribusiness, commercial, consumer, and
residential loans to customers primarily located throughout
Southwest Virginia. Each customer's credit worthiness is
examined on a case by case basis. The amount of collateral
obtained, if any, is determined by management's credit
evaluation of the customer. Collateral held varies, but may
include property, accounts receivable, inventory, plant and
equipment, securities and other income producing properties.
Although the loan portfolio is generally well diversified and
geographically dispersed within the region, aggregate loans
extended for real estate mortgages represent greater than 50%
of the loan portfolio. A substantial portion of the customers'
ability to honor their contractual commitment is largely
dependent upon the economic conditions of the region.
Note 16. Fair Values of Financial Instruments
The carrying amounts and fair values of the Bank's financial
instruments at December 31 were as follows (asset/liability):
1995
Carrying Fair
Amount Value
------ -----
Cash and short-term
investments $ 11,153 $ 11,153
Investments in
securities 32,276 32,276
Loans, net 112,835 115,272
Deposits (147,327) (148,463)
Short-term
borrowings ( 1,000) ( 1,000)
Cash and Short-Term Investments
The carrying amount reported in the balance sheets for cash
and short-term investments approximates fair value.
Investments in Securities
The carrying amount reported in the balance sheets for cash
and short-term investments approximates fair value.
(Continued)
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(In thousands)
Note 16. Fair Values of Financial Instruments (Continued)
Loans
The fair values of loans represents the amount at which the
loans of the Bank could be exchanged on the open market, as
determined based on the current lending rate for similar type
of lending arrangements discounted over the remaining life of
the loans.
Deposits
The fair values of deposits represents the amount at which the
liabilities of the Bank could be exchanged on the open market,
as determined based on the incremental borrowing rate of the
Bank for similar types of borrowing arrangements.
Short-Term Borrowings
The carrying amount reported in the balance sheets for cash
and short-term investments approximates fair value.
Note 17. Related Party Transactions
In the normal course of business, the Bank has made loans to
directors and officers of the Bank. All loan and commitments
made to such officers and directors and to companies in which
they are officers or have significant ownership interest have
been made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons, and did not
involve more than the normal risk of collectibility or present
other unfavorable features. The activity of such loans is
approximately as follows:
1995 1994 1993
Balance, beginning $ 5,712 $ 4,518 $ 3,206
Loan additions 3,525 1,899 2,195
Amounts collected (2,920) ( 705) ( 883)
------ ------ ------
Balance, ending $ 6,317 $ 5,712 $ 4,518
======= ======= =======
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(In thousands)
Note 18. Restrictions on Cash
The Bank is required to maintain reserve balances in cash with
the Federal Reserve Bank. The total of those reserve balances
was approximately $616 thousand at December 31, 1995.
Note 19. Retained Earnings
Banking laws and regulations limit the amount of dividends
that may be paid without prior approval of the Bank's
regulatory agency. Under that limitation, the Bank could have
declared dividends of $5,216 thousand in 1995. The Bank
declined to pay cash dividends for 1995 in order to maintain
capital necessary to support the present rate of growth.
Bank regulations also require the Bank to maintain certain
minimum capital levels in relation to Bank assets. At December
31, 1995, regulations required a minimum ratio of capital to
risk-weighted assets of 8.00%. The Bank's capital, as defined
by the regulations, was 11.11% of risk-weighted assets. In
addition, banks are expected to maintain a leverage ratio of
at least 4.00%. At December 31, 1995, the Bank's leverage
ratio was 7.48%.
Note 20. Other Operating Expenses
Other operating expenses consist of the following:
1995 1994 1993
Data processing $ 22 $ 12 $ 5
FDIC insurance 134 214 163
Postage and freight 130 105 84
Regulatory agency assessments 34 29 22
Supplies 124 106 107
Bank stock tax 126 107 38
Other 341 313 228
---- ---- ----
$ 911 $ 886 $ 647
===== ===== =====
<PAGE>
HIGHLANDS BANKSHARES, INC. AND SUBSIDIARY
Page F23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(In thousands)
Note 21. Condensed Parent Company Balance Sheet
Condensed balance sheet below relates to Highlands
Bankshares, Inc. for December 31, 1995 and for the year then
ended. Highlands Bankshares, Inc. was formed December 29,
1995 and exchanged common stock for the common stock of
Highlands Union Bank. Highlands Bankshares, Inc. only had
transactions affecting the balance sheet and accordingly, no
condensed income statement or condensed cash flow statement
has been presented below.
CONDENSED BALANCE SHEET
1995
ASSETS
Investments in subsidiaries $ 12,812
Other assets 10
-------
Total Assets $ 12,822
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest, taxes and other
liabilities $ 10
-------
Total Liabilities 10
-------
STOCKHOLDERS' EQUITY
Unrealized gain (loss)
securities 18
Common stock 3,044
Surplus 5,120
Undivided profits 4,630
-------
Total Stockholders'
Equity 12,812
-------
Total Liabilities and
Stockholders' Equity $ 12,822
=======
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
HIGHLANDS BANKSHARES, INC.
Date: September 4, 1996 By: /s/ Samuel L. Neese
----------------------------
Samuel L. Neese
Executive Vice President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Samuel L. Neese Executive Vice President and September 4, 1996
- ------------------------------
Samuel L. Neese Chief Executive Officer
/s/ James T. Riffe Executive Vice President and September 4, 1996
- ------------------------------
James T. Riffe Chief Operating Officer
(Chief Financial Officer)
/s/ Robert M. Little, Jr. Secretary and Controller September 4, 1996
- ------------------------------
Robert M. Little, Jr. (Chief Accounting Officer)
/s/ J.D. Morefield Chairman of the Board September 4, 1996
- ------------------------------
J.D. Morefield
/s/ J. Carter Lambert Vice Chairman September 4, 1996
- ------------------------------
J. Carter Lambert
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ James D. Moore, Jr. President and Director September 4, 1996
- ------------------------------
James D. Moore, Jr.
/s/ William E. Chaffin Director September 4, 1996
- ------------------------------
William E. Chaffin
Director September 4, 1996
- ------------------------------
V.D. Kendrick
/s/ Clydes B. Kiser Director September 4, 1996
- ------------------------------
Clydes B. Kiser
Director September 4, 1996
- ------------------------------
Charles P. Olinger
Director September 4, 1996
- ------------------------------
William J. Singleton
/s/ H. Ramsey White, Jr. Director September 4, 1996
- ------------------------------
H. Ramsey White, Jr.
</TABLE>
