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, 1996.
[ ] 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 54-1380808
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 South Broad Street
Kenbridge, Virginia 23944
(Address of principal executive offices) (Zip Code)
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. $13,294,680
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.) $26,646,310
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, 1997, there were 1,460,071.804
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 1997 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, 1996, the Company and its subsidiary employed 80
full-time and 19 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. In May of 1996, the Bank opened its sixth full service
office 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, 1996, there was $10,693,023 in
retained earnings upon which dividends may be charged.
Investments
As required by the Virginia Security for Public Deposits Act, the Bank
has pledged $3,257,322 of its investment portfolio to safeguard state and local
municipalities' deposits as of December 31, 1996.
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,
1996, the Bank had $1,000,000 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 1996, the Bank's
vault cash met the statutory requirement so designated by the Act.
As of December 31, 1996, the Bank had entered into an independent
depository relationship that requires collateralization of deposits. Currently,
$240,000 of its investment portfolio is 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 Item 10 found on pages 61 and 62 of 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.
The bookkeeping and computer operations for the entire bank are located on the
second floor of the office, which has 3,200 square feet of floor space.
Additionally, there is an adjacent, but separate, three-lane drive-up facility
located just behind the office.
The Victoria branch office, also owned by the Bank, was constructed in
1982 and contains approximately 2,500 square feet of floor space. It houses four
teller windows 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 $1,375 per month. The
current monthly lease amount as of December 31, 1996 was $1,050. This amount can
be reviewed in June of 1997. 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 1996, 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, 1996 was $1,200. This amount can be renegotiated in
June of 1997. 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.
In 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.
On May 31, 1996, the Bank opened a full service branch in Crewe. The
office is a one story brick structure. The office contains 2,600 square feet of
floor space, which provides for an open lobby with three teller windows, two
loan offices, and a new accounts area. The office has a three lane drive-up unit
with an automatic teller machine.
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
1996
First Quarter $15.75
Second Quarter 16.75
Third Quarter 16.75
Fourth Quarter 17.25
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 1996, the Company declared a $.20 per share semi-annual dividend
in June and $.27 per share semi-annual dividend in December. The semi-annual
dividends declared in 1995 amounted to $.15 per share in June and $.20 per share
in December.
As of December 31, 1996, there were 852 stock certificates issued to
holders of record as compared to 793 stock certificates for the same period in
1995.
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.
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994 1993 1992
(In thousands of dollars, except per share amounts.)
<S> <C> <C> <C> <C> <C>
Interest income .................... $12,729 $11,182 $ 9,279 $ 8,551 $ 7,856
Interest expense ................... 6,162 5,401 3,983 3,644 3,750
------- ------- ------- ------- -------
Net interest income ................ 6,567 5,781 5,296 4,907 4,106
Provision for loan losses 295 188 163 252 367
Other operating revenue 565 602 532 533 316
Other operating expense 3,327 3,048 2,857 2,679 2,166
Income Before Income Taxes 3,510 3,147 2,808 2,509 1,889
Income taxes 1,064 938 833 780 601
------- ------- ------- ------- -------
Net Income 2,446 2,209 1,975 1,729 1,288
Per Share Data (1) (2)
Net income 1.69 1.54 1.39 1.23 0.92
Cash dividends declared 0.47 0.35 0.28 0.23 0.18
Balance Sheet Amounts
(at end of period)
Total assets 150,908 135,364 115,306 102,903 88,529
Total loans (3) 118,864 102,411 89,532 80,502 66,126
Total deposits 135,360 121,623 104,636 93,434 80,242
Total equity 14,362 12,501 9,861 8,691 7,279
Book value per share
(at end of period) (2) 9.91 8.72 6.95 6.16 5.16
Selected Financial Ratios
Net income to average equity 17.91 18.68 20.90 22.62 18.72
Net income to average assets 1.70 1.74 1.80 1.77 1.58
Loans to deposits (4) 88.70 85.06 86.43 87.03 83.25
Primary capital to total assets
(at end of period) (5) 9.25 9.62 9.57 8.06 8.98
Net interest yield (6) 4.57 4.82 5.16 5.36 5.42
Allowance for loan losses to loans
(at end of period) (7) 1.00 1.00 1.00 1.00 1.00
Nonperforming loans to loans (at end
of period) (8) 1.02 0.66 0.88 0.43 0.11
Net charge-offs to average loans (4) 0.11 0.05 0.09 0.13 0.22
</TABLE>
(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 1996 versus 1995
Results of Operations and Financial Conditions
Net income of $2,446,458 in 1996 increased $237,259 or 10.74% from net
income of $2,209,199 in 1995. Earnings per share of $1.69 in 1996
increased $.15 or 8.87% from earnings per share of $1.54 in 1995.
The year of 1996 ended just as 1995 with the Bank experiencing another
record year of earnings. The rise in income resulted from a strong loan demand
which ended in a loan to deposit ratio of 88.70%. During the year, loans
increased 16.07% to a level of $120,068,181 net of any unearned discount. The
new loans were funded in part by an increase in deposits which grew $13,737,179
or 11.29%. The remaining balance of the loans was funded by the liquidation of
investment securities and federal funds. At year-end, the Bank had lowered these
investments by $2,670,575 or 10.69%.
In 1996, the Bank achieved a return on average assets of 1.70% as
compared to a 1.74% return on average assets in 1995. While the rate of return
was strong once again, it was lower than the previous year as the Bank's
operating cost increased as a result of a new branch opening in Crewe, Virginia
and the growing workload on the operations department as the Bank increased
staff and equipment to efficiently handle the growth.
The year ended 1996 reflected a decrease in return on equity as net
income to average equity amounted to 17.90% as compared to the 1995 level of
18.68%. This decrease resulted from equity increasing through the sale of stock
from the dividend reinvestment plan at a greater rate than the income grew.
Net Interest Income
Net interest income of $6,572,412 in 1996 reflected an increase of
$786,935 or 13.61% over net interest income of $5,780,636 in 1995.
Total interest income of $12,729,391 in 1996 showed an increase of
$1,547,658 or 12.16% over total interest income of $11,181,733 in 1995. Total
interest expense of $6,161,820 in 1996 reflected an increase of $760,723 or
14.08% over total interest expense of $5,401,097 in 1995.
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
10.04%.
In order to fund the strong loan demand in 1996, the Bank competitively
priced its deposit offerings. Even though the deposits were competitively
priced, average rates paid increased only slightly over the 1995 recorded level.
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) 28.13%
Consumer (Installment) 18.32
Real Estate (Construction) 1.72
Real Estate (Mortgage) 51.83
These types of loans have traditionally provided the Bank with a steady
source of quality interest-earning assets. The maturities of these loans range
from commercial loans and real estate construction loans maturing in less than
one year to installment credits that may exceed three years. The mortgage loans,
which represent 51.83% of the portfolio, are typically fifteen year payback
loans with three year balloon options. By setting maturities of loans for a
short-term, the Bank can effectively manage its asset/liability match, as most
deposit accounts mature in one year or less.
Allowance for Loan Losses
The 1996 year ending level of the allowance for loan losses amounted to
$1,203,866. This amount represented an increase of $166,522 or 16.05% over the
1995 level of $1,037,344. During 1996, the gross loan portfolio increased 16.04%
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 1996,
the Bank's allowance for loan losses represented 1.00% of gross loans.
During 1996, the Bank's loan loss ratio continued to be low as the
ratio of net loan losses to average loans was 0.11% resulting from losses
exceeding recoveries by $128,637. At year-end, management feels the allowance
for loan losses is adequate. In 1997, further provisions to supplement the
allowance balance will be made periodically based on management's judgment as to
the performance of the loan portfolio.
Noninterest Income and Noninterest Expense
Total noninterest income, i.e., fees charged for customer services, for
1996 was $574,400. This represents a decrease of $24,703 or 4.12% over the 1995
level of $599,103. The decrease was directly related to a decline in fees
generated from the Bank's secondary mortgage program.
Total noninterest expense in 1996 of $3,327,458 reflects an increase of
$280,057 or 9.19% over the 1995 level of $3,047,401. The increase resulted from
normal increases in operations and salaries and benefits, as the Bank added a
new full service branch.
Premises and Equipment
The Bank's premises and equipment increased $1,269,643 net of the prior
year's construction in progress during the year. At year-end, the Bank had
completed construction of a new full service branch in the Town of Crewe and
finished the remodeling of the operations center at the main office in
Kenbridge.
Increase in Capitalized Premises and Equipment
(in thousands of dollars)
Equipment,
Furniture, and Leasehold
Office/Area Land Building Fixtures Improvements
Kenbridge ....... $ -- $ 620,345 $ 91,361 $
Victoria -- -- 8,593 --
Farmville -- -- 9,532 --
South Hill -- -- 20,868 (8,754)
Farmville #2 -- -- 16,308 --
Crewe -- 474,155 192,183 --
$ -- $ 1,094,500 $ 338,845 $ (8,754)
Federal Funds Sold and Purchased
The 1996 year-end level of federal funds sold was $3,858,000. This
level reflects a decrease of $2,004,000 or 34.19% over the year ending 1995
level of $5,862,000. Federal funds sold are utilized as a short-term investment
vehicle, as well as to provide liquidity. As of year-end 1996, federal funds
sold as a percent of total assets decreased by 2.56% as compared to 4.33% in
1995.
Securities
Pursuant to guidelines established in FAS 115, the Bank has elected to
classify a majority of its current portfolio as securities available-for-sale.
This category refers to investments that are not actively traded, but are not
anticipated by management to be held to maturity. Typically, these types of
investments will be utilized by management to meet short-term asset/liability
management needs.
For purposes of financial statement reporting, securities classified as
available-for-sale are to be reported at fair market value as of the date of the
statements; however, unrealized holding gains and losses are to be excluded from
earnings and reported as a net amount in a separate component of shareholders'
equity until realized. The impact of this unrealized gain on securities
positively impacted shareholders' equity in the amount of $40,977, 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 $9.91, while the book value per
share would have been $9.88 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
Bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to facilitate the transaction of business
between these parties where the exact financial amount of the transaction is
unknown, but a limit can be projected. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers.
There is a fee charged for this service.
As of December 31, 1996, the Bank had $895,211 in outstanding letters
of credit. These instruments are based on the financial strength of the customer
and the existing relationship between the Bank and the customer.
At current year-end, the Bank also had unused commitments resulting
from credit line deeds of trust, home equity lines, and an unfunded business
loan. The total amount of these commitments amounted to $14,420,566.
Concentrations
The Bank has no concentrations of credit involving an individual
borrower and his related interest. The Bank does have a concentration in loan
type in that a majority of the loan portfolio is secured by noncommercial real
estate. Due to the subjectivity of the real estate market to the condition of
the economy and sensitivity to interest rate fluctuation, there is an inherent
risk; however, the Bank has, as a matter of policy, a loan-to-collateral
percentage that allows for a level of decline in collateral value without
affecting the quality of the loan. The Bank 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 primary correspondent bank. The
deposits amounted to $1,098,585 as of December 31, 1996. Of this amount,
$998,585 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 deposit. Large certificates of deposit of $100,000
or more increased by $1,559,244 or 13.45% in 1996. These deposits currently
represent 10.56% 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 1997 is
$7,009,166, while $7,284,481 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 $22,452,000 when
immediately maturing interest bearing liabilities are deducted from immediately
maturing interest earning assets. The cumulative gap decreases to a negative gap
of $15,872,000 when comparing assets and liabilities maturing up to one year;
however, the cumulative gap shifts to a positive position of $4,555,000 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.
The GAP model does not consider the impact of core deposit loyalty.
Management feels that these core deposits along with the highly marketable
securities available will provide sufficient reserves to fund any short-term
loss of deposits.
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 1996, 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 $1,766,513 in capital through retained
earnings. This activity, plus the net sale of $258,428 common stock through the
dividend reinvestment plan, raised year-end capital exclusive of unrealized
security gains net of tax effect to a level of $14,320,696 or a 16.47% increase
over the 1995 year ending level of $12,295,755.
The primary capital to total assets ratio stands at 9.49% as of
December 31, 1996. 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 Bank is
required to maintain certain minimum levels of capital in its Bank subsidiary.
At December 31, 1996, the Bank maintained the following capital ratios:
Total Capital to Risk Weighted Assets 14.32%
Tier I Capital to Risk Weighted Assets 13.22%
Tier I Capital to Total Book Assets 9.65%
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 1996 saw relatively stable rates that
resulted in small increases in deposit rates. However, due to a strong loan
demand, loan rates increased to a level that produced a 4.58% interest spread.
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 1996, the loan-to-deposit ratio amounted to 88.70%. This
represents an increase of 4.28% over the year-end level of 1995, as the Bank
attracted more loans at a faster growth rate than deposits.
Looking Forward
The Bank has experienced tremendous success in its operation since 1989
when it moved into two new market areas and raised additional capital. The
capital provided a solid foundation upon which to grow by affording the Bank a
degree of aggressiveness in operation during a favorable economic climate for
banks and banking services. This aggressiveness took the form of expansion and
competitive pricing of services. Today, as the Bank 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 Bank 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.
The Bank has experienced dramatic growth in the 1990's. The new trade
area markets have proven to be receptive to the community banking services
offered by the Bank. The result has not only been significant growth, but also
increasing profits for the shareholders. Management plans to continually support
the trade area with quality services while pursuing new services and expansion
opportunities.
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 Bank 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 Bank 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.
Noninterest Income and Noninterest Expense
Total noninterest 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 noninterest 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 Bank's premises and equipment increased $445,607 before
depreciation during the year. At year-end, the Bank 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 Bank 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 Bank anticipates opening the new facility in the
second quarter of 1996.
Increase in Capitalized Premises and Equipment
(in thousands of dollars)
Equipment,
Furniture, Leasehold
Office/Area Land Building and 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 Bank has elected to
classify a majority of its current portfolio as securities available-for-sale.
This category refers to investments that are not actively traded, but are not
anticipated by management to be held to maturity. Typically, these types of
investments will be utilized by management to meet short-term asset/liability
management needs.
For purposes of financial statement reporting, securities classified as
available-for-sale are to be reported at fair market value as of the date of the
statements; however, unrealized holding gains and losses are to be excluded from
earnings and reported as a net amount in a separate component of 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
Bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to facilitate the transaction of business
between these parties where the exact financial amount of the transaction is
unknown, but a limit can be projected. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers.
There is a fee charged for this service.
As of December 31, 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
Bank and the customer.
At current year-end, the Bank also had unused commitments resulting
from credit line deeds of trust, home equity lines, and 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 Bank does have a concentration in loan
type in that a majority of the loan portfolio is secured by noncommercial real
estate. Due to the subjectivity of the real estate market to the condition of
the economy and sensitivity to interest rate fluctuation, there is an inherent
risk; however, the Bank has, as a matter of policy, a loan-to-collateral
percentage that allows for a level of decline in collateral value without
affecting the quality of the loan. The Bank 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 primary 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 deposit. 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 Bank 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.
<TABLE>
TABLE A. COMPARATIVE SUMMARY OF EARNINGS
<CAPTION>
Years Ending December 31,
1996 1995 1994
(In thousands of dollars except per share data.)
<S> <C> <C> <C>
Interest Income
Loans 11,319 9,697 8,283
U. S. Government Securities 539 416 350
States and political subdivision securities 591 586 507
Other securities 6 6 7
Federal funds sold 274 477 132
Total Interest Income 12,729 11,182 9,279
Interest Expense
Deposits
Interest bearing checking 629 559 567
Savings 269 254 274
Time 5,264 4,586 3,140
Federal funds purchased and other borrowed money - 2 2
Total Interest Expense 6,162 5,401 3,983
Net Interest Income 6,567 5,781 5,296
Provision for Loan Losses 295 188 163
Net Interest Income After Provision for Loan
Losses 6,272 5,593 5,133
Noninterest Income
Service charges on deposit accounts 352 342 310
Other 222 257 201
Net investment securities gains (losses) (9) (1) 21
Gain on sale of other real estate - 4 -
Total Noninterest Income 565 602 532
Noninterest Expense
Salaries 1,777 1,533 1,352
Employee benefits 419 359 300
Occupancy expense 169 146 154
Other operating expense 962 1,010 1,051
Total Noninterest Expense 3,327 3,048 2,857
Net Income Before Taxes 3,510 3,147 2,808
Income Tax 1,064 938 833
Net Income 2,446 2,209 1,975
===== ===== =====
Per Share - Based on Weighted Average
Net income 1.69 1.54 1.39*
Average shares outstanding 1,444,934.12 1,428,967.91 1,417,252.02*
*Restated to reflect a two for one stock split effective January 17, 1994.
</TABLE>
<TABLE>
TABLE B. AVERAGE BALANCE SHEETS
(In thousands of dollars.)
Years Ended December 31,
<CAPTION>
1996 1995 1994
Amount % Amount % Amount %
Assets
<S> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ 4,333 3.01 $ 3,614 2.85 $ 3,085 2.81
Investment securities 18,558 12.91 16,370 12.90 14,497 13.20
Federal funds sold 4,793 3.33 8,206 6.47 3,216 2.93
Loans 111,604 77.63 95,314 75.12 85,859 78.14
Bank premises and equipment 2,697 1.88 1,761 1.36 1,770 1.60
Accrued interest 1,305 0.92 1,102 0.88 986 0.90
Other assets 465 0.32 526 0.42 465 0.42
$ 143,755 100.00 $ 126,893 100.00 $ 109,878 100.00
Liabilities and Stockholders' Equity
Deposits
Demand $ 25,178 17.51 $ 20,902 16.47 $ 18,446 16.79
Savings and MMA 14,431 10.04 14,082 11.10 17,761 16.17
Time 89,590 62.32 79,267 62.47 63,567 57.86
Accrued interest 612 0.43 526 0.41 372 0.34
Other liabilities 282 0.20 289 0.23 282 0.26
Stockholders' equity 13,662 9.50 11,827 9.32 9,450 8.58
$ 143,755 100.00 $ 126,893 100.00 $ 109,878 100.00
</TABLE>
TABLE C. INTEREST RATES EARNED AND PAID (In thousands of dollars.)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Average Yield/ Average Yield/ Average Yield/
Description Balance Interest Rate Balance Interest Rate Balance Interest Rate
Interest Earning Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities $ 18,558 $ 1,136 6.12% $ 16,370 $ 1,008 6.16% $ 14,497 $ 863 5.96%
Federal funds sold 4,793 274 5.72% 8,206 477 5.81% 3,216 133 4.14%
Loans (1) (2) 112,730 11,319 10.04% 102,089 9,697 9.50% 86,727 8,283 9.55%
$ 136,081 12,729 9.35% $ 126,665 $ 11,182 8.83% $104,440 $ 9,279 8.89%
Interest Bearing Liabilities
Deposits $ 129,199 6,162 4.77% $ 114,251 $ 5,399 4.73% $ 90,227 $ 3,981 4.42%
Federal funds purchased and
other borrowed money - - - 47 2 4.25% 44 2 4.55%
$ 129,199 6,162 4.77% $ 114,298 $ 5,401 4.73% $ 90,271 $ 3,983 4.42%
Net interest income/yield
(3) (4) $ 6,567 $ 5,781 $ 5,296
Interest spread (5) 4.58% 4.10% 4.47%
</TABLE>
(1) Loans net of unearned income.
(2) These figures do not reflect interest and fees to be collected on
nonaccrual loans. To date, the impact of nonaccrual loans on the
interest income earned has been minimal. Refer to Table G.
(3) Net interest income is the difference between income from earning
assets and interest expense.
(4) Net interest yield is net interest income divided by total average
earning assets.
(5) Interest spread is the difference between the average interest rate
received on earning assets and the average interest rate paid
for interest-earning liabilities.
TABLE D. ANALYSIS OF CHANGE IN NET INTEREST INCOME (In thousands of dollars.)
<TABLE>
<CAPTION>
Year 1996 over 1995 Year 1995 over 1994
Increase (Decrease) Total Increase (Decrease) Total
Due to Change In: Increase Due to Change In: Increase
Volume Rate (Decrease) Volume Rate (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Investment securities $ 134 $ (6) $ 128 $ 112 $ 33 $145
Federal funds sold (195) (8) (203) 207 137 344
Loans 1,068 554 1,622 1,467 (53) 1,414
Total 1,007 540 1,547 1,786 117 1,903
Interest Expense
Deposit accounts 713 50 763 1,162 256 1,418
Federal funds purchased
and other borrowed money (2) - (2) 1 (1) -
Total 711 50 761 1,163 255 1,418
Increase (Decrease) in
Net Interest Income $ 296 $ 490 $ 786 $ 623 $ (138) $ 485
</TABLE>
<TABLE>
<CAPTION>
Year 1994 over 1993
Increase (Decrease) Total
Due to Change In: Increase
Volume Rate (Decrease)
<S> <C> <C> <C>
Increase (Decrease) in
Investment securities $ 53 $ (34) $ 19
Federal funds sold - 20 20
Loans 1,141 (452) 689
Total 1,194 (466) 728
Interest Expense
Deposit accounts 390 (53) 337
Federal funds purchased
and other borrowed money 2 - 2
Total 392 (53) 339
Increase (Decrease) in
Net Interest Income $ 802 $ (413) $ 389
</TABLE>
TABLE E. INVESTMENT SECURITIES
<TABLE>
The carrying amount and approximate market values of investment
securities are summarized below:
<CAPTION>
Book Unrealized Unrealized Market
Value Gains Losses Value
<S> <C> <C> <C> <C>
Available for Sale
December 31, 1996
U. S. Government agencies $ 5,456,877 $15,154 $69,849 $ 5,402,182
State and political subdivisions 9,830,196 134,307 17,526 9,946,977
Other securities 137,000 - - 137,000
$ 15,424,073 $ 149,461 $ 87,375 $ 15,486,159
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
Held to Maturity
December 31, 1996
U. S. Government agencies $ 2,237,188 $ - $ 28,037 $ 2,209,151
State and political subdivisions 730,000 515 14,230 716,285
$ 2,967,188 $ 515 $ 42,267 $ 2,925,436
December 31, 1995
U. S. Government agencies $ 1,737,628 $58,172 $ - $ 1,795,800
</TABLE>
The maturities of investment securities at December 31, 1996 were as
follows:
Book Value Market Value
Available for Sale
Due in one year or less $ 851,669 $ 844,426
Due from one to five years 3,360,690 3,382,529
Due from five to ten years 9,752,955 9,794,831
After ten years 1,321,759 1,327,373
Other securities 137,000 137,000
Held to Maturity
Due from one to five years 740,000 725,470
Due from five to ten years 2,227,188 2,199,966
Securities having a book value of $4,497,322 and $4,706,964 at December
31, 1996 and 1995, 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, 1996 is presented in the following table (in thousands
of dollars):
<TABLE>
<CAPTION>
Maturity
After One but After Five but
Within One Year Within Five Within Ten After Ten
Amount Yield (2) Amount Yield (2) Amount Yield (2) Amount Yield (2)
------ --------- ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Government
Securities $ 321,152 5.29 $1,157,188 6.42 $ 5,920,856 7.07 $ 294,869 7.28
States and Political
Subdivisions 530,517 7.53 2,943,502 7.71 6,059,287 7.68 1,026,890 7.80
Total $ 851,669 $4,100,690 $11,980,143 $1,321,759
</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 1996, 1995, and 1994 (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995 1994
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Commercial (Time and
Demand) $ 33,850 28.13 $ 31,767 30.63 $ 25,046 27.58
Installment 22,054 18.32 20,416 19.68 18,959 20.88
Real Estate -
Construction 2,063 1.72 2,968 2.86 1,759 1.94
Real Estate - Mortgage 62,390 51.83 48,573 46.83 45,034 49.6
</TABLE>
The following table shows maturities of the major loan categories and
their sensitivity to changes in investment rates at December 31, 1996 (in
thousands of dollars) for fixed interest rate and floating interest rate loans:
<TABLE>
<CAPTION>
Due After
One Year
One Year but Within Due After
or Less Five Years Five Years
Fixed Rate Fixed Rate Fixed Rate Total
<S> <C> <C> <C> <C>
Commercial $ 33,388 $ 300 $ - $ 33,688
Installment 3,747 18,114 25 21,886
Real Estate - Construction 2,063 - - 2,063
Real Estate - Mortgage 12,080 45,898 2,378 60,356
Total $ 51,278 $ 64,312 $ 2,403 $ 117,993
</TABLE>
<TABLE>
<CAPTION>
Over One
Year but
One Year Within Five Over
or Less Years Five Years
Floating Rate Floating Rate Floating Rate Total
<S> <C> <C> <C> <C>
Commercial - 162 - 162
Installment 2 141 25 168
Real Estate 862 1,053 119 2,034
Total 864 1,356 144 2,364
</TABLE>
TABLE G. NONPERFORMING LOANS
The loan portfolio of the Bank is reviewed by senior officers to
evaluate loan performance. The frequency of the review is based on predefined
guidelines approved by the Board of Directors that includes individual review of
certain loans by the Loan Committee and the Board if certain past due or
nonperformance criteria are met. The areas of criteria include in part net
worth, credit history, and customer relationship. The evaluations emphasize
different factors depending upon the type of loan involved. Commercial and real
estate loans are reviewed on the basis of estimated net realizable value through
an evaluation of collateral and the financial strength of the borrower.
Installment loans are evaluated largely on the basis of delinquency data because
of the large number of such loans and relatively small size of each individual
loan.
Management's review of commercial and other loans may result in a
determination that a loan should be placed on a nonaccrual basis. Nonaccrual
loans consist of loans which are both contractually past due 90 days or more and
are not considered fully secured or in the process of liquidation. It is the
policy of the Bank to discontinue the accrual of interest of any loan on which
full collection of principal and/or interest is doubtful. Subsequent collection
of interest is recognized as income on a cash basis upon receipt. Placing a loan
on nonaccrual status for the purpose of income recognition is not in itself a
reliable indication of potential loss of principal. Other factors, such as the
value of the collateral securing the loan and the financial condition of the
borrower, serve as more reliable indications of potential loss of principal.
Nonperforming loans consist of loans accounted for on a nonaccrual
basis and loans which are contractually past due 90 days or more as to interest
and/or principal payments regardless of the amount of collateral held. The
following table presents information concerning nonperforming loans for the
periods indicated:
December 31,
1996 1995 1994
(In thousands of dollars.)
Commercial 715 - -
Contractually past due 90 days or more 7 - -
Installment
Nonaccrual 118 49 -
Contractually past due 90 days or more 119 130 33
Real Estate
Nonaccrual 312 48 160
Contractually past due 90 days or more 216 451 569
1,487 678 762
Nonperforming loans to gross loans at year-end 1.24% 0.66% 0.88%
Effect of nonaccrual loans on interest revenue 30 - -
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, 1996, 1995, and 1994:
1996 1995 1994
(In thousands of dollars.)
Allowance for loan losses at beginning of year $ 1,037 $ 905 $ 817
Loan Charge-Offs
Commercial 11 - 20
Installment 177 126 78
Real Estate 29 3 57
Total Charge-Offs 217 129 155
Recoveries of Loans Previously Charged Off
Installment 89 73 70
Real Estate - - 10
Total Recoveries 89 73 80
Net loans charged off (128) (56) (75)
Provision for loan losses 295 188 163
Allowance for loan losses at end of year $ 1,204 $ 1,037 $ 905
Average total loans (net of unearned income) $112,730 $ 96,274 $ 86,727
Total loans (net of unearned income) at
year-end 120,068 103,448 90,437
Selected Loan Loss Ratios
Net charge-offs to average loans 0.11% 0.06% 0.09%
Provision for loan losses to average loans 0.26% 0.20% 0.19%
Provision for loan losses to net charge-offs 230.47% 335.68% 217.33%
Allowance for loan losses to year-end loans 1.00% 1.00% 1.00%
Loan loss coverage (1) 29.73X 81.25X 39.60X
(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>
1996 1995 1994
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 260 21.59 28.13 52 5.15 30.63 271 29.95 27.59
Installment 875 72.67 18.32 829 79.94 19.68 453 50.06 20.88
Real Estate-construction - - 1.72 - - 2.86 - - 1.94
Real Estate-mortgage 69 5.73 51.83 156 14.91 46.83 181 19.99 49.59
Total 1,204 99.99 100.00 1,037 100.00 100.00 905 100.00 100.00
</TABLE>
TABLE J. DEPOSITS
The breakdown on average deposits for the years indicated is as
follows: (In thousands of dollars.)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Average Average Average
Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing
demand deposits $ 12,257 - $ 10,824 - $ 9,547 -
Interest bearing
demand deposits 12,915 3.18 10,078 3.39 8,952
Money market accounts 6,174 3.50 6,208 3.50 9,295
Savings 8,263 3.25 7,874 3.25 8,466
Time 89,590 5.90 79,267 5.83 63,514
$129,199 $114,251 $ 99,774
</TABLE>
Remaining maturities of time certificates of deposits of $100,000 or
more at December 31, 1996 are shown below (dollars in thousands):
December 31, 1996
Maturity (in thousands)
Three months or less $ 3,167
Over three months through 12 months 3,842
Over one year through 5 years 7,285
Total $14,294
TABLE K. RETURN ON EQUITY AND ASSETS
The following table highlights certain ratios for the three years ended
December 31, 1996, 1995, and 1994 (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income before securities gains and losses to
Average total assets 1.70% 1.74% 2.54%
Average stockholders' equity 17.97% 18.64% 29.49%
Net income to
Average total assets 1.69% 1.74% 1.80%
Average stockholders' equity 17.90% 18.68% 20.90%
Dividend pay out ratio (dividends declared per share
divided by net income per share) 27.81% 22.73% 20.11%
Average stockholders' equity to average total assets ratio 9.50% 9.32% 8.60%
</TABLE>
TABLE L.
GAP Analysis
December 31, 1996
The following table reflects interest-rate sensitive assets and
liabilities only. The following table sets forth at December 31, 1996 of
interest-earning assets and interest-bearing liabilities scheduled to mature or
reprice within a specific period. (In thousands of dollars.)
<TABLE>
Scheduled Maturity or Repricing
<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 2,364 21,748 18,551 10,979 64,312 2,403 120,357
Investment
securities (1)(2) - 103 281 468 4,101 13,301 18,254
Federal funds sold 4,793 - - - - - 4,793
Total Interest
Earning Assets 7,157 21,851 18,832 11,447 68,413 15,704 143,404
Interest
Bearing Liabilities
Interest bearing
demand deposits 14,725 14,725
Money market
deposits 6,777 - - - - - 6,777
Savings 8,107 - - - - - 8,107
Time deposits - 16,631 11,866 17,053 47,986 - 93,536
Total Interest
Bearing
Deposits 29,609 16,631 11,866 17,053 47,986 123,145
Difference Between
Interest Earning
Assets and Interest
Bearing Liabilities
(GAP) (22,452) 5,220 6,966 (5,606) 20,427 15,704 20,259
Cumulative(GAP) (22,452) (17,232) (10,266) (15,872) 4,555 20,259 -
Cumulative
interest earning
assets to int.
bearing
liabilities 24.17% 62.73% 82.33% 78.88% 103.70% 116.45% 116.45%
</TABLE>
(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.
ITEM 8 FINANCIAL STATEMENTS
Management's Report on Financial Statements
Independent Auditor's Report
Financial Statements
Consolidated Statements of Financial Condition - December 31, 1996 and 1995
Consolidated Statements of Income - Years Ended December 31, 1996, 1995,
and 1994
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 1996 and 1995
Consolidated Statements of Cash Flows - Years Ended December 31, 1996,
1995, and 1994
Notes to Consolidated Financial Statements - December 31, 1996
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
Table of Contents
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 8-20
January 22, 1997
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, 1996 and 1995, 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Benchmark Bankshares, Inc. and Subsidiary, as of December 31, 1996 and 1995, 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
<TABLE>
Benchmark Bankshares, Inc.
Consolidated Statements of Financial Condition
December 31, 1996 and 1995
A S S E T S
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash and due from banks $ 4,624,901 $ 4,397,058
Federal funds sold 3,858,000 5,862,000
Investment securities 18,453,348 19,119,923
Loans 120,356,859 103,723,930
Less
Unearned interest income (288,678) (275,998)
Allowance for loan losses (1,203,866) (1,037,344)
Net Loans 118,864,315 102,410,588
Premises and equipment - net 3,121,734 2,000,241
Accrued interest receivable 1,254,441 1,267,967
Deferred income taxes 267,642 151,931
Refundable income taxes 33,681 -
Other assets 429,760 153,807
Total Assets $150,907,822 $ 135,363,515
Exhibit A
</TABLE>
<TABLE>
Page 2
Benchmark Bankshares, Inc.
Consolidated Statements of Financial Condition
December 31, 1996 and 1995
Liabilities and Stockholders' Equity
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deposits
Demand (noninterest bearing) $ 12,215,657 $ 12,392,332
NOW accounts 14,724,556 11,589,895
Money market accounts 6,776,695 5,542,293
Savings 8,107,214 7,679,313
Time, $100,000 and over 14,293,648 12,734,404
Other time 79,242,048 71,684,402
Total Deposits 135,359,818 121,622,639
Other borrowed money - 155,000
Accrued interest payable 691,945 650,822
Accrued income tax payable - 97,302
Dividends payable 391,510 286,709
Other liabilities 102,876 50,473
Total Liabilities 136,546,149 122,862,945
Stockholders' Equity
Common stock, par value $.21 per share,
authorized 4,000,000 shares; issued
and outstanding 12-31-96 1,449,895.852, issued and
outstanding 12-31-95 1,433,544.679 shares 304,478 301,044
Capital surplus 3,262,299 3,007,305
Retained earnings 10,753,919 8,987,406
Unrealized security gains net of tax effect 40,977 204,815
Total Stockholders' Equity 14,361,673 12,500,570
Total Liabilities and Stockholders' Equity $ 150,907,822 $135,363,515
</TABLE>
See independent auditor's report and accompanying notes to financial statements.
<TABLE>
Benchmark Bankshares, Inc.
Consolidated Statements of Income
Years Ended December 31, 1996, 1995, and 1994
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest Income
Interest and fees on loans $ 11,319,244 $ 9,696,669 $ 8,282,706
Interest on investment securities
U. S. Government agencies 539,123 415,756 349,574
State and political subdivisions 591,344 586,959 507,173
Other securities 5,745 5,752 6,698
Interest on federal funds sold 273,935 476,597 132,621
Total Interest Income 12,729,391 11,181,733 9,278,772
Interest Expense
Interest bearing checking deposits 629,243 559,325 566,748
Savings deposits 268,933 254,153 274,565
Time deposits 5,263,644 4,585,670 3,139,776
Federal funds purchased and other borrowed money - 1,949 2,021
Total Interest Expense 6,161,820 5,401,097 3,983,110
Net Interest Income 6,567,571 5,780,636 5,295,662
Provision for Loan Losses 295,159 188,300 162,805
Net Interest Income After Provision
for Loan Losses 6,272,412 5,592,336 5,132,857
Other Income
Service charges on deposit accounts 352,356 341,723 309,640
Other 222,044 257,380 200,657
Net investment securities gains (losses) (9,111) (1,048) 21,105
Gain on sale of other real estate - 4,488 -
Total Other Income 565,289 602,543 531,402
Other Expenses
Salaries 1,776,867 1,532,820 1,351,798
Employee benefits 418,879 359,430 299,681
Occupancy expense 168,981 145,461 154,273
Other 962,731 1,009,690 1,050,939
Total Other Expenses 3,327,458 3,047,401 2,856,691
Income Before Income Taxes 3,510,243 3,147,478 2,807,568
Provision for Income Taxes 1,063,785 938,279 832,935
Net Income $ 2,446,458 $ 2,209,199 $ 1,974,633
Earnings Per Share of Common Stock 1.69 1.54 1.39
Average Shares Outstanding 1,444,934.12 1,428,967.91 1,417,252
</TABLE>
(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.
<TABLE>
Benchmark Bankshares, Inc.
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1996 and 1995
<CAPTION>
Unrealized
Common Retained SEC Gain
Shares Stock Surplus Earnings (Loss) * Total
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1995 1,420,230.234 $298,248 $2,820,466 $ 7,278,916 $ (536,352) $ 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)
Unrealized Security Gains
Net of Tax 741,167 741,167
Balance December 31, 1995 1,433,544.679 301,044 3,007,305 8,987,406 204,815 12,500,570
Net Income 2,446,458 2,446,458
Sale of Stock 16,361.406 3,436 255,158 258,594
Redemption of Stock (10.233) (2) (164) (166)
Semi-Annual Cash
Dividend Declared
June 20, $.20 per share (288,435)
December 19, $.27
per share (391,510) (679,945)
Unrealized Security Gains
(Losses) (163,838) (163,838)
Balance December 31, 1996 1,449,895.852 $304,478 $3,262,299 $10,753,919 $ 40,977 $14,361,673
</TABLE>
* Adjusted to reflect 2 for 1 stock split effective January 17, 1994.
See independent auditor's report and accompanying notes to financial statements.
<TABLE>
Benchmark Bankshares, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995, and 1994
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities
Interest received $ 12,742,917 $ 10,885,855 $ 8,951,644
Fees and commissions received 574,400 532,525 510,410
Interest paid (6,120,697) (5,227,558) (3,855,540)
Cash paid to suppliers and employees (3,402,857) (3,053,968) (2,958,106)
Income taxes paid (1,226,078) (901,935) (864,985)
Net Cash Provided by
Operating Activities 2,567,685 2,234,919 1,783,423
Cash Flows from Investing Activities
Proceeds from sale of investment
securities 1,870,287 2,187,700 2,272,592
Proceeds from maturity of investments 780,300 752,039 428,180
Purchase of investment securities (2,370,000) (7,089,565) (3,536,543)
Loans originated (70,341,575) (69,043,215) (64,555,986)
Principal collected on loans 53,721,326 56,032,148 55,437,436
Purchase premises and equipment (1,269,643) (445,607) (52,686)
Proceeds from sale of loans - 2,246 -
Net Cash Used in Investing
Activities (17,609,305) (17,604,254) (10,007,007)
Cash Flows from Financing Activities
Net increase in demand deposits and
savings accounts 4,620,289 3,757,367 (2,216,981)
Payments for maturing certificates of
deposit (25,409,086) (4,672,666) (18,157,144)
Proceeds from sales of certificates of
deposit 34,525,976 17,901,445 31,576,652
Dividends paid (575,144) (427,035) (360,308)
Sale of common stock 258,428 189,743 128,905
Proceeds (payments) from other
borrowed money (155,000) 155,000 -
Proceeds from sale of other assets - 43,056 -
Net Cash Provided by
Financing Activities 13,265,463 16,946,910 10,971,124
Net Increase (Decrease) in Cash and
Cash Equivalents (1,776,157) 1,577,575 2,747,540
Cash and Cash Equivalents at
Beginning of Year 10,259,058 8,681,483 5,933,943
Cash and Cash Equivalents at
End of Year $ 8,482,901 $ 10,259,058 $ 8,681,483
Reconciliation of Net Income to Net
Cash Provided by Operating Activities
Net income $ 2,446,458 $ 2,209,199 $ 1,974,633
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation 148,150 156,546 182,392
Provision for probable credit losses 295,159 188,300 162,805
Increase (Decrease) in taxes
payable (97,302) 36,344 (32,050)
(Increase) in refundable taxes (33,681) - -
(Increase) Decrease in interest
receivable 13,526 (295,878) (194,295)
Increase in interest payable 41,123 173,539 127,570
(Increase) in other assets (275,953) (66,578) (20,992)
(Increase) in deferred taxes
exclusive of unrealized security
gains (losses) (31,309) (154,300) (315,225)
Increase (Decrease) in other
liabilities 52,403 (6,567) 3,879
(Decrease) in accounts payable - - (105,294)
Loss on sale of securities 9,111 1,048 -
Gain on sale of other real estate - (4,488) -
Proceeds from sale of loans - (2,246) -
Net Cash Provided by
Operating Activities $ 2,567,685 $ 2,234,919 $ 1,783,423
</TABLE>
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.
See independent auditor's report and accompanying notes to financial statements.
Benchmark Bankshares, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 1996, 1995, and 1994
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 shareholders' equity until realized. The impact of this
unrealized loss on securities positively impacted
shareholders' equity in the amount of $40,977 as of December
31, 1996, 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 $9.91, while the book value per share
would have been $9.88 if reported exclusive of the FAS 115
impact.
(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. With the exception of
loans secured by 1-4 family residential property, accrual of
interest is discontinued on loans past due 90 days or more
when collateral is inadequate to cover principal and interest
or immediately if management believes, after considering
economic and business conditions and collection efforts, that
the borrower's financial condition is such that collection is
doubtful.
(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, 1996:
Deferred tax assets resulting from loan loss
Reserves $ 358,321
Deferred tax liabilities resulting from
depreciation (69,570)
Deferred tax assets resulting from unrealized
security losses (21,109)
Net Deferred Tax Asset $ 267,642
2. Investment Securities
<TABLE>
The carrying amount and approximate market values of
investment securities are summarized below:
<CAPTION>
Book Unrealized Unrealized Market
Value Gains Losses Value
<S> <C> <C> <C> <C>
Available for Sale
December 31, 1996
U. S. Government agencies $ 5,456,877 $ 15,154 $ 69,849 $ 5,402,182
State and political subdivisions 9,830,196 134,307 17,526 9,946,977
Other securities 137,000 - - 137,000
$ 15,424,073 $ 149,461 $ 87,375 $ 15,486,159
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
Held to Maturity
December 31, 1996
U. S. Government agencies $ 2,237,188 $ - $ 28,037 $ 2,209,151
State and political subdivisions 730,000 515 14,230 716,285
$ 2,967,188 $ 515 $ 42,267 $ 2,925,436
December 31, 1995
U. S. Government agencies $ 1,737,628 $ 58,172 - $ 1,795,800
</TABLE>
<TABLE>
The maturities of investment securities at December
31, 1996 were as follows:
<CAPTION>
Book Value Market Value
<S> <C> <C>
Available for Sale
Due in one year or less $ 851,669 $ 844,426
Due from one to five years 3,360,690 3,382,529
Due from five to ten years 9,752,955 9,794,831
After ten years 1,321,759 1,327,373
Other securities 137,000 137,000
Held to Maturity
Due from one to five years 740,000 725,470
Due from five to ten years 2,227,188 2,199,966
</TABLE>
Securities having a book value of $4,497,322 and
$4,706,964 at December 31, 1996 and 1995, respectively, were
pledged to secure public deposits and for other purposes.
In the event of the sale of securities, the cost
basis of the security, adjusted for the amortization of
premium or discounts, will be used when calculating gains or
losses.
Other securities consist of required investments in
Federal Reserve Bank stock and a regional bankers' bank's
stock. These investments are recorded at original cost.
3. Loans
A summary of loans net of participation-out activity by type
follows:
1996 1995
---- ----
Demand $ 1,579,920 $ 1,349,187
Time 32,270,342 30,417,682
Installment 22,053,893 20,416,084
Real estate 64,452,704 51,540,977
$ 120,356,859 $ 103,723,930
4. Allowance for Loan Losses
An analysis of the transactions in the allowance for loan
losses follows:
1996 1995
---- ----
Balance at beginning of year $ 1,037,344 $ 905,139
Provision charged to operating expense 295,159 188,300
Recoveries on loans 89,148 72,434
Loans charged off (217,785) (128,529)
Balance at end of year $ 1,203,866 $ 1,037,344
As of December 31, 1996, the Bank had $1,145,353 classified
as nonaccrual loans. 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 (Years) 1996 1995
------------- ---- ----
Land $ 668,336 $ 668,336
Buildings and improvements 6-40 2,339,092 1,244,592
Furniture and equipment 2-10 1,448,227 1,165,402
Leasehold improvements 5-6 142,690 151,444
Buildings under construction 154,948
4,598,345 3,384,722
Less: Accumulated depreciation (1,476,611) (1,384,481)
$ 3,121,734 $ 2,000,241
The cost basis of fully depreciated assets totaled $56,020 at
December 31, 1996. During 1996, $17,421 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 $ 5,119,406
Due from six months to one year 1,889,760
Due from one year to three years 4,195,968
Due from three years to five years 3,088,514
Total $ 14,293,648
Interest expense on time deposits exceeding $100,000 was
$811,634 in 1996.
7. Federal Income Taxes
Federal income taxes payable, as of December 31, 1996 and
1995, were as follows:
1996 1995
---- ----
Currently payable 97,302
Deferred (267,642) (151,931)
(267,642) (54,629)
The components of applicable income taxes are as follows:
1996 1995
---- ----
Current $ 1,032,476 $ 981,809
Deferred from income and
expense items 31,309 (43,530)
Total $ 1,063,785 $ 938,279
============== = =============
Temporary differences in the recognition of income and
expenses for tax and financial reporting purposes resulted in the
deferred income tax asset as follows:
1996 1995
---- ----
Accelerated depreciation $ (18,052) $ (1,386)
Excess of provision for loan losses
over deduction for federal income
tax purposes 49,361 44,949
Total Tax Impact of Temporary
Differences in Recognition of
Income and Expenses 31,309 43,563
Tax impact of balance sheet recognition
of unrealized security losses 84,402 (382,955)
Total Change to Deferred Tax
for the Year $ 115,711 $ (339,392)
The reasons for the difference between income tax expense and
the amount computed by applying the statutory federal income tax rates
are as follows:
1996 1995
---- ----
Statutory rates 34% 34%
Income tax expense at statutory
rates $1,193,483 $1,070,142
Increase (Decrease) due to
Tax exempt income (143,530) (140,260)
Other 13,832 8,397
$ 1,063,785 $ 938,279
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, 1996 and 1995, commitments under standby
letters of credit aggregated $895,211 and $112,500, 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, 1996 under
noncancelable real property operating lease commitments for succeeding years
are:
1997 $ 19,200
1998 15,000
1999 15,000
2000 7,500
Total $ 56,700
The Bank has options to renew the leased properties. The
additional lease expense resulting from the future exercising of these
options is not included in the 1996 totals listed herein.
Operating expenses include amortization of improvements and
occupancy rentals of $31,542 and $35,799 at December 31, 1996 and 1995,
respectively.
9. Retirement Plan
The Bank provides for a retirement program for all qualified
employees through a 401(k) plan. The plan offers a salary reduction
election of up to 14% of W-2 compensation less incentive pay. The plan
also has a proportional matching feature by the Company. In addition,
the plan provides for the Company to make discretionary contributions.
Both the percentage of the employer match and the annual discretionary
contribution are based on the Bank's performance.
Effective January 1, 1995, the Bank 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 1996, Bank payments through matching and discretionary
contributions totaled $87,070 while employees' salary reduction
amounted to $55,897. The cost of administration for the 401(k) plan
paid in 1996 amounted to $7,415.
10. Officer Incentive Compensation
The Bank offers its officers incentive compensation and/or
bonus arrangements based on the Bank's annual financial performance and
other criteria such as length of service and officer classification.
Incentive compensation totaled $214,876 and $189,344 for the years
ended December 31, 1996 and 1995, 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
$1,405,516 and $1,384,510 at December 31, 1996 and 1995, respectively.
During the year of 1996, new loans to the group totaled $368,111, while
repayments amounted to $344,105.
12. Off-Balance-Sheet Instruments/Credit Concentrations
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. Unless noted otherwise, the Bank does
not require collateral or other security to support these financial
instruments. Standby letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to facilitate the
transaction of business between these parties where the exact financial
amount of the transaction is unknown, but a limit can be projected. The
credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers. There
is a fee charged for this service.
As noted in Note 8 on December 31, 1996, the Bank had
outstanding letters of credit. These instruments are based on the
financial strength of the customer and the existing relationship
between the Bank and the customer.
As of December 31, 1996, 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 $14,420,566.
Concentrations
The Bank has no concentrations of credit concerning an
individual borrower or economic segment. The Bank confines its lending
activities to within the state and more specifically its local
geographic areas. The concentrations of credit by loan type are set
forth in Note 3. Regulatory requirements limit the Bank's aggregate
loans to any one borrower to a level of approximately $2,148,104.
The Bank has significant concentrations of deposits with other
financial institutions consisting mainly of daily Federal fund sales,
which totaled $3,858,000 as of December 31, 1996, and depository
banking services with its primary correspondent bank. These deposits
amounted to $1,098,585 at December 31, 1996. Of this deposit and
Federal funds sold amount, $4,856,585 was in excess of FDIC insurance
levels.
13. Regulatory Matters
Pursuant to regulations of the Federal Reserve Board, the
banking operation of the Company is required to maintain certain
minimum levels of capital. At December 31, 1996, the Bank maintained
the following capital ratios:
Well
Actual Capitalized
Rate Target Rate
Total Capital to Risk Weighted Assets 14.32% 10.00%
====== ======
Tier I Capital to Risk Weighted Assets 13.22% 4.00%
====== =====
Tier I Capital to Total Average Assets 9.65% 8.00%
===== =====
These ratios exceed the minimum ratios required by regulatory
authorities.
14. Capital
During 1996, net purchase of Company stock through the
dividend reinvestment plan amounted to 16,305 shares. Also, 50 shares
were purchased through the exercising of employee stock options. This
translated to a $3,434 increase in common stock and a $254,993 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. All participants must have been employed for
two calendar years. Pursuant to the plans, options were granted for the
purchase of 42,500 shares for the employees and 27,000 shares for the
directors as of the effective date. The options expire on March 16,
2005.
These options cannot be exercised for a period of one year
from the date of the grant. As of the one year period, all granted
options are fully vested. The table below details the status of the
plan as of December 31, 1996:
<TABLE>
1996
<CAPTION>
Outstanding
Incentive Stock Original Options Options Options Options Remaining
Option Plan Pool Granted Granted Exercised Canceled in Pool
----------- ---- ------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Employees 60,000 43,000 3,500 50 1,500 15,050
Directors 40,000 27,000 - - - 13,000
</TABLE>
<TABLE>
1995
<CAPTION>
Incentive Stock Original Options Options Options Remaining
Option Plan Pool Granted Exercised Canceled in Pool
<S> <C> <C> <C> <C> <C>
Employees 60,000 43,500 - 500 17,000
Directors 40,000 27,000 - - 13,000
</TABLE>
The Company has elected to report the results of the plan
pursuant to APB Opinion Number 25. Due to the pricing schedule, there
is no impact on earnings under the fair value based method.
16. Disclosures about Fair Value of Financial Instruments
During 1996, 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 investments, the carrying amount is a
reasonable estimate of fair value. For reporting purposes, the Bank has
included Cash and Due from Banks as well as Federal Funds Sold in this
category.
Investment Securities
For marketable equity securities classified as
available-for-sale and held-to-maturity, fair values are based on
quoted market prices or dealer quotes. If a quoted market price is not
available, fair value is estimated using quoted market prices for
similar securities.
Loans Receivable
The fair value of the basic loan groups is estimated by
discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings
and for the same remaining maturities. For open-end revolving loans,
the carrying amount is a reasonable estimate of fair value.
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:
<TABLE>
<CAPTION>
1996 1995
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial Assets
Cash and due from banks $ 4,624,901 $ 4,624,901 $ 4,397,058 $ 4,397,058
Federal funds sold 3,858,000 3,858,000 5,862,000 5,862,000
Investments
Available for sale 15,486,159 15,486,159 17,382,295 17,382,295
Held to maturity 2,967,188 2,925,436 1,737,628 1,795,800
Loans
Demand loans 1,579,920 1,579,920 1,349,187 1,349,187
Accrual loans 35,749,545 35,674,334 31,414,700 31,474,816
Installment loans under $2,000 754,708 706,415 805,870 744,137
Vehicle loans 7,755,436 7,487,141 7,414,793 7,110,109
Dealer loans 3,047,212 2,860,326 3,267,539 3,059,442
Other installment loans 9,709,525 9,208,485 8,927,882 8,551,827
Real estate loans 65,239,716 63,197,866 53,181,263 51,261,882
Participation loans - out (3,479,203) (3,479,203) (2,637,304) (2,567,318)
Financial Liabilities
Deposits
Demand (noninterest bearing) 12,215,657 12,215,657 12,392,332 12,392,332
Demand (interest bearing) 21,501,251 21,501,251 17,132,188 17,132,188
Savings 8,107,214 8,107,214 7,679,313 7,679,313
Certificates of deposit 93,535,696 93,703,010 84,418,806 85,160,932
Other borrowed money - - 155,000 155,000
Unrecognized Financial Instruments
Unused loan commitments 14,420,566 14,420,566 11,169,506 11,169,506
Unissued letters of credit 895,211 895,211 112,500 112,500
</TABLE>
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
company's statements are presented.
<TABLE>
Benchmark Bankshares, Inc.
(Parent Company Only)
Balance Sheet
December 31, 1996, 1995, and 1994
A S S E T S
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash $ 237,707 $ 152,953 $ 106,920
Investment in subsidiary 14,515,476 12,418,510 9,751,577
Land - 215,816 215,816
Total Assets $ 14,753,183 $ 12,787,279 $ 10,074,313
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Liabilities
Dividends payable $ 391,510 $ 286,709 $ 213,035
Stockholders' Equity
Common stock, par value $.21 per share,
authorized 4,000,000 shares; issued
and outstanding 1,449,895.852 12-31-96,
issued and outstanding
1,433,544.679 12-31-95, issued and
outstanding 1,420,230.234 shares 12-31-94 304,478 301,044 298,248
Surplus 3,262,299 3,007,305 2,820,466
Retained earnings 10,794,896 9,192,221 6,742,564
Total Stockholders' Equity 14,361,673 12,500,570 9,861,278
Total Liabilities and Stockholders' Equity $ 14,753,183 $ 12,787,279 $ 10,074,313
</TABLE>
<TABLE>
STATEMENT OF INCOME
Years Ended December 31, 1996, 1995, and 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Income
Rental property 7,200 7,200 7,200
Dividends from subsidiary 200,000 - -
Total Income 207,200 7,200 7,200
Expenses
Professional fees 9,900 10,300 32,923
Supplies, printing, and postage 8,647 8,935 10,644
Taxes - miscellaneous 3,002 4,532 543
Total Expenses 21,549 23,767 44,110
Income (Loss) Before Equity in Undistributed Income
of Subsidiary 185,651 (16,567) (36,910)
Equity in Income of Subsidiary (includes tax
benefit of parent company operating loss) 2,260,807 2,225,766 2,011,543
Net Income 2,446,458 2,209,199 1,974,633
</TABLE>
<TABLE>
Benchmark Bankshares, Inc.
(Parent Company Only)
Statement of Changes in Stockholders' Equity
Years Ended December 31, 1996, 1995, and 1994
<CAPTION>
Unrealized
Common Retained SEC Gain
Stock Surplus Earnings (Loss) * Total
<S> <C> <C> <C> <C> <C>
Balance January 1, 1995 $298,248 $ 2,820,466 $ 7,278,916 $(536,352) $ 9,861,278
Net Income 2,209,199 2,209,199
Sale of Stock 2,798 186,945 189,743
Redemption of Stock (2) (106) (108)
Semi-Annual Cash
Dividend Declared
June 30, $.13 per share (214,000)
December 15, $.15
per share (286,709) (500,709)
Unrealized Security Gains
Net of Tax 741,167 741,167
Balance December 31, 1995 301,044 3,007,305 8,987,406 204,815 12,500,570
Net Income 2,446,458 2,446,458
Sale of Stock 3,436 255,158 258,594
Redemption of Stock (2) (164) (166)
Semi-Annual Cash
Dividend Declared
June 20, $.20 per share (288,435)
December 19, $.27
per share (391,510) (679,945)
Unrealized Security Gains
(Losses) (163,838) (163,838)
Balance December 31, 1996 $304,478 $ 3,262,299 $10,753,919 $ 40,977 $ 14,361,673
</TABLE>
* Net of tax effect.
<TABLE>
Benchmark Bankshares, Inc.
(Parent Company Only)
Statement of Cash Flows
Years Ended December 31, 1996, 1995, and 1994
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 2,446,458 $ 2,209,199 $ 1,974,633
Increase (Decrease) in payables - - (105,294)
Less proceeds from sale of real estate (215,819) - -
Net Cash Provided by
Operating Activities 2,230,639 2,209,199 1,869,339
Cash Flows from Investing Activities
Undistributed earnings of subsidiary (2,044,988) (1,925,766) (2,011,541)
Purchase of premises - - (5,009)
Sale of real estate 215,819 - -
Net Cash Used by Investing
Activities (1,829,169) (1,925,766) (2,016,550)
Cash Flows from Financing Activities
Sale of stock 258,594 189,743 128,938
Redemption of stock (166) (108) (33)
Dividends paid (575,144) (427,035) (360,308)
Net Cash Used by Financing
Activities (316,716) (237,400) (231,403)
Net Increase (Decrease) in Cash $ 84,754 $ 46,033 $ (378,614)
</TABLE>
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, 1996:
<TABLE>
<CAPTION>
Principal Occupation for Last Five Years Director of the Company
Name (Age) Position Held with Company and Subsidiary or Subsidiary Since
<S> <C> <C>
H. Clarence Love Retired President, Commonwealth Tobacco 1971
(71) Co., Inc.
Chairman of Board, Company and Subsidiary
R. Michael Berryman Pharmacist 1978
(56) Principal Smith's Pharmacy, Inc.
Pharmacy Associates, Inc.
Pharmacists Shared Services, Inc.
Vice Chairman, Company and Subsidiary
Ben L. Watson, III President and CEO, 1976
(53) Company and Subsidiary
C. Edward Hall Pharmacist 1971
(56) Partner, Victoria Drug Company
Lewis W. Bridgforth Physician 1971
(57)
William J. Callis Building Contractor 1989
(55) Principal, Kenbridge Construction Co., Inc.
Earl C. Currin, Jr. Provost, 1986
(53) Southside Virginia Community College
J. Ryland Hamlett Retired Personnel Manager, 1986
(54) Southside Electric Cooperative
Larry L. Overton Retired Vice President, 1971
(67) Virginia Marble Manufacturers, Inc.
Secretary, Company and Subsidiary
Wayne J. Parrish Principal of Parrish Trucking Co., Inc. and 1979
(58) Kenbridge Oil Co., Inc.
</TABLE>
Executive Officers of the Company
The executive officers of the Bank and their positions are set forth below:
<TABLE>
<CAPTION>
Name (Age) Position Held with Subsidiary Officer Since
<S> <C> <C>
Ben L. Watson, III (A) Director, President and CEO 1971
(53)
Michael O. Walker (B) Vice President for Branch Administration and 1975
(46) Marketing and Recording Secretary
Janice C. Whitlow (C) Vice President, Cashier, and Compliance 1976
(50) Officer
</TABLE>
(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
<TABLE>
Annual Compensation Long-Term Compensation
<CAPTION>
Number of
(1) (2) Securities
Name and Principal Incentive Other Annual Underlying All Other
Position Year Salary Bonus Compensation Option Compensation
-------- ---- ------ ----- ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ben L. Watson, III 1996 $ 80,000 $ 58,657 $ 5,400 None None
President & CEO 1995 75,000 52,896 5,700 4,000 (3) None
1994 72,444 46,507 5,700 None None
</TABLE>
(1) The value of perquisites and other personal benefits did not
exceed the lessor of $50,000 or ten percent of total annual
salary and incentive bonus.
(2) Other Annual Compensation represents director's fees paid for
services performed as a director of the Bank.
(3) Represents incentive stock option granted on March 16, 1995,
pursuant to the Company's Incentive Stock Option Plan.
B. Compensation to Directors
No fees are paid to directors for service on the Board of the
Company. During 1996, a fee of $2,400 per director was paid, based on
the performance of the Company, plus $250 for each Board meeting
attended and $175 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
<TABLE>
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of March 15, 1997:
<CAPTION>
Owned
Director/Officer of % of Shares
Name and Age Principal Occupation Company/Subsidiary Bene Owned
<S> <C> <C> <C>
H. Clarence Love Retired President, 1971 40,000.000(1)
(71) Commonwealth Tobacco 2.74%
Co., Inc.
R. Michael Berryman Pharmacist 1978 42,573.581(2)
(56) 2.95%
Ben L. Watson, III President 1971 7,164.717(3)
(53) Company and subsidiary .49%
C. Edward Hall Pharmacist 1971 14,765.238(10)
(56) 1.01%
Lewis W. Bridgforth Physician 1971 16,907.700(4)
(57) 1.16%
William J. Callis Building Contractor 1989 12,102.460(5)
(55) .83%
Earl C. Currin, Jr. Provost 1986 5,522.095
(52) .38%
J. Ryland Hamlett Retired Personnel Director 1986 5,203.159
(54) .36%
Larry L. Overton Retired Sales Manager 1971 20,563.000(6)
(67) 1.41%
Wayne J. Parrish Principal of Parrish 1979 12,021.642(7)
(58) Trucking Co., Inc. and .82%
Kenbridge Oil Co., Inc.
Michael O. Walker Senior Vice President for 1975 20,245.012(8)
(46) Branch Administration and 1.387%
Marketing and Recording
Secretary Benchmark Community
Bank
Janice C. Whitlow Senior Vice President, 1976 2,551.142(9)
(50) Cashier, and Compliance .175%
Officer Benchmark Community
Bank
</TABLE>
<TABLE>
<CAPTION>
Shares
Beneficially
Owned
% of Shares
Bene Owned
<S> <C>
Number and Percentage of Company Common Stock held
beneficially as of March 15, 1997 by Directors and Executive 199,619.746
Officers of the Company (12 persons). 13.67%
</TABLE>
(1) Includes 31,200 shares held jointly with Mr. Love's wife, and 2,000
shares owned solely by her.
(2) Includes 22,298.606 shares held jointly with Mr. Berryman's wife
and 2,714.315 shares held as custodian for one of his children.
(3) Includes 216.796 shares owned solely by Mr. Watson's wife.
(4) Includes 9,637.031 shares owned solely by Dr. Bridgforth's wife.
(5) Includes 6,899.301 shares held jointly with Mr. Callis' wife.
(6) Includes 13,453 shares held jointly with Mr. Overton's wife,
and 1,345 shares owned solely by her.
(7) Includes 2,665.210 shares held jointly with Mr. Parrish's wife,
and 2,807.648 shares owned solely by her.
(8) Includes 12,140.704 shares owned jointly with Mr. Walker's wife.
(9) Includes 780.471 shares owned jointly with Mrs. Whitlow's husband
and 43.356 shares owned solely by him.
(10) Includes 130 shares owned solely by Mr. Hall's wife.
The share ownership listed above reflects the shares necessary to meet the
ownership requirements for bank directors pursuant to the Virginia Banking Act.
No person owned of record or was known to own beneficially more than 5% of the
outstanding common stock of the Company as of December 31, 1996. 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 256,185 17.67%
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:
1996 1995 1994
---- ---- ----
Executive Officers and their families $ 135,683 $ 181,208 $ 159,886
Directors and their families (1) 445,644 397,887 314,451
Corporations in which directors and
officers had an interest 827,189 805,415 599,485
Total $1,408,516 $1,384,510 $ 1,073,822
(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 1996, Directors and Executive Officers had been granted
lines of credit in the amount of $1,182,500. As of December 31, 1996,
$477,256 of these lines was 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, 1,130
additional shares were purchased during 1996 at an average price of $16.39 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, 1996 are included in Item 8:
Consolidated Statements of Financial Condition - December 31, 1996 and
1995 Consolidated Statements of Income - Years Ended December 31, 1996,
1995, and 1994
Consolidated Statements of Shareholders' Equity - Years Ended
December 31, 1996 and 1995
Consolidated Statements of Cash Flows - Years Ended December 31, 1996,
1995, and 1994
Notes to Consolidated Financial Statements - December 31, 1996
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 Incorporation Page 57 - Item 14(c) - Exhibit 1 of
Form 10K, December 31, 1989
( 2) (a) Amendments to Articles of Page 76 - Item 14(c) - Exhibit 2 of
Incorporation Form 10K, December 31, 1989
(b) Amendments to Articles of Page 58 - Item 14(c) - Exhibit 2(b)
of Incorporation Form 10K, December 31, 1990
(c) Amendment to Articles of Page 68 - Item 14(c)- Exhibit 2(c)of
Incorporation Form 10K, December 31, 1992
( 3) Bylaws of Incorporation Page 83 - Item 14(c) - Exhibit 3 of
Form 10K, December 31, 1989
( 4) Amendments to Bylaws Page 106 - Item 14(c) - Exhibit 4 of
Form 10K, December 31, 1989
( 5) Indemnity Agreement Page II-11-26 in Exhibit 10.1 of
Form S-1 filed September 1, 1989
( 6) List of Subsidiaries
( 7) Bonus Plans of Bank Officers Page 60 - Item 14(c) - Exhibit
7(a)-7(b) of Form 10K, December 31, 1990
( 8) Directors Performance Page 72 - Item 14(c) - Exhibit 8 of
Compensation Schedule Form 10K, December 31, 1992
( 9) Resolution to Amend the Articles Page 71 - Item 14(c) - Exhibit 9(a) of
of Incorporation to increase the Form 10K, December 31, 1993
number of authorized shares
from 2,000,000 to 4,000,000
concurrent with the directors
election to have a 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, 1997.
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, the
following persons on behalf of the registrant and in the capacities have signed
this report on March 15, 1997.
Lewis W. Bridgforth, Director Earl C. Currin, Jr., Director
03-15-97 03-15-97
J. Ryland Hamlett, Director Wayne J. Parrish, Director
03-15-97 03-15-97
Ben L. Watson, III, President H. Clarence Love, Chairman
03-15-97 03-15-97
R. Michael Berryman, Director C. Edward Hall, Director
03-15-97 03-15-97
Larry L. Overton, Secretary
03-15-97
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.
<TABLE>
ITEM 14(d) SCHEDULE II - INDEBTEDNESS TO RELATED PARTIES
Year Ended December 31, 1996
<CAPTION>
Balance Balance
at Beginning at End of
Name of Person of Period Additions Deductions Period
<S> <C> <C> <C> <C>
Executive Officers,
Directors, and Their
Related Interest $ 1,384,510 $ 368,111 $ 344,105 $ 1,408,516
W. J. Callis, Director
(2) (3) (4) 722,426 55,000 106,354 671,072
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1995
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1994
<S> <C> <C> <C> <C>
Executive Officers,
Directors, and Their
Related Interest (1) $ 1,354,781 $ 185,271 $ 466,230 $ 1,073,822
</TABLE>
(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>
Benchmark Bankshares, Inc.
Year Ended December 31, 1996
<CAPTION>
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> <C> <C>
Land $ 668,336 - - 668,336
Buildings and improvements 1,244,592 939,552 - 154,948 2,339,092
Leasehold improvements 151,444 - - (8,754) 142,690
1,396,036 939,552 - 146,194 2,481,782
Equipment, furniture, and
fixtures 1,165,402 330,091 (56,020) 8,754 1,448,227
Construction in progress 154,948 - - (154,948) -
Total $3,384,722 $ 1,269,643 $(56,020) - $ 4,598,345
</TABLE>
<TABLE>
Year Ended December 31, 1995
<S> <C> <C> <C> <C> <C>
Land $ 508,489 $ 159,847 - - $ 668,336
Buildings and improvements 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
</TABLE>
ITEM 14(d) SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
Year Ended December 31, 1994
<S> <C> <C> <C> <C> <C>
Land $ 503,481 $ 5,008 $ $ 508,489
Buildings and improvements 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
</TABLE>
ITEM 14(d) SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION
OF PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
Benchmark Bankshares, Inc.
Year Ended December 31, 1996
<CAPTION>
Additions
Balance at Charged to Other Balance at
Beginning Cost and Changes End of
Description of Period Expenses Retirements Add (Deduct) Period
<S> <C> <C> <C> <C> <C>
Building and improvements $ 430,662 $ 57,902 $ 488,564
Leasehold improvements 103,773 3,942 107,715
Total 534,435 61,844 596,279
Equipment, furniture, and
fixtures 850,046 86,306 (56,020) - 880,332
Total $ 1,384,481 $ 148,150 $ (56,020) $ 1,476,611
</TABLE>
<TABLE>
Year Ended December 31, 1995
<CAPTION>
Additions
Balance at Charged to Other Balance at
Beginning Cost and Changes End of
Description of Period Expenses Retirements Add (Deduct) Period
<S> <C> <C> <C> <C> <C>
Building and improvements $ 382,606 $ 48,056 $ 430,662
Leasehold improvements 93,794 9,979 - - 103,773
Total 476,400 58,035 - - 534,435
Equipment, furniture, and
fixtures 1,005,302 98,511 (253,767) 850,046
Total $ 1,481,702 $ 156,546 $ (253,767) $ 1,384,481
</TABLE>
<TABLE>
Year Ended December 31, 1994
<CAPTION>
Additions
Balance at Charged to Other Balance at
Beginning Cost and Changes End of
Description of Period Expenses Retirements Add (Deduct) Period
<S> <C> <C> <C> <C> <C>
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
</TABLE>
ITEM 14(d)(1) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
PURSUANT TO SEC REGULATIONS
<TABLE>
Benchmark Bankshares, Inc.
(Parent Company Only)
Balance Sheet, December 31, 1996 and 1995
A S S E T S
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash $ 237,707 $ 152,953
Investment in subsidiary 14,515,476 12,418,510
Land - 215,816
Total Assets $ 14,753,183 $ 12,787,279
</TABLE>
<TABLE>
Liabilities and Stockholders' Equity
<S> <C> <C>
Liabilities
Dividends payable $ 391,510 $ 286,709
Total Liabilities 391,510 286,709
Stockholders' Equity
Common stock, par value $.21 per share,
authorized 4,000,000 shares; issued and
outstanding 1,449,895.852 shares 304,478 301,044
Surplus 3,262,299 3,007,305
Retained earnings 10,794,896 9,192,221
Total Stockholders' Equity 14,361,673 12,500,570
Total Liabilities and Stockholders' Equity $ 14,753,183 $ 12,787,279
</TABLE>
ITEM 14(d)(2) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
PURSUANT TO SEC REGULATIONS
<TABLE>
Benchmark Bankshares, Inc.
(Parent Corporation Only)
Statement of Income
Years Ended December 31, 1996, 1995, and 1994
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income
Rental income 7,200 7,200 7,200
Dividend from subsidiary 200,000 - -
Total Income 207,200 7,200 7,200
Expenses
Professional fees 9,900 10,300 32,923
Supplies 8,647 8,935 10,644
Taxes - miscellaneous 3,002 4,532 543
Total Expenses 21,549 23,767 44,110
Income (Loss) Before Equity in
Undistributed Income of Subsidiary 185,651 (16,567) (36,910)
Equity in Undistributed Income of
Subsidiary 2,260,807 2,225,766 2,011,543
Net Income 2,446,458 2,209,199 1,974,633
</TABLE>
ITEM 14(d)(2) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
PURSUANT TO SEC REGULATIONS
<TABLE>
Benchmark Bankshares, Inc.
(Parent Corporation Only)
Statement of Changes in Stockholders' Equity
Years Ended December 31, 1996, 1995, and 1994
<CAPTION>
Unrealized
Common Retained Security
Stock Surplus Earnings Gains (Losses) *
<S> <C> <C> <C> <C>
Balance January 1, 1994 $ 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 7,278,916 (536,352)
Sale of stock 2,798 186,945
Redemption of stock (2) (106) - -
Net income 2,209,199
Cash dividend (500,709)
Unrealized security gains - - - 741,167
Balance December 31, 1995 301,044 3,007,305 8,987,406 204,815
Sale of stock 3,436 255,158
Redemption of stock (2) (164) - -
Net income 2,446,458
Cash dividend (679,945)
Unrealized security gains (losses) (163,838)
Balance December 31, 1996 $ 304,478 $ 3,262,299 $ 10,753,919 $40,977
</TABLE>
* Net of tax effect.
ITEM 14(d)(3) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
PURSUANT TO SEC REGULATIONS
<TABLE>
Benchmark Bankshares, Inc.
(Parent Company Only)
Statement of Cash Flows
Years Ended December 31, 1996, 1995, and 1994
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 2,446,458 $ 2,209,199 $ 1,974,633
Decrease in other liabilities (105,294)
Less: Sale of real estate to subsidiary (215,819) - -
Provided by Operating Activities 2,230,639 2,209,199 1,869,339
Cash Flows from Investing Activities
Undistributed earnings of subsidiary (2,044,988) (1,925,766) (2,011,541)
Purchase of premises - - (5,009)
Sale of real estate to subsidiary 215,819 - -
Net Cash Used by Investing
Activities (1,829,169) (1,925,766) (2,016,550)
Cash Flows from Financing Activities
Sale of common stock 258,594 189,743 128,938
Redemption of stock (166) (108) (33)
Dividends paid (575,144) (427,035) (360,308)
Net Cash Used in Financing
Activities (316,716) (237,400) (231,403)
Net Increase (Decrease) in Cash 84,754 46,033 (378,614)
Cash at Beginning of Year 152,953 106,920 485,534
Cash at End of Year $ 237,707 $ 152,953 $ 106,920
</TABLE>
ITEM 14(d)(4) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
PURSUANT TO SEC REGULATIONS
<TABLE>
Investment Securities - Realized Gains and Losses
<CAPTION>
Realized Realized
Gains Losses
<S> <C> <C>
For the Year Ended December 31, 1996
U. S. Government Agencies $1,679 $ 10,812
States and Political Subdivisions 22 -
Total $1,701 $ 10,812
For the Year Ended December 31, 1995
U. S. Government Agencies $420 $ 2,329
States and Political Subdivisions 861 -
Total $1,281 $ 2,329
</TABLE>
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 14.32%
Tier I Capital to Risk Based Assets 13.22%
Tier I Capital to Total Book Assets 9.65%
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,625
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,858
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,382
<INVESTMENTS-CARRYING> 2,967
<INVESTMENTS-MARKET> 2,967
<LOANS> 120,357
<ALLOWANCE> 1,204
<TOTAL-ASSETS> 150,908
<DEPOSITS> 135,360
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,186
<LONG-TERM> 0
0
0
<COMMON> 304
<OTHER-SE> 14,057
<TOTAL-LIABILITIES-AND-EQUITY> 150,908
<INTEREST-LOAN> 11,319
<INTEREST-INVEST> 1,410
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 12,729
<INTEREST-DEPOSIT> 6,162
<INTEREST-EXPENSE> 6,162
<INTEREST-INCOME-NET> 6,567
<LOAN-LOSSES> 129
<SECURITIES-GAINS> (9)
<EXPENSE-OTHER> 3,327
<INCOME-PRETAX> 3,510
<INCOME-PRE-EXTRAORDINARY> 2,446
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,446
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 1.69
<YIELD-ACTUAL> 4.58
<LOANS-NON> 1,145
<LOANS-PAST> 1,342
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 7,241
<ALLOWANCE-OPEN> 1,037
<CHARGE-OFFS> 218
<RECOVERIES> 89
<ALLOWANCE-CLOSE> 1,204
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,204
</TABLE>
