UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1995.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from ______________ to ______________.
Commission file number 000-18445.
Benchmark Bankshares, Inc.
(Name of small business issuer in its charter)
Virginia 54-1460991
State or other jurisdiction of incorporation or (I.R.S. Employer
organization Identification No.)
100 South Broad Street
Kenbridge, Virginia 23944
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (804)676-8444.
Securities registered under Section 12(b) of the Exchange Act: None
Title of each class Name of each exchange on
which registered
_____________________________ _____________________________
_____________________________ _____________________________
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, Par Value $.21 a share
(Title of Class)
________________________________
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90
days. [X] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Items
405 of Regulation S-B in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $2,209,199
State the aggregate market value of the voting stock held by nonaffiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.)
$22,353,754
Note: If determining whether a person is an affiliate which involves an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by nonaffiliates on the basis of
reasonable assumptions, if the assumptions are stated.
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to
be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court.
[ ] Yes [ ] No
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
As of March 15, 1996, there were 1,442,177.689
shares outstanding of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.)
into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any
prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1993
("Securities Act"). The listed documents should be clearly described for
identification purposes (e.g., annual report to security holders for fiscal
year ended December 24, 1990).
Proxy and information statement for the 1995 Annual Stockholders' Meeting,
Part III 14(c)10
Transitional Small Business Disclosure Form (Check One):
[ ] Yes [X] No
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, 1995, the Company and its subsidiary employed 64 full-time
and 10 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. The Bank opened its first branch office in the town of
Victoria also in Lunenburg County in 1974. In 1989, the Bank expanded its
branch system to include two offices in adjacent counties. In June of 1989,
the Bank opened a full service branch in Farmville, Prince Edward County, and
in September of 1989 opened a full service branch in South Hill, Mecklenburg
County. In March of 1993, the Bank opened its fifth full service office which
became its second Farmville location. Currently, a sixth full service office
is under construction in Crewe, Nottoway County. All banking locations are
within 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, and night depository facilities. 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 six 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 Mecklenburg and Lunenburg Counties, and one of two such banks in
the Town of Farmville, and Prince Edward County. Finance companies, mortgage
companies, credit unions, and savings banks also compete with the Bank for
loans and deposits. In addition, in some instances, 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.
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.
Restrictions
Dividends
The Bank, which is the sole subsidiary of the Company, is subject to
dividend restrictions as set forth in the Laws of Virginia Relating to Banking
and Finance in Section 6.1-56. As of December 31, 1995, there was $9,315,169
in retained earnings upon which dividends may be charged.
Investments
As required by the Virginia Security for Public Deposits Act, the Bank has
pledged $3,216,152 of its investment portfolio to safeguard state and local
municipalities' deposits as of December 31, 1995.
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, 1995,
the Bank had $494,848 pledged towards these types of 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 1995, the Bank's
vault cash met the statutory requirement so designated by the Act.
As of December 31, 1995, the Bank had entered into an independent
depository relationship that requires collateralization of deposits.
Currently, $995,964 of its investment portfolio are pledged towards these types
of deposits.
Anti-Takeover Provisions
The Articles of Incorporation and By-Laws 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 shareholder to
bring business before a shareholders' 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 By-Laws are intended to
prevent inequitable shareholder 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 shareholders. 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.
Indemnification
The Articles of Incorporation of the Company mandates indemnification of
directors and officers as a result of liability incurred by them in proceedings
instituted against them by third parties, or by or on behalf of the Company
itself, relating to the manner in which they have performed their duties unless
they have been guilty of "willful misconduct or a knowing violation of the
criminal law" in the performance of their duties. The indemnification
provision is consistent with another recent amendment to the Corporation Act.
Thus, the protection of the proposed amendment will extend to grossly negligent
conduct, but not to willful misconduct.
The Company's Board of Directors is authorized to contract in advance to
indemnify any director or officer and to indemnify or contract in advance to
indemnify other persons including directors and officers of subsidiaries and
employees and agents of the Company and its subsidiaries, to the same extent
that it is required to indemnify directors and officers of the Company.
The Act and the Company's Articles of Incorporation permit the advancement
of expenses incurred by a director or officer in a proceeding.
The Company has entered into indemnification agreements with each of its
directors and officers, entitling them to (i) indemnification to the full
extent permitted by the Act, and (ii) reimbursement of all expense
advancements, including attorneys' fees, paid or incurred in connection with
any claim relating to any indemnifiable event.
Executive Officers
For information concerning the Executive Officers of the Company, refer to
Part III, Item 10 found in this report.
ITEM 2 PROPERTY
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, and customer service for Kenbridge, as well
as the bookkeeping and computer operations for the entire bank. There is
approximately 5,800 square feet on the second floor which is currently being
remodeled to house the expanding operation department needs. 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 and has a drive-up window which serves two lanes of
traffic.
The Farmville branch office, which opened in June of 1989, contains
approximately 1,500 square feet of floor space, and is a leased facility. The
Bank is currently in the sixth year of the lease agreement which originally
called for a three year rental period with the option to lease three additional
one-year periods with the rental payments not to exceed $1,200 per month. The
current monthly lease amount as of December 31, 1995 was $1,050. This amount
can be reviewed in June of 1996. The office contains three teller windows.
Currently, the office has no drive-up window.
The South Hill office, which opened for business in September, 1989, is
also housed in a leased facility. During the year, the Bank renegotiated its
lease to extend the agreement to June 30, 2000. The lease provides for
renewal options of twelve month periods for an additional five years. The
current monthly lease amount as of December 31, 1995 was $1,250. This amount
can be renegotiated in June of 1996. This office contains approximately 2,500
square feet of floor space and operates four teller windows, plus a drive-up
window which serves two lanes of traffic.
On March 9, 1993, the Bank opened a second office on Milnwood Road south
of Farmville. 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 lobby tellers, a large customer lobby and new accounts area,
a three lane drive-up, and an employee break room. The branch office's second
floor has 2,240 square feet of space available for future expansion.
ITEM 3 LEGAL PROCEEDINGS
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
MATTERS
Market for Common Stock
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 market price of
the stock since its initial listing:
Bid Price
of Common Stock
1995
First Quarter 13.50
Second Quarter 14.00
Third Quarter 13.75
Fourth Quarter 14.00
1994
First Quarter 13.00
Second Quarter 14.50
Third Quarter 15.50
Fourth Quarter 15.25
1993
First Quarter 19.50
Second Quarter 20.00
Third Quarter 20.25
Fourth Quarter 23.00
1992
First Quarter 9.25
Second Quarter 10.25
Third Quarter 12.50
Fourth Quarter 17.50
1991
First Quarter 9.00
Second Quarter 9.00
Third Quarter 10.00
Fourth Quarter 9.25
During 1995, the Company declared a $.15 per share semi-annual dividend in
June and $.20 per share semi-annual dividend in December. The semi-annual
dividends declared in 1994 amounted to $.13 per share in June and $.15 per
share in December.
As of December 31, 1995, there were 793 stock certificates issued to
holders of record as compared to 744 stock certificates for the same period in
1994.
Related Security 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, 1995, there has been no issuance of preferred stock as
authorized in the Articles of Incorporation.
ITEM 6 SELECTED FINANCIAL DATA - BENCHMARK BANKSHARES, INC.
Years Ended December 31,
1995 1994 1993 1992 1991
(In thousands of dollars, except per share amounts.)
Interest income 11,182 9,279 8,551 7,856 6,940
Interest expense 5,401 3,983 3,644 3,750 3,835
Net interest income 5,781 5,296 4,907 4,106 3,105
Provision for loan losses 188 163 252 367 299
Other operating revenue 602 532 533 316 248
Other operating expense 3,048 2,857 2,679 2,166 1,923
Income Before Income Taxes 3,147 2,808 2,509 1,889 1,131
Income taxes 938 833 780 601 353
Net Income 2,209 1,975 1,729 1,288 778
Per Share Data (1) (2)
Net income 1.54 1.39 1.23 0.92 0.55
Cash dividends declared 0.35 0.28 0.23 0.18 0.13
Balance Sheet Amounts
(at end of period)
Total assets 135,364 115,306 102,903 88,529 71,455
Total loans (3) 102,411 89,532 80,502 66,126 56,435
Total deposits 121,623 104,636 93,434 80,242 64,457
Total equity 12,501 9,861 8,691 7,279 6,238
Book value per share
(at end of period) (2) 8.72 6.95 6.16 5.16 4.42
Selected Financial Ratios
Net income to average equity 18.68 20.90 22.62 18.72 12.89
Net income to average assets 1.74 1.80 1.77 1.58 1.18
Loans to deposits (4) 85.06 86.43 87.03 83.25 88.24
Primary capital to total assets
(at end of period) (5) 9.62 9.57 8.06 8.98 9.35
Net interest yield (6) 4.82 5.16 5.36 5.42 5.06
Allowance for loan losses to loans
(at end of period) (7) 1.00 1.00 1.00 1.00 0.78
Non-performing loans to loans
(at end of period) (8) 0.66 0.88 0.43 0.11 0.47
Net charge-offs to average
loans (4) 0.05 0.09 0.13 0.22 0.13
(1) Average shares outstanding.
(2) 1990 through 1993 adjusted for two for one stock split occurring on
January 17, 1994. Beginning with 1994, equity includes the net of tax
impact of unrecognized gains (losses) in the securities portfolio
classified as available for sale.
(3) Total loans net of unearned discount on installment loans and reserve for
loan losses.
(4) For purposes of this ratio, loans represent gross loans less unearned
interest income.
(5) Equity exclusive of unrealized securities losses plus allowance for loan
loss less the deferred taxes related to loan losses to assets.
(6) Net interest income to total average earning assets.
(7) The difference of gross loans minus unearned interest income divided into
the allowance for loan losses.
(8) 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.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND
FINANCIAL CONDITIONS
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.
A Comparison of 1995 versus 1994
Results of Operations and Financial Conditions
Net income of $2,209,199 in 1995 increased $234,566 or 11.88% from net
income of $1,974,633 in 1994. Earnings per share of $1.54 in 1995 increased
$.15 or 10.79% from earnings per share of $1.39 in 1994.
The Bank experienced another record earnings year in 1995. The rise in
income is a direct result of increased resources (earning assets) funded in
part from an increased deposit base and a restructuring of liquid assets.
During the year, gross loans less unearned interest income increased
$13,011,067 or 14.39%, and investments, including federal funds sold, increased
$6,278,866 or 33.57%. These assets were primarily funded by deposits which
increased $16,986,146 or 16.23%. The remaining funding for earning assets was
provided by current period earnings.
In 1995, the Bank achieved a return on average assets of 1.74% as compared
to a 1.80% return on average assets in 1994. While the rate of return was
strong once again, it was lower than the previous year as the Bank's interest
rate spread was reduced due to market trends.
The year ended 1995 reflected a decrease in return on equity as net income
to average equity amounted to 18.68% as compared to the 1994 level of 20.90%.
This decrease resulted from equity increasing through the sale of stock at
a greater rate than income grew.
Net Interest Income
Net interest income of $5,780,636 in 1995 reflected an increase of
$484,974 or 9.16% over net interest income of $5,295,662 in 1994.
Total interest income of $11,181,733 in 1995 showed an increase of
$1,902,961 or 20.51% over total interest income of $9,278,772 in 1994. Total
interest expense of $5,401,097 in 1995 reflected an increase of $1,417,987 or
35.60% over total interest expense of $3,983,110 in 1994.
The increase in interest income resulted from strong customer loan demand
throughout the trade area. The loan demand volume as discussed above allowed
the Bank to attain an average yield on loans less unearned discount of 9.50%.
In order to fund the strong loan demand in 1995, the Bank competitively
priced its deposit offerings. As noted above, the rate of deposits increase
was greater than the rate of the loan increase. For an analysis of interest
rate spreads, refer to Table C, Interest Rates Earned and Paid.
Loans
The Bank utilizes the following types of loans in servicing the trade
area:
Commercial (Time and Demand) 30.63%
Consumer (Installment) 19.68
Real Estate (Construction) 2.86
Real Estate (Mortgage) 46.83
These types of loans have traditionally provided the Company with a steady
source of quality interest-earning assets. The maturities of these loans range
from commercial loans maturing in less than one year to installment credits
that may exceed three years. The mortgage loans which represent 46.83% of the
portfolio are typically fifteen year payback loans with three year balloon
options. By setting maturities of loans for a short-term, the Company can
effectively manage its asset/liability match, as most deposit accounts mature
in one year or less.
Allowance for Loan Losses
The 1995 year ending level of the allowance for loan losses amounted to
$1,037,344. This amount represented an increase of $132,205 or 14.61% over the
1994 level of $905,139. During 1995, the gross loan portfolio increased
14.25% as the Bank capitalized on a favorable interest rate market to secure
quality loans. While loans collateralized by real estate represented a
majority of the loans, and the Bank's loan loss experience continued to be low,
management elected to increase the allowance position due to a combination of
loan growth and the general economic condition of the trade area. As of the
year-end 1995, the Bank's allowance for loan losses represented 1.00% of gross
loans.
During 1995, the Bank's loan loss ratio continued to be low as the ratio
of net loan losses to average loans was .06% resulting from losses exceeding
recoveries by $56,096. At year-end, management feels the allowance for loan
losses is adequate. As the loan portfolio grows in 1996, further provisions to
supplement the allowance balance will be made on a periodic basis.
Non-Interest Income and Non-Interest Expense
Total non-interest income, i.e., fees charged for customer services and
gains on sales of investments, for 1995 was $602,543. This represents an
increase of $71,141 or 13.39% over the 1994 level of $531,402. The increase
was directly related to fees charged on a growing customer base.
Total non-interest expense in 1995 of $3,047,401 reflects an increase of
$190,710 or 6.68% over the 1994 level of $2,856,691. The increase resulted
from normal increases in operations and salaries and benefits, as the Bank's
customer base continued to grow.
Premises and Equipment
The Company's premises and equipment increased $445,607 before
depreciation during the year. At year-end, the Company was in the process of
constructing a new full service branch in the Town of Crewe. The office will
have approximately 2,500 square feet of floor space. The branch building will
feature three teller windows in the lobby, as well as two loan offices. The
plans also call for a three lane drive-up facility and one automatic teller
machine. As of December 31, 1995, the Company has capitalized $351,377 in cost
related to the new branch and has signed commitments of $427,620 related to the
completion of the branch. The Company anticipates opening the new facility in
the second quarter of 1996.
Increase in Capitalized Premises and Equipment
(in thousands of dollars)
Equipment,
Furniture, and Leasehold
Office/Area Land Building Fixtures Improvements
Kenbridge 9,986
Victoria 7,135
Farmville 3,316
South Hill 48,173
Farmville #2 4,051 25,620
Building under
construction 159,847 154,948 32,531
Total 159,847 158,999 78,588 48,173
Federal Funds Sold and Purchased
The 1995 year-end level of federal funds sold was $5,862,000. This level
reflects an increase of $990,000 or 20.32% over the year ending 1994 level of
$4,872,000. Federal funds sold are utilized as a short-term investment
vehicle, as well as to provide liquidity. As of year-end 1995, federal funds
sold as a percent of total assets increased to 4.33% as compared to 4.23% in
1994.
Securities
Pursuant to guidelines established in FAS 115, 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 and losses are to be excluded
from earnings and reported as a net amount in a separate component of
shareholders' equity until realized. The impact of this unrealized gain on
securities positively impacted shareholders' equity in the amount of $204,815,
therefore, affecting the book value of the Company's stock. The book value per
share of the stock inclusive of the FAS 115 adjustment was $8.72, while the
book value per share would have been $8.58 if 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 Company 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, 1995, the Bank had $112,500 in outstanding letters of
credit all of which will mature during 1996. These instruments are based on
the financial strength of the customer and the existing relationship between
the Company and the customer.
At current year-end, 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 $11,169,506.
Concentrations
The Bank has no concentrations of credit involving an individual borrower
and his related interest. The Company does have a concentration in loan type
in that a majority of the loan portfolio is secured by non-commercial 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. The Company confines its lending activities
to within the state and more specifically its local geographic areas.
The Bank has significant concentrations of deposits with other financial
institutions with balances consisting mainly of daily federal funds sales and
depository banking services with its correspondent bank. The deposits amounted
to $9,226,237 as of December 31, 1995. Of this amount, $9,050,090 was in
excess of FDIC insurance levels.
Liquidity
The Bank's funding requirements are supplied by a wide range of
traditional banking sources, including various types of demand, money market,
savings, and certificates of deposits. Large certificates of deposit of
$100,000 or more increased by $2,474,063 or 24.11% in 1995. These deposits
currently represent 10.47% 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 1996 is $6,467,404, while $6,267,000 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. The GAP analysis shows a net
negative gap of $15,866,000 when immediately maturing interest bearing
liabilities are deducted from immediately maturing interest earning assets.
The cumulative gap continues to decrease to a negative gap of $17,750,000 when
comparing assets and liabilities maturing through the next three months;
however, the cumulative gap shifts to a positive position of $6,055,000 for one
to five years. The deficit gap results from the customer preference for short-
term liquidity in the current period of fluctuating rates.
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 are
continuing to invest in the short-term and request to borrow for a longer time
as interest rates are increasing from historically low levels.
The Bank is satisfied that it can meet the liquidity needs by utilizing
three 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.
Management feels that through the nature of the Bank's short-term loan
maturities and high liquidity of its investment portfolio, the Bank can meet
the short-term demand for funds by its depositors.
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.
During the year ended 1995, the Company continued to experience strong
growth through the operation of the Bank. This growth led to record earnings
for the Company and generated an additional $1,708,490 in capital through
retained earnings. This activity, plus the net sale of $189,635 common stock
through the dividend reinvestment plan, raised year-end capital exclusive of
unrealized security gains net of tax effect to a level of $12,295,755
or a 18.26% increase over the 1994 year ending level of $10,397,630.
The primary capital to total assets ratio grew to 9.62% as of December 31,
1994. This represents a five basis point increase from the 1994 year ending
level. This amount is well above current industry standards. Refer to Item
14(d)(5) for additional capital ratio analysis. Due to the increased rate of
earnings, its subsequent retention, and sale of common stock, the Company's
capital position was strengthened despite significant total asset growth.
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, 1995, the Bank maintained the following capital ratios:
Total Capital to Risk Weighted Assets 13.86%
Tier I Capital to Risk Weighted Assets 12.92%
Tier I Capital to Total Book Assets 9.03%
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 1995 saw relatively stable rates that
resulted small increases; however, due to the competitive nature of the
industry, the Bank experienced rising deposit rates in the same period that
loan rates declined.
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 1995, the loan-to-deposit ratio amounted to 85.06%. This
represents a decrease of 1.37% over the year-end level of 1994, as the Bank
attracted more deposit than loan growth.
Looking Forward
The Company 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 Company
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. Today, as the Company plans for tomorrow and
beyond, it is faced with uncertain interest rate movement as evidenced by the
recent action taken by the Federal Reserve Board; however, the Company
continues to enjoy a strength in capital. Management plans to utilize this
capital in a way that will increase market share without sacrificing quality of
service to its customers.
A Comparison of 1994 versus 1993
Results of Operations and Financial Conditions
Net income of $1,974,633 in 1994 increased $245,534 or 14.20% from net
income of $1,729,099 in 1993. Earnings per share of $1.39 in 1994 increased
$.16 or 13.01% from earnings per share of $1.23 in 1993.
The Bank experienced another record earnings year in 1994. The rise in
income is a direct result of increased resources (earning assets) funded in
part from an increased deposit base and a restructuring of liquid assets.
During the year, gross loans less unearned interest income increased $9,118,550
or 11.22%, and investments, including federal funds sold, increased $2,153,246
or 13.01%. These assets were primarily funded by deposits which increased
$11,202,527 or 11.99%. The remaining funding for earning assets was provided
by current period earnings.
In 1994, the Bank achieved a return on average assets of 1.80% as compared
to a 1.77% return on average assets in 1993. This increase results from a
continued strong trade area demand for loans (and deposits) which allowed for
an interest rate spread of 4.47% during the current year.
The year ended 1994 reflected a decrease in return on equity as net income
to average equity amounted to 20.90% as compared to the 1993 level of 22.62%.
This decrease resulted from equity increasing through the sale of stock at a
greater rate than income grew.
Net Interest Income
Net interest income of $5,295,662 in 1994 reflected an increase of
$389,033 or 7.93% over net interest income of $4,906,629 in 1993.
Total interest income of $9,278,772 in 1994 showed an increase of $727,820
or 8.52% over total interest income of $8,550,952 in 1993. Total interest
expense of $3,983,110 in 1994 reflected an increase of $338,787 or 9.30% over
total interest expense of $3,644,323 in 1993.
The increase in interest income resulted from strong customer loan demand
throughout the trade area. The loan demand volume as discussed above allowed
the Bank to attain an average yield on loans less unearned discount of 9.55%.
In order to fund the strong loan demand in 1994, the Bank competitively
priced its deposit offerings. As noted above, the rate of deposits increase
was greater than the rate of the loan increase by .78%, as a result of the
rising cost of funds in the marketplace. For a further analysis of interest
rate spreads, refer to Table C, Interest Rates Earned and Paid.
Loans
The Bank utilizes the following types of loans in servicing the trade
area:
Commercial (Time and Demand) 27.59%
Consumer (Installment) 20.88
Real Estate (Construction) 1.94
Real Estate (Mortgage) 49.59
These types of loans have traditionally provided the Company with a steady
source of quality interest-earning assets. The maturities of these loans range
from commercial loans maturing in less than one year to installment credits
that may exceed three years. The mortgage loans which represent 49.59% of the
portfolio are typically fifteen year payback loans with three year balloon
options. By setting maturities of loans for a short-term, the Company can
effectively manage its asset/liability match, as most deposit accounts mature
in one year or less.
Allowance for Loan Losses
The 1994 year ending level of the allowance for loan losses amounted to
$905,139. This amount represented an increase of $88,632 or 10.86% over the
1993 level of $816,507. During 1994, the gross loan portfolio increased 11.19%
as the Bank capitalized on a favorable interest rate market to secure quality
loans. While loans collateralized by real estate represented a majority of the
loans, and the Bank's loan loss experience continued to be low, management
elected to increase the allowance position due to a combination of loan growth
and the general economic condition of the trade area. As of the year-end 1994,
the Bank's allowance for loan losses represented 1.00% of gross loans.
During 1994, the Bank's loan loss ratio continued to be low as the ratio
of net loan losses to average loans was .09% resulting from losses exceeding
recoveries by $74,173. At year-end, management feels the allowance for loan
losses is adequate. As the loan portfolio grows in 1995, further provisions to
supplement the allowance balance will be made on a periodic basis.
Non-Interest Income and Non-Interest Expense
Total non-interest income, i.e., fees charged for customer services and
gains on sales of investments, for 1994 was $531,402. This represents a
decrease of $1,633 or .31% over the 1993 level of $533,035. The decrease was
directly related to security transactions, which reflected a decrease in gain
of $30,821. This decrease resulted from a decline in the value of the Bank's
security portfolio as interest rates generally rose throughout the year.
Total non-interest expense in 1994 of $2,856,691 reflects an increase of
$178,218 or 6.66% over the 1993 level of $2,678,473. The increase resulted
from normal increases in operations and salaries and benefits, in addition to
the fact that the second branch in Farmville was opened for the entire twelve
months of 1994.
Premises and Equipment
The Company's premises and equipment increased $52,686 before depreciation
during the year. During the fourth quarter of 1993, the Company committed to
purchase a .904 acre lot in the downtown area of the Town of Farmville in the
proximity of the currently leased Farmville branch facility. It is the
intention of the Company to construct a permanent full-service banking facility
designed to replace the leased office. No date has been set as to when
construction will begin; however, it is not anticipated to occur during 1995.
Increase in Capitalized Premises and Equipment (1)
(in thousands of dollars)
Equipment,
Furniture, and Leasehold
Office/Area Land Building Fixtures Improvements
Kenbridge 12
Victoria 9 46
Farmville 5 6
South Hill 10
Farmville #2 5
Total 5 9 79
The Company has no material capital expenditure commitments as of
December 31, 1994.
(1) By branch including reclassification of construction in progress at year-
end 1993.
Federal Funds Sold and Purchased
The 1994 year-end level of federal funds sold was $4,872,000. This level
reflects an increase of $1,928,000 or 65.49% over the year ending 1993 level of
$2,944,000. Federal funds sold are utilized as a short-term investment
vehicle, as well as to provide liquidity. As of year-end 1994, federal funds
sold as a percent of total assets increased to 4.23% as compared to 2.86% in
1993.
Securities
Effective January 1, 1994, the Company adopted FAS Statement 115,
Accounting for Certain Investment in Debt and Equity Securities. Pursuant to
guidelines established in FAS 115, the Company has elected to classify its
entire 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
shareholders' equity until realized. The impact of this unrealized loss on
securities negatively impacted shareholders' equity in the amount of $536,352,
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 $6.94, while the
book value per share would have been $7.32 if reported exclusive of the FAS 115
impact.
FAS 115 may not be applied retroactively to prior years' financial
statements and, accordingly, is reflected in the 1994 financial information
presented in these financial statements. The securities information presented
for 1993 is at cost adjusted for amortization of premiums and accretion of
discounts computed by the straight-line method and recognized as adjustments to
interest income.
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 Company 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, 1994, the Bank had $124,500 in outstanding letters of
credit all of which will mature during 1995. These instruments are based on
the financial strength of the customer and the existing relationship
between the Company and the customer.
At current year-end, 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 $1,669,110.
Concentrations
The Bank has no concentrations of credit involving an individual borrower
and his related interest. The Company does have a concentration in loan type
in that a majority of the loan portfolio is secured by non-commercial 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. The Company confines its lending activities
to within the state and more specifically its local geographic areas.
The Bank has significant concentrations of deposits with other financial
institutions with balances consisting mainly of daily federal funds sales and
depository banking services with its correspondent bank. The deposits amounted
to $7,462,503 as of December 31, 1994. Of this amount, $7,262,503 was in
excess of FDIC insurance levels.
Liquidity
The Bank's funding requirements are supplied by a wide range of
traditional banking sources, including various types of demand, money market,
savings, and certificates of deposits. Large certificates of deposit of
$100,000 or more increased by $2,046,179 or 24.91% in 1994. These deposits
currently represent 9.81% 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 1995 is $4,980,068, while $5,280,273 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. The GAP analysis shows a net
negative gap of $9,973,000 when immediately maturing interest bearing
liabilities are deducted from immediately maturing interest earning assets.
The cumulative gap continues to decrease to a negative gap of $18,863,000 when
comparing assets and liabilities maturing through the next twelve months;
however, the cumulative gap shifts to a positive position of $5,693,000 for one
to five years. The deficit gap results from the customer preference for short-
term liquidity in the current period of fluctuating rates.
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 are
continuing to invest in the short-term and request to borrow for a longer time
as interest rates are increasing from historically low levels.
The Bank is satisfied that it can meet the liquidity needs by utilizing
three 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.
Management feels that through the nature of the Bank's short-term loan
maturities and high liquidity of its investment portfolio, the Bank can meet
the short-term demand for funds by its depositors.
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.
During the year ended 1994, the Company continued to experience strong
growth through the operation of the Bank. This growth led to record earnings
for the Company and generated an additional $1,577,604 in capital through
retained earnings. This activity, plus the net sale of $128,905 common stock
through the dividend reinvestment plan, raised year-end capital to a level of
$10,397,630 or a 19.64% increase over the 1993 year ending level of $8,691,121.
The primary capital to total assets ratio grew to 9.57% as of December 31,
1994. This represents an increase from the 1993 year ending level. This
amount is well above current industry standards. Refer to Item 14(d)(5) for
additional capital ratio analysis. Due to the increased rate of earnings, its
subsequent retention, and sale of common stock, the Company's capital position
was strengthened despite significant total asset growth.
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, 1994, the Bank maintained the following capital ratios:
Total Capital to Risk Weighted Assets 13.13%
Tier I Capital to Risk Weighted Assets 12.62%
Tier I Capital to Total Book Assets 8.86%
These ratios exceed the minimum ratios required by regulatory authorities
for the Bank to be considered well capitalized.
To further strengthen the Company's capital position, the Board of
Directors approved a dividend reinvestment plan for its stockholders in 1993.
During the year ended December 31, 1994, capital increased $128,905 as a result
of the stockholders' participation in the dividend reinvestment plan.
Inflationary Factors
The year of 1994 will be remembered as a year of rising interest rates as
the Federal Reserve's fiscal policies included several increases in the prime
rate. The impact of this upward trend in interest rates was not fully
reflected in the Company's financial results due to intermediate termed loans
and deposits. These instruments which were contracted in a lower interest rate
period actually caused the Company to have lower average interest revenues and
interest cost. As these financial instruments mature and are replaced with
instruments bearing higher interest rates, there will be additional pressure
placed on the interest margin.
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 1994, the loan-to-deposit ratio amounted to 86.43%. This
represents a decrease of .6% over the year-end level of 1993. This slight
decline reflects a maturing process as the two new offices in Farmville are
generating additional deposit relationships to fund the credit needs in that
particular market.
TABLE A. COMPARATIVE SUMMARY OF EARNINGS
<TABLE>
<CAPTION>
Years Ending December 31,
1995 1994 1993
(In thousands of dollars except per share data.)
Interest Income
<S> <C> <C> <C>
Loans 9,697 8,283 7,594
U. S. Government Securities 416 350 454
States and political subdivision securities 586 507 385
Other securities 6 7 5
Federal funds sold 477 132 113
Total Interest Income 11,182 9,279 8,551
Interest Expense
Deposits
Interest bearing checking 559 567 585
Savings 254 274 210
Time 4,586 3,140 2,849
Federal funds purchased and other 2 2 -
Total Interest Expense 5,401 3,983 3,644
Net Interest Income 5,781 5,296 4,907
Provision for Loan Losses 188 163 252
Net Interest Income After
Provision for Loan Losses 5,593 5,133 4,655
Non-Interest Income
Service charges on deposit accounts 342 310 285
Other 257 201 196
Net investment securities gains (losses) (1) 21 52
Gain on sale of other real estate 4 - -
Total Non-Interest Income 602 532 533
Non-Interest Expense
Salaries 1,533 1,352 1,224
Employee benefits 359 300 277
Occupancy expense 146 154 144
Other operating expense 1,010 1,051 1,034
Total Non-Interest Expense 3,048 2,857 2,679
Net Income Before Taxes 3,147 2,808 2,509
Income Tax 938 833 780
Net Income 2,209 1,975 1,729
Per Share - Based on Weighted Average
Net income 1.54 1.39 1.23*
Average shares outstanding 1,433,224.361 1,417,252.02 1,410,508.00*
* Restated to reflect a two for one stock split effective January 17, 1994.
</TABLE>
TABLE B. AVERAGE BALANCE SHEETS
(In thousands of dollars.)
Years Ended December 31,
1995 1994 1993
Amount % Amount % Amount %
Assets
Cash and due from banks 3,614 2.85 3,085 2.81 3,604 3.68
Investment securities 16,370 12.90 14,497 13.20 13,646 13.93
Federal funds sold 8,206 6.47 3,216 2.93 3,216 3.28
Loans 95,314 75.12 85,859 78.14 74,625 76.16
Bank premises and equipment 1,761 1.36 1,770 1.60 1,710 1.75
Accrued interest 1,102 0.88 986 0.90 984 1.00
Other assets 526 0.42 465 0.42 192 0.20
Total 126,893 100.00 109,878 100.00 97,977 100.00
Liabilities and Stockholders' Equity
Deposits
Demand 20,902 16.47 18,446 16.79 15,874 16.21
Savings and MMA 14,082 11.10 17,761 16.17 17,817 18.18
Time 79,267 62.47 63,567 57.86 56,025 57.18
Accrued interest 526 0.41 372 0.34 331 0.34
Other liabilities 289 0.23 282 0.26 286 0.29
Stockholders' equity 11,827 9.32 9,450 8.58 7,644 7.80
Total 126,893 100.00 109,878 100.00 97,977 100.00
TABLE C. INTEREST RATES EARNED AND PAID (In thousands of dollars.)
<TABLE>
<CAPTION>
1995 1994 1993
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
Interest Earning Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities 16,370 1,008 6.16% 14,497 863 5.96% 13,646 844 6.19%
Federal funds sold 8,206 477 5.81% 3,216 133 4.14% 3,216 113 3.51%
Loans (1) (2) 102,089 9,697 9.50% 86,727 8,283 9.55% 75,400 7,594 10.07%
126,665 11,182 8.83% 104,440 9,279 8.89% 92,262 8,551 9.27%
Interest Bearing Liabilities
Deposits 114,251 5,399 4.73% 90,227 3,981 4.42% 81,504 3,644 4.47%
Federal funds purchased
and other borrowed
money 47 2 4.25% 44 2 4.55% - - -
114,298 5,401 4.73% 90,271 3,983 4.42% 81,504 3,644 4.47%
Net interest income/yield
(3) (4) 5,781 5,296 4,907
Interest spread (5) 4.10% 4.47% 4.80%
(1) Loans net of unearned income.
(2) These figures do not reflect interest and fees to be collected on non-
accrual loans. To date, the impact of non-accrual 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.
</TABLE>
TABLE D. ANALYSIS OF CHANGE IN NET INTEREST INCOME (In thousands of dollars.)
Year 1995 over 1994 Year 1994 over 1993
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 112 33 145 53 (34) 19
Federal funds sold 207 137 344 - 20 20
Loans 1,467 (53) 1,414 1,141 (452) 689
Total 1,786 117 1,903 1,194 (466) 728
Interest Expense
Deposit accounts 1,162 256 1,418 390 (53) 337
Federal funds purchased
and other borrowed
money 1 (1) - 2 - 2
Total 1,163 255 1,418 392 (53) 339
Increase (Decrease) in
Net Interest Income 623 (138) 485 802 (413) 389
Years 1993 to 1992
Increase (Decrease) Total
Due to Change In: Increase
Volume Rate (Decrease)
Increase
(Decrease) in
Investment securities 326 (203) 123
Federal funds sold (100) 18 (82)
Loans 1,369 (715) 654
Total 1,595 (900) 695
Interest Expense
Deposit accounts 639 (745) (106)
Increase (Decrease) in
Net Interest Income 956 (155) 801
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, 1995
U. S. Government agencies 6,054,918 108,654 30,633 6,132,939
State and political
subdivisions 10,880,052 235,542 3,238 11,112,356
Other securities 137,000 - - 137,000
17,071,970 344,196 33,871 17,382,295
December 31, 1994
U. S. Government agencies 5,114,218 - 380,217 4,734,001
State and political
subdivisions 9,392,494 16,081 448,519 8,960,056
Other securities 137,000 - - 137,000
14,643,712 16,081 828,736 13,831,057
Held to Maturity
December 31, 1995
U. S. Government agencies 1,737,628 58,172 - 1,795,800
The maturities of investment securities at December 31,
1995 were as follows:
Book Market
Value Value
Available for Sale
Due in one year or less 1,279,876 1,279,875
Due from one to five years 3,454,352 3,493,892
Due from five to ten years 10,100,344 10,338,825
After ten years 2,089,258 2,132,703
Other securities 137,000 137,000
Held to Maturity
Due from one to five years 240,000 248,850
Due from five to ten years 1,497,628 1,546,950
Securities having a book value of $4,706,964 and
$4,567,476 at December 31, 1995 and 1994, 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.
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,
1995 is presented in the following table (in thousands of
dollars):
<TABLE>
<CAPTION>
Maturity
Within One Year
Amount Yield(2) Amount Yield(2) Amount Yield(2) Amount Yield(2)
U. S. Government
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities 489,931 5.93 1,596,335 5.97 5,328,755 7.12 367,778 7.87
States and
Political
Subdivisions 801,085 6.73 2,308,207 7.29 6,059,027 7.89 1,721,480 8.15
Total 1,291,016 3,904,542 11,387,782 2,089,258
</TABLE>
(1) The other category includes Federal Reserve Bank Stock
and Virginia Bankers' Bank stock which amount to $87,000
and $50,000, respectively at year-end 1994. These
holdings are not included in the maturity or the estimated
market value schedule.
(2) The yield is the weighted average Federal Tax
Equivalent yield on cost.
TABLE F. LOAN PORTFOLIO
The table below classifies gross loans by major
category and percentage distribution at December 31 for
1995, 1994, and 1993 (in thousands of dollars):
1995 1994 1993
Amount % Amount % Amount %
Commercial (Time and Demand) 31,767 30.63 25,046 27.58 23,532 28.82
Installment 20,416 19.68 18,959 20.88 16,712 20.47
Real Estate - Construction 2,968 2.86 1,759 1.94 6,116 7.49
Real Estate - Mortgage 48,573 46.83 45,034 49.60 35,291 43.22
The following table shows maturities of the major loan
categories and their sensitivity to changes in investment
rates at December 31, 1995 (in thousands of dollars) 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 30,798 11 - 30,809
Installment 3,378 16,456 408 20,242
Real Estate - Construction 2,968 - - 2,968
Real Estate - Mortgage 9,832 37,547 1,167 48,546
Total 46,976 54,014 1,575 102,565
Over One
Year but
Within
One Year Five Over
or Less Years Five Years
Floating Floating Floating
Rate Rate Rate Total
Commercial 651 307 - 958
Installment 93 81 - 174
Real Estate 27 - - 27
Total 771 388 - 1,159
TABLE G. NON-PERFORMING 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 includes individual review of
certain loans by the Loan Committee and the Board if certain
past due or non-performance 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
non-accrual basis. Non-accrual 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 non-accrual 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.
Non-performing loans consist of loans accounted for on
a non-accrual 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 non-performing loans
for the periods indicated:
December 31,
1995 1994 1993
(In thousands of dollars.)
Commercial
Non-accrual - - -
Contractually past due 90 days
or more - - 4
Installment
Non-accrual 49 - -
Contractually past due 90 days
or more 130 33 22
Real Estate
Non-accrual 48 160 173
Contractually past due 90 days
or more 451 569 149
Total 678 762 348
Non-performing loans to gross
loans at year-end 0.66% 0.88% 0.43%
Effect of non-accrual loans on
interest revenue - - -
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, 1995, 1994, and 1993:
1995 1994 1993
(In thousands of dollars.)
Allowance for loan losses at
beginning of year 905 817 671
Loan Charge-Offs
Commercial - 20 13
Installment 126 78 160
Real Estate 3 57 17
Total Charge-Offs 129 155 190
Recoveries of Loans Previously
Charged Off
Commercial - - 2
Installment 73 70 82
Real Estate - 10 -
Total Recoveries 73 80 84
Net loans charged off (56) (75) (106)
Provision for loan losses 188 163 252
Allowance for loan losses at end
of year 1,037 905 817
Average total loans (net of
unearned income) 96,274 86,727 75,400
Total loans (net of unearned
income) at year-end 103,448 90,437 81,318
Selected Loan Loss Ratios
Net charge-offs to average
loans 0.06% 0.09% 0.14%
Provision for loan losses to
average loans 0.20% 0.19% 0.33%
Provision for loan losses to
net charge-offs % 335.68% 217.33% 237.74%
Allowance for loan losses to
year-end loans 1.00% 1.00% 1.00%
Loan loss coverage (1) 81.25X 39.60X 31.38X
(1) Income before income taxes plus provision for loan
losses, divided by net charge-offs.
TABLE I. COMPOSITION OF ALLOWANCE FOR LOAN LOSSES (In thousands of
dollars.)
<TABLE>
<CAPTION>
1995 1994 1993
Percentage Percentage Percentage
Allowance Breakdown of Loans Allowance Breakdown of Loans Allowance Breakdown of Loans
Amount % Outstanding Amount % Outstanding Amount % Outstanding
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial 52 5.15 30.63 271 29.95 27.59 245 30.00 28.82
Installment 79.94 19.68 453 50.06 20.88 409 50.00 20.47
Real Estate -
construction 829 2.86 1.94 7.49
Real Estate - mortgage 156 14.91 46.83 181 19.99 49.59 163 20.00 43.22
Total 1,037 100.00 100.00 905 100.00 100.00 817 100.00 100.00
</TABLE>
TABLE J. DEPOSITS
The breakdown on average deposits for the years indicated is as
follows: (In thousands of dollars.)
1995 1994 1993
Average Average Average
Balance Rate Balance Rate Balance Rate
Non-interest bearing demand
deposits 10,824 - 9,547 - 8,211 -
Interest bearing demand
deposits 10,078 3.39 8,952 2.95 7,663 2.93
Money market accounts 6,208 3.50 9,295 3.27 11,255 3.19
Savings 7,874 3.25 8,466 3.25 6,562 3.25
Time 79,267 5.83 63,514 4.98 56,025 5.09
114,251 99,774 89,716
Remaining maturities of time certificates of deposits of $100,000 or
more at December 31, 1995 are shown below (dollars in thousands):
December 31,
1995
(in
Maturity thousands)
Three months or less 2,981
Over three months through 12 months 3,487
Over one year through 5 years 6,266
Total 12,734
TABLE K. RETURN ON EQUITY AND ASSETS
The following table highlights certain ratios for the three years ended
December 31, 1995, 1994, and 1993 (in thousands of dollars):
1995 1994 1993
Income before securities gains and
losses to
Average total assets 1.74% 2.54% 2.51%
Average stockholders' equity 18.64% 29.49% 32.15%
Net income to
Average total assets 1.74% 1.80% 1.77%
Average stockholders' equity 18.68% 20.90% 22.62%
Dividend pay out ratio (dividends
declared per share
divided by net income per share) 22.73% 20.11% 18.36%
Average stockholders' equity to
average total assets ratio 9.32% 8.60% 7.80%
TABLE L.
GAP Analysis
December 31, 1995
The following table reflects interest-rate sensitive assets and liabilities
only. The following table sets forth at December 31, 1995 of interest-earning
assets and interest-bearing liabilities scheduled to mature or reprice within a
specific period. (In thousands of dollars.)
Scheduled Maturity or Repricing
<TABLE>
<CAPTION>
Immediately 3 Months
Adjusted or Less 3-6 Months 6 Mos.-1 Yr. 1-5 Years Over 5 Years Total
<S> <C> <C> <C> <C> <C> <C> <C>
Gross loans 1,371 10,431 11,072 24,528 54,471 1,575 103,448
Investment securities (1)(2) 803 1,271 30 3,734 12,835 18,673
Federal funds sold 5,862 5,862
Total Interest Earning Assets 7,233 11,234 12,343 24,558 58,205 14,410 127,983
Interest Bearing Liabilities
Interest bearing demand deposits 8,250 8,250
Money market deposits 7,170 7,170
Savings 7,679 7,679
Time deposits 13,118 9,468 16,894 44,939 84,419
Total Interest Bearing Deposits 23,099 13,118 9,468 16,894 44,939 107,518
Difference between Interest Earning
Assets and Interest Bearing
Liabilities (GAP) (15,866) (1,884) 2,875 7,664 13,266 14,410 20,465
Cumulative (GAP) (15,866) (17,750) (14,875) (7,211) 6,055 20,465
Cumulative interest earning
assets to interest bearing
liabilities 31.31% 50.99% 67.44% 88.47% 105.63% 119.03%
(1) Does not include $87,000 in Federal Reserve Stock and $50,000 in Virginia Banker's Bank Stock.
(2) All securities are stated at book value regardless of security classification as to available-for-sale and held-to-
maturity.
</TABLE>
ITEM 8 FINANCIAL STATEMENTS
Management's Report on Financial Statements
Independent Auditor's Report
Financial Statements
Consolidated Statements of Financial Condition - December 31, 1995 and 1994
Consolidated Statements of Income - Years Ended December 31, 1995 and 1994
Consolidated Statements of Stockholders' Equity - Years
Ended December 31, 1995 and 1994
Consolidated Statements of Cash Flows - Years Ended December 31, 1995, 1994
and 1993
Notes to Consolidated Financial Statements - December 31, 1995
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 generally accepted
accounting principals 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 Corporation'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 generally accepted auditing standards 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.
Benchmark Bankshares, Inc.
Report on Audit of Financial Statements
Benchmark Bankshares, Inc.
Table of Contents
Pages
Independent Auditor's Report i
Exhibits
A Consolidated Statements of Financial Condition 1-2
B Consolidated Statements of Income 3-4
C Consolidated Statements of Changes in
Stockholders' Equity 5
D Consolidated Statements of Cash Flows 6-7
Notes to Consolidated Financial Statements 8-19
January 22, 1996
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, 1995 and 1994, 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 generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of Benchmark Bankshares,
Inc. and Subsidiary, as of December 31, 1995 and 1994, and
the consolidated results of their operations and their cash
flows for each of the three years then ended, in conformity
with generally accepted accounting principles.
Creedle, Jones, and Alga, P.C.
Certified Public Accountants
Exhibit A
Page 1
Benchmark Bankshares, Inc.
Consolidated Statements of
Financial Condition
December 31, 1995 and 1994
A S S E T S
1995 1994
Cash and due from banks 4,397,058 3,809,483
Federal funds sold 5,862,000 4,872,000
Investment securities 19,119,923 13,831,057
Loans 103,723,930 90,787,787
Less
Unearned interest income (275,998) (350,922)
Allowance for loan losses (1,037,344) (905,139)
Net Loans 102,410,588 89,531,726
Premises and equipment - net 2,000,241 1,711,180
Accrued interest receivable 1,267,967 972,089
Deferred income taxes 151,931 491,323
Other assets 153,807 87,229
Total Assets 135,363,515 115,306,087
Exhibit A
Page 2
Benchmark Bankshares, Inc.
Consolidated Statements of
Financial Condition
December 31, 1995 and 1994
Liabilities and Stockholders'
Equity
1995 1994
Deposits
Demand (noninterest bearing) 12,392,332 9,647,544
NOW accounts 11,589,895 8,877,981
Money market accounts 5,542,293 7,206,786
Savings 7,679,313 7,714,155
Time, $100,000 and over 12,734,404 10,260,341
Other time 71,684,402 60,929,686
Total Deposits 121,622,639 104,636,493
Other borrowed money 155,000 -
Accrued interest payable 650,822 477,283
Accrued income tax payable 97,302 60,958
Dividends payable 286,709 213,035
Other liabilities 50,473 57,040
Total Liabilities 122,862,945 105,444,809
Stockholders' Equity
Common stock, par value $.21
per share, authorized
4,000,000 shares; issued and
outstanding 12-31-95
1,433,544.679, issued
and outstanding 12-31-94
1,420,230.234 shares 301,044 298,248
Capital surplus 3,007,305 2,820,466
Retained earnings 8,987,406 7,278,916
Unrealized security gains
(losses) net of tax effect 204,815 (536,352)
Total Stockholders'
Equity 12,500,570 9,861,278
Total Liabilities
and Stockholders' Equity 135,363,515 115,306,087
See independent auditor's report and accompanying notes to
financial statements.
Exhibit B
Page 1
Benchmark Bankshares, Inc.
Consolidated Statements of Income
Years Ended December 31,
1995, 1994, and 1993
1995 1994 1993
Interest Income
Interest and fees on loans 9,696,669 8,282,706 7,593,972
Interest on investment securities
U. S. Government agencies 415,756 349,574 454,080
State and political subdivisions 586,959 507,173 385,037
Other securities 5,752 6,698 5,220
Interest on federal funds sold 476,597 132,621 112,643
Total Interest Income 11,181,733 9,278,772 8,550,952
Interest Expense
Interest bearing checking deposits 559,325 566,748 585,296
Savings deposits 254,153 274,565 210,004
Time deposits 4,585,670 3,139,776 2,849,023
Federal funds purchased and other
borrowed money 1,949 2,021 -
Total Interest Expense 5,401,097 3,983,110 3,644,323
Net Interest Income 5,780,636 5,295,662 4,906,629
Provision for Loan Losses 188,300 162,805 251,918
Net Interest Income After Provision
for Loan Losses 5,592,336 5,132,857 4,654,711
Other Income
Service charges on deposit accounts 341,723 309,640 284,821
Other 257,380 200,657 196,288
Net investment securities gains
(losses) (1,048) 21,105 51,926
Gain on sale of other real estate 4,488 - -
Total Other Income 602,543 531,402 533,035
Other Expenses
Salaries 1,532,820 1,351,798 1,224,039
Employee benefits 359,430 299,681 277,192
Occupancy expense 145,461 154,273 143,622
Other 1,009,690 1,050,939 1,033,620
Total Other Expenses 3,047,401 2,856,691 2,678,473
Income Before Income Taxes 3,147,478 2,807,568 2,509,273
Provision for Income Taxes 938,279 832,935 780,174
Net Income 2,209,199 1,974,633 1,729,099
Earnings Per Share of Common Stock 1.54 1.39 1.23
Average Shares Outstanding 1,433,224.361 1,417,252.02 1,410,508
(1) Restated to reflect a 2 for 1 stock split effective January 17, 1994.
See independent auditor's report and accompanying notes to financial statements.
Exhibit C
<TABLE>
<CAPTION>
Benchmark Bankshares, Inc.
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1995 and 1994
Retained
Shares Par Surplus Earnings Total
Value
Balance
<C> <C> <C> <C> <C> <C> <C> <C>
January 1, 1994 1,410,508 * 296,207 2,693,602 5,701,312 8,691,121
Net Income 1,974,633 1,974,633
Sale of Stock 9,724.499 * 2,042 126,896 128,938
Redemption of
Stock (2.265) (1) (32) (33)
Semi-Annual Cash
Dividend Declared
June 30, $.13 per share (183,994) (183,994)
December 15, $.15 per share (213,035) (213,035)
Balance
December 31, 1994 1,420,230.234 298,248 2,820,466 7,278,916 10,397,630
Unrealized Security Losses
Net of Tax (536,352)
Balance 9,861,278
Net Income 2,209,199 2,209,199
Sale of Stock 13,322.315 2,798 186,945 189,743
Redemption of Stock (7.87) (2) (106) (108)
Semi-Annual Cash
Dividend Declared
June 15, $.15 per share (214,000)
December 22, $.20 per share (286,709) (500,709)
Balance December
31, 1995 1,433,544.679 301,044 3,007,305 8,987,406
Unrealized Security
Gains Net of Tax Effect
1994 536,352
1995 204,815
Equity 12,500,570
* Adjusted to reflect 2 for 1 stock split effective January 17, 1994.
See independent auditor's report and accompanying notes to financial
statements.
</TABLE>
Exhibit D
Page 1
<TABLE>
<CAPTION>
Benchmark Bankshares, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
Cash Flows from Operating Activities
<S> <C> <C> <C>
Interest received 10,885,855 8,951,644 8,514,746
Fees and commissions received 532,525 510,410 533,035
Interest paid (5,227,558) (3,855,540) (3,606,448)
Cash paid to suppliers
and employees (3,053,968) (2,958,106) (2,722,489)
Income taxes paid (901,935) (864,985) (730,200)
Net Cash Provided by
Operating Activities 2,234,919 1,783,423 1,988,644
Cash Flows from Investing Activities
Proceeds from sale of
investment securities 2,187,700 2,272,592 705,389
Proceeds from maturity of
investments 752,039 428,180 2,665,918
Purchase of investment
securities (7,089,565) (3,536,543) (4,466,961)
Loans originated (69,043,215) (64,555,986) (65,761,923)
Principal collected on
loans 56,032,148 55,437,436 51,134,490
Purchase premises and
equipment (445,607) (52,686) (413,736)
Proceeds from sale of
loans 2,246 - -
Net Cash Used in
Investing Activities (17,604,254) (10,007,007) (16,136,823)
Cash Flows from Financing Activities
Net increase in demand
deposits and
savings accounts 3,757,367 (2,216,981) 6,091,590
Payments for maturing
certificates of deposit (4,672,666) (18,157,144) (20,772,801)
Proceeds from sales of
certificates of
deposit 17,901,445 31,576,655 27,873,550
Dividends paid (427,035) (360,308) (387,890)
Sale of common stock 189,743 128,905 -
Proceeds from other borrowed money 155,000 - -
Proceeds from sale of
other assets 43,056 - -
Net Cash Provided by
Financing Activities 16,946,910 10,971,124 12,804,449
Net Increase (Decrease) in
Cash and Cash Equivalents 1,577,575 2,747,540 (1,343,730)
Cash and Cash Equivalents at
Beginning of Year 8,681,483 5,933,943 7,277,673
Cash and Cash Equivalents at
End of Year 10,259,058 8,681,483 5,933,943
Reconciliation of Net Income to Net
Cash Provided by Operating Activities
Net income 2,209,199 1,974,633 1,729,099
Adjustments to
reconcile net income
to net cash provided
by operating
activities
Depreciation 156,546 182,392 181,107
Provision for probable
credit losses 188,300 162,805 251,918
Increase (decrease)
in taxes payable 36,344 (32,050) (198,332)
(Increase) in
interest receivable (295,878) (194,295) (36,229)
Increase in interest
payable 173,539 127,570 37,875
(Increase) decrease
in other assets (66,578) (20,992) 10,026
(Increase) decrease
in deferred taxes
exclusive of unrealized
security gains (losses) (154,300) (315,225) 12,742
Increase (decrease) in
other liabilities (6,567) 3,879 21,033
(Decrease) in accounts
payable - (105,294) (20,595)
Loss on sale of assets 1,048 - -
Gain on sale of other
real estate (4,488) - -
Proceeds from sale
of loans (2,246) - -
Net Cash Provided by
Operating Activities 2,234,919 1,783,423 1,988,644
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.
</TABLE>
See independent auditor's report and accompanying notes to
financial statements.
Page 1
Benchmark Bankshares, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
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) 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) 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.
(c) 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 shareholder's equity until realized. The
impact of this unrealized loss on securities
positively impacted shareholders' equity in the
amount of $204,815, therefore, affecting the book
value of the Company's stock. The book value per
share of the stock inclusive of the FAS 115
adjustment was $8.72, while the book value per
share would have been $8.58 if reported exclusive
of the FAS 115 impact.
During the year, the Bank purchased $1,737,628 in
U. S. Government Agencies which were classified as
held to maturity. These investments are carried
at cost.
(d) 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.
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.
(e) 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. 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.
(f) 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.
(g) 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.
(h) 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.
(i) 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.
Beginning in 1994, deferred taxes also reflect the
impact of the unrealized security losses which are
reflected on the balance sheet only, pursuant to
FAS 115 guidelines. The differences relate
principally to the provision for loan losses,
depreciation, and unrealized security losses.
The table below reflects the components of the Net
Deferred Tax Asset account as of December 31, 1995:
Deferred tax assets resulting
from loan loss reserves 314,798
Deferred tax liabilities resulting from
depreciation (57,356)
Deferred tax assets resulting
from unrealized security losses (105,511)
Net Deferred Tax Asset 151,931
2. Investment Securities
The carrying amount and approximate market values
of investment securities are summarized below:
Page 3
Book Unrealized Unrealized Market
Value Gains Losses Value
Available for Sale
December 31, 1995
U. S. Government agencies 6,054,918 108,654 30,633 6,132,939
State and political
subdivisions 10,880,052 235,542 3,238 11,112,356
Other securities 137,000 - - 137,000
17,071,970 344,196 33,871 17,382,295
December 31, 1994
U. S. Government agencies 5,114,218 - 380,217 4,734,001
State and political
subdivisions 9,392,494 16,081 448,519 8,960,056
Other securities 137,000 - - 137,000
14,643,712 16,081 828,736 13,831,057
Held to Maturity
December 31, 1995
U. S. Government agencies 1,737,628 58,172 - 1,795,800
The maturities of investment securities at
December 31, 1995 were as follows:
Book Market
Value Value
Available for Sale
Due in one year or less 1,279,876 1,279,875
Due from one to five years 3,454,352 3,493,892
Due from five to ten years 10,100,344 10,338,825
After ten years 2,089,258 2,132,703
Other securities 137,000 137,000
Held to Maturity
Due from one to five years 240,000 248,850
Due from five to ten years 1,497,628 1,546,950
Securities having a book value of $4,706,964
and $4,567,476 at December 31, 1995 and 1994,
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.
3. Loans
A summary of loans by type follows:
1995 1994
Demand 1,349,187 1,183,116
Time 30,417,682 23,862,960
Installment 20,416,084 18,958,632
Real estate 51,540,977 46,793,079
103,723,930 90,797,787
Page 4
4. Allowance for Loan Losses
An analysis of the transactions in the allowance
for loan losses follows:
1995 1994
Balance at beginning of year 905,139 816,507
Provision charged to
operating expense 188,300 162,805
Recoveries on loans 72,434 80,571
Loans charged off (128,529) (154,744)
Balance at end of year 1,037,344 905,139
As of December 31, 1995, the Bank had $96,958
classified as nonaccrual loans. Nonaccrual loans are
those loans that are past due 90 days or more. A loan
in this status ceases to accrue interest.
5. Office Buildings, Equipment, and Leasehold Improvements
Major classifications of these assets are
summarized as follows:
Estimated
Useful
Lives 1995 1994
(Years)
Land 668,336 508,489
Building and improvements 6-40 1,244,592 1,240,541
Furniture and equipment 2-10 1,165,402 1,340,581
Leasehold improvements 5-6 151,444 103,271
Buildings under construction 154,948 -
3,384,722 3,192,882
Less: Accumulated depreciation (1,384,481) (1,481,702)
2,000,241 1,711,180
The cost basis of fully depreciated assets totaled
$758,730 at December 31, 1995. During 1995, $1,506 in
interest expense was capitalized during the
construction process.
6. Time Deposits
The maturities of time deposits exceeding $100,000
are as follows:
Due in six months 4,594,647
Due from six months to one year 1,872,877
Due from one year to three years 2,167,235
Due from three years to five years 4,099,645
Total 12,734,404
Interest expense on time deposits exceeding
$100,000 was $709,194 in 1995.
Page 5
7. Federal Income Taxes
Federal income taxes payable, as of December 31,
1995 and 1994, were as follows:
1995 1994
Currently payable 97,302 60,958
Deferred (151,931) (491,323)
(54,629) (430,365)
The components of applicable income taxes are as
follows:
1995 1994
Current 981,809 871,857
Deferred from income and
expense items (43,530) (38,922)
Total 938,279 832,935
Temporary differences in the recognition of income
and expenses for tax and financial reporting purposes
resulted in the deferred income tax asset as follows:
1995 1994
Accelerated depreciation (1,386) 3,044
Excess of provision for loan
losses over deduction for
federal income tax purposes 44,949 35,878
Total Tax Impact of Temporary
Differences in Recognition of
Income and Expenses 43,563 38,922
Tax impact of balance sheet
recognition of unrealized
security losses (382,955) 276,303
Total Change to Deferred Tax
for the Year $(339,392) $315,225
The reasons for the difference between income tax
expense and the amount computed by applying the
statutory federal income tax rates are as follows:
1995 1994
Statutory rates 34% 34%
Income tax expense at
statutory rates 1,070,142 954,573
Increase (decrease) due to
Tax exempt income (140,260) (139,458)
Other 8,397 17,820
938,279 832,935
Federal income tax returns are subject to
examination for all years which are not barred by the
statute of limitations.
8. Commitments and Contingent Liabilities
At December 31, 1995 and 1994, commitments under
standby letters of credit aggregated $112,500 and
$124,500, 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 12).
Minimum lease payments at December 31, 1995 under
noncancelable real property operating lease commitments
for succeeding years are:
1996 $19,200
1997 15,000
1998 15,000
1999 15,000
2000 7,500
Total $71,700
The Company has options to renew the leased
properties. The additional lease expense resulting
from the future exercising of these options is not
included in the 1995 totals listed herein.
Operating expenses include amortization of
improvements and occupancy rentals of $35,799 and
$39,112 at December 31, 1995 and 1994, respectively.
These leases are renewable on a year to year basis.
9. Retirement Plan
The Bank provides for a retirement program 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.
Effective January 1, 1995, the Company
discontinued its pension plan and transferred the plan
assets to its newly established 401(k) plan. By the
nature of the transfer, there was no taxable
consequence to the participants.
During 1995, Company payments through matching and
discretionary contributions totaled $74,250 while
employees' salary reduction amounted to $21,008. The
cost of administration for the 401(k) plan and the
former pension plan paid in 1995 amounted to $8,880.
10. Officer Incentive Compensation
The Company offers its officers incentive
compensation and/or bonus arrangements based on the
Company's annual financial performance and other
criteria such as length of service and officer
classification. Incentive compensation totaled
$214,764 and $164,244 for the years ended December 31,
1995 and 1994, respectively.
11. Loans to Related Parties
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
$1,384,510 and $1,073,822 at December 31, 1995 and
1994, respectively. During the year, new loans to the
group totaled $601,635, while repayments amounted to
$290,947.
12. Off-Balance-Sheet Instruments/Credit Concentrations
The Corporation 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 Company does
not require collateral or other security to support
these financial instruments. Standby letters of credit
are conditional commitments issued by the Company 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 8 on December 31, 1995, the
Company had outstanding letters of credit, all of which
will mature during 1996. These instruments are based
on the financial strength of the customer and the
existing relationship between the Company and the
customer.
As of December 31, 1995, the Company 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 $11,169,506.
In conjunction with the construction of a new
banking facility in Crewe, the Bank has committed to
contracts for the construction of the building and
certain operating equipment. As of December 31, 1995,
the unfunded amount of these commitments totaled
$427,620.
Concentrations
The Company has no concentrations of credit
concerning an individual borrower or economic segment.
The Company 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 $1,804,000.
The Company has significant concentrations of
deposits with other financial institutions consisting
mainly of daily federal fund sales, which totaled
$5,862,000 as of December 31, 1995, and depository
banking services with its correspondent bank. These
deposits amounted to $3,364,237 at December 31, 1995.
Of this deposit and Federal funds sold amount,
$9,050,090 was in excess of FDIC insurance levels.
13. Regulatory Matters
The Company is subject to the dividend
restrictions as set forth in the Laws of Virginia
Relating to Banking and Finance. Retained earnings
against which dividends may be charged were $8,987,406
at December 31, 1995.
Pursuant to regulations of the Federal Reserve
Board, the banking operation of the Company is required
to maintain certain minimum levels of capital. At
December 31, 1995, the Company maintained the following
capital ratios:
Page 8
Total Capital to Risk Weighted Assets 13.86%
Tier I Capital to Risk Weighted Assets 12.92%
Tier I Capital to Total Book Assets 9.03%
These ratios exceed the minimum ratios required by
regulatory authorities.
14. Capital
During 1995, net purchase of company stock through
the dividend reinvestment plan amounted to 13,322.315
shares which translated to a $2,798 increase in common
stock and $186,945 increase 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.
15. 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 60,000 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 40,000 shares of the
Company's common stock was approved for the "outside"
directors of the Company. Pursuant to the plans,
options were granted for the purchase of 43,500 shares
for the employees and 27,000 shares for the directors
as of the effective date. In addition, there were
subsequent options granted for 1,000 shares, as well as
a cancellation of an option to purchase 500 shares
during 1995.
These options cannot be exercised for a period of
one year from the date of the grant; therefore, there
is currently no measurable impact upon current year
earnings per share. The table below details the status
of the plan as of December 31, 1995:
Incentive Stock Original Options Options Options Remaining
Option Plan Pool Granted Exercised Canceled in Pool
Employees 60,000 43,500 - 500 17,000
Directors 40,000 27,000 - - 13,000
16. Disclosures about Fair Value of Financial Instruments
During 1995, the Bank adopted FAS 107 Disclosure
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 instruments, 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.
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.
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.
Other Borrowed Money
For short-term borrowings, the carrying amount is
a reasonable estimate of fair value.
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:
Carrying Fair
Amount Value
Financial Assets
Cash and due from banks 4,397,058 4,397,058
Federal funds sold 5,862,000 5,862,000
Investments
Available for sale 17,382,295 17,382,295
Held to maturity 1,737,628 1,795,800
Loans
Demand loans 1,349,187 1,349,187
Accrual loans 31,414,700 31,474,816
Installment loans under $2,000 805,870 744,137
Vehicle loans 7,414,793 7,110,109
Dealer loans 3,267,539 3,059,442
Other installment loans 8,927,882 8,551,827
Real estate loans 53,181,263 51,261,882
Participation loans - out (2,637,304) (2,567,318)
Financial Liabilities
Deposits
Demand (noninterest bearing) 12,392,332 12,392,332
Demand (interest bearing) 17,132,188 17,132,188
Savings 7,679,313 7,679,313
Certificates of deposit 84,418,806 85,160,932
Other borrowed money 155,000 155,000
Unrecognized Financial Instruments
Unused loan commitments 11,169,506 11,169,506
Unissued letters of credit 112,500 112,500
17. Parent Corporation
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 corporation's statements
are presented.
Benchmark Bankshares, Inc.
(Parent Corporation Only)
Balance Sheet, December 31, 1995, 1994, and 1993
A S S E T S
1995 1994 1993
Cash 152,953 106,920 485,534
Investment in subsidiary 12,213,695 9,751,577 8,276,388
Land 215,816 215,816 210,807
Total Assets 12,582,464 10,074,313 8,972,729
Liabilities and Stockholders' Equity
Liabilities
Dividends payable 286,709 213,035 176,314
Accounts payable - - 105,294
Total Liabilities 286,709 213,035 281,608
Stockholders' Equity
Common stock, par value $.21
per share, authorized
4,000,000 shares; issued and
outstanding 1,433,544.679
12-31-95, issued and
outstanding 1,420,230.234
shares 12-31-94 301,044 298,248 296,207
Surplus 3,007,305 2,820,466 2,693,602
Retained earnings 8,987,406 6,742,564 5,701,312
Total Stockholders' Equity 12,295,755 9,861,278 8,691,121
Total Liabilities
and Stockholders' Equity 12,582,464 10,074,313 8,972,729
Statement of Income
Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
Income
Rental property 7,200 7,200 -
Expenses
Professional fees 10,300 32,923 28,406
Supplies, printing, and postage 8,935 10,644 6,693
Taxes - miscellaneous 4,532 543 518
Total Expenses 23,767 44,110 35,617
Income (Loss) Before Equity in
Undistributed Income
of Subsidiary (16,567) (36,910) (35,617)
Equity in Income of Subsidiary
(includes tax benefit of parent
company operating loss) 2,225,766 2,011,543 1,764,716
Net Income 2,209,199 1,974,633 1,729,099
Benchmark Bankshares, Inc.
(Parent Corporation Only)
Statement of Changes in Stockholders' Equity
Years Ended December 31, 1995, 1994, and 1993
Common Retained
Stock Surplus Earnings
Balance January 1, 1993 296,207 2,693,602 4,289,577
Net income 1,729,099
Cash dividend (317,364)
Balance December 31, 1993 296,207 2,693,602 5,701,312
Sale of stock 2,042 126,896
Redemption of stock (1) (32)
Net income 1,974,633
Cash dividend (397,029)
Unrealized security gains (losses) (536,352)
Balance December 31, 1994 298,248 2,820,466 6,742,564
Sale of stock 2,798 186,945
Redemption of stock (2) (106)
Net income 2,209,199
Cash dividend (500,709)
Unrealized security gains 204,815
Balance December 31, 1995 301,044 3,007,305 8,655,869
Statement of Cash Flows
Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
Cash Flows from Operating
Activities
Net income 2,209,199 1,974,633 1,729,099
Increase (decrease)
in payables (105,294) 105,294
Net Cash Provided by
Operating Activities 2,209,199 1,869,339 1,834,393
Cash Flows from Investing
Activities
Undistributed earnings of
subsidiary (1,925,766) (2,011,541)(1,764,716)
Purchase of premises (5,009) (140,294)
Net Cash (Used) Provided by
Investing Activities (1,925,766) (2,016,550)(1,905,010)
Cash Flows from Financing
Activities
Sale of stock 189,743 128,938
Redemption of stock (108) (33)
Dividends paid (427,035) (360,308) (387,890)
Net Cash (Used) Provided by
Financing Activities (237,400) (231,403) (387,890)
Net Increase (Decrease) in Cash 46,033 (378,614) (458,507)
ITEM 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The Directors of the Company, their ages and principal occupations,
are set forth in the table below as of December 31, 1995:
Director of the
Company
Principal Occupation for Last Five Years or Subsidiary
Name (Age) Position Held with Company and Subsidiary Since
H. Clarence Love Retired President, 1971
(70) Commonwealth Tobacco
Co., Inc.
Chairman of Board, Company and
Subsidiary
R. Michael Pharmacist 1978
Berryman Principal Smith's Pharmacy,
(55) Inc.
Pharmacy Associates, Inc.
Pharmacists Shared Services,
Inc.
Vice Chairman, Company and
Subsidiary
Ben L. Watson, President and CEO, 1976
III Company and Subsidiary
(52)
C. Edward Hall Pharmacist 1971
(55) Partner, Victoria Drug Company
Lewis W. Physician 1971
Bridgforth
(56)
William J. Building Contractor 1989
Callis Principal, Kenbridge
(54) Construction Co., Inc. and
Kenbridge Manufacturing Supply Co., Inc.
Earl C. Currin, Provost, 1986
Jr. Southside Virginia Community
(52) College
J. Ryland Personnel Manager, 1986
Hamlett Southside Electric Cooperative
(53)
Larry L. Retired Vice President, 1971
Overton Virginia Marble Manufacturers,
(66) Inc.
Secretary, Company and
Subsidiary
Wayne J. Principal of Parrish Trucking 1979
Parrish Co., Inc. and
(57) Kenbridge Oil Co., Inc.
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, Director, President and CEO 1971
III (A)
(52)
Michael O. Vice President for Branch 1975
Walker (B) Administration and
(45) Marketing and Recording
Secretary
Janice C. Vice President, Cashier, and 1976
Whitlow (C) Compliance
(49) Officer
(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. Whitlow also serves as Treasurer of the Company.
Mr. Watson and Mrs. Whitlow 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 EVP in 1975, and appointed to his current position
in March of 1990. Mrs. Whitlow 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
Annual Compensation Long-Term Compensation
Number of
Name and Incentive (1) (2) Securities
Principal Compensation Other Annual Underlying All Other
Position Year Salary($) Bonus($) Compensation($) Option Compensation
Ben L.
Watson, III 1995 75,000 52,896 5,700 4,000 None
President & 1994 72,444 46,507 5,700 None None
CEO 1993 68,832 46,182 4,875 None None
(1) All benefits which might be considered personal in
nature did not exceed he lesser of $50,000 or 10%
of the total salary and bonus.
(2) Other Annual Compensation includes directors fees
paid for services performed as a director of the
Bank.
B. Compensation to Directors
No fees are paid to directors for service on the
Board of the Company. During 1995, a fee of $3,000 per
director was paid, based on the performance of the
Company, plus $225 for each Board meeting attended and
$145 for each committee meeting attended during the
year.
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 15, 1996:
Shares
Beneficially
Owned
% of
Director/Officer Shares
Principal of Company/ Bene
Name and Age Occupation Subsidiary Owned
H. Clarence Retired 1971 40,000.000 (1)
Love President,
(70) Commonwealth 2.77%
Tobacco
Co., Inc.
R. Michael Pharmacist 1978 41,448.065 (2)
Berryman
(55) 2.87%
Ben L. President 1971
Watson, III Company and 6,975.304 (3)
(52) subsidiary
.48%
C. Edward Pharmacist 1971 14,248.326
Hall
(55) .99%
Lewis W. Physician 1971 16,460.712 (4)
Bridgforth
(56) 1.14%
William J. Building 1989 11,782.509 (5)
Callis Contractor
(54) .82%
Earl C. Provost 1986
Currin, Jr. 5,376.108
(51) .37%
J. Ryland Personnel 1986
Hamlett Director 5,065.603
(53) .35%
Larry L. Sales Manager 1971 20,325.734 (6)
Overton
(66) 1.41%
Wayne J. Principal of 1979
Parrish Parrish 9,538.821 (7)
(57) Trucking Co.,
Inc. and .66%
Kenbridge Oil
Co., Inc.
Michael O. Vice President 1975 19,709.796 (8)
Walker for
(45) Branch 1.36%
Administration
and Marketing
and Recording
Secretary
Benchmark
Community Bank
Janice C. Vice President, 1976
Whitlow Cashier, 2,464.227 (9)
(49) and Compliance
Officer .17%
Benchmark
Community Bank
Shares
Beneficially
Owned
% of
Shares
Bene
Owned
Number and Percentage of Company Common Stock held
beneficially as of March 15, 1995 by Directors 193,395.205
and Executive Officers of the Company (12 persons). 13.39%
(1) Includes 31,200 shares held jointly with Mr. Love's
wife, and 2,000 shares owned solely by her.
(2) Includes 21,709.098 shares held jointly with Mr.
Berryman's wife and 2,642.557 shares held as custodian
for one of his children.
(3) Includes 211.065 shares owned solely by Mr. Watson's
wife.
(4) Includes 9,158.617 shares owned solely by Dr.
Bridgforth's wife.
(5) Includes 6,716.906 shares held jointly with Mr. Callis'
wife.
(6) Includes 13,297.209 shares held jointly with Mr.
Overton's wife, and 1,329.720 shares owned solely by
her.
(7) Includes 2,538.201 shares held jointly with Mr.
Parrish's wife, and 256.813 shares owned solely by her.
(8) Includes 11,537.997 shares owned jointly with wife.
(9) Includes 741.727 shares owned jointly with husband and
41.205 shares solely by husband.
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% of the outstanding common stock of the Company
as of December 31, 1995. 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 262,743 18.33%
Box 20
Bowling Green Station
New York, NY 10081
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:
1995 1994 1993
Executive Officers and their families 181,208 159,886 129,318
Directors and their families (1) 397,887 314,451 384,058
Corporations in which directors and
officers had an interest 805,415 599,485 841,405
Total 1,384,510 1,073,822 1,354,781
(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 1995, Directors and Executive Officers had
been granted lines of credit in the amount of $862,500. As
of December 31, 1995, $605,224 of these lines were unexercised and available.
Stock Sales to Related Parties
Other than the dividend reinvestment plan in which nine
directors and all executive officers participated in the
purchasing of Company stock, 3,640 additional shares were
purchased during 1995 at an average price of $14.52 per
share.
PART IV
ITEM 14 (a) (1) and (2) EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON
FORM 8-K
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 shareholders for the year ended December
31, 1995 are included in Item 8:
Consolidated Statements of Financial Condition - December 31, 1995 and 1994
Consolidated Statements of Income - Years Ended December 31, 1995, 1994,
and 1993
Consolidated Statements of Shareholders' Equity - Years Ended December 31,
1995 and 1994
Consolidated Statements of Cash Flows - Years Ended December 31, 1995,
1994, and 1993
Notes to Consolidated Financial Statements - December 31, 1995
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.
ITEM 14 (a) (3) LISTING OF EXHIBITS INCLUDED IN 14 (c)
Page Number of
Incorporation by
Reference to
( 1) Articles of Page 57 - Item 14(c) -
Incorporation Exhibit 1 of Form 10K, December 31, 1989
( 2) (a) Amendments to Page 76 - Item 14(c) - Exhibit 2 of
Articles of Form 10K, December 31, 1989
Incorporation
(b) Amendments to Page 58 - Item 14(c) Exhibit 2(b) of
Articles of Form 10K, December 31, 1990
Incorporation
(c) Amendment to Page 68 - Item 14(c) - Exhibit 2(c) of
Articles of Form 10K, December 31, 1992
Incorporation
( 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 Page 60 - Item 14(c) -
Officers Exhibit 7(a)-7(b) of Form 10K, December 31, 1990
( 8) Directors Performance Page 72 - Item 14(c) -
Compensation Schedule Exhibit 8 of
Form 10K, December 31, 1992
( 9) Resolution to Amend the Page 71 - Item 14(c) - Exhibit 9(a) of
Articles of Incorporation to Form 10K, December 31, 1993
increase the number of
authorized shares from
2,000,000 to 4,000,000
concurrent with the directors
election to have a two for one
stock split
(10) Stock Option Plans Exhibits A and B of
1995 Proxy and Information Statement
for the April 20, 1995 Annual Meeting of
Stockholders
(11) Consent of Certified Public Accountants
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.
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, 1996.
Benchmark Bankshares, Inc.
(formerly Lunenburg Community Bankshares, Inc.)
(Registrant)
By Ben L. Watson, III By Janice C. Whitlow,
President Cashier and Treasurer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities on
March 15, 1996.
Wayne J. Parrish, Director 03-15-96
C. Edward Hall, Director 03-15-96
H. Clarence Love, Chairman 03-15-96
Larry L. Overton, Secretary 03-15-96
Earl C. Currin, Jr., Director 03-15-96
J. Ryland Hamlett, Director 03-15-96
Ben L. Watson, III, President 03-15-96
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.
ITEM 14(c) EXHIBIT 23
March 15, 1996
Consent of Independent Certified Public Accountants
Shareholders and Board of Directors
Benchmark Bankshares, Inc.
We hereby consent to the incorporation by reference in
the Registration Statement (Form S-8) pertaining to the
Benchmark Bankshares, Inc. Inventive Stock Option Plans of
our report dated January 23, 1995. With respect to the
financial statements incorporated therein by reference of
Benchmark Bankshares, Inc. and Subsidiary for the year ended
December 31, 1994.
Creedle, Jones, and Alga, P. C.
Certified Public Accountants
ITEM 14(d) SCHEDULE II - INDEBTEDNESS TO RELATED PARTIES
Year Ended December 31, 1995
Balance
at Balance
Beginning at End of
Name of Person of Period Additions Deductions Period
Executive Officers, Directors,
and Their Related Interest 1,073,822 684,931 374,243 1,384,510
W. J. Callis, Director
(2) (3) (4) 404,944 380,000 62,518 722,426
Year Ended December 31, 1994
Executive Officers, Directors,
and Their Related Interest (1) 1,354,781 185,271 466,230 1,073,822
Year Ended December 31, 1993
Executive Officers, Directors,
and Their Related Interest 1,234,368 436,402 315,989 1,354,781
W. J. Callis, Director
(2) (3) (4) 498,500 46,199 92,173 452,526
(1) No related parties had indebtedness that exceeded 5% of
the capital of the Company.
(2) Loans to related parties that exceed 5% of the capital
of the Company.
(3) Loans to business interest.
(4) Loans are included in the totals presented for the
executive officers, directors, and their interest.
Item 14(d) Schedule V - PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
Benchmark Bankshares, Inc.
Year Ended December 31, 1995
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
<S> <C> <C> <C>
Land 508,489 159,847 668,336
Buildings and improvement 1,240,541 4,051 1,244,592
Leasehold improvements 103,271 48,173 151,444
1,343,812 52,224 1,396,036
Equipment, furniture, and
fixtures 1,340,581 78,588 (253,767) 1,165,402
Construction in progress 154,948 154,948
Total 3,192,882 445,607 (253,767) 3,384,722
Year Ended December 31, 1994
Land 503,481 5,008 508,489
Buildings and improvement 1,231,889 8,652 1,240,541
Leasehold improvements 101,988 1,283 103,271
1,333,877 9,935 1,343,812
Equipment, furniture, and
fixtures 1,261,737 47,678 (278) 31,444 1,340,581
Construction in progress 41,379 (41,379)
Total 3,140,474 52,686 (278) 3,192,882
Year Ended December 31, 1993
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 363,187 140,294 503,481
Buildings and improvement 631,464 600,425 1,231,889
Leasehold improvements 101,988 101,988
733,452 600,425 1,333,877
Equipment, furniture, and
fixtures 1,010,414 251,323 1,261,737
Construction in progress 619,685 41,379 (619,685) 41,379
Total 2,726,738 1,033,421 (619,685) 3,140,474
ITEM 14(d) SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION, AND
AMORTIZATION OF PROPERTY, PLANT, AND EQUIPMENT
Benchmark Bankshares, Inc.
Year Ended December 31, 1995
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 382,606 48,056 430,662
Leasehold improvements 93,794 38,260 132,054
Total 476,400 86,316 562,716
Equipment, furniture, and
fixtures 1,005,302 70,230 (253,767) 821,765
Total 1,481,702 156,546 (253,767) 1,384,481
Year Ended December 31, 1994
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 335,311 47,295 382,606
Leasehold improvements 78,322 15,472 93,794
Total 413,633 62,767 476,400
Equipment, furniture, and
fixtures 885,955 119,625 (278) 1,005,302
Total 1,299,588 182,392 (278) 1,481,702
Year Ended December 31, 1993
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 295,449 39,862 335,311
Leasehold improvements 60,115 18,207 78,322
Total 355,564 58,069 413,633
Equipment, furniture, and
fixtures 762,917 123,038 885,955
Total 1,118,481 181,107 1,299,588
</TABLE>
Item 14(d)(1) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
PURSUANT TO SEC REGULATIONS
Benchmark Bankshares, Inc.
(Parent Corporation Only)
Balance Sheet, December 31, 1995 and 1994
A S S E T S
1995 1994
Cash 152,953 106,920
Investment in subsidiary 12,213,695 9,751,577
Land 215,816 215,816
Total Assets 12,582,464 10,074,313
Liabilities and Stockholders' Equity
Liabilities
Dividends payable 286,709 213,035
Total Liabilities 286,709 213,035
Stockholders' Equity
Common stock, par value $.42 per share,
authorized 2,000,000 shares; issued and
outstanding 705,254 shares 301,044 298,248
Surplus 3,007,305 2,820,466
Retained earnings 8,987,406 6,742,564
Total Stockholders' Equity 12,295,755 9,861,278
Total Liabilities and Stockholders' Equity 12,582,464 10,074,313
Item 14(d)(2) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL
STATEMENTS PURSUANT TO SEC REGULATIONS
Benchmark Bankshares, Inc.
(Parent Corporation Only)
Statement of Income
Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
Income
Rental income 7,200 7,200
Expenses
Professional fees 10,300 32,923 28,406
Supplies 8,935 10,644 6,693
Taxes - miscellaneous 4,532 543 518
Total Expenses 23,767 44,110 35,617
Income (Loss) Before Equity in
Undistributed Income of Subsidiary (16,567) (36,910) (35,617)
Equity in Undistributed Income of
Subsidiary 2,225,766 2,011,543 1,764,716
Net Income 2,209,199 1,974,633 1,729,099
Benchmark Bankshares, Inc.
(Parent Corporation Only)
Statement of Changes in Stockholders' Equity
Years Ended December 31, 1995, 1994, and 1993
Common Retained
Stock Surplus Earnings
Balance January 1, 1993 296,207 2,693,602 4,289,577
Net income 1,729,099
Cash dividend (317,364)
Balance December 31, 1993 296,207 2,693,602 5,701,312
Sale of stock 2,042 126,896
Redemption of stock (1) (32)
Net income 1,974,633
Cash dividend (397,029)
Unrealized security gains (losses) (536,352)
Balance December 31, 1994 298,248 2,820,466 6,742,564
Sale of stock 2,798 186,945
Redemption of stock (2) (106)
Net income 2,209,199
Cash dividend (500,709)
Unrealized security gains 204,815
Balance December 31, 1995 301,044 3,007,305 8,655,869
Items 14(d)(3) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
PURSUANT TO SEC REGULATIONS
Benchmark Bankshares, Inc.
(Parent Corporation Only)
Statement of Cash Flows
Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
Cash Flows from Operating Activities
Net income 2,209,199 1,974,633 1,729,099
Decrease in other liabilities (105,294) 105,294
Provided by Operating Activities 2,209,199 1,869,339 1,834,393
Cash Flows from Investing Activities
Undistributed earnings of subsidiary (1,925,766) (2,011,541) (1,764,716)
Capital contribution to subsidiary (140,294)
Purchase of premises (5,009)
Net Cash (Used) Provided by
Investing Activities (1,925,766) (2,016,550) (1,905,010)
Cash Flows from Financing Activities
Dividends paid (427,035) (360,308) (387,890)
Sale of common stock 189,743 128,938
Redemption of stock (108) (33)
Net Cash Used in Financing
Activities (237,400) (231,403) (387,890)
Net Increase (Decrease) in Cash 46,033 (378,614) (458,507)
Cash at Beginning of Year 106,920 485,534 944,041
Cash at End of Year $152,953 $106,920 $485,534
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, 1995
U. S. Government Agencies 420 2,329
States and Political Subdivisions 861
Total 1,281 2,329
For the Year Ended December 31, 1994
U. S. Government Agencies 22,534 1,917
States and Political Subdivisions 488
Total 23,022 1,917
ITEM 14(d)(5) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
PURSUANT TO SEC REGULATIONS
Capital Ratios for the Bank Subsidiary
Bank
Ratios
Total Capital to Risk Weighted Assets 13.86%
Tier I Capital to Risk Based Assets 12.92%
Tier I Capital to Total Book Assets 9.03%
