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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ________ to ________.
Commission file number 000-18445.
Benchmark Bankshares, Inc.
(Exact name of registrant as specified in its charter)
Virginia 54-1380808
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporations or organization)
100 South Broad Street
Kenbridge, Virginia 23944
------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804)676-8444.
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
- ----------------------------- -----------------------------
Securities registered pursuant to Section12(g) of the Act:
Common Stock, Par Value $.21 a share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Based on the closing sales price of March 1, 2000, the aggregate market value of
the voting and nonvoting common equity held by nonaffiliates of the registrant
was $28,648,786.25.
The number of shares outstanding of the registrant's common stock, $.21 par
value was 3,015,661.71 at March 1, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
None
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Benchmark Bankshares, Inc.
Table of Contents
Page No.
Part I
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 8
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 35
Item 8. Financial Statements and Supplementary Data 35
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 63
Part III
Item 10. Directors and Executive Officers of the Registrant 64
Item 11. Executive Compensation 65
Item 12. Security Ownership of Certain Beneficial Owners
and Management 66
Item 13. Certain Relationships and Related Transactions 68
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 69
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PART I
ITEM I BUSINESS
Benchmark Bankshares, Inc.
Benchmark Bankshares, Inc. (the "Company"), formerly Lunenburg
Community Bankshares, Inc., is a bank holding company incorporated under the
laws of the Commonwealth of Virginia on March 7, 1986. The Company became a one
bank holding company under the Bank Holding Company Act of 1956 on January 1,
1987 subsequent to its acquiring all of the issued and outstanding shares of The
Lunenburg County Bank's, now Benchmark Community Bank (the "Bank"), common
stock. The Company does not own or operate any other businesses.
At December 31, 1999, the Company and its subsidiary employed 85
full-time and 16 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, the Bank 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. During 1999, the Bank opened three loan production
offices, one each in Lawrenceville, Clarksville, and Chase City. By the end of
the year, the Lawrenceville office had been converted to a full-service branch.
The Bank offers a wide range of banking and related financial services
to individuals and small to medium ranged businesses. The services offered are
in the form of checking, savings accounts, NOW and money market accounts,
certificates of deposit, business loans, personal loans, mortgage loans, and
other consumer oriented financial services including IRA's, safe deposit,
drive-up, night deposit, and automatic-teller machines at each office. The Bank
does not offer any trust services.
Competition
The Bank encounters strong competition for its banking services within
its primary market area. There are nine commercial banks actively engaged in
business in the market area, including five major statewide banking
organizations. The Bank is the only community bank actively engaged in business
in Lunenburg County, and one of two such banks in the Town of Farmville, Prince
Edward County, and Mecklenburg County. Finance companies, mortgage companies,
credit unions, and savings banks also compete with the Bank for loans and
deposits. In addition, 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.
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A bank holding company is required to obtain Federal Reserve Board
approval prior to acquiring ownership or control of the voting shares of any
bank if, after the acquisition, it would own or control more than 5% of the
voting stock of that bank, unless it already owns a majority of the voting stock
of the bank. A bank holding company is, with limited exceptions, prohibited from
acquiring ownership or control of voting stock of any company which is not a
bank or a bank holding company and must engage only in the business of banking,
managing or controlling banks, or furnishing services to or performing services
for subsidiary banks. The Federal Reserve Board is authorized to approve the
ownership of shares by a bank holding company in any company, the activities of
which the Federal Reserve Board has determined to be so closely related to
banking or to managing or controlling banks as to be a proper incident thereto.
The Federal Reserve Board has determined that certain activities are closely
related to banking, including making loans that would be made by mortgage,
finance, credit card, or factoring companies; acting as an investment or
financial advisor; performing the functions of a trust company; providing
certain data processing services; leasing certain personal property; and acting
as an insurance agent or broker for insurance directly related to the extension
of credit or other financial services. Although, a bank holding company may file
an application for approval of other nonbanking activities involved in a
particular case, the Federal Reserve Board has stated that, at present,
permissible nonbanking activities do not include real estate brokerage and
syndication, land development, property management, underwriting, operation of
savings and loan associations, management consulting, or industrial development
corporations.
A bank holding company and its subsidiaries are also prohibited from
acquiring any voting shares of, or interest in, any banks located outside of the
state in which the operations of the bank holding company's banking subsidiaries
are located unless the acquisition is specifically authorized by the statutes of
the state in which the bank to be acquired is located. Further, a bank holding
company and its subsidiaries generally may not extend credit, lease or sell
property, or furnish any services on the condition that the customer obtain or
provide some additional credit, property or services from or to the bank holding
company or its subsidiaries, or that the customer obtain some other credit,
property, or services from a competitor.
Bank Supervision and Regulation
The Bank is a member of the Federal Reserve System and is subject to
regulation and supervision, of which regular bank examinations are a part, by
the Virginia Bureau of Financial Institutions and the Federal Reserve Bank as
are all state member banks. The Bank by virtue of its Federal Reserve membership
qualifies for Federal Deposit Insurance Corporation (FDIC) insurance coverage of
up to a maximum of $100,000 per depositor. For the deposit insurance protection,
the Bank pays a semi-annual statutory assessment and is subject to the rules and
regulations of the FDIC. The Company is an "affiliate" of the Bank, and that
status imposes restrictions on loans by the Bank to the Company, on investment
by the Bank in the Company, and on the use of Company stock or securities as
collateral security for loans by the Bank to any borrower. The Company is also
subject to certain restrictions on its engaging in the business of issuing,
floatation, underwriting, public sale, and distribution of securities.
Government Monetary Policies and Economic Controls
The monetary policies of regulatory authorities, most notably the
Federal Reserve Bank, have a significant effect on the operating results of bank
holding companies and banks. In particular, the Federal Reserve Board regulates
money and credit conditions and interest rates in order to influence general
economic conditions. These policies have a significant influence on the overall
growth and distribution of bank loans, investments and deposits, and affect
interest rates charged on loans or paid for time and savings deposits. Federal
Reserve Board monetary policies have had a significant effect on the operating
results of commercial banks in the past and are expected to continue to do so in
the future; however, the Company and its subsidiary bank are unable to predict
the specific nature or extent of these effects on their business and earnings.
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Restrictions
Investments
As required by the Virginia Security for Public Deposits Act, the Bank
has pledged $4,549,105 at cost of its investment portfolio to safeguard State
and local municipalities' deposits as of December 31, 1999.
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,
1999, the Bank had $515,000 pledged for Federal deposits.
The Bank is required by Section 19 of the Federal Reserve Act to
maintain a certain level of reserves consisting of cash and other liquid assets
in proportion to types of deposit accounts held. At year end 1999, the Bank's
vault cash met the statutory requirement so designated by the Act.
Anti-Takeover Provisions
The Articles of Incorporation and Bylaws of the Company contain certain
anti-takeover provisions. Said provisions provide (i) for division of the Board
of Directors into three classes, with one class elected each year to serve a
three year term; (ii) that Directors may be removed only upon the affirmative
vote of the holders of 80% of the outstanding voting stock; (iii) that any
vacancy on the Board may be filled by the remaining Directors; (iv) that advance
notification is required for a stockholder to bring business before a
stockholders' meeting or to nominate a person for election as a Director; and
(v) that the affirmative vote of the holders of 80% of the outstanding voting
stock is required to alter, amend, or repeal the foregoing provisions.
The Articles also contain a "fair price" provision that requires the
affirmative vote of the holders of 80% of the outstanding voting stock as a
condition for certain mergers or business combinations, unless the transaction
is either approved by a majority of the disinterested Directors or certain
minimum price and procedural requirements are met.
The foregoing provisions of the Articles and Bylaws are intended to
prevent inequitable stockholder treatment in a two-tier takeover and to reduce
the possibility that a third party could effect a sudden or surprise change in
majority control of the Board of Directors without the support of the incumbent
Board, even if such a change were desired by or would be beneficial to a
majority of the Company's stockholders. Such provisions may have the effect of
discouraging certain unsolicited tender offers for the Company's capital stock
and, at the same time, may provide for a continuation of current Company's
philosophy and leadership style.
Limitation on Liability
The Company's Articles of Incorporation provide, in part in accordance
with the provisions of a recent amendment to the Virginia Stock Corporation Act
(the "Act"), that in every instance permitted by the Act, the liability of a
Director or Officer of the Company for monetary damages arising out of a single
transaction, occurrence, or course of conduct shall be limited to one dollar.
This limit on damages does not apply in the event of willful misconduct or a
knowing violation of the criminal law or any Federal or State securities law.
The limitation does not change or eliminate a Director's or Officer's duty of
care to the Company; it only eliminates, in certain circumstances, monetary
damages occasioned by a breach of that duty. It should also be noted that such
limitation of liability in no way limits or otherwise affects liability for the
violation of, or otherwise relieves the Company or its Directors or Officers
from the necessity of complying with, the Federal or State securities laws.
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Indemnification
The Articles of Incorporation of the Company mandate indemnification of
Directors and Officers as a result of liability incurred by them in proceedings
instituted against them by third parties, or by or on behalf of the Company
itself, relating to the manner in which they have performed their duties unless
they have been guilty of "willful misconduct or a knowing violation of the
criminal law" in the performance of their duties. The indemnification provision
is consistent with another recent amendment to the Corporation Act. Thus, the
protection of the proposed amendment will extend to grossly negligent conduct
but not to willful misconduct.
The Company's Board of Directors is authorized to contract in advance
to indemnify any Director or Officer and to indemnify or contract in advance to
indemnify other persons including Directors and Officers of subsidiaries and
employees and agents of the Company and its subsidiaries, to the same extent
that it is required to indemnify Directors and Officers of the Company.
The Act and the Company's Articles of Incorporation permit the
advancement of expenses incurred by a Director or Officer in a proceeding.
The Company has entered into indemnification agreements with each of
its Directors and Officers, entitling them to (i) indemnification to the full
extent permitted by the Act, and (ii) reimbursement of all expense advancements,
including attorneys' fees, paid or incurred in connection with any claim
relating to any indemnifiable event.
Executive Officers
For information concerning the Executive Officers of the Company, refer
to Item 10 found on pages 64 and 65 of this report.
ITEM 2 PROPERTIES
The main office of the Bank, which is owned by the Bank, consists of
three contiguous buildings. The combined office is a two-story building of
masonry construction and contains approximately 6,200 square feet of space on
the first floor, all of which is used for a full-service banking operation,
including five teller windows, loan offices, an automatic-teller machine, and
customer service for Kenbridge. The bookkeeping and computer operations for the
entire bank are located on the second floor of the office, which has 3,200
square feet of floor space. Additionally, there is an adjacent, but separate,
three-lane drive-up facility located just behind the office.
The Victoria branch office, also owned by the Bank, was constructed in
1982 and contains approximately 2,500 square feet of floor space. It houses four
teller windows, has a drive-up window, which serves two lanes of traffic, and an
automatic-teller machine.
The Farmville branch office, which opened in June of 1989, contains
approximately 1,650 square feet of floor space and is a leased facility. The
Bank signed a new lease effective October 15, 1998. The lease has a five year
original term with five additional options to renew for additional twelve month
terms. The current monthly lease amount as of December 31, 1999 was $1,150. The
office contains three teller windows. Currently, the office has no drive-up
window. The Bank added a third office to the Branch in 1998.
The South Hill office, which opened for business in September, 1989, is
also housed in a leased facility. During 1997, 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, 1999 was $1,250. This amount can be renegotiated in
June of 2000. This office contains approximately 2,500 square feet of floor
space and operates four teller windows, a drive-up window, which serves two
lanes of traffic, and an automatic-teller machine.
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In 1993, the Bank opened a second office in the town of Farmville on
Milnwood Road. The office is a two story structure of modern design. The first
floor contains 3,967 square feet and provides space for the operation of three
loan offices, four teller windows, a large customer lobby and new accounts area,
a three lane drive-up, and an automatic-teller machine. The branch office's
second floor has 2,240 square feet of space available for future expansion.
On May 31, 1996, the Bank opened a full-service branch in Crewe. The
office is a one story brick structure. The office contains 2,600 square feet of
floor space, which provides for an open lobby with three teller windows, two
loan offices, and a new accounts area. The office has a three lane drive-up unit
with an automatic-teller machine.
During 1999, the Bank opened three offices, one each in the towns of
Chase City, Clarksville, and Lawrenceville.
In Chase City, the Bank currently rents temporary quarters on Main
Street. This facility serves as a loan production office and a limited
depository. Additionally, the Bank has purchased property that was formally a
banking office. The Bank plans to remodel the facility and open a full- service
office as soon as the customer base grows to a point that can support such a
facility.
The Bank leases office space on Virginia Avenue in Clarksville. The
office which includes a reception area, a loan office, and a conference room is
used as a loan production and limited depository office. The Bank has also
purchased property on College Avenue for a potential site of a full-service
branch.
In the fall of 1999, the Bank opened a full-service branch in
Lawrenceville. Currently, the Bank leases a facility on Main Street that
includes a lobby, teller station, and a loan office. The Bank is pursuing a
permanent location within the town limits.
ITEM 3 LEGAL PROCEEDINGS
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market for Common Equity
The Company's stock is listed and quoted daily in the Virginia Over the
Counter Section. This information is supplied daily by the National Association
of Security Dealers to Virginia newspapers.
The following table sets forth information concerning the market price
of the stock since its initial listing:
Bid Price
of Common Stock
1999
First Quarter $12.50
Second Quarter 12.75
Third Quarter 12.00
Fourth Quarter 10.75
1998
First Quarter $19.00
Second Quarter 19.00
Third Quarter 15.50
Fourth Quarter 13.75
1997
First Quarter(1) $ 8.88
Second Quarter(1) 9.63
Third Quarter(1) 12.50
Fourth Quarter 15.50
1996(1)
First Quarter $ 7.88
Second Quarter 8.38
Third Quarter 8.38
Fourth Quarter 8.63
1995(1)
First Quarter $ 6.75
Second Quarter 7.00
Third Quarter 6.88
Fourth Quarter 7.00
During 1999, the Company declared a $.16 per share semi-annual dividend
in June and $.16 per share semi-annual dividend in December. The semi-annual
dividends declared in 1998 amounted to $.15 per share in June and $.16 per share
in December.
As of December 31, 1999, there were 636 stock certificates issued to
holders of record.
(1)Adjusted for a 2 for 1 stock split on October 2, 1997.
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Related Stockholder Matters
Article III, Section 1 of the Articles of Incorporation of the Company
authorize the issuance of 200,000 shares of a preferred class stock with a par
value of $25.00. Except to the extent to which the Board of Directors shall have
specified voting power with respect to the preferred stock of any series and
except as otherwise provided by law, the exclusive voting power shall be vested
in the common stock. The dividends of the preferred stock shall have a fixed
rate of dividends if and when declared by the Board of Directors. Such dividends
shall be cumulative.
As of December 31, 1999, there has been no issuance of preferred stock
as authorized in the Articles of Incorporation.
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ITEM 6 SELECTED FINANCIAL DATA
Years Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands of dollars, except per share amounts)
Interest income $15,126 $14,328 $13,653 $12,729 $11,182
Interest expense 7,376 7,006 6,508 6,162 5,401
------- ------- ------- ------- -------
Net interest income 7,750 7,322 7,145 6,567 5,781
Provision for loan losses 606 357 360 295 188
Other operating revenue 742 647 586 565 602
Other operating expense 4,317 3,825 3,600 3,327 3,048
------- ------- ------- ------- -------
Income Before Income Taxes 3,569 3,787 3,771 3,510 3,147
Income Taxes 1,057 1,143 1,192 1,064 938
------- ------- ------- ------- -------
Net Income 2,512 2,644 2,579 2,446 2,209
Per Share Data (1) (2)
Net income 0.83 0.89 0.88 0.85 0.77
Cash dividends declared 0.32 0.31 0.29 0.24 0.18
Balance Sheet Amounts
(at end of period)
Total assets 193,324 185,381 158,735 150,908 135,364
Total loans (3) 150,675 133,033 125,422 118,864 102,411
Total deposits 164,741 164,892 140,742 135,360 121,623
Total equity 20,048 19,015 16,652 14,362 12,501
Book value per share
(at end of period) (2) 6.65 6.34 5.66 4.96 4.36
Selected Financial Ratios
Net income to average equity 13.30 15.65 17.31 17.91 18.68
Net income to average assets 1.31 1.53 1.66 1.70 1.74
Loans to deposits (4) 92.39 81.62 90.10 88.70 85.06
Primary capital to total
assets (at end of period)
(5) 10.65 10.95 10.99 9.25 9.62
Net interest yield (6) 4.33 4.54 4.90 4.57 4.82
Allowance for loan losses
to loans (at end of
period) (7) 1.00 1.16 1.00 1.00 1.00
Nonperforming loans to loans
(at end of period) (8) 1.04 1.05 1.12 1.02 0.66
Net charge offs to average
loans (4) 0.45 0.15 0.14 0.11 0.05
(1) Average shares outstanding.
(2) 1995 and 1996 adjusted for a 2 for 1 stock split occurring on October 2,
1997.
(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 gains 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.
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ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This section of the report should be read in conjunction with the
statistical information, financial statements and related notes, and the
selected financial data appearing elsewhere in the report. Since the Bank is the
only subsidiary of the Company, all operating data will be referred to in this
discussion as that of the Bank.
Overview
The Company continued to grow through its subsidiary, Benchmark
Community Bank, as the Bank reached out to serve an extended trade area. The
Bank experienced significant growth in loans which led to record levels of
interest earned and net interest margins. During the year, however, deposit
growth was flat. Because of the lack of growth in deposits, the Bank funded
these new loans not only through highly liquid Federal funds investments, but
also by purchasing Federal funds to a level of $7,035,000 at December 31, 1999.
The growth in loans was part of a long-term strategy by management
designed to maximize profits as well as better serve the credit needs of the
trade area as Southside Virginia began a long anticipated growth cycle for small
business and housing. To generate additional loan growth, the Bank opened three
loan production offices, one each in the towns of Chase City, Clarksville, and
Lawrenceville. Through production in these offices along with the offering of
new loan products designed to better match customer needs, the loans grew 12.94%
over the prior year's level.
The second phase of the long-term strategy of management consists of
converting the loan production offices into full-service branches and to
continue to pursue expansion opportunities in and around the existing trade
area. At the present time, one of the offices has been converted while the other
two are in the early stages of the conversion process. It is the intention of
management to gain a proper asset/liability maturity mix with a high loan to
deposit ratio within a framework that will maximize customer service and return
to the stockholders.
A Comparison of 1999 Versus 1998
Results of Operations and Financial Conditions
Net income of $2,511,507 in 1999 decreased $132,658 or 5.02% from net
income of $2,644,165 in 1998. Earnings per share of $.83 in 1999 decreased $.06
or 6.74% from earnings per share of $.89 in 1998.
The growth in loans without a corresponding growth in deposits led to a
loan to deposit ratio increase to 92.39% from 81.62% for the previous year.
Deposits decreased $151,616 or .09% while gross loans grew $17,444,507 or
12.94%. As a result, the Bank liquidated short-term investments and purchased
Federal funds.
In 1999, the Bank achieved a return on average assets of 1.31% as
compared to a 1.53% return on average assets in 1998. While the rate of return
was strong once again, it was lower than the previous year as rates declined on
loans and investments at a greater rate than the rates on deposits.
The year ended 1999 reflected a decrease in return on equity as net
income to average equity amounted to 13.30% as compared to the 1998 level of
15.65%. This decrease resulted from equity increasing through the sale of stock
from the dividend reinvestment plan and the exercising of stock options at a
greater rate than the income grew. During 1999, the Bank discontinued its
dividend reinvestment plan.
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Net Interest Income
Net interest income of $7,749,159 in 1999 reflected an increase of
$427,750 or 5.84% over net interest income of $7,321,409 in 1998.
Total interest income of $15,125,540 in 1999 showed an increase of
$798,056 or 5.57% over total interest income of $14,327,484 in 1998. Total
interest expense of $7,376,381 in 1999 reflected an increase of $370,306 or
5.29% over total interest expense of $7,006,075 in 1998.
The increase in interest income resulted from a significant increase in
loans rather than being a function of rate increases. (Refer to Table D,
"Analysis of Changes in Net Interest Income," for an analysis of the impact of
volume and rate.)
To remain competitive in the marketplace, the Bank lowered loan rates
by an average of 53 basis points. During the same period of time, deposit rates
declined on average by 24 basis points as lower market rates were the norm for
the industry. (Refer to Table C, "Interest Rates Earned and Paid," for further
analysis of interest rate activity.)
Loans
The Bank utilizes the following types of loans in servicing the trade
area:
Commercial (Time and Demand) 15.38%
Consumer (Installment) 17.23%
Real Estate (Construction) .75%
Real Estate (Mortgage) 66.64%
These types of loans have traditionally provided the Bank with a steady
source of quality interest-earning assets. The maturities of these loans range
from commercial loans and real estate construction loans maturing in less than
one year to installment and real estate credits that may exceed five years. The
mortgage loans, which represent 67.39% of the portfolio, are typically fifteen
to twenty year payback loans with three to five year balloon options. By setting
maturities of loans for a short-term, the Bank can effectively manage its
asset/liability match, as most deposit accounts mature in one year or less.
Allowance for Loan Losses
The 1999 year ending level of the allowance for loan losses amounted to
$1,522,632. This amount represented a decrease of $36,109 or 2.32% over the 1998
level of $1,558,741. During 1999, the gross loan portfolio increased 12.94% as
the Bank opened three loan production offices to secure quality loans. Loans
collateralized by real estate represented a majority of the loans. As of the
year end 1999, the Bank's allowance for loan losses represented 1.00% of gross
loans.
The Bank incurred net charge offs for loan losses for the year of
$642,139. As a result of the net charge offs, the provision was $249,515 higher
which represented a 69.99% increase over the amount expended in 1998.
Noninterest Income and Noninterest Expense
Total noninterest income, i.e., fees charged for customer services, for
1999 was $742,372. This represents an increase of $95,573 or 14.78% over the
1998 level of $646,799. The increase was directly related to an increase in
other operating income as the Bank continued to experience the effect of
diversification into the area of investments and expanded automatic-teller
machine markets in 1998.
Total noninterest expense in 1999 of $4,317,143 reflects an increase of
$492,241 or 12.87% over the 1998 level of $3,824,902. The increase resulted from
normal increases in operations and salaries and benefits, as the Bank's three
loan production offices opened and then prepared to be converted to full-service
banking offices.
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Premises and Equipment
The Bank's premises and equipment increased $494,982 during the year.
Increase in Capitalized Premises and Equipment
(in thousands of dollars)
Equipment,
Leasehold Furniture, and
Office/Area Land Building Improvements Fixtures
Kenbridge $ - $ - $ - $ 30,795
Victoria - - - 13,720
Farmville #1 - - - 20,408
South Hill - - - 46,841
Farmville #2 - - - 3,603
Crewe - - - 6,509
Chase City - - - 2,565
Clarksville 110,429 50,000 - 11,602
Lawrenceville - - - 10,541
Construction in Progress - 187,969 - -
-------- -------- -------- --------
Total $110,429 $237,969 $ - $146,584
======== ======== ======== ========
Federal Funds Purchased
The 1999 year end level of Federal funds purchased was $7,035,000.
Federal funds purchased were used to fund short-term deficits in cash flow since
loan growth exceeded deposit growth.
Securities
Pursuant to guidelines established in FAS 115, the Bank has elected to
classify a majority of its current portfolio as securities available-for-sale.
This category refers to investments that are not actively traded but are not
anticipated by management to be held-to-maturity. Typically, these types of
investments will be utilized by management to meet short-term asset/liability
management needs.
For purposes of financial statement reporting, securities classified as
available-for-sale are to be reported at fair market value as of the date of the
statements; however, unrealized holding gains and losses are to be excluded from
earnings and reported as a net amount in a separate component of stockholders'
equity until realized. The impact of this unrealized loss on securities
negatively impacted stockholders' equity in the amount of $542,544, therefore,
affecting the book value of the Company's stock. The book value per share of the
stock inclusive of the FAS 115 adjustment was $6.65, while the book value per
share would have been $6.83 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.
<PAGE>
Page 14 of 83
As of December 31, 1999, the Bank had $1,825,989 in outstanding letters
of credit. These instruments are based on the financial strength of the customer
and the existing relationship between the Bank and the customer.
At current year end, the Bank also had unused commitments resulting
from credit line deeds of trust, home equity lines, and unfunded business loans.
The total amount of these commitments amounted to $18,561,686.
Concentrations
The Bank has no concentrations of credit involving an individual
borrower and his related interest. The Bank does have a concentration in loan
type in that a majority of the loan portfolio is secured by noncommercial real
estate. Due to the subjectivity of the real estate market to the condition of
the economy and sensitivity to interest rate fluctuation, there is an inherent
risk; however, the Bank has, as a matter of policy, a loan-to-collateral
percentage that allows for a level of decline in collateral value without
affecting the quality of the loan.
Liquidity
The Bank's funding requirements are supplied by a wide range of
traditional banking sources, including various types of demand, money market,
savings, certificates of deposit, and, more recently, Federal funds purchased.
Large certificates of deposit of $100,000 or more decreased by $1,615,442 or
8.89% in 1999. These deposits currently represent 10.05% 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 2000 is $9,850,919, while $6,710,000
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 $43,981,000 when
immediately maturing interest-bearing liabilities are deducted from immediately
maturing interest-earning assets. The cumulative gap increases to a negative gap
of $51,255,000 when comparing assets and liabilities maturing up to one year;
however, the cumulative gap shifts to a positive position of $25,599,000 for
five years. The deficit gap results from the customer preference for short-term
liquidity in the current period of fluctuating rates, which affects not only
deposits but also callable investments.
The nature of the large gap deficit is an industry-wide situation that
is typical of the banking industry where a bulk of the assets is financed by
short-term deposits. To further compound the situation, Bank customers have
shown a preference for longer terms on loans versus deposits as financial rates
remain low.
The Bank is satisfied that it can meet the liquidity needs by utilizing
three to five year balloon notes for real estate financing and a one year
maturity for commercial loans. This strategy, while not meeting exact liquidity
needs on a dollar for dollar asset/liability mix, does provide a near match
without sacrificing a positive interest rate spread.
To compensate for the resultant mismatching of assets and liabilities,
the Bank has invested in highly liquid investments. In the unlikely event of a
liquidity hardship, these investments are available to be sold to fund assets
currently being supported by deposit liabilities.
The GAP model does not consider the impact of core deposit loyalty.
Management feels that these core deposits along with the highly marketable
securities available will provide sufficient reserves to fund any short-term
loss of deposits.
<PAGE>
Page 15 of 83
Capital Resources and Adequacy
In the past, the Company has blended internally generated retained
earnings with capital stock sales to maintain a strong capital position
necessary to support future growth.
The Company began a capital buy back program during 1999. Through this
program, the Company has repurchased 21,300 shares of stock amounting to
$267,094. The Company continued to experience strong earnings through the
operation of the Bank. Through earnings, the Company generated an additional
$712,586 in capital. This activity, plus the net sale of $457,857 common stock
through the dividend reinvestment plan and the stock option plan, raised year
end capital exclusive of unrealized security gains net of tax effect to a level
of $20,590,290 or a 9.22% increase over the 1998 year ending level of
$18,852,113.
The primary capital to total assets ratio stands at 10.37% as of
December 31, 1999. This amount is well above current industry standards. Refer
to Item 14(d)(5) for additional capital ratio analysis. Due to the increase in
earnings, subsequent earnings retention, and sale of common stock, the Company's
capital position was strengthened and, as a result, the Company remains well
capitalized for the banking industry.
Pursuant to regulations of the Federal Reserve Board, the Company is
required to maintain certain minimum levels of capital in its Bank subsidiary.
At December 31, 1999, the Bank maintained the following capital ratios:
Total Capital to Risk Weighted Assets 13.38%
Tier I Capital to Risk Weighted Assets 12.30%
Tier I Capital to Total Book Assets 9.09%
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 1999 saw declining rates that resulted in
decreases in deposit rates and more significant declines in loan rates. The
interest spread for the year was 4.12% or a 4.85% decline from 1998's interest
spread margin.
Lending and Funding Strategies
The Bank relies on traditional sources of funding such as demand
deposits, interest- bearing checking, money market deposit accounts, savings
accounts, and certificates of deposit for funding its activities. These funds
are subsequently loaned to the local community, with the exception of cash and
prudent liquidity needs. Traditionally, the Bank has experienced a strong loan
demand.
At year end 1999, the loan-to-deposit ratio amounted to 92.39%. This
represents an increase of 12.89% over the year end level of 1998 as the Bank
experienced a greater rate of growth from loans versus deposits.
<PAGE>
Page 16 of 83
Looking Forward
The Bank has experienced tremendous success in its operation since 1989
when it moved into two new market areas and raised additional capital. The
capital provided a solid foundation upon which to grow by affording the Bank a
degree of aggressiveness in operation during a favorable economic climate for
banks and banking services. This aggressiveness took the form of expansion and
competitive pricing of services. Management plans to utilize this capital in a
way that will increase market share without sacrificing quality of service to
its customers.
The Bank experienced significant growth during the last decade. By
expanding the trade area into neighboring counties and towns, the Bank has been
able to attract quality loans and deposits at profitable levels. As management
looks to the future, they feel that the trade area provides future growth
potential as the Bank offers new financial services. The new computer system
acquired during 1998 has the capability to expand the Bank's services beyond the
traditional services offered thus providing a solid technological platform upon
which to grow.
With the expansion of the trade area through three new locations, the
Bank has increased its loan portfolio. As these offices are converted to
full-service branches, Management intends to follow the successful pattern of
the 1989 expansion project by developing new loan and deposit markets and new
products to compete in the financial marketplace.
<PAGE>
Page 17 of 83
A Comparison of 1998 Versus 1997
Results of Operations and Financial Conditions
Net income of $2,644,165 in 1998 increased $65,457 or 2.54% from net
income of $2,578,708 in 1997. Earnings per share of $.89 in 1998 increased $.01
or 1.14% from earnings per share of $.88 in 1997.
During the year, the Bank posted a record earnings level. The growth in
income resulted from growth in earning assets fueled by strong demand for
deposit accounts within the trade area. The growth in loans did not parallel the
increases in deposits and, correspondingly, the loan to deposit ratio declined
to 81.62% from 90.10% for the previous year. Deposits increased $24,150,051 or
17.16% while loans grew a modest $7,777,600 or 6.13%. As a result, the Bank
increased its level of investments in secondary reserves and short-term
investments. The level of Federal funds sold increased $12,062,000 or 225.33%
when compared to the previous year end total while investment securities grew
$5,447,696 or 30.16%.
In 1998, the Bank achieved a return on average assets of 1.53% as
compared to a 1.66% return on average assets in 1997. While the rate of return
was strong once again, it was lower than the previous year as the Bank
experienced a decline in the interest rate margin spread as high yielding loan
growth did not match deposit growth.
The year ended 1998 reflected a decrease in return on equity as net
income to average equity amounted to 15.65% as compared to the 1997 level of
17.31%. This decrease resulted from equity increasing through the sale of stock
from the dividend reinvestment plan and the exercising of stock options at a
greater rate than the income grew.
Net Interest Income
Net interest income of $7,321,409 in 1998 reflected an increase of
$176,550 or 2.47% over net interest income of $7,144,859 in 1997.
Total interest income of $14,327,484 in 1998 showed an increase of
$674,112 or 4.94% over total interest income of $13,653,372 in 1997. Total
interest expense of $7,006,075 in 1998 reflected an increase of $497,562 or
7.64% over total interest expense of $6,508,513 in 1997.
The increase in interest income resulted from a significant increase in
investments rather than being a function of rate increases. (Refer to Table D,
"Analysis of Changes in Net Interest Income," for an analysis of the impact of
volume and rate.)
To remain competitive in the marketplace, the Bank lowered loan rates
by an average of 41 basis points. During the same period of time, deposit rates
declined on average by 11 basis points as lower market rates were the norm for
the industry. (Refer to Table C, "Interest Rates Earned and Paid," for further
analysis of interest rate activity.)
Loans
The Bank utilizes the following types of loans in servicing the trade
area:
Commercial (Time and Demand) 15.56%
Consumer (Installment) 17.24%
Real Estate (Construction) .80%
Real Estate (Mortgage) 66.40%
<PAGE>
Page 18 of 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 and real estate credits that may exceed five years. The
mortgage loans, which represent 67.20% of the portfolio, are typically fifteen
to twenty year payback loans with three to five year balloon options. By setting
maturities of loans for a short-term, the Bank can effectively manage its
asset/liability match, as most deposit accounts mature in one year or less.
Allowance for Loan Losses
The 1998 year ending level of the allowance for loan losses amounted to
$1,558,741. This amount represented an increase of $167,317 or 12.02% over the
1997 level of $1,391,424. During 1998, the gross loan portfolio increased 6.06%
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,
loan restructuring, and the general economic condition of the trade area. As of
the year end 1998, the Bank's allowance for loan losses represented 1.16% of
gross loans.
During 1998, the Bank's loan loss ratio continued to be low as the
ratio of net loan losses to average loans was .15% resulting from losses
exceeding recoveries by $188,728. At year end, management feels the allowance
for loan losses is adequate. In 1999, 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
1998 was $646,799. This represents an increase of $61,163 or 10.44% over the
1997 level of $585,636. The increase was directly related to an increase in
other operating income as the Bank diversified into the area of investments and
expanded automatic-teller machine markets.
Total noninterest expense in 1998 of $3,824,902 reflects an increase of
$225,165 or 6.26% over the 1997 level of $3,599,737. The increase resulted from
normal increases in operations and salaries and benefits, as the Bank's Crewe
office was open for the entire year and management continued to staff support
people to handle the growth in operations.
Premises and Equipment
The Bank's premises and equipment increased $424,658 during the year.
Increase in Capitalized Premises and Equipment
(in thousands of dollars)
Equipment,
Leasehold Furniture, and
Office/Area Building Improvements Fixtures
Kenbridge $ - $ - $102,687
Victoria - - 90,386
Farmville #1 - 23,831 43,838
South Hill - - 101,703
Farmville #2 - - 52,209
Crewe - - 10,004
-------- ------- --------
Total $ - $23,831 $400,827
======== ======= ========
<PAGE>
Page 19 of 83
Federal Funds Sold and Purchased
The 1998 year end level of Federal funds sold was $17,415,000. This
level reflects an increase of $12,062,000 or 225.33% over the year ending 1997
level of $5,353,000. Federal funds sold are utilized as a short-term investment
vehicle, as well as to provide liquidity. As of year end 1998, Federal funds
sold as a percent of total assets increased to 9.39% as compared to 3.37% in
1997.
Securities
Pursuant to guidelines established in FAS 115, the Bank has elected to
classify a majority of its current portfolio as securities available-for-sale.
This category refers to investments that are not actively traded but are not
anticipated by management to be held-to-maturity. Typically, these types of
investments will be utilized by management to meet short-term asset/liability
management needs.
For purposes of financial statement reporting, securities classified as
available-for-sale are to be reported at fair market value as of the date of the
statements; however, unrealized holding gains and losses are to be excluded from
earnings and reported as a net amount in a separate component of stockholders'
equity until realized. The impact of this unrealized gain on securities
positively impacted stockholders' equity in the amount of $163,100, therefore,
affecting the book value of the Company's stock. The book value per share of the
stock inclusive of the FAS 115 adjustment was $6.34, while the book value per
share would have been $6.29 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, 1998, the Bank had $2,196,802 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 $16,736,442.
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. These
deposits exclusive of Federal funds sold amounted to $3,924,156 as of December
31, 1998. Of this amount, $3,715,645 was in excess of FDIC insurance levels.
<PAGE>
Page 20 of 83
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 $5,806,276 or 46.94% in 1998. These deposits currently
represent 11.02% 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 1999 is
$10,506,798, while $7,669,570 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 $18,826,000 when
immediately maturing interest-bearing liabilities are deducted from immediately
maturing interest-earning assets. The cumulative gap decreases to a negative gap
of $27,658,000 when comparing assets and liabilities maturing up to one year;
however, the cumulative gap shifts to a positive position of $5,802,000 for one
to five years. The deficit gap results from the customer preference for
short-term liquidity in the current period of fluctuating rates, which affects
not only deposits but also callable investments.
The nature of the large gap deficit is an industry-wide situation that
is typical of the banking industry where a bulk of the assets is financed by
short-term deposits. To further compound the situation, Bank customers have
shown a preference for longer terms on loans versus deposits as financial rates
remain low.
The Bank is satisfied that it can meet the liquidity needs by utilizing
three to five year balloon notes for real estate financing and a one year
maturity for commercial loans. This strategy, while not meeting exact liquidity
needs on a dollar for dollar asset/liability mix, does provide a near match
without sacrificing a positive interest rate spread.
To compensate for the resultant mismatching of assets and liabilities,
the Bank has invested in highly liquid investments. In the unlikely event of a
liquidity hardship, these investments are available to be sold to fund assets
currently being supported by deposit liabilities.
The GAP model does not consider the impact of core deposit loyalty.
Management feels that these core deposits along with the highly marketable
securities available will provide sufficient reserves to fund any short-term
loss of deposits.
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 1998, the Company continued to experience record
earnings through the operation of the Bank. Through earnings, the Company
generated an additional $1,716,941 in capital. This activity, plus the net sale
of $11,688 common stock through the dividend reinvestment plan and the stock
option plan, raised year end capital exclusive of unrealized security gains net
of tax effect to a level of $18,852,113 or a 14.43% increase over the 1997 year
ending level of $16,474,727.
The primary capital to total assets ratio stands at 10.25% as of
December 31, 1998. This amount is well above current industry standards. Refer
to Item 14(d)(5) for additional capital ratio analysis. Due to the increase in
earnings, subsequent earnings retention, and sale of common stock, the Company's
capital position was strengthened and, as a result, the Company remains well
capitalized for the banking industry.
<PAGE>
Page 21 of 83
Pursuant to regulations of the Federal Reserve Board, the Company is
required to maintain certain minimum levels of capital in its Bank subsidiary.
At December 31, 1998, the Bank maintained the following capital ratios:
Total Capital to Risk Weighted Assets 14.64%
Tier I Capital to Risk Weighted Assets 13.40%
Tier I Capital to Total Book Assets 9.33%
These ratios exceed the minimum ratios required by regulatory
authorities for the Bank to be considered well capitalized.
Inflationary Factors
The Bank's earnings are greatly impacted by inflation and the actions
of the Federal Reserve Board. The year 1998 saw declining rates that resulted in
decreases in deposit rates and more significant declines in loan rates. The
interest spread for the year was 4.33% or a 6.48% decline from 1997's interest
spread margin.
Lending and Funding Strategies
The Bank relies on traditional sources of funding such as demand
deposits, interest- bearing checking, money market deposit accounts, savings
accounts, and certificates of deposit for funding its activities. These funds
are subsequently loaned to the local community, with the exception of cash and
prudent liquidity needs. Traditionally, the Bank has experienced a strong loan
demand.
At year end 1998, the loan-to-deposit ratio amounted to 81.62%. This
represents a decrease of 9.41% over the year end level of 1997 as the Bank
experienced a greater rate of growth from deposits versus loans.
<PAGE>
Page 22 of 83
TABLE A. COMPARATIVE SUMMARY OF EARNINGS
Years Ending December 31,
1999 1998 1997
---- ---- ----
(In thousands of dollars, except per share data)
Interest Income
Loans $ 13,209 $ 12,456 $ 12,235
U. S. Government agencies 931 680 533
State and political
subdivision securities 616 493 492
Other securities 6 6 6
Federal funds sold 363 693 388
------------- ------------- -------------
Total Interest Income 15,125 14,328 13,654
Interest Expense
Deposits
Interest-bearing checking 811 760 709
Savings 299 286 282
Time 6,225 5,960 5,518
Federal funds purchased 41 - -
------------- ------------- -------------
Total Interest Expense 7,376 7,006 6,509
------------- ------------- -------------
Net Interest Income 7,749 7,322 7,145
Provision for Loan Losses 606 357 360
------------- ------------- -------------
Net Interest Income
After Provision for
Loan Losses 7,143 6,965 6,785
Noninterest Income
Service charges on
deposit accounts 450 431 411
Other 292 214 169
Net investment securities
gains (losses) (1) (1) (2)
Gain on sale of other
real estate (4) 3 7
Rental 5 - -
------------- ------------- -------------
Total Noninterest Income 742 647 585
Noninterest Expense
Salaries 2,300 2,036 1,890
Employee benefits 517 448 392
Occupancy expense 226 199 210
Other operating expense 1,274 1,142 1,107
------------- ------------- -------------
Total Noninterest Expense 4,317 3,825 3,599
------------- ------------- -------------
Net Income Before Taxes 3,568 3,787 3,771
Income Tax 1,056 1,143 1,192
------------- ------------- -------------
Net Income $ 2,512 $ 2,644 $ 2,579
============= ============= =============
Per Share - Based on Weighted Average
Net income $ 0.83 $ 0.89 $ 0.88 (1)
Average shares
outstanding 3,011,913.354 2,978,930.855 2,925,206.402 (1)
(1) Restated to reflect a 2 for 1 stock split effective October 2, 1997.
<PAGE>
Page 23 of 83
TABLE B. AVERAGE BALANCE SHEETS
(In thousands of dollars)
Years Ended December 31,
1999 1998 1997
---- ---- ----
Amount % Amount % Amount %
------ - ------ - ------ -
Assets
Cash and due from banks $ 5,924 3.10 $ 5,056 2.94 $ 4,548 2.92
Investment securities 27,657 14.47 20,492 11.90 17,071 10.97
Federal funds sold 7,557 3.95 12,941 7.51 7,045 4.53
Loans 143,610 75.12 128,054 74.34 121,780 78.22
Bank premises and equipment 3,273 1.71 3,121 1.81 3,080 1.98
Accrued interest 1,462 0.76 1,471 0.85 1,388 0.89
Other assets 1,682 0.89 1,122 0.65 768 0.49
-------- ------ -------- ------ -------- ------
$191,165 100.00 $172,257 100.00 $155,680 100.00
======== ====== ======== ====== ======== ======
Liabilities and Stockholders' Equity
Deposits
Demand $ 38,866 20.33 $ 34,661 20.12 $ 28,440 18.27
Savings and MMA 18,454 9.65 16,043 9.31 15,677 10.07
Time 113,178 59.20 103,770 60.24 95,726 61.49
Federal funds purchased 822 0.43 - - - -
Accrued interest 726 0.38 717 0.42 651 0.42
Other liabilities 225 0.12 174 0.10 287 0.18
Stockholders' equity 18,894 9.89 16,892 9.81 14,899 9.57
-------- ------ -------- ------ -------- ------
$191,165 100.00 $172,257 100.00 $155,680 100.00
======== ====== ======== ====== ======== ======
<PAGE>
Page 24 of 83
TABLE C. INTEREST RATES EARNED AND PAID (In thousands of dollars)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 1998 1997
---- ---- ----
Average Yield/ Average Yield/ Average Yield/
Description Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ----------- ------- -------- ---- ------- -------- ---- ------- -------- ----
Interest-Earning Assets
Investment securities $ 27,657 $ 1,502 5.43% $ 20,492 $ 1,179 5.75% $ 17,071 $ 1,031 6.04%
Federal funds sold 7,557 363 4.80% 12,941 693 5.36% 7,045 388 5.51%
Loans (1) (2) 143,610 13,209 9.20% 128,054 12,456 9.73% 123,078 12,234 9.94%
-------- ------- ---- -------- ------- ----- -------- ------- -----
$178,824 15,074 8.43% $161,487 14,328 8.87% $147,194 13,653 9.28%
======== ======= ===== ======== ====== ===== ======== ======= =====
Interest-Bearing Liabilities
Deposits $170,498 7,335 4.30% $154,474 7,006 4.54% $139,843 6,509 4.65%
Federal funds purchased 822 41 4.99% - - 0.00% - - 0.00%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total Interest-Bearing
Liabilities $171,320 7,376 4.31% $154,474 7,006 4.54% $139,843 6,509 4.65%
======== ======= ===== -------- ======= ===== ======== ======= =====
Net interest income/yield (3) (4) $ 7,698 $ 7,322 $ 7,144
======= ======= =======
Interest spread (5) 4.12% 4.33% 4.63%
</TABLE>
(1) Loans net of unearned income.
(2) These figures do not reflect interest and fees to be collected on nonaccrual
loans. To date, the impact of nonaccrual loans on the interest income
earned has been minimal. Refer to Table G.
(3) Net interest income is the difference between income from earning assets and
interest expense.
(4) Net interest yield is net interest income divided by total average earning
assets.
(5) Interest spread is the difference between the average interest rate received
on earning assets and the average interest rate paid for interest-earning
liabilities.
<PAGE>
Page 25 of 83
TABLE D. ANALYSIS OF CHANGE IN NET INTEREST INCOME (In thousands of dollars)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year 1999 over 1998 Year 1998 over 1997
Increase (Decrease) Total Increase (Decrease) Total
Due to Change In: Increase Due to Change In: Increase
Volume Rate (Decrease) Volume Rate (Decrease)
Increase (Decrease) in
Investment securities $ 389 $ (15) $ 374 $ 313 $ (165) $148
Federal funds sold (288) (42) (330) 647 (342) 305
Loans 1,515 (761) 754 747 (526) 221
------- ------ ------ ------ -------- ----
Total 1,616 (818) 798 1,707 (1,033) 674
Interest Expense
Deposit accounts 689 (360) 329 1,096 (598) 498
Federal funds purchased 41 - 41 - - -
------- ------ ------ ------ -------- ----
Total 730 (360) 370 1,096 (598) 498
------- ------ ------ ------ -------- ----
Increase (Decrease) in
Net Interest Income $ 886 $(458) $ 428 $ 611 $ (435) $176
======= ====== ====== ====== ======= ====
Year 1997 over 1996
Increase (Decrease) Total
Due to Change In: Increase
Volume Rate (Decrease)
Increase (Decrease) in
Investment securities $ (91) $ (14) $(105)
Federal funds sold 129 (15) 114
Loans 1,040 (124) 916
------- ------ ------
Total 1,078 (153) 925
Interest Expense
Deposit accounts 508 (161) 347
------- ------ ------
Increase (Decrease) in
Net Interest Income $ 570 $ 8 $ 578
======= ====== =====
</TABLE>
<PAGE>
Page 26 of 83
TABLE E. INVESTMENT SECURITIES
The carrying amount and approximate market values of investment
securities are summarized below:
Book Unrealized Unrealized Market
Value Gains Losses Value
Available-for-Sale
December 31, 1999
U. S. Government agencies $ 9,287,788 $ - $ 465,636 $ 8,822,152
State and political subdivisions 12,109,027 71,068 335,864 11,844,231
Pooled securities 2,359,516 909 92,510 2,267,915
----------- -------- --------- -----------
$23,756,331 $ 71,977 $ 894,010 $22,934,298
=========== ======== ========= ===========
December 31, 1998
U. S. Government agencies $ 6,087,700 $ 32,040 $ 29,844 $ 6,089,896
State and political subdivisions 11,103,051 287,810 42,584 11,348,277
Pooled securities 1,685,303 5,547 5,849 1,685,001
----------- -------- -------- -----------
$18,876,054 $325,397 $ 78,277 $19,123,174
=========== ======== ======== ===========
Held-to-Maturity
December 31, 1999
U. S. Government agencies $ 4,500,000 $ - $280,105 $ 4,219,895
State and political subdivisions 746,170 971 31,889 715,252
Other securities 137,000 - - 137,000
----------- -------- -------- -----------
$ 5,383,170 $ 971 $311,994 $ 5,072,147
=========== ======== ======== ===========
December 31, 1998
U. S. Government agencies $ 3,499,716 $ 5,284 $ 23,878 $ 3,481,122
State and political subdivisions 747,622 8,289 7,999 747,912
Other securities 137,000 - - 137,000
----------- -------- -------- -----------
$ 4,384,338 $ 13,573 $ 31,877 $ 4,366,034
=========== ======== ======== ===========
The maturities of investment securities at December 31, 1999 were as
follows:
Book Value Market Value
Available-for-Sale
Due in one year or less $ 105,000 $ 105,738
Due from one to five years 7,519,363 7,376,103
Due from five to ten years 12,216,300 11,817,889
After ten years 3,915,668 3,634,568
Held-to-Maturity
Due from one to five years 1,516,170 1,435,531
Due from five to ten years 3,730,000 3,499,616
Other securities 137,000 137,000
Securities having a book value of $5,064,105 and $3,643,382 at December
31, 1999 and 1998, respectively, were pledged to secure public deposits and for
other purposes.
In the event of the sale of securities, the cost basis of the security,
adjusted for the amortization of premium or discounts, will be used when
calculating gains or losses.
<PAGE>
Page 27 of 83
The maturity distribution, book value, and approximate tax equivalent
yield (assuming a 34% Federal income tax rate) of the investment securities
portfolio at December 31, 1999 is presented in the following table (in thousands
of dollars):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maturity
After One but After Five but
Within One Year Within Five Within Ten After Ten
Amount Yield(2) Amount Yield(2) Amount Yield(2) Amount Yield(2)
------ ----- ------ ----- ------ ----- ------ -----
U. S. Government
Securities $ - $4,987,954 5.84% $9,016,413 6.52% $ -
State and Political
Subdivisions 105,000 7.87% 2,171,330 7.81% 3,199,887 6.96% 3,915,668 6.11%
Pooled Securities - 360,079 7.03% - -
-------- ---------- ---------- ----------
Total(1) $105,000 $7,519,363 $12,216,300 $3,915,668
======== ========== =========== ==========
</TABLE>
(1)Values stated at book value, exclusive of other securities, which include
Federal Reserve Bank stock and Community Bankers' Bank stock which amount to
$87,000 and $50,000, respectively, at year end 1999.
(2) The yield is the weighted average Federal Tax Equivalent yield on cost.
<PAGE>
Page 28 of 83
TABLE F. LOAN PORTFOLIO
The table below classifies gross loans by major category and percentage
distribution at December 31 for 1999, 1998, and 1997:
1999 1998 1997
Amount % Amount % Amount %
Commercial $23,423,032 15.38 $20,978,190 15.56 $20,826,296 16.38
Installment 26,232,943 17.23 23,240,533 17.24 24,011,216 18.89
Real Estate-Construction 1,132,526 7.44 1,079,593 0.80 1,101,316 0.87
Real Estate-Mortgage 101,474,226 59.95 89,519,904 66.40 81,172,133 63.86
The following table shows maturities of the major loan categories and
their sensitivity to changes in investment rates at December 31, 1999 for fixed
interest rate and floating interest rate loans:
Due After
One Year
One Year but Within Due After
or Less Five Years Five Years
Fixed Rate Fixed Rate Fixed Rate Total
Commercial $21,995,500 $ 1,427,532 $ - $ 23,423,032
Installment 2,894,317 23,168,445 161,957 26,224,719
Real Estate-Construction 1,132,526 - - 1,132,526
Real Estate-Mortgage 28,748,682 62,924,150 8,530,546 100,203,378
----------- ----------- ---------- ------------
Total $54,771,025 $87,520,127 $8,692,503 $150,983,655
=========== =========== ========== ============
Over One
Year but
One Year Within Five Over
or Less Years Five Years
Floating Rate Floating Rate Floating Rate Total
Commercial $ - $ - $ - $ -
Installment - - 8,224 8,224
Real Estate 1,196,975 73,873 - 1,270,848
----------- ----------- ---------- ------------
Total $ 1,196,975 $ 73,873 $ 8,224 $ 1,279,072
=========== =========== ========== ============
<PAGE>
Page 29 of 83
TABLE G. NONPERFORMING LOANS
The loan portfolio of the Bank is reviewed by senior officers to
evaluate loan performance. The frequency of the review is based on predefined
guidelines approved by the Board of Directors that 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,
1999 1998 1997
---- ---- ----
(In thousands of dollars)
Commercial
Nonaccrual $ 49 $ 115 $ -
Contractually past due 90 days or more 14 3 6
Installment
Nonaccrual 212 97 25
Contractually past due 90 days or more 54 59 39
Real Estate
Nonaccrual 534 378 603
Contractually past due 90 days or more 629 709 753
------ ------ ------
$1,492 $1,361 $1,426
====== ====== ======
Nonperforming loans to gross loans at year end 0.98% 1.01% 1.12%
Effect of nonaccrual loans on interest revenue $ 54 $ 50 $ 96
<PAGE>
Page 30 of 83
TABLE H. SUMMARY OF LOAN LOSS EXPERIENCE
Loan losses have not been a significant negative factor for the Bank.
The following table presents the Bank's loan loss experience and selected loan
ratios for the three years ended December 31, 1999, 1998, and 1997:
1999 1998 1997
---- ---- ----
(In thousands of dollars)
Allowance for loan losses at beginning of year $ 1,559 $ 1,392 $ 1,204
Loan Charge Offs
Commercial (23) (16) (78)
Installment (622) (236) (186)
Real Estate (109) (54) (22)
--------- --------- ---------
Total Charge Offs (754) (306) (286)
Recoveries of Loans Previously Charged Off
Commercial - - 10
Installment 91 117 104
Real Estate 21 - -
--------- --------- ---------
Total Recoveries 112 117 114
--------- --------- ---------
Net loans charged off (642) (189) (172)
Provision for loan losses 606 356 360
--------- --------- ---------
Allowance for loan losses at end of year $ 1,523 $ 1,559 $ 1,392
========= ========= =========
Average total loans (net of unearned income) $145,139 $129,534 $123,073
Total loans (net of unearned income) at
year end 152,198 134,591 126,814
Selected Loan Loss Ratios
Net charge offs to average loans 0.45% 0.15% 0.14%
Provision for loan losses to average loans 0.42% 0.28% 0.30%
Provision for loan losses to net
charge offs % 81.67% 188.36% 209.30%
Allowance for loan losses to year end loans 1.02% 1.15% 1.10%
Loan loss coverage(1) 6.50X 21.92X 24.02X
(1) Income before income taxes plus provision for loan losses, divided by net
charge offs.
<PAGE>
Page 31 of 83
TABLE I. COMPOSITION OF ALLOWANCE FOR LOAN LOSSES (In thousands of dollars)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 1998 1997
---- ---- ----
Percentage Percentage Percentage
Allowance Breakdown of Loans Allowance Breakdown of Loans Allowance Breakdown of Loans
Amount % Outstanding Amount % Outstanding Amount % Outstanding
------ - ----------- ------ - ----------- ------ - -----------
Commercial $ 61 4.01 15.38 $ 324 20.78 15.56 $ 548 39.40 27.33
Installment 1,249 82.01 17.23 923 59.20 17.24 634 45.58 18.92
Real Estate - Construction - - 0.75 - - 0.80 - - 0.75
Real Estate - Mortgage 213 - 66.64 312 20.02 66.40 209 15.02 53.00
------ ----- ------ ------ ------ ------ ------ ------ ------
Total $1,523 13.98 100.00 $1,559 100.00 100.00 $1,391 100.00 100.00
====== ===== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
Page 32 of 83
TABLE J. DEPOSITS
The breakdown on average deposits for the years indicated is as follows:
(In thousands of dollars)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1997
---- ---- ----
Average Average Average
Balance Rate Balance Rate Balance Rate
Noninterest-bearing demand deposits $ 18,113 - $ 17,263 - $ 14,354 -
Interest-bearing demand deposits 20,753 2.63 17,398 3.00 14,550 3.18
Money market accounts 8,303 3.13 6,785 3.50 6,536 3.50
Savings 10,151 2.93 9,258 3.07 8,678 3.25
Time 113,178 5.36 103,770 5.78 95,726 5.67
-------- -------- --------
$170,498 $154,474 $139,844
======== ======== ========
</TABLE>
Remaining maturities of time certificates of deposit of $100,000 or
more at December 31, 1999 are shown below (in thousands of dollars):
Maturity December 31, 1999
Three months or less $ 4,824
Three to six months 2,349
Six to twelve months 2,717
One to three years 4,953
Three to five years 1,718
-------
Total $16,561
=======
<PAGE>
Page 33 of 83
TABLE K. RETURN ON EQUITY AND ASSETS
The following table highlights certain ratios for the three years ended
December 31, 1999, 1998, and 1997 (in thousands of dollars):
1999 1998 1997
---- ---- ----
Income before securities gains and losses to
Average total assets 1.31% 1.54% 1.66%
Average stockholders' equity 13.29% 15.66% 17.32%
Net income to
Average total assets 1.31% 1.53% 1.66%
Average stockholders' equity 13.29% 15.65% 17.30%
Dividend pay out ratio (dividends declared per
share divided by net income per share) 38.55% 34.83% 32.95%
Average stockholders' equity to average total
assets ratio 9.88% 9.81% 9.57%
<PAGE>
Page 34 of 83
TABLE L.
GAP Analysis
December 31, 1999
The following table reflects interest-rate sensitive assets and
liabilities only. The following table sets forth at December 31, 1999
interest-earning assets and interest-bearing liabilities scheduled to mature or
reprice within a specific period. (In thousands of dollars)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Scheduled Maturity or Repricing
Immediately 3 Months
Adjusted or Less 3-6 Months 6 Mos.-1 Yr. 1-5 Years Over 5 Years Total
-------- ------- ---------- ------------ --------- ------------ -----
Gross loans $ 769 $13,575 $10,683 $30,941 $87,594 $ 8,701 $152,263
Investment securities (1)(2) - - - - 9,036 19,862 28,898
--------- -------- -------- -------- -------- -------- ---------
Total Interest-Earning Assets $ 769 $13,575 $10,683 $30,941 $96,630 $28,563 $181,161
========= ======== ======== ======== ======== ======== =========
Interest-Bearing Liabilities
Interest-bearing demand deposits $ 19,906 $ - $ - $ - $ - $ - $ 19,906
Money market deposits 8,046 - - - - - 8,046
Savings 9,763 - - - - - 9,763
Time deposits - 21,950 17,616 22,907 48,339 - 110,812
Federal funds purchased 7,035 - - - - - 7,035
--------- -------- -------- -------- -------- -------- --------
Total Interest-Bearing
Deposits $ 44,750 $21,950 $17,616 $22,907 $48,339 $ - $155,562
========= ======== ======== ======== ======== ======== =========
Difference Between Interest-Earning
Assets and Interest-Bearing
Liabilities (GAP) $(43,981) $(8,375) $(6,933) $ 8,034 $48,291 $28,563 $ 25,599
Cumulative (GAP) (43,981) (52,356) (59,289) (51,255) (2,964) 25,599
Cumulative interest-earning
assets to interest-bearing
liabilities 1.72% 21.51% 29.68% 52.20% 98.12% 116.49%
</TABLE>
(1) Does not include $87,000 in Federal Reserve stock and $50,000 in Community
Bankers' Bank stock.
(2) All securities are stated at book value regardless of security
classification as to available-for-sale and held-to-maturity.
<PAGE>
Page 35 of 83
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to Footnote 18 in the annual financial statements included in
this document on page 57.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management's Report on Financial Statements
Independent Auditor's Report
Financial Statements
Consolidated Statements of Financial Condition - December 31, 1999 and 1998
Consolidated Statements of Income - Years Ended December 31, 1999, 1998,
and 1997
Consolidated Statements of Changes in Stockholders' Equity - Years Ended
December 31, 1999 and 1998
Consolidated Statements of Cash Flows - Years Ended December 31, 1999,
1998, and 1997
Notes to Consolidated Financial Statements - December 31, 1999, 1998,
and 1997
<PAGE>
Page 36 of 83
Management's Report on Financial Statements
The following consolidated financial statements and related notes of
Benchmark Bankshares, Inc. and its subsidiary, Benchmark Community Bank, were
prepared by Management which has the primary responsibility for the integrity of
the financial information. The statements have been prepared in conformity with
generally accepted accounting principles appropriate in the circumstances and
include amounts that are based on Management's best estimates and judgments.
Financial information elsewhere in the Annual Report is presented on a basis
consistent with that in the financial statements.
In meeting its responsibility for the accuracy of the financial
statements, Management relies on the Company's internal accounting controls.
This system provides reasonable assurance that assets are safeguarded and
transactions are recorded to permit the preparation of appropriate financial
information.
The financial statements have been audited by Creedle, Jones, and Alga,
P. C., the Company's independent certified public accountants. Their audit is
conducted in accordance with 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.
<PAGE>
Page 37 of 83
Benchmark Bankshares, Inc.
Report on Audit of Financial Statements
<PAGE>
Page 38 of 83
Benchmark Bankshares, Inc.
Table of Contents
Pages
Independent Auditor's Report i
Exhibits
A Consolidated Statements of Financial Condition 1-2
B Consolidated Statements of Income 3-4
C Consolidated Statements of Changes in
Stockholders' Equity 5
D Consolidated Statements of Cash Flows 6-7
Notes to Consolidated Financial Statements 8-22
<PAGE>
Page 39 of 83
January 31, 2000
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, 1999 and 1998, 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, 1999 and 1998, 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
<PAGE>
Page 40 of 83
Exhibit A
Page 1
Benchmark Bankshares, Inc.
Consolidated Statements of Financial Condition
December 31, 1999 and 1998
A S S E T S
1999 1998
---- ----
Cash and due from banks $ 7,533,280 $ 5,235,130
Federal funds sold - 17,415,000
Investment securities 28,317,465 23,507,512
Loans 152,262,727 134,818,220
Less
Unearned interest income (64,643) (226,755)
Allowance for loan losses (1,522,632) (1,558,741)
------------- -------------
Net Loans 150,675,452 133,032,724
Premises and equipment - net 3,423,779 3,200,391
Accrued interest receivable 1,390,010 1,562,214
Deferred income taxes 642,481 328,393
Refundable income taxes - 33,961
Other real estate 667,808 697,862
Other assets 674,670 367,764
------------- -------------
Total Assets $193,324,945 $185,380,951
============= =============
<PAGE>
Page 41 of 83
Exhibit A
Page 2
Benchmark Bankshares, Inc.
Consolidated Statements of Financial Condition
December 31, 1999 and 1998
Liabilities and Stockholders' Equity
1999 1998
---- ----
Deposits
Demand (noninterest-bearing) $ 16,213,541 $ 16,201,313
NOW accounts 19,905,599 19,726,296
Money market accounts 8,046,212 6,850,631
Savings 9,763,624 9,663,857
Time, $100,000 and over 16,560,926 18,176,368
Other time 94,250,638 94,273,691
------------- ------------
Total Deposits 164,740,540 164,892,156
Federal funds purchased 7,035,000 -
Accrued interest payable 766,964 808,284
Accrued income tax payable 23,005 -
Dividends payable 482,493 479,594
Other liabilities 229,197 185,704
------------- ------------
Total Liabilities 173,277,199 166,365,738
Stockholders' Equity
Common stock, par value $.21 per share,
authorized 4,000,000 shares; issued
and outstanding 12-31-99 3,015,577.591,
issued and outstanding 12-31-98
2,997,465.366 shares 633,272 629,678
Capital surplus 4,501,508 4,314,339
Retained earnings 15,455,510 13,908,096
Unrealized security gains net of tax effect (542,544) 163,100
------------- ------------
Total Stockholders' Equity 20,047,746 19,015,213
------------- ------------
Total Liabilities and
Stockholders' Equity $ 193,324,945 $185,380,951
============== ============
See independent auditor's report and accompanying notes to financial statements.
<PAGE>
Page 42 of 83
Exhibit B
Page 1
Benchmark Bankshares, Inc.
Consolidated Statements of Income
Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
---- ---- ----
Interest Income
Interest and fees on loans $ 13,209,176 $ 12,455,825 $ 12,234,895
Interest on investment securities
U. S. Government agencies 931,242 680,074 533,239
State and political subdivisions 615,887 492,758 491,853
Other securities 5,845 5,795 5,770
Interest on Federal funds sold 363,390 693,032 387,615
------------- ------------- -------------
Total Interest Income 15,125,540 14,327,484 13,653,372
Interest Expense
Interest-bearing checking deposits 811,399 759,973 709,162
Savings deposits 298,675 286,247 281,848
Time deposits 6,225,469 5,959,855 5,517,503
Federal funds purchased 40,838 - -
------------- ------------- -------------
Total Interest Expense 7,376,381 7,006,075 6,508,513
------------- ------------- -------------
Net Interest Income 7,749,159 7,321,409 7,144,859
Provision for Loan Losses 606,030 356,515 359,617
------------- ------------- -------------
Net Interest Income After
Provision for Loan Losses 7,143,129 6,964,894 6,785,242
Other Income
Service charges on deposit accounts 449,641 431,144 411,430
Other operating income 292,618 213,641 169,015
Net investment securities gains
(losses) (547) (986) (1,674)
Gain (Loss) on sale of other real
estate (3,854) 3,000 6,865
Rental 4,514 - -
------------- ------------- -------------
Total Other Income 742,372 646,799 585,636
Other Expenses
Salaries 2,300,266 2,036,436 1,890,099
Employee benefits 517,009 447,663 392,111
Occupancy expense 225,530 198,601 210,302
Other operating expenses 1,274,338 1,142,202 1,107,225
------------- ------------- -------------
Total Other Expenses 4,317,143 3,824,902 3,599,737
------------- ------------- -------------
Income Before Income Taxes 3,568,358 3,786,791 3,771,141
Provision for Income Taxes 1,056,851 1,142,626 1,192,433
------------- ------------- -------------
Net Income 2,511,507 2,644,165 2,578,708
<PAGE>
Page 43 of 83
Exhibit B
Page 2
1999 1998 1997(1)
---- ---- ----
Other Comprehensive Income, Net of Tax
Net unrealized holding losses arising
during period (705,644) (14,445) -
------------- ------------- -------------
Comprehensive Income $ 1,805,863 $ 2,629,720 $ 2,578,708
============= ============= =============
Earnings Per Share of Common Stock $ 0.83 $ 0.89 $ 0.88
============= ============= =============
Average Shares Outstanding 3,011,913.354 2,978,930.855 2,925,206.402
============= ============= =============
(1) Adjusted for a 2 for 1 stock split on October 2, 1997.
See independent auditor's report and accompanying notes to financial statements.
<PAGE>
Page 44 of 83
Exhibit C
Benchmark Bankshares, Inc.
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Unrealized
Common Retained SEC Gain
Shares Stock Surplus Earnings (Loss)(1) Total
Balance January 1, 1998 2,942,811.048 $617,990 $3,667,557 $12,189,180 $ 177,545 $16,652,272
Net Income 2,644,165 2,644,165
Sale of Stock 55,055.478 11,562 653,800 665,362
Redemption of Stock (401.160) (84) (7,018) (7,102)
Semi-Annual Cash
Dividend Declared
June 18, 1998, $.15 per share (447,630) (447,630)
December 17, 1998, $.16 per
Share (479,594) (479,594)
Adjustments 210 1,975 2,185
Unrealized Security Gains
(Losses) (14,445) (14,445)
-------------- --------- ----------- ------------ ---------- ------------
Balance December 31, 1998 2,997,465.366 629,678 4,314,339 13,908,096 163,100 19,015,213
Net Income 2,511,507 2,511,507
Sale of Stock 39,438.237 8,072 450,102 458,174
Redemption of Stock (23.947) (5) (312) (317)
Stock repurchase (21,300.000) (4,473) (262,621) (267,094)
Semi-Annual Cash
Dividend Declared
June 17, 1999, $.16 per share (481,426) (481,426)
December 16, 1999, $.16
per share (482,493) (482,493)
Adjustments (174) (174)
Unrealized Security Gains
(Losses) (705,644) (705,644)
-------------- --------- ----------- ------------ ---------- ------------
Balance December 31, 1999 3,015,579.656 $633,272 $4,501,508 $15,455,510 $(542,544) $20,047,746
============== ========= =========== ============ ========== ============
</TABLE>
(1) Net of tax effect.
See independent auditor's report and accompanying notes to financial statements.
<PAGE>
Page 45 of 83
Exhibit D
Page 1
Benchmark Bankshares, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
---- ---- ----
Cash Flows from Operating Activities
Interest received $15,297,744 $14,001,654 $13,671,429
Fees and commissions received 556,706 765,183 206,312
Interest paid (7,417,701) (6,906,106) (6,492,143)
Cash paid to suppliers and employees (4,270,751) (3,780,710) (3,366,903)
Income taxes paid (950,460) (1,314,685) (1,177,997)
------------ ------------ ------------
Net Cash Provided by
Operating Activities 3,215,538 2,765,336 2,840,698
Cash Flows from Investing Activities
Proceeds from sale of investment
securities available-for-sale 280,167 190,951 822,196
Proceeds from maturity of investments 1,087,343 10,978,575 3,690,660
Purchase of investment securities (8,070,160) (17,021,520) (3,921,787)
Loans originated (90,308,177) (84,916,074) (73,215,505)
Principal collected on loans 72,863,670 77,208,816 66,312,331
Purchase premises and equipment (494,982) (453,986) (70,331)
------------ ------------ ------------
Net Cash (Used) by
Investing Activities (24,642,139) (14,013,238) (6,382,436)
Cash Flows from Financing Activities
Net increase in Federal funds
purchased 7,035,000 - -
Net increase in demand deposits and
savings accounts 1,486,879 7,990,732 2,627,243
Payments for maturing certificates
of deposit (41,821,954) (24,428,638) (25,883,507)
Proceeds from sales of certificates
of deposit 40,183,459 40,587,957 28,638,551
Dividends paid (961,020) (888,454) (785,736)
Proceeds from sale of common stock 458,174 658,470 410,380
Payments to reacquire stock (267,411) - -
Proceeds from sale of other real
estate 196,624 29,871 -
------------ ------------ ------------
Net Cash Provided by
Financing Activities 6,309,751 23,949,938 5,006,931
------------ ------------ ------------
Net Increase (Decrease) in Cash and
Cash Equivalents (15,116,850) 12,702,036 1,465,193
Cash and Cash Equivalents -
Beginning of Year 22,650,130 9,948,094 8,482,901
------------ ------------ ------------
Cash and Cash Equivalents -
End of Year $ 7,533,280 $22,650,130 $ 9,948,094
============ ============ ============
<PAGE>
Page 46 of 83
Exhibit D
Page 2
1999 1998 1997
---- ---- ----
Reconciliation of Net Income to Net
Cash Provided by Operating Activities
Net income $ 2,511,507 $ 2,644,165 $ 2,578,708
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation 271,594 221,590 194,199
Provision for probable credit
losses and recoveries 718,293 473,736 359,617
Increase (Decrease) in taxes
payable 23,005 (49,867) 49,867
(Increase) Decrease in refundable
taxes 33,961 (33,961) 33,681
(Increase) Decrease in interest
receivable 172,204 (325,830) 18,057
Increase (Decrease) in interest
payable (41,320) 99,969 16,370
(Increase) Decrease in other
real estate (166,570) (164,628) (314,360)
(Increase) Decrease in other
assets (306,906) (91,105) (59,773)
(Increase) Decrease in deferred
taxes exclusive of unrealized
security gains (losses) (48,124) (50,911) (69,113)
Increase (Decrease) in other
liabilities 43,493 44,192 38,636
Loss on sale of securities 547 986 1,674
(Gain) loss on sale of other
real estate 3,854 (3,000) (6,865)
------------ ------------ ------------
Net Cash Provided by
Operating Activities $ 3,215,538 $ 2,765,336 $ 2,840,698
============ ============ ============
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, Amounts due from banks, and Federal funds sold. Generally, Federal funds
sold are purchased and sold for one day periods.
During 1999 and 1998, net losses of $547 and $986, respectively, in securities
available-for-sale Resulted from sales of mortgage backed securities that had
experienced significant paydowns. Capitalized interest amounted to $821.
During 1997, sales of securities available-for-sale grossed $96 in gains and
$1,700 in losses.
See independent auditor's report and accompanying notes to financial statements.
<PAGE>
Page 47 of 83
Benchmark Bankshares, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998, and 1997
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) Use of Estimates in Preparation of Financial Statements. The
preparation of the accompanying combined financial statements
in conformity with generally accepted accounting principles
requires management to make certain estimates and assumptions
that directly affect the results of reported assets,
liabilities, revenue, and expenses. Actual results may differ
from these estimates.
(c) Cash and Cash Equivalents. The term cash as used in the
Condensed Consolidated Statement of Cash Flows refers to all
cash and cash equivalent investments. For purposes of the
statement, Federal funds sold, which have a one day maturity,
are classified as cash equivalents.
(d) Investment Securities. Pursuant to guidelines established in
FAS 115, Accounting for Certain Investments in Debt and Equity
Securities, the Company has elected to classify a majority of
its current portfolio as securities available-for-sale. This
category refers to investments that are not actively traded
but are not anticipated by management to be held-to-maturity.
Typically, these types of investments will be utilized by
management to meet short-term asset/liability management
needs.
For purposes of financial statement reporting, securities
classified as available-for-sale are to be reported at fair
market value as of the date of the statements; however,
unrealized holding gains or losses are to be excluded from
earnings and reported as a net amount in a separate component
of stockholders' equity until realized. The impact of this
unrealized loss on securities negatively impacted
stockholders' equity in the amount of $542,544 as of December
31, 1999.
Premiums and discounts are amortized or accreted over the life
of the related security as an adjustment to yield using
methods that approximate the interest method.
(e) Loans. Interest on loans is computed by methods which
generally result in level rates of return on principal amounts
outstanding (simple interest). Unearned interest on certain
installment loans is recognized as income using the Rule of
78ths Method, which materially approximates the effective
interest method. The Bank has initiated a policy that no
longer provides for the Rule of 78ths for any new credit.
Management estimates that all unearned interest will clear the
Bank's books within three years.
<PAGE>
Page 48 of 83
In December, 1986, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 91,
Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of
Leases. This statement requires loan origination and
commitment fees and certain direct loan origination costs to
be deferred and the net amount amortized as an adjustment of
the related loan's yield. This standard has been adopted for
all loan types with an original maturity greater than one
year.
(f) Allowance for Loan Losses. The allowance for loan losses is
increased by provisions charged to expense and decreased by
loan losses net of recoveries. The provision for loan losses
is based on the Bank's loan loss experience and management's
detailed review of the loan portfolio which considers economic
conditions, prior loan loss experience, and other factors
affecting the collectibility of loans. With the exception of
loans secured by 1-4 family residential property, accrual of
interest is discontinued on loans past due 90 days or more
when collateral is inadequate to cover principal and interest
or immediately if management believes, after considering
economic and business conditions and collection efforts, that
the borrower's financial condition is such that collection is
doubtful.
(g) Premises and Equipment. Premises and equipment are stated at
cost less accumulated depreciation. Depreciation is computed
generally by the straight-line method over the estimated
useful lives of the assets. Additions to premises and
equipment and major betterments and replacements are added to
the accounts at cost. Maintenance, repairs, and minor
replacements are expensed as incurred. Gains and losses on
dispositions are reflected in current earnings.
(h) Other Real Estate. As a normal course of business, the Bank
periodically has to foreclose on property used as collateral
on nonperforming loans. The assets are recorded at cost plus
capital improvement cost.
(i) Depreciation. For financial reporting, property and equipment
are depreciated using the straight-line method; for income tax
reporting, depreciation is computed using statutory
accelerated methods. Leasehold improvements are amortized on
the straight-line method over the estimated useful lives of
the improvements. Income taxes in the accompanying financial
statements reflect the depreciation method used for financial
reporting and, accordingly, include a provision for the
deferred income tax effect of depreciation which will be
recognized in different periods for income tax reporting.
(j) Earnings Per Share. Earnings per share of common stock are
calculated on the basis of the weighted average number of
shares outstanding during the period.
(k) Income Taxes. Deferred income taxes are reported for temporary
differences between items of income or expense reported in the
financial statements and those reported for income tax
purposes. Deferred taxes also reflect the impact of the
unrealized security losses which are reflected on the balance
sheet only, pursuant to FAS 115 guidelines. The differences
relate principally to the provision for loan losses,
depreciation, and unrealized security losses.
<PAGE>
Page 49 of 83
The table below reflects the components of the Net Deferred
Tax Asset account as of December 31, 1999:
Deferred tax assets resulting from loan loss
reserves $ 427,927
Deferred tax asset resulting from deferred
compensation 58,914
Deferred tax asset resulting from unrealized
security gains 279,492
Deferred tax liabilities resulting from
depreciation (123,852)
----------
Net Deferred Tax Asset $ 642,481
==========
2. Investment Securities
The carrying amount and approximate market values of
investment securities are summarized below:
Book Unrealized Unrealized Market
Value Gains Losses Value
Available-for-Sale
December 31, 1999
U. S. Government agencies $ 9,287,788 $ - $465,636 $ 8,822,152
State and political subdivisions 12,109,027 71,068 335,864 11,844,231
Pooled securities 2,359,516 909 92,510 2,267,915
----------- -------- -------- -----------
$23,756,331 $ 71,977 $894,010 $22,934,298
=========== ======== ======== ===========
December 31, 1998
U. S. Government agencies $ 6,087,700 $ 32,040 $ 29,844 $ 6,089,896
State and political subdivisions 11,103,051 287,810 42,584 11,348,277
Pooled securities 1,685,303 5,547 5,849 1,685,001
----------- -------- -------- -----------
$18,876,054 $325,397 $ 78,277 $19,123,174
=========== ======== ======== ===========
Held-to-Maturity
December 31, 1999
U. S. Government agencies $ 4,500,000 $ - $280,105 $ 4,219,895
State and political subdivisions 746,170 971 31,889 715,252
Other securities 137,000 - - 137,000
----------- -------- -------- -----------
$ 5,383,170 $ 971 $311,994 $ 5,072,147
=========== ======== ======== ===========
December 31, 1998
U. S. Government agencies $ 3,499,716 $ 5,284 $ 23,878 $ 3,481,122
State and political subdivisions 747,622 8,289 7,999 747,912
Other securities 137,000 - - 137,000
----------- -------- -------- -----------
$ 4,384,338 $ 13,573 $ 31,877 $ 4,366,034
=========== ======== ======== ===========
<PAGE>
Page 50 of 83
The maturities of investment securities at December 31, 1999
were as follows:
Book Value Market Value
Available-for-Sale
Due in one year or less $ 105,000 $ 105,738
Due from one to five years 7,519,363 7,376,103
Due from five to ten years 12,216,300 11,817,889
After ten years 3,915,668 3,634,568
Held-to-Maturity
Due from one to five years 1,516,170 1,435,531
Due from five to ten years 3,730,000 3,499,616
Other securities 137,000 137,000
Securities having a book value of $5,064,105 and $3,643,382 at
December 31, 1999 and 1998, 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 stock. These
investments are recorded at original cost.
3. Loans
A summary of loans net of participation-out activity by type
follows:
1999 1998
---- ----
Demand $ 769,352 $ 1,944,475
Time 22,653,680 19,033,715
Installment 26,232,943 23,240,533
Real estate 102,606,752 90,599,497
------------ ------------
$152,262,727 $134,818,220
============ ============
Demand deposit overdrafts amounting to $29,721 have been
reclassified as demand loans for reporting purposes.
4. Allowance for Loan Losses
An analysis of the transactions in the allowance for loan
losses follows:
1999 1998
---- ----
Balance - Beginning of Year $ 1,558,741 $ 1,391,424
Provision charged to operating expense 606,030 356,046
Recoveries on loans 112,263 117,690
Loans charged off (754,402) (306,419)
------------ ------------
Balance - End of Year $ 1,522,632 $ 1,558,741
============ ============
<PAGE>
Page 51 of 83
As of December 31, 1999, the Bank had $470,980 in loans that
resulted from restructuring of nonperforming loans.
As an additional condition to the restructuring of one of the
loans, the Bank transferred $400,000 of collateral to other real estate
and plans to sell the property in the future. As of the statement date,
the Bank had a total of $667,808 in foreclosed real estate.
As of December 31, 1999, the Bank had $794,732 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) 1999 1998
------------- ---- ----
Land $ 799,690 $ 689,261
Buildings and improvements 6-40 2,401,090 2,351,090
Furniture and equipment 2-10 2,033,002 1,886,461
Leasehold improvements 5-6 166,521 166,521
Buildings under construction 187,969 -
----------- -----------
5,588,272 5,093,333
Less: Accumulated depreciation (2,164,493) (1,892,942)
----------- -----------
$3,423,779 $3,200,391
=========== ===========
The cost basis of fully depreciated assets totaled $962,865 at
December 31, 1999.
6. Other Real Estate
As of December 31, 1999, the Bank held other real estate in
the amount of $667,808. The amount represents cost related to
converting collateral on nonperforming loans from the customer to the
Bank. All lots are being marketed or being prepared for marketing.
7. Time Deposits
The maturities of time deposits are as follows:
$100,000 or Less Than
Greater $100,000
Due in six months $ 7,134,311 $32,392,208
Due from six months to one year 2,716,608 20,190,427
Due from one year to three years 4,952,953 35,093,852
Due from three years to five years 1,757,054 6,574,151
----------- -----------
Total $16,560,926 $94,250,638
=========== ===========
Interest expense on time deposits exceeding $100,000 was
$852,448 in 1999.
<PAGE>
Page 52 of 83
8. Federal Income Taxes
Federal income taxes payable, as of December 31, 1999 and
1998, were as follows:
1999 1998
---- ----
Currently payable $ 23,005 $ -
Deferred (642,481) (328,393)
---------- ----------
$(619,476) $(328,393)
========== ==========
The components of applicable income taxes are as follows:
1999 1998
---- ----
Current $1,370,939 $1,080,634
Deferred from income and
expense items (314,088) 61,992
----------- -----------
Total $1,056,851 $1,142,626
=========== ===========
Temporary differences in the recognition of income and
expenses for tax and financial reporting purposes resulted in the
deferred income tax asset as follows:
1999 1998
---- ----
Accelerated depreciation $ (15,861) $ (55,696)
Excess of provision for loan losses
over deduction for Federal income
tax purposes (35,965) 106,422
Deferred compensation 17,230 18,708
----------- -----------
Total Tax Impact of Temporary
Differences in Recognition of
Income and Expenses (34,596) 69,434
Tax impact of balance sheet recognition
of unrealized security losses (279,492) (7,442)
----------- -----------
Total Change to Deferred Tax
for the Year $ (314,088) $ 61,992
=========== ===========
The reasons for the difference between income tax expense and
the amount computed by applying the statutory Federal income tax rates
are as follows:
1999 1998
---- ----
Statutory rates 34% 34%
Income tax expense at statutory
rates $1,211,880 $1,287,509
Increase (Decrease) due to
Tax exempt income (159,581) (124,874)
Other 4,552 (20,009)
----------- -----------
$1,056,851 $1,142,626
=========== ===========
<PAGE>
Page 53 of 83
Federal income tax returns are subject to examination for all
years which are not barred by the statute of limitations.
9. Commitments and Contingent Liabilities
At December 31, 1999 and 1998, commitments under standby
letters of credit aggregated $1,825,989 and $2,196,802, respectively.
These commitments are an integral part of the banking business and the
Bank does not anticipate any losses as a result of these commitments.
These commitments are not reflected in the consolidated financial
statements. (See Note 13).
During the year ended December 31, 1999, the Bank incurred
operating lease expense amounting to $37,641.
Minimum lease payments at December 31, 1999 under
noncancelable real property operating lease commitments for succeeding
years are:
2000 $33,540
2001 33,540
2002 4,410
-------
Total $71,490
=======
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 1999 totals listed herein.
The Bank has entered into several agreements to service and
maintain equipment. The only long-term commitment relates to a
maintenance agreement on the elevator. The terms are as follows:
2000 $ 1,452
2001 1,452
2002 1,089
-------
Total $ 3,993
=======
Operating expenses include amortization of improvements and
occupancy rentals of $44,231 and $33,139 at December 31, 1999 and 1998,
respectively.
10. Retirement Plan
The Bank provides for a retirement program for all qualified
employees through a 401(k) plan. The plan offers a salary reduction
election of up to 14% of W-2 compensation less incentive pay. The plan
also has a proportional matching feature by the Company. In addition,
the plan provides for the Company to make discretionary contributions.
Both the percentage of the employer match and the annual discretionary
contribution are based on the Bank's performance.
During 1999, Bank payments through matching and discretionary
contributions totaled $96,588 while employees' salary reduction
amounted to $93,317. The cost of administration for the 401(k) plan
paid in 1999 amounted to $13,305.
<PAGE>
Page 54 of 83
11. Incentive Compensation
The Bank offers its employees incentive compensation and/or
bonus arrangements based on the Bank's annual financial performance and
other criteria such as length of service and officer classification.
Incentive compensation totaled $129,419 and $165,157 for the years
ended December 31, 1999 and 1998, respectively.
12. Related Parties
Loans
Loans to Directors and Executive Officers of the Bank and
loans to companies in which they have a significant interest are made
on substantially the same terms as those prevailing at the time for
other loan customers. The balances of such loans outstanding were
$3,212,221 and $2,330,282 at December 31, 1999 and 1998, respectively.
During the year of 1999, new loans to the group totaled $1,890,791,
while repayments amounted to $1,008,852. Certain Directors and
Executive Officers have home equity loans. The net activity of these
open-end credits has been reported herein.
As of December 31, 1999, W. J. Callis, Director, had
outstanding loans in excess of 5.0% of stockholders' equity. The
beginning balance of loans was $1,405,724 with current year activity
consisting of $912,963 in advances and $322,063 in repayments for an
ending balance of $1,996,624.
Deposits
As of December 31, 1999, the Bank held deposits of Directors,
Executive Officers, and their related interest amounting to $1,808,997.
13. Off-Balance-Sheet Instruments/Credit Concentrations
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. Unless noted otherwise, the Bank does
not require collateral or other security to support these financial
instruments. Standby letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to facilitate the
transaction of business between these parties where the exact financial
amount of the transaction is unknown, but a limit can be projected. The
credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers. There
is a fee charged for this service.
As noted in Note 9 on December 31, 1999, 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, 1999, 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 $18,561,686.
For related information concerning contract commitments not
reflected in the balance sheet refer to Note 9.
Concentrations
The Bank has no concentrations of credit concerning an
individual borrower or economic segment. The Bank confines its lending
activities to within the state and more specifically its local
geographic areas. The concentrations of credit by loan type are set
forth in Note 3. Regulatory requirements limit the Bank's aggregate
loans to any one borrower to a level of approximately $2,693,400.
<PAGE>
Page 55 of 83
14. Regulatory Matters
Pursuant to regulations of the Federal Reserve Board, the
banking operation of the Company is required to maintain certain
minimum levels of capital. The Bank maintained the following capital
ratios as of December 31:
1999 1998 Well
Actual Actual Capitalized Adequately
Rate Rate Target Rate Capitalized
Total Capital to Risk Weighted Assets 13.38% 14.64% 10.00% 8.00%
====== ====== ====== =====
Tier I Capital to Risk Weighted Assets 12.30% 13.40% 6.00% 4.00%
====== ====== ====== =====
Tier I Capital to Total Average Assets 9.09% 9.33% 5.00% 4.00%
====== ====== ====== =====
These ratios exceed the minimum ratios required by regulatory
authorities.
15. Capital
During 1999, net purchase of Company stock through the
dividend reinvestment plan amounted to 29,329.29 shares. Also, 9,085
shares were purchased through the exercising of employee stock options.
This translated to a $8,067 increase in common stock and a $449,790
increase in capital surplus.
Beginning in 1999, the Company initiated a stock repurchase
plan. Throughout the year, the Company purchased back 21,300 shares of
stock at a cost of $267,094. This translated in a decrease in common
stock of $4,473 and a $262,621 decrease in capital surplus.
The Company is authorized to issue 200,000 shares of preferred
stock with a par value of $25.00. To date, no preferred stock has been
issued by the Company. Currently, management has no plans to utilize
this second class of stock.
16. Stock Option Plan
On April 20, 1995, the stockholders retroactively approved two
incentive stock option plans with an effective date of March 16, 1995.
One plan consisting of option awards to purchase 120,000(1) shares of
the Company's common stock was approved for the employees of the
Company, while the second plan consisting of option awards to purchase
80,000(1) shares of the Company's common stock was approved for the
"outside" Directors of the Company. All participants must have been
employed for two calendar years.
At the annual stockholders meeting held on April 15, 1999, the
stockholders approved a plan that increased the number of shares in the
Employee Stock Option Plan from 120,000 shares by an additional 150,000
shares for a total of 270,000 shares. All of the options expire ten
years from the date of grant.
- ----------------
(1) Adjusted for a 2 for 1 stock split on October 1, 1997.
<PAGE>
Page 56 of 83
The table below details the status of the shares in the plan
as of December 31, 1999 and 1998:
1999
Prior Year Current Year Activity
Exercised
and
Incentive Stock Original Outstanding Options Options Options Remaining
Option Plan Pool(1) Options Granted Exercised Canceled in Pool
Employees 270,000 120,000 14,072 8,085 4,000 139,928
Directors 80,000 54,000 - - - 26,000
(1)Amended in 1999.
1998
Prior Year Current Year Activity
Exercised
and
Incentive Stock Original Outstanding Options Options Options Remaining
Option Plan Pool Options Granted Exercised Canceled in Pool
Employees 120,000 99,000 21,928 27,050 928 -
Directors 80,000 54,000 - 6,000 - 26,000
The Company has elected to report the results of the plan
pursuant to APB Opinion Number 25. Due to the pricing schedule, there
is no impact on earnings under the fair value based method.
17. Disclosures about Fair Value of Financial Instruments
The intent of FAS 107 is to depict the market's assessment of
the present value of net future cash flows discounted to reflect
current interest rates.
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for which it is
practicable to estimate that value.
Cash and Short-Term Investments
For those short-term investments, the carrying amount is a
reasonable estimate of fair value. For reporting purposes, the Bank has
included Cash and Due from Banks as well as Federal Funds Sold in this
category.
Investment Securities
For marketable equity securities classified as
available-for-sale and held-to- maturity, fair values are based on
quoted market prices or dealer quotes. If a quoted market price is not
available, fair value is estimated using quoted market prices for
similar securities.
Loans Receivable
The fair value of the basic loan groups is estimated by
discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings
and for the same remaining maturities. For open-end revolving loans,
the carrying amount is a reasonable estimate of fair value.
<PAGE>
Page 57 of 83
Deposit Liabilities
The fair value of demand deposits, savings accounts, and
certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of
deposit is estimated using the rates currently offered for deposits of
similar remaining maturities.
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:
1999 1998
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial Assets
Cash and due from banks $ 7,533,280 $ 7,533,280 $ 5,235,130 $ 5,235,130
Federal funds sold - - 17,415,000 17,415,000
Investments
Available-for-sale 22,934,298 22,934,298 19,260,174 19,260,174
Held-to-maturity 5,383,170 5,072,147 4,247,338 4,229,034
Loans
Demand loans 769,352 769,352 1,944,475 1,944,475
Accrual loans 22,653,680 22,653,680 19,033,715 19,033,715
Installment loans 26,232,943 25,146,525 25,632,095 21,247,173
Real estate loans 108,649,662 107,206,239 90,599,497 89,341,018
Participation loans -
out 6,042,910 6,042,910 3,678,438 3,678,438
Financial Liabilities
Deposits
Demand
(noninterest-bearing) 16,213,541 16,213,541 16,201,313 16,201,313
Demand
(interest-bearing) 27,951,811 27,951,811 26,576,927 26,576,927
Savings 9,763,624 9,763,624 9,663,857 9,663,857
Certificates of deposit 110,811,564 108,012,019 112,450,059 111,346,402
Federal funds purchased 7,035,000 7,035,000 - -
Unrecognized Financial
Instruments
Unused loan commitments 18,561,686 18,561,686 16,736,442 16,736,442
Unissued letters of credit 1,825,989 1,825,989 2,196,802 2,196,802
18. Quantitative and Qualitative Disclosures About Market Risk
Through the nature of the banking industry, market risk is
inherent in the Company's operation. A majority of the business is
built around financial products, which are sensitive to changes in
market rates. Such products, categorized as loans, investments, and
deposits are utilized to transfer financial resources. These products
have varying maturities, however, and this provides an opportunity to
match assets and liabilities so as to offset a portion of the market
risk.
<PAGE>
Page 58 of 83
Management follows an operating strategy that limits the
interest rate risk by offering only shorter-term products that
typically have a term of no more than five years. By effectively
matching the maturities of inflows and outflows, management feels it
can effectively limit the amount of exposure that is inherent in its
financial portfolio.
As a separate issue, there is also the inherent risk of loss
related to loans and investments. The impact of loss through default
has been considered by management through the utilization of an
aggressive loan loss reserve policy and a conservative investment
policy that limits investments to higher quality issues; therefore,
only the risk of interest rate variations is considered in the
following analysis.
The Company does not currently utilize derivatives as part of
its investment strategy.
The tables below present principal amounts of cash flow as it
relates to the major financial components of the Company's balance
sheet. The cash flow totals represent the amount that will be generated
over the life of the product at its stated interest rate. The present
value discount is then applied to the cash flow stream at the current
market rate for the instrument to determine the current value of the
individual category. Through this two-tiered analysis, management has
attempted to measure the impact not only of a rate change, but also the
value at risk in each financial product category. Only financial
instruments that do not have price adjustment capabilities are herein
presented.
In Table One, the cash flows are spread over the life of the
financial products in annual increments as of December 31 each year
with the final column detailing the present value discounting of the
cash flows at current market rates.
Fair Value of Financial Assets
Benchmark Bankshares, Inc.
December 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Current
Categories 2000 2001 2002 2003 2004 Thereafter Value
- ---------- ---- ---- ---- ---- ---- ---------- -----
Loans
Commercial $23,423,032 $ - $ - $ - $ - $ - $ 23,423,032
Mortgage 45,185,483 20,244,432 18,000,571 19,982,394 22,364,015 5,655,689 107,206,239
Consumer 12,579,179 8,529,399 5,143,995 2,507,493 1,466,798 53,447 25,146,525
Investments
U. S. Government Agencies - - 516,187 2,037,032 2,516,820 7,972,008 13,042,087
Muncipals
Nontaxable 110,785 354,557 1,399,178 2,470,577 1,566,492 5,728,229 11,629,818
Taxable - - - - 513,052 416,614 929,666
Mortgage Backed Securities - 247,168 - 136,342 - 1,884,405 2,267,915
Certificates of Deposits
< 182 days 3,409,518 - - - - - 3,340,683
182 - 364 days 5,579,480 - - - - - 5,452,172
1 year - 2 years 31,441,089 4,463,640 - - - - 34,043,727
2 years - 3 years 6,535,284 5,118,773 4,079,916 - - - 14,342,705
3 years - 4 years 1,062,292 2,041,484 1,421,737 - - - 4,067,657
4 years - 5 years 1,156,928 1,059,604 575,944 939,890 14,019 - 3,316,421
5 years and over 15,436,423 6,447,359 4,921,767 14,166,013 10,080,000 159,798 43,448,654
</TABLE>
<PAGE>
Page 59 of 83
In Table Two, the cash flows are present value discounted by
predetermined factors to measure the impact on the financial products
portfolio at six and twelve month intervals.
Variable Interest Rate Disclosure
Benchmark Bankshares, Inc.
December 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Valuation of Securities No Valuation of Securities
Given an Interest Rate Change In Given an Interest Rate
Decrease of (x) Basis Points Interest Increase of (x) Basis Points
Categories (200 BPS) (100 BPS) Rate 100 BPS 200 BPS
- ---------- --------- --------- ---- ------- -------
Loans
Commercial $ 23,664,765 $ 23,550,992 $ 23,423,032 $ 23,326,697 $ 23,216,144
Mortgage 112,276,907 109,681,555 107,206,239 104,843,513 102,586,502
Consumer 26,141,899 25,635,798 25,146,525 24,673,307 24,215,416
Investments
U. S. Government Agencies 14,665,910 13,827,493 13,042,047 12,317,144 11,636,742
Muncipals
Nontaxable 12,882,898 12,237,924 11,629,818 11,065,799 10,533,009
Taxable 1,033,507 979,648 929,666 881,593 836,954
Pooled Securities 2,518,254 2,388,771 2,267,915 2,153,470 2,046,539
Certificates of Deposit
< 182 days 3,373,998 3,357,279 3,340,683 3,324,210 3,307,859
182 - 364 days 5,505,975 5,478,941 5,452,172 5,425,663 5,399,410
1 year - 2 years 34,786,152 34,410,981 34,043,727 33,684,142 33,331,993
2 years - 3 years 14,851,893 14,593,424 14,342,705 14,099,419 13,863,265
3 years - 4 years 4,231,278 4,148,165 4,067,657 3,989,646 3,914,028
4 years - 5 years 3,465,798 3,389,719 3,316,421 3,245,768 3,177,636
5 plus years 45,863,196 44,628,932 43,448,654 42,319,345 41,238,187
</TABLE>
Only financial instruments that do not have daily price
adjustment capabilities are herein presented.
19. Parent Company
Financial statements for Benchmark Bankshares, Inc. (not
consolidated) are herein presented. Since the parent company has not
entered into any substantial transactions, only the parent company's
statements are presented.
<PAGE>
Page 60 of 83
Benchmark Bankshares, Inc.
(Parent Company Only)
Balance Sheets
December 31, 1999, 1998, and 1997
A S S E T S
1999 1998 1997
---- ---- ----
Cash $ 3,111,052 $ 1,909,855 $ 1,566,556
Investment in subsidiary 17,419,106 17,584,952 15,526,540
Receivable - reimbursement 81 - -
----------- ----------- -----------
Total Assets $20,530,239 $19,494,807 $17,093,096
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Dividends payable $ 482,493 $ 479,594 $ 440,824
Stockholders' Equity
Common stock, par value $.21 per
share, authorized 4,000,000
shares; issued and outstanding
3,015,577.591 12-31-99, issued and
outstanding 2,997,465.366 12-31-98 633,272 629,678 617,990
Surplus 4,501,508 4,314,339 3,667,557
Retained earnings 14,912,966 14,071,196 12,366,725
----------- ----------- -----------
Total Stockholders' Equity 20,047,746 19,015,213 16,652,272
----------- ----------- -----------
Total Liabilities and
Stockholders' Equity $20,530,239 $19,494,807 $17,093,096
=========== =========== ===========
Statements of Income
Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
---- ---- ----
Income
Dividends from subsidiary $ 2,000,000 $ 600,000 $ 1,500,000
----------- ----------- -----------
Total Income 2,000,000 600,000 1,500,000
Expenses
Professional fees 20,038 16,470 15,623
Supplies, printing, and postage 7,410 8,654 9,317
Taxes - miscellaneous 825 850 850
----------- ----------- -----------
Total Expenses 28,273 25,974 25,790
----------- ----------- -----------
Income (Loss) Before Equity in
Undistributed Income of Subsidiary 1,971,727 574,026 1,474,210
Equity in Income of Subsidiary
(includes tax benefit of parent
company operating loss) 739,780 2,070,139 1,104,498
----------- ----------- -----------
Net Income $ 2,711,507 $ 2,644,165 $ 2,578,708
=========== =========== ===========
<PAGE>
Page 61 of 83
Benchmark Bankshares, Inc.
(Parent Company Only)
Statements of Changes in Stockholders' Equity
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Unrealized
Common Retained SEC Gain
Stock Surplus Earnings (Loss) * Total
----- ------- -------- ------ -----
Balance January 1, 1998 $617,990 $3,667,557 $12,189,180 $ 177,545 $16,652,272
Net Income
Parent 574,026 574,026
Equity in income of subsidiary 2,070,139 2,070,139
Sale of Stock 11,562 653,800 665,362
Redemption of Stock (84) (7,018) (7,102)
Semi-Annual Cash
Dividend Declared
June 18, 1998, $.15 per share (447,630) (447,630)
December 17, 1998, $.16 per
share (479,594) (479,594)
Adjustments 210 1,975 2,185
Unrealized Security Gains
(Losses) (14,445) (14,445)
--------- ----------- ------------ ---------- ------------
Balance December 31, 1998 629,678 4,314,339 13,908,096 163,100 19,015,213
Net Income
Parent 1,971,727 1,971,727
Equity in income of subsidiary 539,780 539,780
Sale of Stock 8,072 450,102 458,174
Redemption of Stock (5) (312) (317)
Stock repurchase (4,473) (262,621) (267,094)
Semi-Annual Cash
Dividend Declared
June 17, 1999, $.16 per share (481,426) (481,426)
December 16, 1999, $.16
per share (482,493) (482,493)
Adjustments (174) (174)
Unrealized Security Gains
(Losses) (705,644) (705,644)
--------- ----------- ------------ ---------- ------------
Balance December 31, 1999 $633,272 $4,501,508 $15,455,510 $(542,544) $20,047,746
========= =========== ============ ========== ============
</TABLE>
* Net of tax effect.
<PAGE>
Page 62 of 83
Benchmark Bankshares, Inc.
(Parent Company Only)
Statements of Cash Flows
Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
---- ---- ----
Cash Flows from Operating Activities
Net income $2,711,507 $2,644,165 $2,578,708
Increase in receivable (81) - -
----------- ----------- -----------
Net Cash Provided by
Operating Activities 2,711,426 2,644,165 2,578,708
Cash Flows from Investing Activities
Undistributed earnings of subsidiary (739,972) (2,031,902) (874,503)
----------- ----------- -----------
Net Cash (Used) by
Investing Activities (739,972) (2,031,902) (874,503)
Cash Flows from Financing Activities
Sale of stock 458,174 665,362 410,574
Redemption of stock (267,411) (7,102) (194)
Dividends paid (961,020) (927,224) (785,736)
----------- ----------- -----------
Net Cash (Used) by
Financing Activities (770,257) (268,964) (375,356)
----------- ----------- -----------
Net Increase (Decrease) in Cash 1,201,197 343,299 1,328,849
Cash - Beginning of Year 1,909,855 1,566,556 237,707
----------- ----------- -----------
Cash - End of Year $3,111,052 $1,909,855 $1,566,556
=========== =========== ===========
<PAGE>
Page 63 of 83
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
<PAGE>
Page 64 of 83
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Directors of the Company, their ages, and principal occupations are
set forth in the table below as of December 31, 1999:
<TABLE>
<CAPTION>
<S> <C> <C>
Principal Occupation for Last Five Years Director of the Company
Name (Age) Position Held with Company and Subsidiary or Subsidiary Since
R. Michael Berryman Pharmacist 1978
(59) Principal, Smith's Pharmacy, Inc.
Pharmacy Associates, Inc.
Chairman of Board, Company and Subsidiary
Mark F. Bragg Principal, Atlantic Medical, Inc. 1999
(38)
Lewis W. Bridgforth Physician 1971
(60)
William J. Callis Building Contractor 1989
(57) Vice President, Kenbridge Construction Co., Inc.
Vice Chairman of Board, Company and Subsidiary
Earl C. Currin, Jr. Provost, 1986
(56) John H. Daniel Campus of Southside
Virginia Community College
C. Edward Hall Pharmacist 1971
(59) Partner, Victoria Drug Company
J. Ryland Hamlett Retired Personnel Manager, 1986
(57) Southside Electric Cooperative
H. Clarence Love Retired President, Commonwealth Tobacco 1971
(74) Co., Inc.
Wayne J. Parrish Principal, Parrish Trucking Co., Inc. 1979
(61)
Ben L. Watson, III President and CEO, 1976
(56) Company and Subsidiary
Executive Officers of the Company
The Executive Officers of the Bank and their positions are set forth
below:
Name (Age) Position Held with Subsidiary Officer Since
Ben L. Watson, III (A) Director, President and CEO 1971
(56)
Michael O. Walker (B) Senior Vice President for Branch Administration and 1975
(49) Marketing and Recording Secretary
Janice C. Whitlow (C) Senior Vice President, Cashier, Assistant 1976
(53) Secretary, and Compliance Officer
</TABLE>
<PAGE>
Page 65 of 83
(A) Mr. Watson serves in a dual capacity of President and CEO for both the
Company and the subsidiary.
(B) Mr. Walker also serves as Recording Secretary of the Company.
(C) Mrs. Whitlow also serves as Cashier and 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 Executive Vice President 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>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Long-Term
Annual Compensation Compensation
Number of
Securities
Name and Principal Incentive (1) (2) Underlying All Other
Position Year Salary Bonus Deferred Other Option Compensation
-------- ---- ------ ----- -------- ----- ------ ------------
Ben L. Watson, III 1999 $106,004 $ 25,580 $10,000 $4,200 $6,000(3) None
President & CEO 1998 102,500 34,271 10,000 4,800 7,000(3) None
1997 75,000 55,239 10,000 5,900 8,000 None
Michael O. Walker 1999 83,708 15,167 1,300 1,800 6,000 None
Senior Vice President 1998 81,600 22,277 900 1,800 6,000 None
1997 62,568 33,553 2,100 2,100 6,000 None
Janice C. Whitlow 1999 80,008 15,167 5,000 None 5,850(3) None
Senior Vice President 1998 79,500 22,277 3,000 None 5,850(3) None
</TABLE>
(1) The value of perquisites and other personal benefits did not
exceed the lesser of $50,000 or 10% of total annual salary and
incentive bonus.
(2) Other Annual Compensation represents Director's fees paid to Mr.
Watson for services performed as a Director of the Bank, and
fees paid to Mr. Walker for services performed as Recording
Secretary of the Board of the Bank.
(3) Mr. Watson exercised 1,000 options on March 2, 1998 and 1,000
options on February 5, 1999 and Mrs. Whitlow exercised 150
options on January 27, 1998.
B. Compensation to Directors
No fees are paid to Directors for service on the Board of the
Company. During 1999, for service on the Board of the Bank, a fee of
$1,200 per Director was paid, based on the performance of the Bank,
plus $250 for each Bank Board meeting attended and, except to Mr.
Watson, $175 for each Bank Board Committee meeting attended during the
year.
<PAGE>
Page 66 of 83
C. Employment Agreements
The Company, or its subsidiary, has no employment agreements
with any of its employees.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Company's common stock as of March 1, 2000:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Shares
Beneficially
Owned
% of Shares
Director/Officer of Beneficially
Name and Age Principal Occupation Company/Subsidiary Owned
R. Michael Berryman Pharmacist 1978 89,843.886(1)
(59) 2.98%
Mark F. Bragg Principal, Atlantic 1999 897.409(2)
(38) Medical, Inc. .03%
Lewis W. Bridgforth Physician 1971 35,680.657(3)
(60) 1.18%
William J. Callis Building Contractor 1989 28,120.974(4)
(57) .93%
Earl C. Currin, Jr. Provost 1986 13,178.000
(56) .44%
C. Edward Hall Pharmacist 1971 31,145.037(5)
(59) 1.03%
J. Ryland Hamlett Retired Personnel Manager 1986 10,721.000
(57) .36%
H. Clarence Love Retired President, 1971 83,200.000(6)
(74) Commonwealth Tobacco 2.76%
Co., Inc.
Wayne J. Parrish Principal, Parrish 1979 27,409.872(7)
(61) Trucking Co., Inc. .91%
Ben L. Watson, III President and CEO 1971 16,471.508(8)
(56) Company and Subsidiary .55%
Michael O. Walker Senior Vice President for 1975 42,500.000(9)
(49) Branch Administration and 1.41%
Marketing and Recording
Secretary, Benchmark Community
Bank
Janice C. Whitlow Senior Vice President, 1976 5,486.375
(53) Cashier, Assistant Secretary, .18%
and Compliance Officer,
Benchmark Community Bank
</TABLE>
<PAGE>
Page 67 of 83
<TABLE>
<CAPTION>
<S> <C>
Shares
Beneficially
Owned
% of Shares
Beneficially
Owned
Number and Percentage of Company Common Stock Held
Beneficially as of March 1, 2000 by Directors and Executive 384,654.718
Officers of the Company (12 persons). 12.76%
</TABLE>
(1) Includes 2,114.494 shares held jointly with Mr. Berryman's wife,
38,302.704 shares owned solely by her, and 5,728.074 shares held as
custodian for one of his children.
(2 Includes 97.409 shares held jointly with Mr. Bragg's wife.
(3) Includes 20,337.218 shares owned solely by Dr. Bridgforth's wife.
(4) Includes 17,140.644 shares held jointly with Mr. Callis's wife.
(5) Includes 260 shares owned solely by Mr. Hall's wife.
(6) Includes 65,400 shares held jointly with Mr. Love's wife and 4,100 shares
owned solely by her.
(7) Includes 6,971.168 shares held jointly with Mr. Parrish's wife and
5,925.035 shares owned solely by her.
(8) Includes 457.508 shares owned solely by Mr. Watson's wife.
(9) Includes 25,000.000 shares owned jointly with Mr. Walker's wife.
The share ownership listed above reflects the shares necessary to meet the
ownership requirements for bank directors pursuant to the Virginia Banking Act.
No person owned of record or was known to own beneficially more than 5.0% of the
outstanding common stock of the Company as of December 31, 1999. 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 727,760 24.13%
Box 20
Bowling Green Station
New York, New York 10081
<PAGE>
Page 68 of 83
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Loans to Related Parties
During the past year, Directors and Executive Officers of the Company,
their affiliates, and members of their immediate families were customers of, and
had borrowing transactions with, the Company's banking subsidiary in the normal
course of business. All outstanding loans and commitments included in such
transactions are made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than normal risk of collectivity or
present other unfavorable features.
Balances, as of December 31, of the year are summarized below:
1999 1998 1997
---- ---- ----
Executive Officers and their families $ 235,034 $ 204,123 $ 190,515
Directors and their families (1) 188,610 397,172 557,423
Corporations in which Directors and
Officers had an interest 2,788,577 1,728,987 1,204,864
---------- ---------- ----------
Total $3,212,221 $2,330,282 $1,952,802
========== ========== ==========
(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 1999, Directors and Executive Officers had been granted
lines of credit in the amount of $2,416,550. As of December 31, 1999, $1,655,099
of these lines was unexercised and available.
Stock Sales to Related Parties
The Directors and Executive Officers acquired 4,868.601 shares of
Company stock during 1999 through dividend reinvestment, exercising of stock
options, and purchases of shares on the open market. All shares were purchased
through the dividend reinvestment program. The average price of shares purchased
through dividend reinvestment was $13.38.
<PAGE>
Page 69 of 83
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) (1) The following consolidated financial statements of Benchmark
Bankshares, Inc. and its subsidiary, Benchmark Community Bank,
included in the annual report of the registrant to its stockholders
for the year ended December 31, 1999 are included in Item 8:
Consolidated Statements of Financial Condition - December 31,
1999 and 1998
Consolidated Statements of Income - Years Ended December 31,
1999, 1998, and 1997
Consolidated Statements of Changes in Stockholders' Equity -
Years Ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows - Years Ended
December 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements - December 31,
1999, 1998, and 1997
(2) The following consolidated financial statement schedules of
Benchmark Bankshares, Inc. and its subsidiary, Benchmark Community
Bank, are included in Item 14 (d):
Schedule II - Indebtedness to Related Parties
Schedule V - Property, Plant, and Equipment
Schedule VI - Accumulated Depreciation, Depletion, and
Amortization of Property, Plant, and Equipment
Supplemental Information to the Audited Financial Statements
pursuant to SEC regulations.
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
<PAGE>
Page 70 of 83
ITEM 14 (a) (3) LISTING OF EXHIBITS INCLUDED IN 14 (c)
Page Number of
Incorporation by Reference to
( 1) Articles of Incorporation Page 57 - Item 14(c) - Exhibit 1 of
Form 10K, December 31, 1989
( 2) (a) Amendments to Articles of Page 76 - Item 14(c) - Exhibit 2 of
Incorporation Form 10K, December 31, 1989
(b) Amendments to Articles of Page 58 - Item 14(c) - Exhibit 2(b)
Incorporation of Form 10K, December 31, 1990
(c) Amendment to Articles of Page 68 - Item 14(c) - Exhibit 2(c)
Incorporation of Form 10K, December 31, 1992
( 3) Bylaws of Incorporation Page 83 - Item 14(c) - Exhibit 3 of
Form 10K, December 31, 1989
( 4) Amendments to Bylaws Page 106 - Item 14(c) - Exhibit 4 of
Form 10K, December 31, 1989
( 5) Indemnity Agreement Page II-11-26 in Exhibit 10.1 of
Form S-1 filed September 1, 1989
( 6) List of Subsidiaries
( 7) Bonus Plans of Bank Officers Page 60 - Item 14(c) - Exhibit 7(a)-
7(b) of Form 10K, December 31, 1990
( 8) Directors Performance Page 72 - Item 14(c) - Exhibit 8 of
Compensation Schedule Form 10K, December 31, 1992
( 9) Resolution to Amend the Articles Page 71 - Item 14(c) - Exhibit 9(a)
of Incorporation to increase the of Form 10K, December 31, 1993
number of authorized shares
from 2,000,000 to 4,000,000
concurrent with the Directors
election to have a 2 for 1 stock
split
(10) Stock Option Plans Exhibits A and B of 1995 Proxy and
Information Statement for the
April 20, 1995 Annual Meeting of
Stockholders
<PAGE>
Page 71 of 83
ITEM 14(b) REPORTS ON FORM 8-K
There was no required filing of Form 8-K warranted as a result of
action taken by the Company during the reporting period.
<PAGE>
Page 72 of 83
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant had duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 15, 2000.
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, 2000.
R. Michael Berryman, Director 03-15-00 Ben L. Watson, III, President 03-15-00
- --------------------------------------- ---------------------------------------
Wayne J. Parrish, Director 03-15-00 J. Ryland Hamlett, Director 03-15-00
- --------------------------------------- ---------------------------------------
C. Edward Hall, Director 03-15-00 H. Clarence Love, Director 03-15-00
- --------------------------------------- ---------------------------------------
Mark F. Bragg, Director 03-15-00 Lewis W. Bridgforth, Director 03-15-00
- --------------------------------------- ---------------------------------------
William J. Callis, Director 03-15-00 Earl C. Currin, Jr., Director 03-15-00
- --------------------------------------- ---------------------------------------
<PAGE>
Page 73 of 83
ITEM 14(c) EXHIBIT 6
The only subsidiary of the Registrant is Benchmark Community Bank, a
Virginia banking corporation, located in Kenbridge, Lunenburg County, Virginia.
It is owned 100% by Registrant.
<PAGE>
Page 74 of 83
ITEM 14(d) SCHEDULE II - INDEBTEDNESS TO RELATED PARTIES
Year Ended December 31, 1999
Balance Balance
at Beginning at End of
Name of Person of Period Additions Deductions Period
Executive Officers,
Directors, and Their
Related Interest $2,330,282 $1,890,791 $1,008,852 $3,212,221
W. J. Callis, Director(1)(2)(3) 1,405,724 912,963 322,063 1,996,624
Year Ended December 31, 1998
Executive Officers,
Directors, and Their
Related Interest $1,952,802 $1,424,928 $1,047,448 $2,330,282
W. J. Callis, Director(1)(2)(3) 945,664 1,284,062 824,002 1,405,724
Year Ended December 31, 1997
Executive Officers,
Directors, and Their
Related Interest $1,408,516 $ 865,418 $ 321,132 $1,952,802
W. J. Callis, Director(1)(2)(3) 671,072 339,000 64,408 945,664
(1) Loans to related parties that exceed 5% of the capital of the Company.
(2) Loans to business interest.
(3) Loans are included in the totals presented for the Executive Officers,
Directors, and their interest.
<PAGE>
Page 75 of 83
ITEM 14(d) SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT
Page 1
Benchmark Bankshares, Inc.
Year Ended December 31, 1999
Col. A Col. B Col. C Col. D Col. E Col. F
Other
Balance at Changes Balance
Beginning Additions Add at End of
Classification of Period at Cost Retirement (Deduct) Period
Land $ 689,261 $110,429 $ - $ - $ 799,690
Buildings and improvements 2,351,090 50,000 - - 2,401,090
Leasehold improvements 166,521 - - - 166,521
Construction in progress - 187,969 - - 187,969
---------- -------- -------- -------- ----------
2,517,611 237,969 - - 2,755,580
Equipment, furniture, and
fixtures 1,886,461 146,541 - - 2,033,002
---------- -------- -------- -------- ----------
Total $5,093,333 $494,939 $ - $ - $5,588,272
========== ======== ======== ======== ==========
Year Ended December 31, 1998
Land $ 689,261 $ - $ - $ - $ 689,261
Buildings and improvements 2,351,090 - - - 2,351,090
Leasehold improvements 142,690 23,831 - - 166,521
---------- -------- -------- -------- ----------
2,493,780 23,831 - - 2,517,611
Equipment, furniture, and
fixtures 1,485,634 400,827 - - 1,886,461
---------- -------- -------- -------- ----------
Total $4,668,675 $424,658 $ - $ - $5,093,333
========== ======== ======== ======== ==========
<PAGE>
Page 76 of 83
ITEM 14(d) SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT
Page 2
Year Ended December 31, 1997
Land $ 668,336 $20,925 $ - $ - $ 689,261
Buildings and improvements 2,339,092 11,998 - - 2,351,090
Leasehold improvements 142,690 - - - 142,690
---------- ------- -------- -------- ----------
2,481,782 11,998 - - 2,493,780
Equipment, furniture, and
fixtures 1,448,227 37,407 - - 1,485,634
---------- ------- -------- -------- ----------
Total $4,598,345 $70,330 $ - $ - $4,668,675
========== ======= ======== ======== ==========
<PAGE>
Page 77 of 83
ITEM 14(d) SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION, AND
AMORTIZATION OF PROPERTY, PLANT, AND EQUIPMENT
Benchmark Bankshares, Inc.
Year Ended December 31, 1999
Additions Other
Balance at Charged to Changes Balance at
Beginning Cost and Add End of
Description of Period Expenses Retirements (Deduct) Period
Building and improvements $ 685,890 $ 98,785 $ - $ - $ 784,675
Leasehold improvements 115,820 6,589 - - 122,409
---------- -------- ------- -------- ----------
Total 801,710 105,374 - - 907,084
Equipment, furniture, and
fixtures 1,091,232 166,220 - (43) 1,257,409
---------- -------- ------- -------- ----------
Total $1,892,942 $271,594 $ - $ (43) $2,164,493
========== ======== ======= ======== ==========
Year Ended December 31, 1998
Building and improvements $ 581,308 $ 98,963 $ - $ 5,619 $ 685,890
Leasehold improvements 111,657 4,163 - - 115,820
---------- -------- ------- ------- ----------
Total 692,965 103,126 - 5,619 801,710
Equipment, furniture, and
fixtures 977,844 119,007 - (5,619) 1,091,232
---------- -------- ------- -------- ----------
Total $1,670,809 $222,133 $ - $ - $1,892,942
========== ======== ======= ======== ==========
Year Ended December 31, 1997
Building and improvements $ 488,564 $ 92,744 $ - $ - $ 581,308
Leasehold improvements 107,715 3,942 - - 111,657
---------- -------- ------- -------- ----------
Total 596,279 96,686 - - 692,965
Equipment, furniture, and
fixtures 880,332 97,512 - - 977,844
---------- -------- ------- -------- ----------
Total $1,476,611 $194,198 $ - $ - $1,670,809
========== ======== ====== ======= ==========
<PAGE>
Page 78 of 83
ITEM 14(d)(1) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
PURSUANT TO SEC REGULATIONS
Benchmark Bankshares, Inc.
(Parent Company Only)
Balance Sheet, December 31, 1999 and 1998
Assets
1999 1998
---- ----
Cash $ 3,111,052 $ 1,909,855
Investment in subsidiary 17,419,106 17,584,952
Receivable - reimbursement 81 -
----------- -----------
Total Assets $20,530,239 $19,494,807
=========== ===========
Liabilities and Stockholders' Equity
Liabilities
Dividends payable $ 482,493 $ 479,594
Stockholders' Equity
Common stock, par value $.21 per share,
authorized 4,000,000 shares; issued and
outstanding 3,015,577.591 12-31-99, issued
and outstanding 2,997,465.366 12-31-98 633,272 629,678
Surplus 4,501,508 4,314,339
Retained earnings 14,912,966 14,071,196
----------- -----------
Total Stockholders' Equity 20,047,746 19,015,213
----------- -----------
Total Liabilities and
Stockholders' Equity $20,530,239 $19,494,807
=========== ===========
<PAGE>
Page 79 of 83
ITEM 14(d)(2) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
Page 1 PURSUANT TO SEC REGULATIONS
Benchmark Bankshares, Inc.
(Parent Company Only)
Statements of Income
Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
---- ---- ----
Income
Dividends from subsidiary $2,000,000 $ 600,000 $1,500,000
---------- ---------- ----------
Total Income 2,000,000 600,000 1,500,000
Expenses
Professional fees 20,038 16,470 15,623
Supplies, printing, and postage 7,410 8,654 9,317
Taxes - miscellaneous 825 850 850
---------- ---------- ----------
Total Expenses 28,273 25,974 25,790
---------- ---------- ----------
Income (Loss) Before Equity in
Undistributed Income of Subsidiary 1,971,727 574,026 1,474,210
Equity in Income of Subsidiary (includes
tax benefit of parent company
operating loss) 739,780 2,070,139 1,104,498
---------- ---------- ----------
Net Income $2,711,507 $2,644,165 $2,578,708
========== ========== ==========
<PAGE>
Page 80 of 83
ITEM 14(d)(2) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
Page 2 PURSUANT TO SEC REGULATIONS
Benchmark Bankshares, Inc.
(Parent Company Only)
Statement of Changes in Stockholders' Equity
Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Unrealized
Common Retained SEC Gain
Stock Surplus Earnings (Loss) * Total
Balance January 1, 1997 $304,478 $3,262,299 $10,753,919 $ 40,977 $14,361,673
Net Income
Parent 1,474,210 1,474,210
Equity in income of subsidiary 1,104,498 1,104,498
Sale of Stock 5,124 405,450 410,574
Redemption of Stock (2) (192) (194)
Semi-Annual Cash
Dividend Declared
June 19, 1997, $.14 per share(1) (394,226) (394,226)
December 18, 1997, $.15 per
share (440,824) (440,824)
Capitalization of Retained Earnings 308,390 (308,390) -
Adjustments (7) (7)
Unrealized Security Gains Net of Tax 136,568 136,568
--------- ----------- ------------ ---------- ------------
Balance December 31, 1997 617,990 3,667,557 12,189,180 177,545 16,652,272
Net Income
Parent 574,026 574,026
Equity in income of subsidiary 2,070,139 2,070,139
Sale of Stock 11,562 653,800 665,362
Redemption of Stock (84) (7,018) (7,102)
Semi-Annual Cash
Dividend Declared
June 18, 1998, $.15 per share (447,630) (447,630)
December 17, 1998, $.16 per
share (479,594) (479,594)
Adjustment 210 1,975 2,185
Unrealized Security Gains (Losses) (14,445) (14,445)
--------- ----------- ------------ ---------- ------------
Balance December 31, 1998 629,678 4,314,339 13,908,096 163,100 19,015,213
Net Income
Parent 1,971,727 1,971,727
Equity in income of subsidiary 539,780 539,780
Sale of Stock 8,072 450,102 458,174
Redemption of Stock (5) (312) (317)
Stock repurchase (4,473) (262,621) (267,094)
Semi-Annual Cash
Dividend Declared
June 17, 1999, $.16 per share (481,426) (481,426)
December 16, 1999, $.16 per
share (482,493) (482,493)
Adjustments (174) (174)
Unrealized Security Gains (Losses) (705,644) (705,644)
--------- ----------- ------------ ---------- ------------
Balance December 31, 1999 $633,272 $4,501,508 $15,455,510 $(542,544) $20,047,746
========= =========== ============ ========== ===========
</TABLE>
* Net of tax effect.
(1)Adjusted for a 2 for 1 stock split on October 2, 1997.
<PAGE>
Page 81 of 83
ITEM 14(d)(3) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
PURSUANT TO SEC REGULATIONS
Benchmark Bankshares, Inc.
(Parent Company Only)
Statements of Cash Flows
Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
---- ---- ----
Cash Flows from Operating Activities
Net income $2,711,507 $2,644,165 $2,578,708
Less: Sale of real estate to subsidiary (81) - -
----------- ----------- -----------
Net Cash Provided by
Operating Activities 2,711,426 2,644,165 2,578,708
Cash Flows from Investing Activities
Undistributed earnings of subsidiary (739,972) (2,031,902) (874,503)
----------- ----------- -----------
Net Cash (Used) by Investing
Activities (739,972) (2,031,902) (874,503)
Cash Flows from Financing Activities
Sale of stock 458,174 665,362 410,574
Redemption of stock (267,411) (7,102) (194)
Dividends paid (961,020) (927,224) (785,736)
----------- ----------- -----------
Net Cash (Used) by Financing
Activities (770,257) (268,964) (375,356)
----------- ----------- -----------
Net Increase (Decrease) in Cash 1,201,197 343,299 1,328,849
Cash - Beginning of Year 1,909,855 1,566,556 237,707
----------- ----------- -----------
Cash - End of Year $3,111,052 $1,909,855 $1,566,556
=========== =========== ===========
<PAGE>
Page 82 of 83
ITEM 14(d)(4) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
PURSUANT TO SEC REGULATIONS
Investment Securities - Realized Gains and Losses
Realized Realized
Gains Losses
For the Year Ended December 31, 1999
U. S. Government Agencies $ - $ 547
State and Political Subdivisions - -
----- -----
Total $ - $ 547
===== =====
For the Year Ended December 31, 1998
U. S. Government Agencies $ - $ 986
State and Political Subdivisions - -
----- -----
Total $ - $ 986
===== =====
<PAGE>
Page 83 of 83
ITEM 14(d)(5) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
PURSUANT TO SEC REGULATIONS
Capital Ratios for the Bank Subsidiary
Bank
Ratios
Total Capital to Risk Weighted Assets 13.38%
Tier I Capital to Risk Based Assets 12.30%
Tier I Capital to Total Book Assets 9.09%
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000804563
<NAME> Benchmark Bankshares, Inc.
<MULTIPLIER> 1
<CURRENCY> USA
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1.000
<CASH> 7,533,280
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,934,298
<INVESTMENTS-CARRYING> 5,383,170
<INVESTMENTS-MARKET> 5,072,147
<LOANS> 152,262,727
<ALLOWANCE> 1,522,632
<TOTAL-ASSETS> 193,324,945
<DEPOSITS> 164,740,540
<SHORT-TERM> 8,307,462
<LIABILITIES-OTHER> 229,197
<LONG-TERM> 0
0
0
<COMMON> 633,272
<OTHER-SE> 19,414,474
<TOTAL-LIABILITIES-AND-EQUITY> 193,324,945
<INTEREST-LOAN> 13,209,176
<INTEREST-INVEST> 1,916,364
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 15,125,540
<INTEREST-DEPOSIT> 7,335,543
<INTEREST-EXPENSE> 7,376,381
<INTEREST-INCOME-NET> 7,749,159
<LOAN-LOSSES> 754,402
<SECURITIES-GAINS> (547)
<EXPENSE-OTHER> 4,317,143
<INCOME-PRETAX> 3,568,358
<INCOME-PRE-EXTRAORDINARY> 3,568,358
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,511,507
<EPS-BASIC> .83
<EPS-DILUTED> .83
<YIELD-ACTUAL> 4.22
<LOANS-NON> 795,000
<LOANS-PAST> 697,000
<LOANS-TROUBLED> 470,890
<LOANS-PROBLEM> 9,243,237
<ALLOWANCE-OPEN> 1,558,741
<CHARGE-OFFS> 754,402
<RECOVERIES> 112,263
<ALLOWANCE-CLOSE> 1,522,632
<ALLOWANCE-DOMESTIC> 1,522,632
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 770,668
</TABLE>
