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Many other factors may affect our profitability and financial condition, including: • changes in or interpretations of laws and regulations, including changes in accounting standards, taxation requirements, product marketing application standards and environmental laws; • differences between the fair value measurement of assets and liabilities and their actual value, particularly for intangibles and goodwill; and for contingent liabilities such as litigation, the absence of a recorded amount, or an amount recorded at the minimum, compared to the actual amount; • changes in the rate of inflation, interest rates and the performance of investments held by us; • changes in the creditworthiness of counterparties that transact business with or provide services to us; and • changes in business, economic and political conditions, including war, political instability, terrorist attacks, the threat of future terrorist activity and related military action; natural disasters; the cost and availability of insurance due to any of the foregoing events; labor disputes, strikes, slow-downs or other forms of labor or union activity; and pressure from third-party interest groups. |
Our level of debt presents the following risks, among others: • we could be required to use a substantial portion of our cash flow from operations to pay principal (including amortization) and interest on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, strategic acquisitions and other general corporate requirements or causing us to make non-strategic divestitures; • our interest expense could increase if prevailing interest rates increase, because a substantial portion of our debt bears interest at variable rates; • our substantial leverage could increase our vulnerability to economic downturns and adverse competitive and industry conditions and could place us at a competitive disadvantage compared to those of our competitors that are less leveraged; • our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our business, our industry and changing market conditions and could limit our ability to pursue other business opportunities, borrow more money for operations or capital in the future and implement our business strategies; • our level of debt may restrict us from raising additional financing on satisfactory terms to fund working capital, capital expenditures, strategic acquisitions and other general corporate requirements; • the agreements governing our debt contain covenants that limit our ability to pay dividends or make other restricted payments and investments; • the agreements governing our debt contain operating covenants that limit our ability to engage in activities that may be in our best interests in the long term, including, without limitation, by restricting our subsidiaries’ ability to incur debt, create liens, enter into transactions with affiliates or prepay certain kinds of indebtedness; and • the failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of the applicable debt, and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. |
and certain other lenders •Facilities - Collectively, the ABL Facility and the Term Loan Facility •UK Borrower - A United Kingdom subsidiary borrower of Lands’ End under the ABL Facility •GAAP - Accounting principles generally accepted in the United States •Same Store Sales - Net sales, from stores that have been open for at least 12 full months where selling square footage has not changed by 15% or more within the past year •SEC - United States Securities and Exchange Commission •FASB - Financial Accounting Standards Board •FASB ASC - FASB Accounting Standards Codification, which serves as the source for authoritative GAAP, except that rules and interpretive releases by the SEC are also sources of authoritative GAAP for SEC registrants •ERP - enterprise resource planning software solutions •UTBs - Gross unrecognized tax benefits •LIBOR - an adjusted London inter-bank offered rate Executive Overview Introduction Management’s discussion and analysis of financial condition and results of operations accompanies our consolidated and combined financial statements and provides additional information about our business, financial condition, liquidity and capital resources, cash flows and results of operations. |
The following factors, among others, could cause our actual results, performance, and achievements to differ from those described in the forward-looking statements: our ability to offer merchandise and services that customers want to purchase; changes in customer preference for our branded merchandise; customers’ use of our digital platform, including our e-commerce websites, and response to direct mail catalogs and digital marketing; the success of our overall marketing strategies, including our maintenance of a robust customer list; our dependence on information technology and a failure of information technology systems, including with respect to our e-commerce operations, or an inability to upgrade or adapt our systems; the success of our ERP implementation; fluctuations and increases in the costs of raw materials; impairment of our relationships with our vendors; our failure to maintain the security of customer, employee or company information; our failure to compete effectively in the apparel industry; the performance of our “store within a store” business model; if Sears Roebuck sells or disposes of its retail stores or if its retail business does not attract customers or does not adequately promote the Lands’ End Shops at Sears; legal, regulatory, economic and political risks associated with international trade and those markets in which we conduct business and source our merchandise; our failure to protect or preserve the image of our brands and our intellectual property rights; increases in postage, paper and printing costs; failure by third parties who provide us with services in connection with certain aspects of our business to perform their obligations; our failure to timely and effectively obtain shipments of products from our vendors and deliver merchandise to our customers; reliance on promotions and markdowns to encourage consumer purchases; our failure to efficiently manage inventory levels; unseasonal or severe weather conditions; the seasonal nature of our business; the adverse effect on our reputation if our independent vendors do not use ethical business practices or comply with applicable laws and regulations; assessments for additional state taxes; our exposure to periodic litigation and other regulatory proceedings, including with respect to product liability claims; incurrence of charges due to impairment of goodwill, other intangible assets and long-lived assets; our failure to retain our executive management team and to attract qualified new personnel; the impact on our business of adverse worldwide economic and market conditions, including economic factors that negatively impact consumer spending on discretionary items; the inability of our past performance generally, as reflected on our historical financial statements, to be indicative of our future performance; the impact of increased costs due to a decrease in our purchasing power following the Separation and other losses of benefits associated with being a subsidiary of Sears Holdings; the failure of Sears Holdings or its subsidiaries to perform under various transaction agreements that have been executed in connection with the Separation or our failure to have necessary systems and services in place when certain of the transaction agreements expire; our agreements related to the Separation and our continuing relationship with Sears Holdings were negotiated while we were a subsidiary of Sears Holdings and we may have received better terms from an unaffiliated third party; potential indemnification liabilities to Sears Holdings pursuant to the separation and distribution agreement; our inability to engage in certain corporate transactions after the Separation; the ability of our principal shareholders to exert substantial influence over us; adverse effects of the Separation on our business; potential liabilities under fraudulent conveyance and transfer laws and legal capital requirements; declines in our stock price due to the eligibility of a number of our shares of common stock for future sale; our inability to pay dividends; stockholders’ percentage ownership in Lands’ End may be diluted in the future; and increases in our expenses and administrative burden in relation to being a public company, in particular to maintain compliance with certain provisions of the Sarbanes-Oxley Act of 2002; and other factors. |
Terms that are commonly used in the Company's notes to consolidated financial statements are defined as follows: •Fiscal 2014 - The fifty-two weeks ended January 30, 2015 •Fiscal 2013 - The fifty-two weeks ended January 31, 2014 •Fiscal 2012 - The fifty-three weeks ended February 1, 2013 •Fiscal 2015 - The Company's next fiscal year representing the fifty-two weeks ending January 29, 2016 •Sears Holdings or Sears Holdings Corporation - Sears Holdings Corporation, a Delaware Corporation, and its consolidated subsidiaries (other than, for all periods following the Separation, Lands' End) •Separation - On April 4, 2014 Sears Holdings distributed 100% of the outstanding common stock of Lands' End to its shareholders •EPS - Earnings per share •ESL - ESL Investments, Inc. and its investment affiliates, including Edward S. Lampert •ABL Facility - Asset-based senior secured credit agreements, dated as of April 4, 2014, with Bank of America, N.A and certain other lenders •Term Loan Facility - Term loan credit Agreement, dated as of April 4, 2014, with Bank of America, N.A. |
and certain other lenders •Facilities - Collectively, the ABL Facility and the Term Loan Facility •UK Borrower - A United Kingdom subsidiary borrower of Lands’ End under the ABL Facility •GAAP - Accounting principles generally accepted in the United States •SEC - United States Securities and Exchange Commission •FASB - Financial Accounting Standards Board • FASB ASC - FASB Accounting Standards Codification, which serves as the source for authoritative GAAP, except that rules and interpretive releases by the SEC are also sources of authoritative GAAP for SEC registrants •ASU -FASB Accounting Standards Update •Tax Sharing Agreement - A tax sharing agreement entered into by Sears Holdings Corporation and Lands' End in connection with the Separation •UTBs - Gross unrecognized tax benefits •Sears Roebuck - Sears, Roebuck and Co., a subsidiary of Sears Holdings Corporation •SHMC - Sears Holdings Management Corporation, a subsidiary of Sears Holdings Corporation •SHCP - SHC Promotions LLC, a subsidiary of Sears Holdings Corporation •CAM - Common area maintenance for leased properties •SYWR - Shop Your Way Rewards member loyalty program On March 14, 2014, the board of directors of Sears Holdings approved the distribution of the issued and outstanding shares of Lands’ End common stock on the basis of 0.300795 shares of Lands’ End common stock for each share of Sears Holdings Corporation common stock held on March 24, 2014. |
Many other factors may affect our profitability and financial condition, including: • changes in or interpretations of laws and regulations, including changes in accounting standards, taxation requirements, product marketing application standards and environmental laws; • differences between the fair value measurement of assets and liabilities and their actual value, particularly for intangibles and goodwill; and for contingent liabilities such as litigation, the absence of a recorded amount, or an amount recorded at the minimum, compared to the actual amount; • changes in the rate of inflation, interest rates and the performance of investments held by us; • changes in the creditworthiness of counterparties that transact business with or provide services to us; and • changes in business, economic and political conditions, including war, political instability, terrorist attacks, the threat of future terrorist activity and related military action; natural disasters; the cost and availability of insurance due to any of the foregoing events; labor disputes, strikes, slow-downs or other forms of labor or union activity; and pressure from third-party interest groups. |
Our expected level of debt presents the following risks, among others: • we could be required to use a substantial portion of our cash flow from operations to pay principal (including amortization) and interest on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, strategic acquisitions and other general corporate requirements or causing us to make non-strategic divestitures; • our interest expense could increase if prevailing interest rates increase, because we expect a substantial portion of our debt to bear interest at variable rates; • our substantial leverage could increase our vulnerability to economic downturns and adverse competitive and industry conditions and could place us at a competitive disadvantage compared to those of our competitors that are less leveraged; • our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our business, our industry and changing market conditions and could limit our ability to pursue other business opportunities, borrow more money for operations or capital in the future and implement our business strategies; • our level of debt may restrict us from raising additional financing on satisfactory terms to fund working capital, capital expenditures, strategic acquisitions and other general corporate requirements; • we expect that the agreements governing our debt will contain covenants that will limit our ability to pay dividends or make other restricted payments and investments; • we expect that the agreements governing our debt will contain operating covenants that could limit our and our operating subsidiaries’ ability to engage in activities that may be in our best interests in the long term, including, without limitation, by restricting our and our subsidiaries’ ability to incur debt, create liens, enter into transactions with affiliates or prepay certain kinds of indebtedness. |
Audit Committee The duties and responsibilities of the audit committee, which currently consists of Josephine Linden and Tracy Gardner, includes the following: • to oversee the quality and integrity of our financial statements and our accounting and financial reporting processes; • to prepare the audit committee report required by the SEC in our annual proxy statements; • to review and discuss with management and the independent registered public accounting firm our annual and quarterly financial statements; • to review and discuss with management and the independent registered public accounting firm our earnings press releases; • to appoint, compensate and oversee our independent registered public accounting firm, and pre-approve all auditing services and non-audit services to be provided to us by our independent registered public accounting firm; • to review the qualifications, performance and independence of our independent registered public accounting firm; and • to establish procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters. |
Compensation Committee The duties and responsibilities of the compensation committee will include the following: • to determine, or recommend for determination by our board of directors, the compensation of our chief executive officer and other executive officers; • to establish, review and consider employee compensation policies and procedures; • to review and approve, or recommend to our board of directors for approval, any employment contracts or similar arrangement between Lands’ End and any executive officer of Lands’ End; • to review and discuss with management Lands’ End’s compensation policies and practices and management’s assessment of whether any risks arising from such policies and practices are reasonably likely to have a material adverse effect on Lands’ End; and • to review, monitor, and make recommendations concerning incentive compensation plans, including the use of stock options and other equity-based plans; and • to retain or obtain the advice of any compensation consultants, legal counsel and other compensation advisors, including responsibility for the appointment, compensation and oversight of the work of those advisors. |
Compensation Committee The duties and responsibilities of the compensation committee will include the following: • to determine, or recommend for determination by our board of directors, the compensation of our chief executive officer and other executive officers; • to establish, review and consider employee compensation policies and procedures; • to review and approve, or recommend to our board of directors for approval, any employment contracts or similar arrangement between Lands’ End and any executive officer of Lands’ End; • to review and discuss with management Lands’ End’s compensation policies and practices and management’s assessment of whether any risks arising from such policies and practices are reasonably likely to have a material adverse effect on Lands’ End; and • to review, monitor, and make recommendations concerning incentive compensation plans, including the use of stock options and other equity-based plans; and • to retain or obtain the advice of any compensation consultants, legal counsel and other compensation advisors, including responsibility for the appointment, compensation and oversight of the work of those advisors. |
(3) Investments has sole voting power and sole dispositive power as to 26,438,272 shares and shared dispositive power as to 25,113,022 shares of Sears Holdings; Edward S. Lampert has sole voting power as to 51,551,294 shares and sole dispositive power as to 26,438,272 shares and shared dispositive power as to 25,113,022 shares of Sears Holdings; CRK LLC has sole voting power and sole dispositive power as to 747 shares of Sears Holdings; RBS has sole voting power and sole dispositive power as to 26,427,295 shares and shared dispositive power as to 25,113,022 shares; Partners has sole voting power and sole dispositive power as to 21,992,640 shares and shared dispositive power as to 25,113,022 shares of Sears Holdings; RBSIM has sole voting power and sole dispositive power as to 10,230 shares of Sears Holdings; Institutional has sole voting power and sole dispositive power as to 10,230 shares of Sears Holdings; SPE Partners has sole voting power and sole dispositive power as to 1,939,872 shares of Sears Holdings; and SPE Master has sole voting power and sole dispositive power as to 2,494,783 shares of Sears Holdings. |
In particular, the separation and distribution agreement provides, among other things, that, subject to the terms and conditions contained therein: • certain assets related to Lands’ End’s business, referred to as the LE Assets, will be retained by or transferred to Lands’ End or one of Lands’ End’s subsidiaries, including: • equity interests in Lands’ End’s subsidiaries; • all assets included or reflected on the most recent combined balance sheet or are of a nature or type that would have been reflected on the combined balance sheet as of the completion of the spin-off; • all assets, including apparatus, computers and data processing equipment, fixtures, electronic kiosks, furniture, office and transportation equipment, exclusively related to Lands’ End’s business; • assets expressly allocated to Lands’ End or one of its subsidiaries pursuant to the terms of the separation and distribution agreement or the ancillary agreements; • all contracts to which Lands’ End or one of its subsidiaries is a party to as of the completion of the spin-off and all contracts with respect to the purchase of inventory attributable to Lands’ End’s business, excluding certain mixed contracts to which Lands’ End and Sears Holdings (or one of their respective subsidiaries) are parties; • all intellectual property owned by or registered to Lands’ End or one of its subsidiaries, including patents, trademarks, copyrights and trade secrets; • all employment agreements between any Lands’ End’s personnel and Lands’ End and Sears Holdings (or one of their respective subsidiaries); • all assets of the benefit plans that will be sponsored by Lands’ End or one of its subsidiaries as of the completion of the spin-off; and • all assets relating, arising out of or attributable to claims initiated by Lands’ End against the City of Dodgeville to recover overpaid taxes as described in “Legal Proceedings” under Item 3 of this Annual Report on Form 10-K. • certain liabilities related to Lands’ End’s business or the LE Assets, referred to as the LE Liabilities, will be retained by or transferred to Lands’ End or one of its subsidiaries, including: • liabilities included or reflected on the most recent combined balance sheet or are of a nature or type that would have been reflected on the combined balance sheet as of the completion of the spin-off; • liabilities relating to the actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to the completion of the spin-off, to the extent related to Lands’ End’s business, the LE Liabilities and the LE Assets; • liabilities relating to any actions, inactions, events, omissions, conditions, facts or circumstances under the control of Lands’ End or one of its subsidiaries; • liabilities relating to litigation that primarily relates to Lands’ End’s business, the LE Liabilities, the LE Assets that are not retained by Sears Holdings or any actions, inactions, events, omissions, conditions, facts or circumstances under the control of Lands’ End or one of its subsidiaries; • liabilities relating to the employment agreements between any Lands’ End’s personnel and Lands’ End and Sears Holdings (or one of their respective subsidiaries); • liabilities relating to the benefit plans that will be sponsored by Lands’ End or one of its subsidiaries as of the completion of the spin-off, any special cash retention bonus awarded to Lands’ End’s personnel that is unvested as of the completion of the spin-off and fiscal year 2013 attributable to Lands’ End personnel under the 2013 LE Cash LTI; • liabilities relating to the ABL Facility and the Term Loan Facility; • liabilities expressly allocated to Lands’ End or one of its subsidiaries pursuant to the terms of the separation and distribution agreement or the ancillary agreements; • liabilities for which Sears Holdings or one of its subsidiaries is entitled to indemnification from Lands’ End or one of its subsidiaries pursuant to the tax sharing agreement; • liabilities relating to the spin-off brought against Sears Holdings, Lands’ End or one of their subsidiaries relating to allegations of breach of fiduciary duty by one or more members of Lands’ End’s board or that a statement or omission in a disclosure document that describes the separation, distribution, Lands’ End or one of its subsidiaries or relates to the spin-off transactions violated federal or state securities law (subject to certain exceptions); • obligations with respect to Lands’ End’s personnel, including unpaid salaries, wages, overtime, bonuses/incentives and related liabilities; and • liabilities for claims made by any third party (including directors, officers, employees or agents of Lands’ End, Sears Holdings or any of their subsidiaries acting in their individual and not official capacities) against Lands’ End, Sears Holdings or any of their subsidiaries relating to Lands’ End’s business, the LE Liabilities and the LE Assets. |
ITEM 6 SELECTED FINANCIAL DATA Years Ended December 31, 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- (In thousands of dollars, except per share amounts) Interest income $ 16,807 $ 17,047 $ 17,401 $ 16,422 $ 15,126 Interest expense 6,267 7,200 8,755 8,002 7,376 -------- -------- -------- -------- -------- Net interest income 10,540 9,847 8,646 8,420 7,750 Provision for loan losses 292 419 198 201 606 Other operating revenue 1,452 1,395 1,044 1,006 742 Other operating expense 6,724 6,085 5,600 5,069 4,317 -------- -------- -------- -------- -------- Income Before Income Taxes 4,976 4,738 3,892 4,156 3,569 Income Taxes 1,381 1,340 1,156 1,311 1,057 -------- -------- -------- -------- -------- Net Income 3,595 3,398 2,736 2,845 2,512 Per Share Data (1) Net income 1.21 1.15 0.92 0.95 0.83 Cash dividends declared 0.42 0.38 0.36 0.34 0.32 Balance Sheet Amounts (at end of period) Total assets 283,886 265,058 241,813 205,253 193,324 Total loans (2) 214,704 198,256 176,077 163,038 150,675 Total deposits 253,200 236,544 216,361 181,197 164,741 Total equity 28,613 26,546 23,477 22,185 20,048 Book value per share (at end of period) 9.63 8.96 7.90 7.38 6.65 Selected Financial Ratios (as a percentage) Net income to average equity 13.02 13.57 11.87 13.49 12.76 Net income to average assets 1.30 1.39 1.23 1.42 1.31 Loans to deposits (3) 84.80 83.81 82.20 90.90 92.39 Primary capital to total assets (at end of period) (4) 10.40 10.28 10.30 11.46 10.65 Net interest yield (5) 4.17 4.37 4.12 4.50 4.33 Allowance for loan losses to loans (at end of period) (6) 0.92 1.00 1.00 1.01 1.00 Nonperforming loans to loans (at end of period) (7) 0.50 0.05 0.70 0.92 1.04 Net charge offs to average loans (3) 0.14 0.11 0.05 0.04 0.45 (1) Average shares outstanding. |
COMPARATIVE SUMMARY OF EARNINGS Years Ending December 31, 2003 2002 2001 (In thousands of dollars, except per share data) Interest Income Interest and fees on loans $ 15,407 $ 15,383 $ 15,611 Interest on investment securities U. S. Government agencies and mortgage backed securities 576 806 721 State and political subdivisions 638 746 579 Other securities - - 10 Interest on Federal funds sold 186 112 481 ------------- ------------- ------------- Total Interest Income 16,807 17,047 17,402 Interest Expense Interest-bearing checking deposits 290 430 626 Savings deposits 99 183 250 Time deposits 5,878 6,577 7,879 Federal funds purchased - 10 - ------------- ------------- ------------- Total Interest Expense 6,267 7,200 8,755 ------------- ------------- ------------- Net Interest Income 10,540 9,847 8,647 Provision for Loan Losses 292 419 198 ------------- ------------- ------------- Net Interest Income After Provision for Loan Losses 10,248 9,428 8,449 Noninterest Income Service charges on deposit accounts 637 641 555 Other operating income 722 646 482 Net investment securities gains (losses) 19 9 2 Gain (Loss) on sale of other assets 13 58 4 Dividends 61 41 - ------------- ------------- ------------- Total Noninterest Income 1,452 1,395 1,043 Noninterest Expense Salaries 3,463 3,085 2,837 Employee benefits 878 866 652 Occupancy expense 344 338 327 Other operating expense 2,039 1,796 1,784 ------------- ------------- ------------- Total Noninterest Expense 6,724 6,085 5,600 ------------- ------------- ------------- Net Income Before Taxes 4,976 4,738 3,892 Provision for Income Tax 1,381 1,340 1,155 ------------- ------------- ------------- Net Income $ 3,595 $ 3,398 $ 2,737 ============= ============= ============= Per Share - Based on Weighted Average Net income $ 1.21 $ 1.15 $ 0.92 Average shares outstanding 2,962,993.670 2,967,443.297 2,970,003.060 Average shares assuming dilution 3,008,000.835 3,004,426.000 2,997,357.000 Page 22 of 90 TABLE B. |
AVERAGE BALANCE SHEETS (In thousands of dollars) Years Ended December 31, 2003 2002 2001 ---- ---- ---- Amount % Amount % Amount % Assets Cash and due from banks $ 13,053 4.72 $ 11,703 3.55 $ 9,447 2.92 Investment securities 31,323 11.32 31,843 13.05 24,282 10.94 Federal funds sold 17,439 6.30 7,543 3.09 14,225 6.41 Loans (net) 204,020 73.71 186,078 76.28 169,434 76.31 Bank premises and equipment 4,397 1.59 4,319 1.77 3,981 1.79 Accrued interest 1,330 0.48 1,395 0.57 1,599 0.72 Cash value life insurance 3,707 1.34 1,972 0.81 - - Other assets 1,528 0.54 2,150 0.88 2,014 0.91 -------- ------ -------- ------ -------- ------ $276,797 100.00 $247,003 100.00 $224,982 100.00 ======== ====== ======== ====== ======== ====== Liabilities and Stockholders' Equity Deposits Demand $ 54,377 19.65 $ 47,728 19.32 $ 44,599 19.82 Savings and MMA 36,508 13.19 26,613 10.78 19,859 8.83 Time 156,880 56.68 145,881 59.06 136,054 60.47 Federal funds purchased - - 427 0.17 - - Accrued interest 690 0.25 767 0.31 929 0.41 Other liabilities 727 0.25 546 0.22 485 0.22 Stockholders' equity 27,615 9.98 25,041 10.14 23,056 10.25 -------- ------ -------- ------ -------- ------ $276,797 100.00 $247,003 100.00 $224,982 100.00 ======== ====== ======== ====== ======== ====== Page 23 of 90 TABLE C. INTEREST RATES EARNED AND PAID (In thousands of dollars) (1) Loans net of unearned income. |
Page 24 of 90 TABLE D. ANALYSIS OF CHANGE IN NET INTEREST INCOME (In thousands of dollars) Page 25 of 90 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, 2003 U. S. Government agencies $ 498,125 $ 9,175 $ - $ 507,300 Mortgage backed securities 14,533,929 134,223 71,060 14,597,092 State and political subdivisions 13,051,756 761,489 12,893 13,800,352 Other securities 259,506 - - 259,506 ----------- ---------- ------- ----------- $28,343,316 $ 904,887 $83,953 $29,164,250 =========== ========== ======= =========== December 31, 2002 Mortgage backed securities $10,849,727 $ 363,783 $ - $11,213,510 State and political subdivisions 14,858,319 699,318 - 15,557,637 Other securities 195,490 - - 195,490 ----------- ---------- ------- ----------- $25,903,536 $1,063,101 $ - $26,966,637 =========== ========== ======= =========== Held-to-Maturity December 31, 2003 U. S. Government agencies $ 2,492,812 $ 36,135 $ - $ 2,528,947 =========== ========== ======= =========== December 31, 2002 State and political subdivisions $ 511,809 $ 17,497 $ - $ 529,306 =========== ========== ======= =========== The maturities of investment securities at December 31, 2003 were as follows: Book Value Market Value Available-for-Sale Due from one to five years $16,837,547 $ 16,978,253 Due from five to ten years 10,178,138 10,849,191 After ten years 1,068,125 1,077,300 Other securities 259,506 259,506 Held-to-Maturity Due from five to ten years 500,000 508,905 After 10 years 1,992,812 2,020,042 Securities having a market value of $7,250,590 and $8,994,013 at December 31, 2003 and 2002, respectively, were pledged to secure public deposits and for other purposes. |
Page 27 of 90 TABLE F. LOAN PORTFOLIO The table below classifies gross loans by major category and percentage distribution at December 31 for 2003, 2002, and 2001: 2003 2002 2001 Amount % Amount % Amount % Commercial $ 24,566,093 11.44 $ 21,872,278 11.03 $ 19,293,070 10.85 Consumer 30,635,698 14.27 29,903,542 15.08 32,954,231 18.53 Real Estate - Construction 1,686,791 0.79 1,619,807 0.82 947,775 0.53 Real Estate - Mortgage 157,815,164 73.50 144,860,038 73.07 124,657,873 70.09 The following table shows maturities of the major loan categories and their maturity schedules at December 31, 2003 for fixed interest rate and floating interest rate loans: Table 1 - Fixed Rate Loans Due After One Year One Year but Within Due After or Less Five Years Five Years Total Commercial $16,141,156 $ 483,630 $ - $ 16,624,786 Consumer 2,729,513 26,493,212 1,230,851 30,453,576 Real Estate - Construction 1,686,791 - - 1,686,791 Real Estate - Mortgage 18,589,897 108,954,250 14,553,873 142,098,020 ----------- ------------ ----------- ------------ Total $39,147,357 $135,931,092 $15,784,724 $190,863,173 =========== ============ =========== ============ Table 2 - Floating Rate Loans Over One Year but One Year Within Five Over or Less Years Five Years Total Commercial $ 7,866,307 $ 75,000 $ - $ 7,941,307 Consumer 2,122 180,000 - 182,122 Real Estate - Mortgage 6,201,970 2,720,370 6,794,804 15,717,144 ----------- ------------ ----------- ------------ Total $14,070,399 $ 2,975,370 $ 6,794,804 $ 23,840,573 =========== ============ =========== ============ Page 28 of 90 TABLE G. NONPERFORMING LOANS The loan portfolio of the Bank is reviewed by senior officers to evaluate loan performance. |
The following table presents the Bank's loan loss experience and selected loan ratios for the three years ended December 31, 2003, 2002, and 2001: 2003 2002 2001 ---- ---- ---- (In thousands of dollars) Allowance for loan losses at beginning of year $ 1,983 $ 1,775 $ 1,668 Loan Charge Offs Commercial (21) - (1) Consumer (284) (192) (242) Real Estate (51) (82) (9) --------- --------- --------- Total Charge Offs (356) (274) (252) Recoveries of Loans Previously Charged Off Commercial - - - Consumer 65 63 118 Real Estate - - 43 --------- --------- -------- Total Recoveries 65 63 161 --------- --------- -------- Net loans charged off (291) (211) (91) Provision for loan losses 292 418 198 --------- --------- --------- Allowance for loan losses at end of year $ 1,984 $ 1,982 $ 1,775 ========= ========= ========= Average total loans (net of unearned income) $204,020 $187,950 $171,149 Total loans (net of unearned income) at year end 214,703 198,255 177,852 Selected Loan Loss Ratios Net charge offs to average loans 0.14% 0.11% 0.05% Provision for loan losses to average loans 0.14% 0.22% 0.12% Provision for loan losses to net charge offs % 100.34% 198.10% 217.58% Allowance for loan losses to year end loans 0.92% 1.00% 1.00% Loan loss coverage(1) 18.10X 24.44X 44.95X (1) Income before income taxes plus provision for loan losses, divided by net charge offs. |
DEPOSITS The breakdown on average deposits for the years indicated is as follows (in thousands of dollars): 2003 2002 2001 ---- ---- ---- Average Average Average Balance Rate Balance Rate Balance Rate Noninterest-bearing demand deposits $ 29,913 - $ 27,567 - $ 25,221 - Interest-bearing demand deposits 24,464 0.36 20,161 0.90 19,378 1.80 Money market accounts 21,889 0.96 13,794 1.74 9,543 2.97 Savings 14,619 0.71 12,819 1.44 10,316 2.43 Time 156,880 3.77 145,881 4.51 136,054 5.83 -------- -------- -------- $247,765 $220,222 $200,512 ======== ======== ======== Remaining maturities of time certificates of deposit of $100,000 or more at December 31, 2003 are shown below (in thousands of dollars): Maturity December 31, 2003 Three months or less $ 3,680,315 Three to six months 3,719,470 Six to twelve months 7,372,885 One to three years 8,039,433 Three to five years 10,519,753 ----------- Total $33,331,856 =========== Page 32 of 90 TABLE K. RETURN ON EQUITY AND ASSETS The following table highlights certain ratios for the three years ended December 31, 2003, 2002, and 2001 (in thousands of dollars): 2003 2002 2001 ---- ---- ---- Income before securities gains and losses to Average total assets 1.30% 1.39% 1.23% Average stockholders' equity 13.02% 15.45% 13.60% Net income to Average total assets 1.30% 1.39% 1.23% Average stockholders' equity 13.02% 13.57% 11.87% Dividend pay out ratio (dividends declared per share divided by net income per share) 34.71% 33.04% 39.13% Average stockholders' equity to average total assets ratio 9.98% 10.14% 10.25% Page 33 of 90 TABLE L. GAP Analysis December 31, 2003 The following table reflects interest-rate sensitive assets and liabilities only. |
Creedle, Jones, and Alga, P. C. Certified Public Accountants South Hill, Virginia January 20, 2004 Page 39 of 90 Exhibit A Benchmark Bankshares, Inc. Consolidated Statements of Financial Condition December 31, 2003 and 2002 A S S E T S 2003 2002 ---- ---- Cash and due from banks $ 12,897,917 $ 13,340,576 Interest-bearing deposits in other banks 100,000 - Federal funds sold 15,466,000 17,255,000 Investment securities 31,657,062 27,478,446 Loans 214,703,746 198,255,665 Less Allowance for loan losses (1,984,101) (1,982,559) ------------- ------------- Net Loans 212,719,645 196,273,106 Premises and equipment - net 4,531,321 4,285,102 Accrued interest receivable 1,267,134 1,292,070 Deferred income taxes 302,829 195,611 Other real estate 106,904 502,734 Cash value life insurance 3,806,253 3,632,755 Refundable taxes 122,345 - Other assets 908,951 802,744 ------------- ------------- Total Assets $283,886,361 $265,058,144 ============= ============= Page 40 of 90 Exhibit A Benchmark Bankshares, Inc. Consolidated Statements of Financial Condition December 31, 2003 and 2002 Liabilities and Stockholders' Equity 2003 2002 ---- ---- Deposits Demand (noninterest-bearing) $ 30,401,821 $ 26,372,882 NOW accounts 29,254,509 23,258,069 Money market accounts 25,265,191 17,394,138 Savings 15,550,755 13,347,995 Time, $100,000 and over 33,331,859 37,329,668 Other time 119,396,360 118,841,688 ------------ ------------ Total Deposits 253,200,495 236,544,440 Accrued interest payable 667,523 803,167 Accrued income tax payable - 32,516 Dividends payable 623,317 593,088 Other liabilities 782,126 539,026 ------------ ------------ Total Liabilities 255,273,461 238,512,237 Stockholders' Equity Common stock, par value $.21 per share, authorized 4,000,000 shares; issued and outstanding 12-31-03 2,970,373.959, issued and outstanding 12-31-02 2,967,443.301 shares 623,779 623,164 Additional paid-in capital 3,881,671 4,005,238 Retained earnings 23,565,634 21,215,858 Unrealized security gains net of tax effect 541,816 701,647 ------------ ------------ Total Stockholders' Equity 28,612,900 26,545,907 ------------ ------------ Total Liabilities and Stockholders' Equity $283,886,361 $265,058,144 ============ ============ See independent auditor's report and accompanying notes to financial statements. |
Page 41 of 90 Exhibit B Benchmark Bankshares, Inc. Consolidated Statements of Income Years Ended December 31, 2003, 2002, and 2001 2003 2002 2001 ---- ---- ---- Interest Income Interest and fees on loans $ 15,407,584 $ 15,383,312 $ 15,610,703 Interest on investment securities U. S. Government agencies and mortgage backed securities 576,279 806,026 720,685 State and political subdivisions 638,170 745,723 578,611 Other securities - - 9,674 Interest on Federal funds sold 185,800 111,490 481,393 ------------- ------------- ------------- Total Interest Income 16,807,833 17,046,551 17,401,066 Interest Expense Interest-bearing checking deposits 290,342 429,474 625,880 Savings deposits 99,413 183,290 250,242 Time deposits 5,878,095 6,577,285 7,878,935 Federal funds purchased - 10,351 - ------------- ------------- ------------- Total Interest Expense 6,267,850 7,200,400 8,755,057 ------------- ------------- ------------- Net Interest Income 10,539,983 9,846,151 8,646,009 Provision for Loan Losses 291,612 418,582 197,886 ------------- ------------- ------------- Net Interest Income After Provision for Loan Losses 10,248,371 9,427,569 8,448,123 Other Income Service charges on deposit accounts 637,466 641,399 555,495 Other operating income 722,072 646,362 481,636 Net investment securities gains 19,488 8,879 2,434 Gain on sale of other assets 13,047 58,272 3,823 Dividends 60,612 40,417 - ------------- ------------- ------------- Total Other Income 1,452,685 1,395,329 1,043,388 Other Expenses Salaries 3,463,371 3,085,290 2,837,297 Employee benefits 878,027 865,803 651,720 Occupancy expense 344,010 337,523 327,230 Other operating expenses 2,038,785 1,796,363 1,783,590 ------------- ------------- ------------- Total Other Expenses 6,724,193 6,084,979 5,599,837 ------------- ------------- ------------- Income Before Income Taxes 4,976,863 4,737,919 3,891,674 Provision for Income Taxes 1,381,336 1,339,879 1,155,906 ------------- ------------- ------------- Net Income $ 3,595,527 $ 3,398,040 $ 2,735,768 ============= ============= ============= Page 42 of 90 Exhibit B 2003 2002 2001 ---- ---- ---- Earnings Per Common Share - Basic $ 1.21 $ 1.15 $ 0.92 ============= ============= ============= Earnings Per Common Share - Diluted $ 1.19 $ 1.13 $ 0.91 ============= ============= ============= Average Shares Outstanding 2,962,993.670 2,968,723.180 2,982,679.694 ============= ============= ============= Average Shares Assuming Dilution 3,013,735.670 3,011,495.000 2,997,357.000 ============= ============= ============= See independent auditor's report and accompanying notes to financial statements. |
Page 44 of 90 Exhibit D Benchmark Bankshares, Inc. Consolidated Statements of Cash Flows Years Ended December 31, 2003, 2002, and 2001 2003 2002 2001 ---- ---- ---- $114,992,160) $30,595,576) $20,955,994) Cash Flows from Operating Activities Interest received $ 15,894,573 $17,473,165 $17,553,659 Fees and commissions received 2,582,790 1,395,329 1,028,469 Interest paid (6,405,960) (7,399,494) (8,746,489) Cash paid to suppliers and employees (6,074,516) (6,084,979) (5,383,602) Income taxes paid (1,562,227) (1,378,385) (1,178,176) ------------- ------------ ------------ Net Cash Provided by Operating Activities 4,434,660 4,005,636 3,273,861 Cash Flows from Investing Activities Proceeds from sale of investment securities available-for-sale 827,335 4,542,862 200,719 Proceeds from maturity or calls of investments 13,205,869 6,063,889 13,435,348 Purchase of investment securities (19,294,971) (509,913) (25,667,579) Loans originated (114,992,160) (98,624,431) (90,687,195) Principal collected on loans 98,544,079 78,221,715 77,541,503 Purchase premises and equipment (683,845) (455,579) (1,100,702) Cash value life insurance (173,498) (3,632,755) - Interest-bearing deposits in other banks (100,000) - - ------------- ------------ ------------ Net Cash (Used) by Investing Activities (22,667,191) (14,394,212) (26,277,906) Cash Flows from Financing Activities Net increase in demand deposits and savings accounts 20,099,192 10,464,414 10,468,711 Payments for maturing certificates of deposit (43,184,096) (57,686,984) (34,598,237) Proceeds from sales of certificates of deposit 39,740,959 67,405,899 59,293,820 Dividends paid (1,215,524) (1,067,588) (1,078,044) Proceeds from sale of common stock 212,626 89,450 22,140 Payments to reacquire stock (349,798) (141,608) (376,934) Proceeds from sale of other assets 697,513 964,575 359,846 ------------- ------------ ------------ Net Cash Provided by Financing Activities 16,000,872 20,028,158 34,091,302 ------------- ------------ ------------ Net Increase (Decrease) in Cash and Cash Equivalents (2,231,659) 9,639,582 11,087,257 Cash and Cash Equivalents - Beginning of Year 30,595,576 20,955,994 9,868,737 ------------- ------------ ------------ Cash and Cash Equivalents - End of Year $ 28,363,917 $30,595,576 $20,955,994 ============= ============ ============ Page 45 of 90 Exhibit D 2003 2002 2001 ---- ---- ---- Reconciliation of Net Income to Net Cash Provided by Operating Activities Net income $ 3,595,527 $ 3,398,040 $ 2,735,768 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 420,120 440,854 346,621 Provision for credit losses 291,612 481,711 358,977 (Increase) Decrease in Interest receivable 24,936 133,875 152,593 Other real estate 395,830 (249,647) (347,956) Other assets (106,207) 5,773 (14,919) Deferred taxes (107,218) (72,411) (61,675) Refundable taxes (122,345) - - Increase (Decrease) in Interest payable (135,644) (199,094) 18,102 Taxes payable (32,516) (6,889) 27,964 Other liabilities 243,100 140,575 64,643 (Gain) Loss on sale of securities (19,488) (8,879) (2,434) (Gain) Loss on sale of other assets (13,047) (58,272) (3,823) ------------- ------------ ------------ Net Cash Provided by Operating Activities $ 4,434,660 $ 4,005,636 $ 3,273,861 ============= ============ ============ For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and Federal funds sold. |
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, 2003 U. S. Government agencies $ 498,125 $ 9,175 $ - $ 507,300 Mortgage backed securities 14,533,929 134,223 71,060 14,597,092 State and political subdivisions 13,051,756 761,489 12,893 13,800,352 Other securities 259,506 - - 259,506 ----------- ---------- ------- ----------- $28,343,316 $ 904,887 $83,953 $29,164,250 =========== ========== ======= =========== December 31, 2002 Mortgage backed securities $10,849,727 $ 363,783 $ - $11,213,510 State and political subdivisions 14,858,319 699,318 - 15,557,637 Other securities 195,490 - - 195,490 ----------- ---------- ------- ----------- $25,903,536 $1,063,101 $ - $26,966,637 =========== ========== ======= =========== Held-to-Maturity December 31, 2003 U. S. Government agencies $ 2,492,812 $ 36,135 $ - $ 2,528,947 =========== ========== ======= =========== December 31, 2002 State and political subdivisions $ 511,809 $ 17,497 $ - $ 529,306 =========== ========== ======= =========== Page 49 of 90 The maturities of investment securities at December 31, 2003 were as follows: Book Value Market Value Available-for-Sale Due from one to five years $16,837,547 $ 16,978,253 Due from five to ten years 10,178,138 10,849,191 After ten years 1,068,125 1,077,300 Other securities 259,506 259,506 Held-to-Maturity Due from five to ten years 500,000 508,905 After 10 years 1,992,812 2,020,042 Securities having a market value of $6,853,172 and $8,994,013 at December 31, 2003 and 2002, respectively, were pledged to secure public deposits and for other purposes. |
Federal Income Taxes Federal income taxes payable, as of December 31, 2003 and 2002, were as follows: 2003 2002 ---- ---- Currently payable $ - $ 32,516 Deferred (302,829) (195,611) ---------- ---------- $(302,829) $(163,095) ========== ========== The components of applicable income taxes are as follows: 2003 2002 ---- ---- Current $1,488,554 $1,704,583 Deferred from income and expense items (107,218) (364,704) ----------- ----------- Total $1,381,336 $1,339,879 =========== =========== Temporary differences in the recognition of income and expenses for tax and financial reporting purposes resulted in the deferred income tax asset as follows: 2003 2002 Accelerated depreciation $ 714 $ (47,572) Excess (Deficiency) of provision for loan losses over deduction for Federal income tax purposes (39,297) 79,236 Deferred compensation 38,373 23,154 Cash value life insurance 20,257 18,593 Stock option compensation 4,835 - --------- ---------- Total Tax Impact of Temporary Differences in Recognition of Income and Expenses 24,882 73,411 Tax impact of balance sheet recognition of unrealized security losses 82,336 (438,115) --------- ---------- Total Change to Deferred Tax for the Year $107,218 $(364,704) ========= ========== Page 52 of 90 The reasons for the difference between income tax expense and the amount computed by applying the statutory Federal income tax rates are as follows: 2003 2002 ---- ---- Statutory rates 34% 34% Income tax expense at statutory rates $1,680,960 $1,610,892 Increase (Decrease) due to Tax exempt income (228,678) (252,770) Other (70,946) 52,779 ----------- ----------- $1,381,336 $1,410,901 =========== =========== Federal income tax returns are subject to examination for all years which are not barred by the statute of limitations. |
The following table shows the effect on net income and earnings per share if the fair value based method of accounting had been applied to all outstanding and unvested awards as of December 31, 2003: Years Ended December 31, 2003 2002 2001 ---- ---- ---- Net Income, as reported $3,595,527 $3,398,040 $2,735,768 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 9,304 - - Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (33,183) (61,038) (23,880) ----------- ----------- ----------- Pro forma net income $3,571,648 $3,337,002 $2,711,888 =========== =========== =========== Earnings per share Basic - as reported $ 1.21 $ 1.15 $ 0.92 =========== =========== =========== Basic - pro forma $ 1.21 $ 1.12 $ 0.91 =========== =========== =========== Diluted - as reported $ 1.19 $ 1.13 $ 0.91 =========== =========== =========== Diluted - pro forma $ 1.19 $ 1.11 $ 0.90 =========== =========== =========== Page 56 of 90 The fair value of each option grant is estimated as of the date the option is granted using the Black-Scholes option-pricing model with the following weighted-average assumptions: 2003 2002 ---- ---- Dividend Yield 3.00% 3.13% Expected Stock Volatility 20.17% 41.88% Expected Life of the Stock Option 10 Years 10 Years Risk-Free Interest Rate 4.01% 4.76% Table 1 below details the status of the shares in the Employee Plan as of December 31, 2003 and 2002. |
The estimated fair values of the Bank's financial instruments are as follows: 2003 2002 ---- ---- Carrying Fair Carrying Fair Amount Value Amount Value Financial Assets Cash and due from banks $ 12,897,917 $ 12,897,917 $ 13,340,576 $ 13,340,576 Federal funds sold 15,466,000 15,466,000 17,255,000 17,255,000 Investments Available-for-sale 28,083,809 28,904,748 26,966,637 26,966,637 Held-to-maturity 2,492,813 2,528,948 511,809 529,306 Loans Commercial loans 24,566,093 23,272,438 21,872,278 20,988,557 Consumer loans 30,635,698 29,941,086 29,903,542 29,906,419 Real estate loans 159,501,955 153,436,669 147,321,191 127,340,941 Participation loans - out 1,519,159 1,519,159 841,346 841,346 Cash value life insurance 3,806,253 3,806,253 3,632,755 3,632,755 Page 58 of 90 2003 2002 ---- ---- Carrying Fair Carrying Fair Amount Value Amount Value Financial Liabilities Deposits Demand (noninterest- bearing) 30,401,821 30,401,821 26,372,882 26,372,882 Demand (interest- bearing) 44,805,264 44,805,264 40,652,207 40,652,207 Savings 15,550,755 15,550,755 13,347,995 13,347,995 Certificates of deposit 152,728,219 152,954,384 156,171,356 156,963,338 Unrecognized Financial Instruments Unused loan commitments 35,509,335 35,509,335 37,149,451 37,149,451 Unissued letters of credit 1,283,313 1,283,313 1,152,056 1,152,056 18. |
Page 61 of 90 Benchmark Bankshares, Inc. (Parent Company Only) Balance Sheets December 31, 2003, 2002, and 2001 Assets 2003 2002 2001 ---- ---- ---- Cash $ 4,840,661 $ 3,720,694 $ 3,867,818 Investment in subsidiary 24,395,556 23,418,838 20,143,862 Receivable - reimbursement - - 81 ----------- ----------- ----------- Total Assets $29,236,217 $27,139,532 $24,011,761 =========== =========== =========== Liabilities and Stockholders' Equity Liabilities Dividends payable $ 623,317 $ 593,088 $ 534,600 Stockholders' Equity Common stock, par value $.21 per share, authorized 4,000,000 shares; issued and outstanding 12-31-03 2,962,993.670, issued and outstanding 12-31-02 2,967,443.301, issued and outstanding 12-31-01 2,970,003.06 623,779 623,701 623,701 Capital surplus 3,881,671 4,005,238 4,056,859 Retained earnings 24,107,450 21,917,505 18,796,601 ----------- ----------- ----------- Total Stockholders' Equity 28,612,900 26,546,444 23,477,161 ----------- ----------- ----------- Total Liabilities and Stockholders' Equity $29,236,217 $27,139,532 $24,011,761 =========== =========== =========== Statements of Income Years Ended December 31, 2003, 2002, and 2001 2003 2002 2001 ---- ---- ---- Income Dividends from subsidiary $ 2,500,000 $ 1,000,000 $ 1,000,000 ----------- ----------- ----------- Total Income 2,500,000 1,000,000 1,000,000 Expenses Professional fees 14,621 12,550 12,872 Supplies, printing, and postage 9,923 13,347 10,515 Taxes - miscellaneous 2,795 - 850 ----------- ----------- ----------- Total Expenses 27,339 25,897 24,237 ----------- ----------- ----------- Income Before Equity in Undistributed Income of Subsidiary 2,472,661 974,103 975,763 Equity in Income of Subsidiary (includes tax benefit of parent company operating loss) 1,122,866 2,423,937 1,760,005 ----------- ----------- ----------- Net Income $ 3,595,527 $ 3,398,040 $ 2,735,768 =========== =========== =========== Page 62 of 90 Benchmark Bankshares, Inc. (Parent Company Only) Statements of Changes in Stockholders' Equity Years Ended December 31, 2003, 2002, and 2001 * Net of tax effect. |
Page 63 of 90 Benchmark Bankshares, Inc. (Parent Company Only) Statements of Cash Flows Years Ended December 31, 2003, 2002, and 2001 2003 2002 2001 ---- ---- ---- Cash Flows from Operating Activities Net income $3,595,527 $3,398,040 $2,735,768 Decrease in payables - (81) - ----------- ----------- ----------- Net Cash Provided by Operating Activities 3,595,527 3,397,959 2,735,768 Cash Flows from Investing Activities (Un)distributed earnings of subsidiary (1,122,866) (2,423,937) (1,760,005) Capital adjustment 2 (1,400) (1) ----------- ----------- ----------- Net Cash (Used) by Investing Activities (1,122,864) (2,425,337) (1,760,006) Cash Flows from Financing Activities Sale of stock 212,626 89,450 22,140 Redemption of stock (32) (108) (165) Stock repurchase (349,766) (141,500) (376,769) Dividends paid (1,215,524) (1,067,588) (1,078,044) ----------- ----------- ----------- Net Cash (Used) by Financing Activities (1,352,696) (1,119,746) (1,432,838) ----------- ----------- ----------- Net Increase (Decrease) in Cash 1,119,967 (147,124) (457,076) Cash - Beginning of Year 3,720,694 3,867,818 4,324,894 ----------- ----------- ----------- Cash - End of Year $4,840,661 $3,720,694 $3,867,818 =========== =========== =========== Page 64 of 90 ITEM 9 |
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, 2003 are included in Item 8: Consolidated Statements of Financial Condition - December 31, 2003 and 2002 Consolidated Statements of Income - Years Ended December 31, 2003, 2002, and 2001 Consolidated Statements of Changes in Stockholders' Equity - Years Ended December 31, 2003 and 2002 Consolidated Statements of Cash Flows - Years Ended December 31, 2003, 2002, and 2001 Notes to Consolidated Financial Statements - December 31, 2003, 2002, and 2001 (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. |
Page 71 of 90 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 (11) Section 906 Certification (12) Controls and Procedures Certification (13) Code of Ethics (14) Principal Accounting Fees and Services Page 72 of 90 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. |
SECTION 1350 In connection with the Form 10-K of Benchmark Bankshares, Inc. for the year ended December 31, 2003, we, Ben L. Watson, III, President and Chief Executive Officer of Benchmark Bankshares, Inc., and Janice W. Pernell, Senior Vice President, Treasurer, and Assistant Secretary of Benchmark Bankshares, Inc., hereby certify pursuant to 18 U.S.C.ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge: (a) such Form 10-K for the year ended December 31, 2003 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and (b) the information contained in such Form 10-K for the year ended December 31, 2003 fairly presents, in all material respects, the financial condition and results of operations of Benchmark Bankshares, Inc. as of, and for, the year presented in such Form 10-K. By: Ben L. Watson, III Date: March 18, 2004 President and Chief Executive Officer By: Janice W. Pernell Date: March 18, 2004 Senior Vice President, Treasurer, and Assistant Secretary Page 76 of 90 Item 14(c)12 Section 302 Certification I, Ben L. Watson, III, certify that: 1. |
C. Edward Hall 03-18-04 Wayne J. Parrish 03-18-04 - -------------------------------------- ------------------------------------- Mark F. Bragg 03-18-04 Earl C. Currin, Jr. 03-18-04 - -------------------------------------- ------------------------------------- Mary Jane Elkins 03-18-04 David K. Biggs 03-18-04 - -------------------------------------- ------------------------------------- J. Ryland Hamlett 03-18-04 Lewis W. Bridgforth 03-18-04 - -------------------------------------- ------------------------------------- William J. Callis 03-18-04 R. Michael Berryman 03-18-04 - -------------------------------------- ------------------------------------- Earl H. Carter, Jr. 03-18-04 Ben L. Watson, III 03-18-04 - -------------------------------------- ------------------------------------- Page 81 of 90 ITEM 14(d) SCHEDULE II - INDEBTEDNESS TO RELATED PARTIES Year Ended December 31, 2003 Balance Balance at Beginning at End of Name of Person of Period Additions Deductions Period Executive Officers, Directors, and Their Related Interest $7,637,532 $2,534,006 $2,260,148 $7,911,390 W. J. Callis, Director(1)(2)(3) 4,217,179 840,434 1,332,485 3,725,128 R. M. Berryman(1)(2)(3) 311,000 1,148,206 19,348 1,439,858 Year Ended December 31, 2002 Executive Officers, Directors, and Their Related Interest $5,540,819 $3,058,728 $ 962,015 $7,637,532 W. J. Callis, Director(1)(2)(3) 3,321,515 1,401,297 505,633 4,217,179 Year Ended December 31, 2001 Executive Officers, Directors, and Their Related Interest $4,444,931 $2,407,743 $1,311,855 $5,540,819 W. J. Callis, Director(1)(2)(3) 2,433,923 1,112,942 225,350 3,321,515 (1) Loans to related parties that exceed 5% of the capital of the Company. |
Page 82 of 90 ITEM 14(d) SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT Benchmark Bankshares, Inc. Year Ended December 31, 2003 Page 83 of 90 ITEM 14(d) SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT Year Ended December 31, 2001 Page 84 of 90 ITEM 14(d) SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION OF PROPERTY, PLANT, AND EQUIPMENT Benchmark Bankshares, Inc. Year Ended December 31, 2003 Page 85 of 90 ITEM 14(d)(1) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS PURSUANT TO SEC REGULATIONS Benchmark Bankshares, Inc. (Parent Company Only) Balance Sheet, December 31, 2003, 2002, and 2001 Assets 2003 2002 2001 ---- ---- ---- Cash $ 4,840,661 $ 3,720,694 $ 3,867,818 Investment in subsidiary 24,395,556 23,418,301 20,143,862 Receivable - reimbursement - - 81 ----------- ----------- ----------- Total Assets $29,236,217 $27,138,995 $24,011,761 =========== =========== =========== Liabilities and Stockholders' Equity Liabilities Dividends payable $ 623,317 $ 593,088 $ 534,600 Stockholders' Equity Common stock, par value $.21 per share, authorized 4,000,000 shares; issued and outstanding 12-31-03 2,962,993.670, issued and outstanding 12-31-02 2,967,443.301, issued and outstanding 12-31-01 2,970,003.06 623,779 623,164 623,701 Surplus 3,881,671 4,005,238 4,056,859 Retained earnings 24,107,450 21,917,505 18,796,601 ----------- ----------- ----------- Total Stockholders' Equity 28,612,900 26,545,907 23,477,161 ----------- ----------- ----------- Total Liabilities and Stockholders' Equity $29,236,217 $27,138,995 $24,011,761 =========== =========== =========== Page 86 of 90 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, 2003, 2002, and 2001 2003 2002 2001 ---- ---- ---- Income Dividends from subsidiary $2,500,000 $1,000,000 $1,000,000 ---------- ---------- ---------- Total Income 2,500,000 1,000,000 1,000,000 Expenses Professional fees 14,621 12,550 12,872 Supplies, printing, and postage 9,923 13,347 10,515 Taxes - miscellaneous 2,795 - 850 ---------- ---------- ---------- Total Expenses 27,339 25,897 24,237 ---------- ---------- ---------- Income Before Equity in Undistributed Income of Subsidiary 2,472,661 974,103 975,763 Equity in Income of Subsidiary (includes tax benefit of parent company operating loss) 1,122,866 2,423,937 - ---------- ---------- ---------- Net Income $3,595,527 $3,398,040 $ 975,763 ========== ========== ========== Page 87 of 90 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, 2003, 2002, and 2001 * Net of tax effect. |
Page 88 of 90 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, 2003, 2002, and 2001 2003 2002 2001 ---- ---- ---- Cash Flows from Operating Activities Net income $3,595,527 $3,398,040 $2,735,768 Decrease in payables - (81) - ----------- ----------- ----------- Net Cash Provided by Operating Activities 3,595,527 3,397,959 2,735,768 Cash Flows from Investing Activities (Un)distributed earnings of subsidiary (1,122,866) (2,423,937) (1,760,005) Capital adjustment 2 (1,400) (1) ----------- ----------- ----------- Net Cash (Used) by Investing Activities (1,122,864) (2,425,337) (1,760,006) Cash Flows from Financing Activities Sale of stock 212,626 89,450 22,140 Redemption of stock (32) (108) (165) Stock repurchase (349,766) (141,500) (376,769) Dividends paid (1,215,524) (1,067,588) (1,078,044) ----------- ----------- ----------- Net Cash (Used) by Financing Activities (1,352,696) (1,119,746) (1,432,838) ----------- ----------- ----------- Net Increase (Decrease) in Cash 1,119,967 (147,124) (457,076) Cash - Beginning of Year 3,720,694 3,867,818 4,324,894 ----------- ----------- ----------- Cash - End of Year $4,840,661 $3,720,694 $3,867,818 =========== =========== =========== Page 89 of 90 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, 2003 U. S. Government Agencies $ - $ - Pooled Securities 16,037 - State and Political Subdivisions 3,451 - ------- ------- Total $19,488 $ - ======= ======= For the Year Ended December 31, 2002 U. S. Government Agencies $ 1,890 $ - Pooled Securities 6,584 (4,857) State and Political Subdivisions 9,814 (4,552) ------- -------- Total $18,288 $(9,409) ======= ======== Page 90 of 90 ITEM 14(d)(5) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS PURSUANT TO SEC REGULATIONS Capital Ratios for the Bank Subsidiary Bank Ratios Total Risk-Based Capital Ratio 12.91% Tier 1 Risk-Based Capital Ratio 11.91% Tier 1 Leverage Ratio 8.35% |
ITEM 6 SELECTED FINANCIAL DATA Years Ended December 31, 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- (In thousands of dollars, except per share amounts) Interest income $ 17,047 $ 17,401 $ 16,422 $ 15,126 $ 14,328 Interest expense 7,200 8,755 8,002 7,376 7,006 -------- -------- -------- -------- -------- Net interest income 9,847 8,646 8,420 7,750 7,322 Provision for loan losses 419 198 201 606 357 Other operating revenue 1,395 1,044 1,006 742 647 Other operating expense 6,085 5,600 5,069 4,317 3,825 -------- -------- -------- -------- -------- Income Before Income Taxes 4,738 3,892 4,156 3,569 3,787 Income Taxes 1,340 1,156 1,311 1,057 1,143 -------- -------- -------- -------- -------- Net Income 3,398 2,736 2,845 2,512 2,644 Per Share Data (1) Net income 1.15 0.92 0.95 0.83 0.89 Cash dividends declared 0.38 0.36 0.34 0.32 0.31 Balance Sheet Amounts (at end of period) Total assets 265,058 241,813 205,253 193,324 185,381 Total loans (2) 198,256 176,077 163,038 150,675 133,033 Total deposits 236,544 216,361 181,197 164,741 164,892 Total equity 26,546 23,477 22,185 20,048 19,015 Book value per share (at end of period) 8.96 7.90 7.38 6.65 6.34 Selected Financial Ratios (as a percentage) Net income to average equity 15.45 13.61 14.89 13.30 15.65 Net income to average assets 1.39 1.23 1.42 1.31 1.53 Loans to deposits (3) 83.81 82.20 90.90 92.39 81.62 Primary capital to total assets (at end of period) (4) 10.28 10.30 11.46 10.65 10.95 Net interest yield (5) 4.37 4.12 4.50 4.33 4.54 Allowance for loan losses to loans (at end of period) (6) 1.00 1.00 1.01 1.00 1.16 Nonperforming loans to loans (at end of period) (7) 0.05 0.70 0.92 1.04 1.05 Net charge offs to average loans (3) 0.11 0.05 0.04 0.45 0.15 (1) Average shares outstanding. |
COMPARATIVE SUMMARY OF EARNINGS Years Ending December 31, 2002 2001 2000 (In thousands of dollars, except per share data) Interest Income Interest and fees on loans $ 15,383 $ 15,611 $ 14,557 Interest on investment securities U. S. Government agencies and mortgage backed securities 806 721 980 State and political subdivisions 746 579 451 Other securities - 10 24 Interest on Federal funds sold 112 481 410 ------------- ------------- ------------- Total Interest Income 17,047 17,402 16,422 Interest Expense Interest-bearing checking deposits 430 626 768 Savings deposits 183 250 287 Time deposits 6,577 7,879 6,892 Federal funds purchased 10 - 54 Other - - 1 ------------- ------------- ------------- Total Interest Expense 7,200 8,755 8,002 ------------- ------------- ------------- Net Interest Income 9,847 8,647 8,420 Provision for Loan Losses 419 198 201 ------------- ------------- ------------- Net Interest Income After Provision for Loan Losses 9,428 8,449 8,219 Noninterest Income Service charges on deposit accounts 641 555 509 Other operating income 646 482 456 Net investment securities gains (losses) 9 2 (3) Gain (Loss) on sale of other assets 58 4 45 Dividends 41 - - ------------- ------------- ------------- Total Noninterest Income 1,395 1,043 1,007 Noninterest Expense Salaries 3,085 2,837 2,661 Employee benefits 866 652 600 Occupancy expense 338 327 297 Other operating expense 1,796 1,784 1,512 ------------- ------------- ------------- Total Noninterest Expense 6,085 5,600 5,070 ------------- ------------- ------------- Net Income Before Taxes 4,738 3,892 4,156 Provision for Income Tax 1,340 1,155 1,311 ------------- ------------- ------------- Net Income $ 3,398 $ 2,737 $ 2,845 ============= ============= ============= Per Share - Based on Weighted Average Net income $ 1.15 0.92 0.95 Average shares outstanding 2,967,443.297 2,970,003.060 3,008,522.578 Page 22 of 87 TABLE B. |
AVERAGE BALANCE SHEETS (In thousands of dollars) Years Ended December 31, 2002 2001 2000 ---- ---- ---- Amount % Amount % Amount % Assets Cash and due from banks $ 8,652 3.55 $ 6,491 2.92 $ 5,480 2.74 Investment securities 31,843 13.05 24,282 10.94 24,529 12.28 Federal funds sold 7,543 3.09 14,225 6.41 6,351 3.18 Loans (net) 186,078 76.28 169,434 76.31 156,089 78.13 Bank premises and equipment 4,319 1.77 3,981 1.79 3,673 1.84 Accrued interest 1,395 0.57 1,599 0.72 1,578 0.79 Cash value life insurance 1,972 0.81 - - - - Other assets 2,150 0.88 2,014 0.91 2,072 1.04 -------- ------ -------- ------ -------- ------ $243,952 100.00 $222,026 100.00 $199,772 100.00 ======== ====== ======== ====== ======== ====== Liabilities and Stockholders' Equity Deposits Demand $ 47,728 19.57 $ 44,599 20.09 $ 41,582 20.81 Savings and MMA 26,613 10.91 19,859 8.94 17,591 8.81 Time 145,881 59.80 136,054 61.28 119,671 59.90 Federal funds purchased 427 0.18 - - 867 0.43 Accrued interest 767 0.31 929 0.42 810 0.41 Other liabilities 546 0.22 485 0.22 150 0.08 Stockholders' equity 21,990 9.01 20,100 9.05 19,101 9.56 -------- ------ -------- ------ -------- ------ $243,952 100.00 $222,026 100.00 $199,772 100.00 ======== ====== ======== ====== ======== ====== Page 23 of 87 TABLE C. INTEREST RATES EARNED AND PAID (In thousands of dollars) (1) Loans net of unearned income. |
Page 24 of 87 TABLE D. ANALYSIS OF CHANGE IN NET INTEREST INCOME (In thousands of dollars) Page 25 of 87 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, 2002 Mortgage backed securities $10,849,727 $ 363,783 $ - $11,213,510 State and political subdivisions 14,858,319 699,318 - 15,557,637 Other securities 195,490 - - 195,490 ----------- ---------- -------- ----------- $25,903,536 $1,063,101 $ - $26,966,637 =========== ========== ======== =========== December 31, 2001 U. S. Government agencies $ 497,917 $ 3,682 $ - $ 501,599 Mortgage backed securities 17,513,927 29,082 213,314 17,329,695 State and political subdivisions 17,049,625 116,902 161,826 17,004,701 Other securities 195,490 - - 195,490 ----------- ---------- -------- ----------- $35,256,959 $ 149,666 $375,140 $35,031,485 =========== ========== ======== =========== Held-to-Maturity December 31, 2002 Mortgage backed securities $ - $ - $ - $ - State and political subdivisions 511,809 17,497 - 529,306 ----------- ---------- -------- ----------- $ 511,809 $ 17,497 $ - $ 529,306 =========== ========== ======== =========== December 31, 2001 U. S. Government agencies $ 1,000,000 $ 900 $ - $ 1,000,900 State and political subdivisions 513,266 9,341 - 522,607 ----------- ---------- -------- ----------- $ 1,513,266 $ 10,241 $ - $ 1,523,507 =========== ========== ======== =========== The maturities of investment securities at December 31, 2002 were as follows: Book Value Market Value Available-for-Sale Due in one year or less $ 1,265,289 $ 1,281,024 Due from one to five years 8,960,758 9,236,404 Due from five to ten years 13,076,683 13,749,587 After ten years 2,405,316 2,504,132 Other securities 195,490 195,490 Held-to-Maturity Due from one to five years 511,809 529,306 Securities having a market value of $8,994,013 and $5,736,895 at December 31, 2002 and 2001, respectively, were pledged to secure public deposits and for other purposes. |
Page 27 of 87 TABLE F. LOAN PORTFOLIO The table below classifies gross loans by major category and percentage distribution at December 31 for 2002, 2001, and 2000: 2002 2001 2000 Amount % Amount % Amount % Commercial $ 21,872,278 11.03 $ 19,293,070 10.85 $ 19,810,083 12.03 Installment 29,903,542 15.08 32,954,231 18.53 27,509,990 16.70 Real Estate - Construction 1,619,807 0.82 947,775 0.53 1,211,625 0.74 Real Estate - Mortgage 144,860,038 73.07 124,657,873 70.09 116,185,571 70.53 The following table shows maturities of the major loan categories and their sensitivity to changes in investment rates at December 31, 2002 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 $19,980,563 $ 1,031,196 $ - $ 21,011,759 Installment 2,703,565 26,381,740 765,111 29,850,416 Real Estate - Construction 1,619,807 - - 1,619,807 Real Estate - Mortgage 28,840,350 95,020,192 14,398,859 138,259,401 ----------- ------------ ----------- ------------ Total $53,144,285 $122,433,128 $15,163,970 $190,741,383 =========== ============ =========== ============ Over One Year but One Year Within Five Over or Less Years Five Years Floating Rate Floating Rate Floating Rate Total Commercial $ 765,105 $ 95,414 $ - $ 860,519 Installment 15,932 37,194 - 53,126 Real Estate - Mortgage 5,476,853 1,123,784 - 6,600,637 ----------- ------------ ----------- ------------ Total $ 6,257,890 $ 1,256,392 $ - $ 7,514,282 =========== ============ =========== ============ Page 28 of 87 TABLE G. NONPERFORMING LOANS The loan portfolio of the Bank is reviewed by senior officers to evaluate loan performance. |
The following table presents the Bank's loan loss experience and selected loan ratios for the three years ended December 31, 2002, 2001, and 2000: 2002 2001 2000 ---- ---- ---- (In thousands of dollars) Allowance for loan losses at beginning of year $ 1,775 $ 1,668 $ 1,523 Loan Charge Offs Commercial - (1) (35) Installment (192) (242) (181) Real Estate (82) (9) (60) --------- --------- --------- Total Charge Offs (274) (252) (276) Recoveries of Loans Previously Charged Off Commercial - - 107 Installment 63 118 100 Real Estate - 43 13 --------- --------- --------- Total Recoveries 63 161 220 --------- --------- --------- Net loans charged off (211) (91) (56) Provision for loan losses 418 198 201 --------- --------- --------- Allowance for loan losses at end of year $ 1,982 $ 1,775 $ 1,668 ========= ========= ========= Average total loans (net of unearned income) $187,950 $171,149 $157,671 Total loans (net of unearned income) at year end 198,255 177,852 164,706 Selected Loan Loss Ratios Net charge offs to average loans 0.11% 0.05% 0.04% Provision for loan losses to average loans 0.22% 0.12% 0.13% Provision for loan losses to net charge offs % 198.10% 217.58% 358.93% Allowance for loan losses to year end loans 1.00% 1.00% 1.01% Loan loss coverage(1) 24.44X 44.95X 77.81X (1) Income before income taxes plus provision for loan losses, divided by net charge offs. |
DEPOSITS The breakdown on average deposits for the years indicated is as follows (in thousands of dollars): 2002 2001 2000 ---- ---- ---- Average Average Average Balance Rate Balance Rate Balance Rate Noninterest-bearing demand deposits $ 27,567 - $ 25,221 - $ 21,816 - Interest-bearing demand deposits 20,161 0.90 19,378 1.80 19,766 2.59 Money market accounts 13,794 1.74 9,543 2.97 7,544 3.38 Savings 12,819 1.44 10,316 2.43 10,047 2.85 Time 145,881 4.51 136,054 5.83 119,671 5.77 -------- -------- -------- $220,222 $200,512 $178,844 ======== ======== ======== Remaining maturities of time certificates of deposit of $100,000 or more at December 31, 2002 are shown below (in thousands of dollars): Maturity December 31, 2002 Three months or less $ 4,421 Three to six months 7,162 Six to twelve months 9,936 One to three years 8,478 Three to five years 7,332 ------- Total $37,329 ======= Page 32 of 87 TABLE K. RETURN ON EQUITY AND ASSETS The following table highlights certain ratios for the three years ended December 31, 2002, 2001, and 2000 (in thousands of dollars): 2002 2001 2000 ---- ---- ---- Income before securities gains and losses to Average total assets 1.39% 1.23% 1.43% Average stockholders' equity 15.45% 13.60% 14.91% Net income to Average total assets 1.39% 1.23% 1.42% Average stockholders' equity 15.45% 13.61% 14.91% Dividend pay out ratio (dividends declared per share divided by net income per share) 33.04% 39.13% 35.93% Average stockholders' equity to average total assets ratio 9.01% 9.05% 9.56% Page 33 of 87 TABLE L. GAP Analysis December 31, 2002 The following table reflects interest-rate sensitive assets and liabilities only. |
Creedle, Jones, and Alga, P. C. Certified Public Accountants South Hill, Virginia January 20, 2003 Page 39 of 87 Exhibit A Benchmark Bankshares, Inc. Consolidated Statements of Financial Condition December 31, 2002 and 2001 A S S E T S 2002 2001 ---- ---- Cash and due from banks $ 13,340,576 $ 8,215,994 Federal funds sold 17,255,000 12,740,000 Investment securities 27,478,446 36,544,751 Loans 198,255,665 177,852,949 Less Unearned interest income - (970) Allowance for loan losses (1,982,559) (1,774,632) ------------- ------------- Net Loans 196,273,106 176,077,347 Premises and equipment - net 4,285,102 4,283,656 Accrued interest receivable 1,292,070 1,425,945 Deferred income taxes 195,611 560,315 Other real estate 502,734 1,156,464 Cash value life insurance 3,632,755 - Other assets 802,744 808,517 ------------- ------------- Total Assets $265,058,144 $241,812,989 ============= ============= Page 40 of 87 Exhibit A Benchmark Bankshares, Inc. Consolidated Statements of Financial Condition December 31, 2002 and 2001 Liabilities and Stockholders' Equity 2002 2001 ---- ---- Deposits Demand (noninterest-bearing) $ 26,372,882 $ 27,504,768 NOW accounts 23,258,069 20,304,603 Money market accounts 17,394,138 10,939,010 Savings 13,347,995 11,160,289 Time, $100,000 and over 37,329,668 31,101,575 Other time 118,841,688 115,350,866 ------------ ------------- Total Deposits 236,544,440 216,361,111 Accrued interest payable 803,167 1,002,261 Accrued income tax payable 32,516 39,405 Dividends payable 593,088 534,600 Other liabilities 539,026 398,451 ------------ ------------- Total Liabilities 238,512,237 218,335,828 Stockholders' Equity Common stock, par value $.21 per share, authorized 4,000,000 shares; issued and outstanding 12-31-02 2,967,443.301, issued and outstanding 12-31-01 2,970,003.06 shares 623,164 623,701 Capital surplus 4,005,238 4,056,859 Retained earnings 21,215,858 18,945,412 Unrealized security gains net of tax effect 701,647 (148,811) ------------ ------------- Total Stockholders' Equity 26,545,907 23,477,161 ------------ ------------- Total Liabilities and Stockholders' Equity $265,058,144 $241,812,989 ============ ============= See independent auditor's report and accompanying notes to financial statements. |
Page 41 of 87 Exhibit B Benchmark Bankshares, Inc. Consolidated Statements of Income Years Ended December 31, 2002, 2001, and 2000 2002 2001 2000 ---- ---- ---- Interest Income Interest and fees on loans $15,383,312 $15,610,703 $14,556,973 Interest on investment securities U. S. Government agencies and mortgage backed securities 806,026 720,685 980,155 State and political subdivisions 745,723 578,611 451,320 Other securities - 9,674 23,537 Interest on Federal funds sold 111,490 481,393 409,733 ----------- ----------- ------------ Total Interest Income 17,046,551 17,401,066 16,421,718 Interest Expense Interest-bearing checking deposits 429,474 625,880 768,009 Savings deposits 183,290 250,242 286,908 Time deposits 6,577,285 7,878,935 6,892,050 Federal funds purchased 10,351 - 54,283 Other - - 651 ----------- ----------- ------------ Total Interest Expense 7,200,400 8,755,057 8,001,901 ----------- ----------- ------------ Net Interest Income 9,846,151 8,646,009 8,419,817 Provision for Loan Losses 418,582 197,886 201,187 ----------- ----------- ------------ Net Interest Income After Provision for Loan Losses 9,427,569 8,448,123 8,218,630 Other Income Service charges on deposit accounts 641,399 555,495 508,704 Other operating income 646,362 481,636 455,775 Net investment securities gains (losses) 8,879 2,434 (3,308) Gain on sale of other assets 58,272 3,823 45,467 Dividends 40,417 - - ----------- ----------- ------------ Total Other Income 1,395,329 1,043,388 1,006,638 Other Expenses Salaries 3,085,290 2,837,297 2,660,892 Employee benefits 865,803 651,720 599,515 Occupancy expense 337,523 327,230 296,888 Other operating expenses 1,796,363 1,783,590 1,511,537 ----------- ----------- ------------ Total Other Expenses 6,084,979 5,599,837 5,068,832 ----------- ----------- ------------ Income Before Income Taxes 4,737,919 3,891,674 4,156,436 Provision for Income Taxes 1,339,879 1,155,906 1,311,375 ----------- ----------- ------------ Net Income $ 3,398,040 $ 2,735,768 $ 2,845,061 =========== =========== ============ Page 42 of 87 Exhibit B 2002 2001 2000 ---- ---- ---- Earnings Per Share of Common Stock $ 1.15 $ 0.92 $ 0.95 ============= ============= ============= Average Shares Outstanding 2,967,443.297 2,982,679.694 3,008,522.578 ============= ============= ============= See independent auditor's report and accompanying notes to financial statements. |
Page 44 of 87 Exhibit D Benchmark Bankshares, Inc. Consolidated Statements of Cash Flows Years Ended December 31, 2002, 2001, and 2000 2002 2001 2000 ---- ---- ---- Cash Flows from Operating Activities Interest received $16,258,101 $17,553,659 $15,400,186 Fees and commissions received 2,610,393 1,028,469 833,005 Interest paid (7,399,494) (8,746,489) (7,997,952) Cash paid to suppliers and employees (6,084,979) (5,383,602) (3,813,312) Income taxes paid (1,378,385) (1,178,176) (1,381,930) ------------ ------------ ------------ Net Cash Provided by Operating Activities 4,005,636 3,273,861 3,039,997 Cash Flows from Investing Activities Proceeds from sale of investment securities available-for-sale 4,542,862 200,719 4,958,619 Proceeds from maturity or calls of investments 6,063,889 13,435,348 105,000 Purchase of investment securities (509,913) (25,667,579) (1,235,466) Loans originated (98,624,431) (90,687,195) (92,018,273) Principal collected on loans 78,221,715 77,541,503 79,574,713 Purchase premises and equipment (455,579) (1,100,702) (795,249) Cash value life insurance (3,632,755) - - ------------ ------------ ------------ Net Cash (Used) by Investing Activities (14,394,212) (26,277,906) (9,410,656) Cash Flows from Financing Activities Net increase (decrease) in Federal funds purchased - - (7,035,000) Net increase in demand deposits and savings accounts 10,464,414 10,468,711 5,510,983 Payments for maturing certificates of deposit (57,686,984) (34,598,237) (50,604,717) Proceeds from sales of certificates of deposit 67,405,899 59,293,820 61,550,011 Dividends paid (1,067,588) (1,078,044) (963,489) Proceeds from sale of common stock 89,450 22,140 55,985 Payments to reacquire stock (141,608) (376,934) (155,410) Proceeds from sale of other assets 964,575 359,846 347,753 ------------ ------------ ------------ Net Cash Provided by Financing Activities 20,028,158 34,091,302 8,706,116 ------------ ------------ ------------ Net Increase (Decrease) in Cash and Cash Equivalents 9,639,582 11,087,257 2,335,457 Cash and Cash Equivalents - Beginning of Year 20,955,994 9,868,737 7,533,280 ------------ ------------ ------------ Cash and Cash Equivalents - End of Year $30,595,576 $20,955,994 $ 9,868,737 ============ ============ ============ Page 45 of 87 Exhibit D 2002 2001 2000 ---- ---- ---- Reconciliation of Net Income to Net Cash Provided by Operating Activities Net income $ 3,398,040 $ 2,735,768 $ 2,845,061 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 440,854 346,621 288,909 Provision for probable credit losses and recoveries 481,711 358,977 145,091 (Increase) Decrease in Interest receivable 133,875 152,593 (188,528) Other real estate (249,647) (347,956) (140,700) Other assets 5,773 (14,919) (118,928) Deferred taxes exclusive of unrealized security gains (losses) (72,411) (61,675) (58,991) Increase (Decrease) in Interest payable (199,094) 18,102 217,195 Taxes payable (6,889) 27,964 (11,564) Other liabilities 140,575 64,643 104,611 (Gain) Loss on sale of securities (8,879) (2,434) 3,308 (Gain) Loss on sale of other assets (58,272) (3,823) (45,467) ------------ ------------ ------------ Net Cash Provided by Operating Activities $ 4,005,636 $ 3,273,861 $ 3,039,997 ============= ============ ============ For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and Federal funds sold. |
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, 2002 Mortgage backed securities $10,849,727 $ 363,783 $ - $11,213,510 State and political subdivisions 14,858,319 699,318 - 15,557,637 Other securities 195,490 - - 195,490 ----------- ---------- -------- ----------- $25,903,536 $1,063,101 $ - $26,966,637 =========== ========== ======== =========== December 31, 2001 U. S. Government agencies $ 497,917 $ 3,682 $ - $ 501,599 Mortgage backed securities 17,513,927 29,082 213,314 17,329,695 State and political subdivisions 17,049,625 116,902 161,826 17,004,701 Other securities 195,490 - - 195,490 ----------- ---------- -------- ----------- $35,256,959 $ 149,666 $375,140 $35,031,485 =========== ========== ======== =========== Held-to-Maturity December 31, 2002 Mortgage backed securities $ - $ - $ - $ - State and political subdivisions 511,809 17,497 - 529,306 ----------- ---------- -------- ----------- $ 511,809 17,497 $ $ 529,306 =========== ========== ======== =========== December 31, 2001 U. S. Government agencies $ 1,000,000 $ 900 $ - $ 1,000,900 State and political subdivisions 513,266 9,341 - 522,607 ----------- ---------- -------- ----------- $ 1,513,266 $ 10,241 $ - $ 1,523,507 =========== ========== ======== =========== The maturities of investment securities at December 31, 2002 were as follows: Book Value Market Value Available-for-Sale Due in one year or less $ 1,265,289 $ 1,281,024 Due from one to five years 8,960,758 9,236,404 Due from five to ten years 13,076,683 13,749,587 After ten years 2,405,316 2,504,132 Other securities 195,490 195,490 Held-to-Maturity Due from one to five years 511,809 529,306 Securities having a market value of $8,994,013 and $5,736,895 at December 31, 2002 and 2001, respectively, were pledged to secure public deposits and for other purposes. |
Federal Income Taxes Federal income taxes payable, as of December 31, 2002 and 2001, were as follows: 2002 2001 Currently payable $ 32,516 $ 39,405 Deferred (195,611) (560,315) ---------- ---------- $(163,095) $(520,910) ========== ========== The components of applicable income taxes are as follows: 2002 2001 ---- ---- Current $1,704,583 $1,094,231 Deferred from income and expense items (364,704) 61,675 ----------- ----------- Total $1,339,879 $1,155,906 =========== =========== Page 51 of 87 Temporary differences in the recognition of income and expenses for tax and financial reporting purposes resulted in the deferred income tax asset as follows: 2002 2001 Accelerated depreciation $ (47,572) $11,654 Excess (Deficiency) of provision for loan losses over deduction for Federal income tax purposes 79,236 35,872 Deferred compensation 23,154 23,154 Cash value life insurance 18,593 - ---------- -------- Total Tax Impact of Temporary Differences in Recognition of Income and Expenses 73,411 70,680 Tax impact of balance sheet recognition of unrealized security losses (438,115) (9,005) ---------- -------- Total Change to Deferred Tax for the Year $(364,704) $61,675 ========== ======== The reasons for the difference between income tax expense and the amount computed by applying the statutory Federal income tax rates are as follows: 2002 2001 ---- ---- Statutory rates 34% 34% Income tax expense at statutory rates $1,610,892 $1,155,906 Increase (Decrease) due to Tax exempt income (252,770) (184,205) Other 52,779 245,880 ----------- ----------- $1,410,901 $1,217,581 =========== =========== Federal income tax returns are subject to examination for all years which are not barred by the statute of limitations. |
The estimated fair values of the Bank's financial instruments are as follows: 2002 2001 ---- ---- Carrying Fair Carrying Fair Amount Value Amount Value Financial Assets Cash and due from banks $ 13,340,576 $ 13,340,576 $ 8,215,994 $ 8,215,994 Federal funds sold 17,255,000 17,255,000 12,740,000 12,740,000 Investments Available-for-sale 26,966,637 26,966,637 35,031,485 35,031,485 Held-to-maturity 511,809 529,306 1,513,266 1,523,507 Loans Commercial loans 21,872,278 20,988,557 19,293,070 20,189,688 Consumer loans 29,903,542 29,906,419 32,954,230 31,503,862 Real estate loans 147,321,191 127,340,941 125,605,649 128,450,993 Participation loans - out 841,346 841,346 3,606,970 3,606,970 Financial Liabilities Deposits Demand (noninterest- bearing) 26,372,882 26,372,882 27,504,768 27,504,768 Demand (interest- bearing) 40,652,207 40,652,207 31,243,613 31,243,613 Savings 13,347,995 13,347,995 11,160,289 11,160,289 Certificates of deposit 156,171,356 156,963,338 146,452,441 146,442,943 Unrecognized Financial Instruments Unused loan commitments 37,149,451 37,149,451 29,349,224 29,349,224 Unissued letters of credit 1,152,056 1,152,056 914,814 914,814 Page 57 of 87 18. |
Page 60 of 87 Benchmark Bankshares, Inc. (Parent Company Only) Balance Sheets December 31, 2002, 2001, and 2000 Assets 2002 2001 2000 ---- ---- ---- Cash $ 3,720,694 $ 3,867,818 $ 4,324,894 Investment in subsidiary 23,418,301 20,143,862 18,401,336 Receivable - reimbursement - 81 81 ----------- ----------- ----------- Total Assets $27,138,995 $24,011,761 $22,726,311 =========== =========== =========== Liabilities and Stockholders' Equity Liabilities Dividends payable $ 593,088 $ 534,600 $ 541,120 Stockholders' Equity Common stock, par value $.21 per share, authorized 4,000,000 shares; issued and outstanding 12-31-02 2,967,443.301, issued and outstanding 12-31-01 2,970,003.06, issued and outstanding 12-31-00 3,006,219.501 623,164 623,701 631,307 Surplus 4,005,238 4,056,859 4,404,047 Retained earnings 21,917,505 18,796,601 17,149,837 ----------- ----------- ----------- Total Stockholders' Equity 26,545,907 23,477,161 22,185,191 ----------- ----------- ----------- Total Liabilities and Stockholders' Equity $27,138,995 $24,011,761 $22,726,311 =========== =========== =========== Statements of Income Years Ended December 31, 2002, 2001, and 2000 2002 2001 2000 ---- ---- ---- Income Dividends from subsidiary $ 1,000,000 $ 1,000,000 $ 2,300,000 ----------- ----------- ----------- Total Income 1,000,000 1,000,000 2,300,000 Expenses Professional fees 12,550 12,872 11,500 Supplies, printing, and postage 13,347 10,515 10,809 Taxes - miscellaneous - 850 900 ----------- ----------- ----------- Total Expenses 25,897 24,237 23,209 ----------- ----------- ----------- Income Before Equity in Undistributed Income of Subsidiary 974,103 975,763 2,276,791 Equity in Income of Subsidiary (includes tax benefit of parent company operating loss) 2,423,937 1,760,005 568,270 ----------- ----------- ----------- Net Income $ 3,398,040 $ 2,735,768 $ 2,845,061 =========== =========== =========== Page 61 of 87 Benchmark Bankshares, Inc. (Parent Company Only) Statements of Changes in Stockholders' Equity Years Ended December 31, 2002, 2001, and 2000 * Net of tax effect. |
Page 62 of 87 Benchmark Bankshares, Inc. (Parent Company Only) Statements of Cash Flows Years Ended December 31, 2002, 2001, and 2000 2002 2001 2000 ---- ---- ---- Cash Flows from Operating Activities Net income $3,398,040 $2,735,768 $2,845,061 Decrease in payables (81) - - ----------- ----------- ----------- Net Cash Provided by Operating Activities 3,397,959 2,735,768 2,845,061 Cash Flows from Investing Activities (Un)distributed earnings of subsidiary (2,423,937) (1,760,005) (568,270) Capital adjustment (1,400) (1) (34) ----------- ----------- ----------- Net Cash (Used) by Investing Activities (2,425,337) (1,760,006) (568,304) Cash Flows from Financing Activities Sale of stock 89,450 22,140 55,984 Redemption of stock (108) (165) (114) Stock repurchase (141,500) (376,769) (155,296) Dividends paid (1,067,588) (1,078,044) (963,489) ----------- ----------- ----------- Net Cash (Used) by Financing Activities (1,119,746) (1,432,838) (1,062,915) ----------- ----------- ----------- Net Increase (Decrease) in Cash (147,124) (457,076) 1,213,842 Cash - Beginning of Year 3,867,818 4,324,894 3,111,052 ----------- ----------- ----------- Cash - End of Year $3,720,694 $3,867,818 $4,324,894 =========== =========== =========== Page 63 of 87 ITEM 9 |
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, 2002 are included in Item 8: Consolidated Statements of Financial Condition - December 31, 2002 and 2001 Consolidated Statements of Income - Years Ended December 31, 2002, 2001, and 2000 Consolidated Statements of Changes in Stockholders' Equity - Years Ended December 31, 2002 and 2001 Consolidated Statements of Cash Flows - Years Ended December 31, 2002, 2001, and 2000 Notes to Consolidated Financial Statements - December 31, 2002, 2001, and 2000 (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. |
Page 70 of 87 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 (11) Section 906 Certification (12) Controls and Procedures Certification Page 71 of 87 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. |
SECTION 1350 In connection with the Form 10-K of Benchmark Bankshares, Inc. for the year ended December 31, 2002, we, Ben L. Watson, III, President and Chief Executive Officer of Benchmark Bankshares, Inc., and Janice W. Pernell, Senior Vice President, Treasurer, and Assistant Secretary of Benchmark Bankshares, Inc., hereby certify pursuant to 18 U.S.C.ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge: (a) such Form 10-K for the year ended December 31, 2002 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and (b) the information contained in such Form 10-K for the year ended December 31, 2002 fairly presents, in all material respects, the financial condition and results of operations of Benchmark Bankshares, Inc. as of, and for, the year presented in such Form 10-K. By: Ben L. Watson, III Date: March 17, 2003 President and Chief Executive Officer By: Janice W. Pernell Date: March 17, 2003 Senior Vice President, Treasurer, and Assistant Secretary Page 75 of 87 Item 14(c)12 Section 302 Certification I, Ben L. Watson, III, certify that: 1. |
C. Edward Hall 03-17-03 Wayne J. Parrish 03-17-03 - -------------------------------------- ------------------------------------- Mark F. Bragg 03-17-03 Earl C. Currin, Jr. 03-17-03 - -------------------------------------- ------------------------------------- Mary Jane Elkins 03-17-03 David K. Biggs 03-17-03 - -------------------------------------- ------------------------------------- J. Ryland Hamlett 03-17-03 Lewis W. Bridgforth 03-17-03 - -------------------------------------- ------------------------------------- William J. Callis 03-17-03 R. Michael Berryman 03-17-03 - -------------------------------------- ------------------------------------- Earl H. Carter, Jr. 03-17-03 Ben L. Watson, III 03-17-03 - -------------------------------------- ------------------------------------- Page 78 of 87 ITEM 14(d) SCHEDULE II - INDEBTEDNESS TO RELATED PARTIES Year Ended December 31, 2002 Balance Balance at Beginning at End of Name of Person of Period Additions Deductions Period Executive Officers, Directors, and Their Related Interest $5,540,819 $3,058,728 $ 962,015 $7,637,532 W. J. Callis, Director(1)(2)(3) 3,321,515 1,401,297 505,633 4,217,179 Year Ended December 31, 2001 Executive Officers, Directors, and Their Related Interest $4,444,931 $2,407,743 $1,311,855 $5,540,819 W. J. Callis, Director(1)(2)(3) 2,433,923 1,112,942 225,350 3,321,515 Year Ended December 31, 2000 Executive Officers, Directors, and Their Related Interest $3,212,221 $2,117,778 $ 885,068 $4,444,931 W. J. Callis, Director(1)(2)(3) 1,996,624 790,000 352,701 2,433,923 (1) Loans to related parties that exceed 5% of the capital of the Company. |
Page 79 of 87 ITEM 14(d) SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT Benchmark Bankshares, Inc. Year Ended December 31, 2002 Page 80 of 87 ITEM 14(d) SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT Year Ended December 31, 2000 Page 81 of 87 ITEM 14(d) SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION OF PROPERTY, PLANT, AND EQUIPMENT Benchmark Bankshares, Inc. Year Ended December 31, 2002 Page 82 of 87 ITEM 14(d)(1) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS PURSUANT TO SEC REGULATIONS Benchmark Bankshares, Inc. (Parent Company Only) Balance Sheet, December 31, 2002, 2001, and 2000 Assets 2002 2001 2000 ---- ---- ---- Cash $ 3,720,694 $ 3,867,818 $ 4,324,894 Investment in subsidiary 23,418,301 20,143,862 18,401,336 Receivable - reimbursement - 81 81 ----------- ----------- ----------- Total Assets $27,138,995 $24,011,761 $22,726,311 =========== =========== =========== Liabilities and Stockholders' Equity Liabilities Dividends payable $ 593,088 $ 534,600 $ 541,120 Stockholders' Equity Common stock, par value $.21 per share, authorized 4,000,000 shares; issued and outstanding 12-31-02 2,967,443.301, issued and outstanding 12-31-01 2,970,003.06, issued and outstanding 12-31-00 3,006,219.501 623,164 623,701 631,307 Surplus 4,005,238 4,056,859 4,404,047 Retained earnings 21,917,505 18,796,601 17,149,837 ----------- ----------- ----------- Total Stockholders' Equity 26,545,907 23,477,161 22,185,191 ----------- ----------- ----------- Total Liabilities and Stockholders' Equity $27,138,995 $24,011,761 $22,726,311 =========== =========== =========== Page 83 of 87 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, 2002, 2001, and 2000 2002 2001 2000 ---- ---- ---- Income Dividends from subsidiary $1,000,000 $1,000,000 $2,300,000 ---------- ---------- ---------- Total Income 1,000,000 1,000,000 2,300,000 Expenses Professional fees 12,550 12,872 11,500 Supplies, printing, and postage 13,347 10,515 10,809 Taxes - miscellaneous - 850 900 ---------- ---------- ---------- Total Expenses 25,897 24,237 23,209 ---------- ---------- ---------- Income Before Equity in Undistributed Income of Subsidiary 974,103 975,763 2,276,791 Equity in Income of Subsidiary (includes tax benefit of parent company operating loss) 2,423,937 - 568,270 ---------- ---------- ---------- Net Income $3,398,040 $ 975,763 $2,845,061 ========== ========== ========== Page 84 of 87 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, 2002, 2001, and 2000 * Net of tax effect. |
Page 85 of 87 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, 2002, 2001, and 2000 2002 2001 2000 ---- ---- ---- Cash Flows from Operating Activities Net income $3,398,040 $2,735,768 $2,845,061 Decrease in payables (81) - - ----------- ----------- ----------- Net Cash Provided by Operating Activities 3,397,959 2,735,768 2,845,061 Cash Flows from Investing Activities (Un)distributed earnings of subsidiary (2,423,937) (1,760,005) (568,270) Capital adjustment (1,400) (1) (34) ----------- ----------- ----------- Net Cash (Used) by Investing Activities (2,425,337) (1,760,006) (568,304) Cash Flows from Financing Activities Sale of stock 89,450 22,140 55,984 Redemption of stock (108) (165) (114) Stock repurchase (141,500) (376,769) (155,296) Dividends paid (1,067,588) (1,078,044) (963,489) ----------- ----------- ----------- Net Cash (Used) by Financing Activities (1,119,746) (1,432,838) (1,062,915) ----------- ----------- ----------- Net Increase (Decrease) in Cash (147,124) (457,076) 1,213,842 Cash - Beginning of Year 3,867,818 4,324,894 3,111,052 ----------- ----------- ----------- Cash - End of Year $3,720,694 $3,867,818 $4,324,894 =========== =========== =========== Page 86 of 87 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, 2002 U. S. Government Agencies $ 1,890 $ - Pooled Securities 6,584 (4,857) State and Political Subdivisions 9,814 (4,552) ------- -------- Total $18,288 $(9,409) ======= ======== For the Year Ended December 31, 2001 U. S. Government Agencies $ - $ - Pooled Securities - - State and Political Subdivisions 2,434 - ------- -------- Total $ 2,434 $ - ======= ======== Page 87 of 87 ITEM 14(d)(5) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS PURSUANT TO SEC REGULATIONS Capital Ratios for the Bank Subsidiary Bank Ratios Total Risk-Based Capital Ratio 11.46% Tier 1 Risk-Based Capital Ratio 10.54% Tier 1 Leverage Ratio 8.87% |
ITEM 6 SELECTED FINANCIAL DATA Years Ended December 31, 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- (In thousands of dollars, except per share amounts) Interest income $ 17,401 $ 16,422 $ 15,126 $ 14,328 $ 13,653 Interest expense 8,755 8,002 7,376 7,006 6,508 -------- -------- --------- -------- -------- Net interest income 8,646 8,420 7,750 7,322 7,145 Provision for loan losses 198 201 606 357 360 Other operating revenue 1,044 1,006 742 647 586 Other operating expense 5,600 5,069 4,317 3,825 3,600 -------- -------- -------- -------- -------- Income Before Income Taxes 3,892 4,156 3,569 3,787 3,771 Income Taxes 1,156 1,311 1,057 1,143 1,192 -------- -------- -------- -------- -------- Net Income 2,736 2,845 2,512 2,644 2,579 Per Share Data (1) Net income 0.92 0.95 0.83 0.89 0.88 Cash dividends declared 0.36 0.34 0.32 0.31 0.29 Balance Sheet Amounts (at end of period) Total assets 241,813 205,253 193,324 185,381 158,735 Total loans (2) 176,077 163,038 150,675 133,033 125,422 Total deposits 216,361 181,197 164,741 164,892 140,742 Total equity 23,477 22,185 20,048 19,015 16,652 Book value per share (at end of period) 7.90 7.38 6.65 6.34 5.66 Selected Financial Ratios (as a percentage) Net income to average equity 13.61 14.89 13.30 15.65 17.31 Net income to average assets 1.23 1.42 1.31 1.53 1.66 Loans to deposits (3) 82.20 90.90 92.39 81.62 90.10 Primary capital to total assets (at end of period) (4) 10.30 11.46 10.65 10.95 10.99 Net interest yield (5) 4.12 4.50 4.33 4.54 4.90 Allowance for loan losses to loans (at end of period) (6) 1.00 1.01 1.00 1.16 1.00 Nonperforming loans to loans (at end of period) (7) 0.70 0.92 1.04 1.05 1.12 Net charge offs to average loans (3) 0.05 0.04 0.45 0.15 0.14 (1) Average shares outstanding. |
COMPARATIVE SUMMARY OF EARNINGS Years Ending December 31, 2001 2000 1999 ---- ---- ---- (In thousands of dollars, except per share data) Interest Income Interest and fees on loans $ 15,611 $ 14,557 $ 13,209 Interest on investment securities U. S. Government agencies 721 980 931 State and political subdivisions 579 451 616 Other securities 10 24 6 Interest on Federal funds sold 481 410 363 ------------- ------------- ------------- Total Interest Income 17,402 16,422 15,125 Interest Expense Interest-bearing checking deposits 626 768 811 Savings deposits 250 287 299 Time deposits 7,879 6,892 6,225 Federal funds purchased - 54 41 Other - 1 - ------------- ------------- ------------- Total Interest Expense 8,755 8,002 7,376 ------------- ------------- ------------- Net Interest Income 8,647 8,420 7,749 Provision for Loan Losses 198 201 606 ------------- ------------- ------------- Net Interest Income After Provision for Loan Losses 8,449 8,219 7,143 Noninterest Income Service charges on deposit accounts 555 509 450 Other operating income 482 456 292 Net investment securities gains (losses) 2 (3) (1) Gain (Loss) on sale of other assets 4 45 (4) Rental - - 5 ------------- ------------- ------------- Total Noninterest Income 1,043 1,007 742 Noninterest Expense Salaries 2,837 2,661 2,300 Employee benefits 652 600 517 Occupancy expense 327 297 226 Other operating expense 1,784 1,512 1,274 ------------- ------------- ------------- Total Noninterest Expense 5,600 5,070 4,317 ------------- ------------- ------------- Net Income Before Taxes 3,892 4,156 3,568 Provision for Income Tax 1,155 1,311 1,056 ------------- ------------- ------------- Net Income $ 2,737 $ 2,845 $ 2,512 ============= ============= ============= Per Share - Based on Weighted Average Net income $ 0.92 $ 0.95 $ 0.83 Average shares outstanding 2,970,003.060 3,008,522.578 3,011,913.354 Page 22 of 83 TABLE B. |
AVERAGE BALANCE SHEETS (In thousands of dollars) Years Ended December 31, 2001 2000 1999 ---- ---- ---- Amount % Amount % Amount % ------ - ------ - ------ - Assets Cash and due from banks $ 6,491 2.92 $ 5,480 2.74 $ 5,924 3.10 Investment securities 24,282 10.94 24,529 12.28 27,657 14.47 Federal funds sold 14,225 6.41 6,351 3.18 7,557 3.95 Loans (net) 169,434 76.31 156,089 78.13 143,610 75.12 Bank premises and equipment 3,981 1.79 3,673 1.84 3,273 1.71 Accrued interest 1,599 0.72 1,578 0.79 1,462 0.76 Other assets 2,014 0.91 2,072 1.04 1,682 0.89 -------- ------ -------- ------ -------- ------ $222,026 100.00 $199,772 100.00 $191,165 100.00 ======== ====== ======== ====== ======== ====== Liabilities and Stockholders' Equity Deposits Demand $ 44,599 20.09 $ 41,582 20.81 $ 38,866 20.33 Savings and MMA 19,859 8.94 17,591 8.81 18,454 9.65 Time 136,054 61.28 119,671 59.90 113,178 59.20 Federal funds purchased - - 867 0.43 822 0.43 Accrued interest 929 0.42 810 0.41 726 0.38 Other liabilities 485 0.22 150 0.08 225 0.12 Stockholders' equity 20,100 9.05 19,101 9.56 18,894 9.89 -------- ------ -------- ------ -------- ------ $222,026 100.00 $199,772 100.00 $191,165 100.00 ======== ====== ======== ====== ======== ====== Page 23 of 83 TABLE C. INTEREST RATES EARNED AND PAID (In thousands of dollars) (1) Loans net of unearned income. |
Page 24 of 83 TABLE D. ANALYSIS OF CHANGE IN NET INTEREST INCOME (In thousands of dollars) Page 25 of 83 TABLE E. INVESTMENT SECURITIES The carrying amount and approximate market values of investment securities are summarized below: Book Unrealized Unrealized Market Value Gains Losses Value Available-for-Sale December 31, 2001 U. S. Government agencies $ 497,917 $ 3,682 $ - $ 501,599 State and political subdivisions 17,049,625 116,902 161,826 17,004,701 Pooled securities 17,513,927 29,082 213,314 17,329,695 Other securities 195,490 - - 195,490 ----------- -------- -------- ----------- $35,256,959 $149,666 $375,140 $35,031,485 =========== ======== ======== =========== December 31, 2000 U. S. Government agencies $ 9,289,397 $ 1,795 $ 88,572 $ 9,202,620 State and political subdivisions 8,741,141 58,556 146,928 8,652,769 Pooled securities 1,645,364 830 24,667 1,621,527 Other securities 200,492 - - 200,492 ----------- -------- -------- ----------- $19,876,394 $ 61,181 $260,167 $19,677,408 =========== ======== ======== =========== Held-to-Maturity December 31, 2001 U. S. Government agencies $ 1,000,000 $ 900 $ - $ 1,000,900 State and political subdivisions 513,266 9,341 - 522,607 ----------- -------- -------- ----------- $ 1,513,266 $ 10,241 $ - $ 1,523,507 =========== ======== ======== =========== December 31, 2000 U. S. Government agencies $ 4,500,000 $ - $ 65,455 $ 4,434,545 State and political subdivisions 744,718 1,745 13,143 733,320 ----------- -------- -------- ----------- $ 5,244,718 $ 1,745 $ 78,598 $ 5,167,865 =========== ======== ======== =========== The maturities of investment securities at December 31, 2001 were as follows: Book Value Market Value Available-for-Sale Due in one year or less $ 149,920 $ 152,780 Due from one to five years 4,095,748 3,925,614 Due from five to ten years 12,755,375 12,567,678 After ten years 18,255,916 18,189,923 Other securities 195,490 195,490 Held-to-Maturity Due from one to five years 513,266 522,607 Due from five to ten years 500,000 500,900 After ten years 500,000 500,000 Securities having a market value of $5,736,895 and $5,222,596 at December 31, 2001 and 2000, respectively, were pledged to secure public deposits and for other purposes. |
Page 27 of 83 TABLE F. LOAN PORTFOLIO The table below classifies gross loans by major category and percentage distribution at December 31 for 2001, 2000, and 1999: 2001 2000 1999 Amount % Amount % Amount % Commercial $ 19,293,070 10.85 $19,810,083 12.03 $23,423,032 15.38 Installment 32,954,231 18.53 27,509,990 16.70 26,232,943 17.23 Real Estate - Construction 947,775 0.53 1,211,625 0.74 1,132,526 7.44 Real Estate - Mortgage 124,657,873 70.09 116,185,571 70.53 101,474,226 59.95 The following table shows maturities of the major loan categories and their sensitivity to changes in investment rates at December 31, 2001 for fixed interest rate and floating interest rate loans: Due After One Year One Year but Within Due After or Less Five Years Five Years Fixed Rate Fixed Rate Fixed Rate Total Commercial $18,910,034 $ 349,146 $ 33,890 $ 19,293,070 Installment 2,637,460 22,434,980 7,212,152 32,284,592 Real Estate - Construction 947,775 - - 947,775 Real Estate - Mortgage 20,239,031 84,334,822 12,329,790 116,903,643 ----------- ------------ ----------- ------------ Total $42,734,300 $107,118,948 $19,575,832 $169,429,080 =========== ============ =========== ============ Over One Year but One Year Within Five Over or Less Years Five Years Floating Rate Floating Rate Floating Rate Total Commercial $ - $ - $ - $ - Installment - 669,639 - 669,639 Real Estate - Mortgage 7,609,600 144,630 - 7,754,230 ----------- ------------ ----------- ------------ Total $ 7,609,600 $ 814,269 $ - $ 8,423,869 =========== ============ =========== ============ Page 28 of 83 TABLE G. NONPERFORMING LOANS The loan portfolio of the Bank is reviewed by senior officers to evaluate loan performance. |
The following table presents the Bank's loan loss experience and selected loan ratios for the three years ended December 31, 2001, 2000, and 1999: 2001 2000 1999 ---- ---- ---- (In thousands of dollars) Allowance for loan losses at beginning of year $ 1,668 $ 1,523 $ 1,559 Loan Charge Offs Commercial (1) (35) (23) Installment (242) (181) (622) Real Estate (9) (60) (109) --------- --------- --------- Total Charge Offs (252) (276) (754) Recoveries of Loans Previously Charged Off Commercial - 107 - Installment 118 100 91 Real Estate 43 13 21 --------- --------- --------- Total Recoveries 161 220 112 --------- --------- --------- Net loans charged off (91) (56) (642) Provision for loan losses 198 201 606 --------- --------- --------- Allowance for loan losses at end of year $ 1,775 $ 1,668 $ 1,523 ========= ========= ========= Average total loans (net of unearned income) $171,149 $157,671 $145,139 Total loans (net of unearned income) at year end 177,852 164,706 152,198 Selected Loan Loss Ratios Net charge offs to average loans 0.05% 0.04% 0.442% Provision for loan losses to average loans 0.12% 0.13% 0.42% Provision for loan losses to net charge offs % 217.58% 358.93% 94.39% Allowance for loan losses to year end loans 1.00% 1.01% 1.02% Loan loss coverage(1) 44.95X 77.81X 6.50X (1) Income before income taxes plus provision for loan losses, divided by net charge offs. |
DEPOSITS The breakdown on average deposits for the years indicated is as follows (in thousands of dollars): 2001 2000 1999 ---- ---- ---- Average Average Average Balance Rate Balance Rate Balance Rate Noninterest-bearing demand deposits $ 25,221 - $ 21,816 - $ 18,113 - Interest-bearing demand deposits 19,378 1.80 19,766 2.59 20,753 2.63 Money market accounts 9,543 2.97 7,544 3.38 8,303 3.13 Savings 10,316 2.43 10,047 2.85 10,151 2.93 Time 136,054 5.83 119,671 5.77 113,178 5.36 -------- -------- -------- $200,512 $178,844 $170,498 ======== ======== ======== Remaining maturities of time certificates of deposit of $100,000 or more at December 31, 2001 are shown below (in thousands of dollars): Maturity December 31, 2001 Three months or less $ 8,460 Three to six months 6,112 Six to twelve months 5,960 One to three years 5,953 Three to five years 3,199 Five or more years 1,418 ------- Total $31,102 ======= Page 32 of 83 TABLE K. RETURN ON EQUITY AND ASSETS The following table highlights certain ratios for the three years ended December 31, 2001, 2000, and 1999 (in thousands of dollars): 2001 2000 1999 ---- ---- ---- Income before securities gains and losses to Average total assets 1.23% 1.43% 1.31% Average stockholders' equity 13.60% 14.91% 13.29% Net income to Average total assets 1.23% 1.42% 1.31% Average stockholders' equity 13.61% 14.91% 13.29% Dividend pay out ratio (dividends declared per share divided by net income per share) 39.13% 35.93% 38.55% Average stockholders' equity to average total assets ratio 9.05% 9.56% 9.88% Page 33 of 83 TABLE L. GAP Analysis December 31, 2001 The following table reflects interest-rate sensitive assets and liabilities only. |
Creedle, Jones, and Alga, P. C. Certified Public Accountants Page 39 of 83 Exhibit A Benchmark Bankshares, Inc. Consolidated Statements of Financial Condition December 31, 2001 and 2000 A S S E T S 2001 2000 ---- ---- Cash and due from banks $ 8,215,994 $ 5,587,737 Federal funds sold 12,740,000 4,281,000 Investment securities 36,544,751 24,922,126 Loans 177,852,949 164,717,269 Less Unearned interest income (970) (10,982) Allowance for loan losses (1,774,632) (1,667,723) ------------- ------------- Net Loans 176,077,347 163,038,564 Premises and equipment - net 4,283,656 3,752,830 Accrued interest receivable 1,425,945 1,578,538 Deferred income taxes 560,315 489,635 Other real estate 1,156,464 808,508 Other assets 808,517 793,598 ------------- ------------- Total Assets $241,812,989 $205,252,536 ============= ============= Page 40 of 83 Exhibit A Benchmark Bankshares, Inc. Consolidated Statements of Financial Condition December 31, 2001 and 2000 Liabilities and Stockholders' Equity 2001 2000 ---- ---- Deposits Demand (noninterest-bearing) $ 27,504,768 $ 20,033,199 NOW accounts 20,304,603 22,356,687 Money market accounts 10,939,010 7,384,741 Savings 11,160,289 9,665,332 Time, $100,000 and over 31,101,575 19,364,111 Other time 115,350,866 102,392,747 ------------- ------------- Total Deposits 216,361,111 181,196,817 Accrued interest payable 1,002,261 984,159 Accrued income tax payable 39,405 11,441 Dividends payable 534,600 541,120 Other liabilities 398,451 333,808 ------------- ------------- Total Liabilities 218,335,828 183,067,345 Stockholders' Equity Common stock, par value $.21 per share, authorized 4,000,000 shares; issued and outstanding 12-31-01 2,970,003.06, issued and outstanding 12-31-00 3,006,219.501 shares 623,701 631,307 Capital surplus 4,056,859 4,404,047 Retained earnings 18,945,412 17,281,168 Unrealized security gains net of tax effect (148,811) (131,331) ------------- ------------- Total Stockholders' Equity 23,477,161 22,185,191 ------------- ------------- Total Liabilities and Stockholders' Equity $241,812,989 $205,252,536 ============= ============= See independent auditor's report and accompanying notes to financial statements. |
Page 41 of 83 Exhibit B Benchmark Bankshares, Inc. Consolidated Statements of Income Years Ended December 31, 2001, 2000, and 1999 2001 2000 1999 ---- ---- ---- Interest Income Interest and fees on loans $15,610,703 $14,556,973 $13,209,176 Interest on investment securities U. S. Government agencies 720,685 980,155 931,242 State and political subdivisions 578,611 451,320 615,887 Other securities 9,674 23,537 5,845 Interest on Federal funds sold 481,393 409,733 363,390 ----------- ----------- ----------- Total Interest Income 17,401,066 16,421,718 15,125,540 Interest Expense Interest-bearing checking deposits 625,880 768,009 811,399 Savings deposits 250,242 286,908 298,675 Time deposits 7,878,935 6,892,050 6,225,469 Federal funds purchased - 54,283 40,838 Other - 651 - ----------- ----------- ---------- Total Interest Expense 8,755,057 8,001,901 7,376,381 ----------- ----------- ---------- Net Interest Income 8,646,009 8,419,817 7,749,159 Provision for Loan Losses 197,886 201,187 606,030 ----------- ----------- ---------- Net Interest Income After Provision for Loan Losses 8,448,123 8,218,630 7,143,129 Other Income Service charges on deposit accounts 555,495 508,704 449,641 Other operating income 481,636 455,775 292,618 Net investment securities gains (losses) 2,434 (3,308) (547) Gain (Loss) on sale of other assets 3,823 45,467 (3,854) Rental - - 4,514 ----------- ----------- ---------- Total Other Income 1,043,388 1,006,638 742,372 Other Expenses Salaries 2,837,297 2,660,892 2,300,266 Employee benefits 651,720 599,515 517,009 Occupancy expense 327,230 296,888 225,530 Other operating expenses 1,783,590 1,511,537 1,274,338 ----------- ----------- ---------- Total Other Expenses 5,599,837 5,068,832 4,317,143 ----------- ----------- ---------- Income Before Income Taxes 3,891,674 4,156,436 3,568,358 Provision for Income Taxes 1,155,906 1,311,375 1,056,851 ----------- ----------- ---------- Net Income 2,735,768 2,845,061 2,511,507 Page 42 of 83 Exhibit B 2001 2000 1999 ---- ---- ---- Other Comprehensive Income, Net of Tax Net unrealized holding losses arising during period (148,811) (131,331) (705,644) ------------- ------------- ------------- Comprehensive Income $ 2,586,957 $ 2,713,730 $ 1,805,863 ============= ============= ============= Earnings Per Share of Common Stock $ 0.92 $ 0.95 $ 0.83 ============= ============= ============= Average Shares Outstanding 2,982,679.694 3,008,522.578 3,011,913.354 ============= ============= ============= See independent auditor's report and accompanying notes to financial statements. |
Page 44 of 83 Exhibit D Benchmark Bankshares, Inc. Consolidated Statements of Cash Flows Years Ended December 31, 2001, 2000, and 1999 2001 2000 1999 ---- ---- ---- Cash Flows from Operating Activities Interest received $17,553,659 $15,400,186 $15,297,744 Fees and commissions received 1,028,469 833,005 556,706 Interest paid (8,746,489) (7,997,952) (7,417,701) Cash paid to suppliers and employees (5,383,602) (3,813,312) (4,270,751) Income taxes paid (1,178,176) (1,381,930) (950,460) ------------ ------------ ------------ Net Cash Provided by Operating Activities 3,273,861 3,039,997 3,215,538 Cash Flows from Investing Activities Proceeds from sale of investment securities available-for-sale 200,719 4,958,619 280,167 Proceeds from maturity or calls of investments 13,435,348 105,000 1,087,343 Purchase of investment securities (25,667,579) (1,235,466) (8,070,160) Loans originated (90,687,195) (92,018,273) (90,308,177) Principal collected on loans 77,541,503 79,574,713 72,863,670 Purchase premises and equipment (1,100,702) (795,249) (494,982) ------------ ------------ ------------ Net Cash (Used) by Investing Activities (26,277,906) (9,410,656) (24,642,139) Cash Flows from Financing Activities Net increase (decrease) in Federal funds purchased - (7,035,000) 7,035,000 Net increase in demand deposits and savings accounts 10,468,711 5,510,983 1,486,879 Payments for maturing certificates of deposit (34,598,237) (50,604,717) (41,821,954) Proceeds from sales of certificates of deposit 59,293,820 61,550,011 40,183,459 Dividends paid (1,078,044) (963,489) (961,020) Proceeds from sale of common stock 22,140 55,985 458,174 Payments to reacquire stock (376,934) (155,410) (267,411) Proceeds from sale of other assets 359,846 347,753 196,624 ------------ ------------ ------------ Net Cash Provided by Financing Activities 34,091,302 8,706,116 6,309,751 ------------ ------------ ------------ Net Increase (Decrease) in Cash and Cash Equivalents 11,087,257 2,335,457 (15,116,850) Cash and Cash Equivalents - Beginning of Year 9,868,737 7,533,280 22,650,130 ------------ ------------ ------------ Cash and Cash Equivalents - End of Year $20,955,994 $ 9,868,737 $ 7,533,280 ============ ============ ============ Page 45 of 83 Exhibit D 2001 2000 1999 ---- ---- ---- Reconciliation of Net Income to Net Cash Provided by Operating Activities Net income $ 2,735,768 $ 2,845,061 $ 2,511,507 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 346,621 288,909 271,594 Provision for probable credit losses and recoveries 358,977 145,091 718,293 (Increase) Decrease in Refundable taxes - - 33,961 Interest receivable 152,593 (188,528) 172,204 Other real estate (347,956) (140,700) (166,570) Other assets (14,919) (118,928) (306,906) Deferred taxes exclusive of unrealized security gains (losses) (61,675) (58,991) (48,124) Increase (Decrease) in Interest payable 18,102 217,195 (41,320) Taxes payable 27,964 (11,564) 23,005 Other liabilities 64,643 104,611 43,493 (Gain) Loss on sale of securities (2,434) 3,308 547 (Gain) Loss on sale of other assets (3,823) (45,467) 3,854 ------------ ------------ ------------ Net Cash Provided by Operating Activities $ 3,273,861 $ 3,039,997 $ 3,215,538 ============ ============ ============ For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and Federal funds sold. |
Investment Securities The carrying amount and approximate market values of investment securities are summarized below: Book Unrealized Unrealized Market Value Gains Losses Value Available-for-Sale December 31, 2001 U. S. Government agencies $ 497,917 $ 3,682 $ - $ 501,599 State and political subdivisions 17,049,625 116,902 161,826 17,004,701 Pooled securities 17,513,927 29,082 213,314 17,329,695 Other securities 195,490 - - 195,490 ----------- -------- -------- ----------- $35,256,959 $149,666 $375,140 $35,031,485 =========== ======== ======== =========== December 31, 2000 U. S. Government agencies $ 9,289,397 $ 1,795 $ 88,572 $ 9,202,620 State and political subdivisions 8,741,141 58,556 146,928 8,652,769 Pooled securities 1,645,364 830 24,667 1,621,527 Other securities 200,492 - - 200,492 ----------- -------- -------- ----------- $19,876,394 $ 61,181 $260,167 $19,677,408 =========== ======== ======== =========== Held-to-Maturity December 31, 2001 U. S. Government agencies $ 1,000,000 $ 900 $ - $ 1,000,900 State and political subdivisions 513,266 9,341 - 522,607 ----------- -------- -------- ----------- $ 1,513,266 $ 10,241 $ - $ 1,523,507 =========== ======== ======== =========== December 31, 2000 U. S. Government agencies $ 4,500,000 $ - $ 65,455 $ 4,434,545 State and political subdivisions 744,718 1,745 13,143 733,320 ----------- -------- -------- ----------- $ 5,244,718 $ 1,745 $ 78,598 $ 5,167,865 =========== ======== ======== =========== Page 49 of 83 The maturities of investment securities at December 31, 2001 were as follows: Book Value Market Value Available-for-Sale Due in one year or less $ 149,920 $ 152,780 Due from one to five years 4,095,748 3,925,614 Due from five to ten years 12,755,375 12,567,678 After ten years 18,255,916 18,189,923 Other securities 195,490 195,490 Held-to-Maturity Due from one to five years 513,266 522,607 Due from five to ten years 500,000 500,900 After ten years 500,000 500,000 Securities having a market value of $5,736,895 and $5,222,596 at December 31, 2001 and 2000, respectively, were pledged to secure public deposits and for other purposes. |
Federal Income Taxes Federal income taxes payable, as of December 31, 2001 and 2000, were as follows: 2001 2000 Currently payable $ 39,405 $ 11,440 Deferred (560,315) (489,635) ---------- ---------- $(520,910) $(478,195) ========== ========== The components of applicable income taxes are as follows: 2001 2000 ---- ---- Current $1,094,231 $1,464,221 Deferred from income and expense items 61,675 (152,846) ---------- ----------- Total $1,155,906 $1,311,375 ========== =========== Temporary differences in the recognition of income and expenses for tax and financial reporting purposes resulted in the deferred income tax asset as follows: 2001 2000 Accelerated depreciation $ 11,654 $ (568) Excess (Deficiency) of provision for loan losses over deduction for Federal income tax purposes 35,872 36,907 Deferred compensation 23,154 22,652 ---------- ---------- Total Tax Impact of Temporary Differences in Recognition of Income and Expenses 70,680 58,991 Tax impact of balance sheet recognition of unrealized security losses (9,005) (211,837) ----------- ---------- Total Change to Deferred Tax for the Year $ 61,675 $(152,846) =========== ========== The reasons for the difference between income tax expense and the amount computed by applying the statutory Federal income tax rates are as follows: 2001 2000 ---- ---- Statutory rates 34% 34% Income tax expense at statutory rates $1,155,906 $1,311,375 Increase (Decrease) due to Tax exempt income (184,205) (50,251) Other 245,880 109,242 ----------- ----------- $1,217,581 $1,370,366 =========== =========== Page 52 of 83 Federal income tax returns are subject to examination for all years which are not barred by the statute of limitations. |
The estimated fair values of the Bank's financial instruments are as follows: 2001 2000 ---- ---- Carrying Fair Carrying Fair Amount Value Amount Value Financial Assets Cash and due from banks $ 8,215,994 $ 8,215,994 $ 5,587,737 $ 5,587,737 Federal funds sold 12,740,000 12,740,000 4,281,000 4,281,000 Investments Available-for-sale 35,031,485 35,031,485 19,876,394 19,677,408 Held-to-maturity 1,513,266 1,523,507 5,244,718 5,167,865 Loans Commercial loans 19,293,070 20,189,688 20,969,201 20,968,201 Consumer loans 32,954,230 31,503,862 27,509,990 28,181,606 Real estate loans 125,605,649 128,450,993 120,839,070 103,831,473 Participation loans - out 3,606,970 3,606,970 (4,600,992) (4,600,992) Financial Liabilities Deposits Demand (noninterest- bearing) 27,504,768 27,504,768 20,033,199 20,033,199 Demand (interest- bearing) 31,243,613 31,243,613 29,741,428 29,741,428 Savings 11,160,289 11,160,289 9,665,332 9,665,332 Certificates of deposit 146,452,441 146,442,943 121,756,858 119,871,696 Unrecognized Financial Instruments Unused loan commitments 29,349,224 29,349,224 22,875,073 22,875,073 Unissued letters of credit 914,814 914,814 1,397,471 1,397,471 Page 57 of 83 18. |
Page 60 of 83 Benchmark Bankshares, Inc. (Parent Company Only) Balance Sheets December 31, 2001, 2000, and 1999 Assets 2001 2000 1999 ---- ---- ---- Cash $ 3,867,818 $ 4,324,894 $ 3,111,052 Investment in subsidiary 20,143,862 18,401,336 17,419,106 Receivable - reimbursement 81 81 81 ----------- ----------- ----------- Total Assets $24,011,761 $22,726,311 $20,530,239 =========== =========== =========== Liabilities and Stockholders' Equity Liabilities Dividends payable $ 534,600 $ 541,120 $ 482,493 Stockholders' Equity Common stock, par value $.21 per share, authorized 4,000,000 shares; issued and outstanding 12-31-01 2,970,003.06, issued and outstanding 12-31-00 3,006,219.501, issued and outstanding 12-31-99 3,015,577.591 623,701 631,307 633,272 Surplus 4,056,859 4,404,047 4,501,508 Retained earnings 18,796,601 17,149,837 14,912,966 ----------- ----------- ----------- Total Stockholders' Equity 23,477,161 22,185,191 20,047,746 ----------- ----------- ----------- Total Liabilities and Stockholders' Equity $24,011,761 $22,726,311 $20,530,239 =========== =========== =========== Statements of Income Years Ended December 31, 2001, 2000, and 1999 2001 2000 1999 ---- ---- ---- Income Dividends from subsidiary $ 1,000,000 $ 2,300,000 $ 2,000,000 ----------- ----------- ----------- Total Income 1,000,000 2,300,000 2,000,000 Expenses Professional fees 12,872 11,500 20,038 Supplies, printing, and postage 10,515 10,809 7,410 Taxes - miscellaneous 850 900 825 ----------- ----------- ----------- Total Expenses 24,237 23,209 28,273 ----------- ----------- ----------- Income (Loss) Before Equity in Undistributed Income of Subsidiary 975,763 2,276,791 1,971,727 Equity in Income of Subsidiary (includes tax benefit of parent company operating loss) - 568,270 739,780 ----------- ----------- ----------- Net Income $ 975,763 $ 2,845,061 $ 2,711,507 =========== =========== =========== Page 61 of 83 Benchmark Bankshares, Inc. (Parent Company Only) Statements of Changes in Stockholders' Equity Years Ended December 31, 2001, 2000, and 1999 * Net of tax effect. |
Page 62 of 83 Benchmark Bankshares, Inc. (Parent Company Only) Statements of Cash Flows Years Ended December 31, 2001, 2000, and 1999 2001 2000 1999 ---- ---- ---- Cash Flows from Operating Activities Net income $2,735,768 $2,845,061 $2,711,507 Increase in receivable - - (81) ----------- ----------- ----------- Net Cash Provided by Operating Activities 2,735,768 2,845,061 2,711,426 Cash Flows from Investing Activities (Un)distributed earnings of subsidiary (1,760,005) (568,270) (739,972) Capital adjustment (1) (34) - ----------- ----------- ----------- Net Cash (Used) by Investing Activities (1,760,006) (568,304) (739,972) Cash Flows from Financing Activities Sale of stock 22,140 55,984 458,174 Redemption of stock (165) (114) (267,411) Stock repurchase (376,769) (155,296) - Dividends paid (1,078,044) (963,489) (961,020) ----------- ----------- ----------- Net Cash (Used) by Financing Activities (1,432,838) (1,062,915) (770,257) ----------- ----------- ----------- Net Increase (Decrease) in Cash (457,076) 1,213,842 1,201,197 Cash - Beginning of Year 4,324,894 3,111,052 1,909,855 ----------- ----------- ----------- Cash - End of Year $3,867,818 $4,324,894 $3,111,052 =========== =========== =========== Page 63 of 83 ITEM 9 |
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) The following consolidated financial statements of Benchmark Bankshares, Inc. and its subsidiary, Benchmark Community Bank, included in the annual report of the registrant to its stockholders for the year ended December 31, 2001 are included in Item 8: Consolidated Statements of Financial Condition - December 31, 2001 and 2000 Consolidated Statements of Income - Years Ended December 31, 2001, 2000, and 1999 Consolidated Statements of Changes in Stockholders' Equity - Years Ended December 31, 2001 and 2000 Consolidated Statements of Cash Flows - Years Ended December 31, 2001, 2000, and 1999 Notes to Consolidated Financial Statements - December 31, 2001, 2000, and 1999 (2) The following consolidated financial statement schedules of Benchmark Bankshares, Inc. and its subsidiary, Benchmark Community Bank, are included in Item 14 (d): Schedule II - Indebtedness to Related Parties Schedule V - Property, Plant, and Equipment Schedule VI - Accumulated Depreciation, Depletion, and Amortization of Property, Plant, and Equipment Supplemental Information to the Audited Financial Statements pursuant to SEC regulations. |
Page 70 of 83 ITEM 14 (a) (3) LISTING OF EXHIBITS INCLUDED IN 14 (c) Page Number of Incorporation by Reference to ( 1) Articles of Incorporation Page 57 - Item 14(c) - Exhibit 1 of Form 10K, December 31, 1989 ( 2) (a) Amendments to Articles of Page 76 - Item 14(c) - Exhibit 2 of Incorporation Form 10K, December 31, 1989 (b) Amendments to Articles of Page 58 - Item 14(c) - Exhibit 2(b) of Incorporation Form 10K, December 31, 1990 (c) Amendment to Articles of Page 68 - Item 14(c) - Exhibit 2(c) Incorporation of Form 10K, December 31, 1992 ( 3) Bylaws of Incorporation Page 83 - Item 14(c) - Exhibit 3 of Form 10K, December 31, 1989 ( 4) Amendments to Bylaws Page 106 - Item 14(c) - Exhibit 4 of Form 10K, December 31, 1989 ( 5) Indemnity Agreement Page II-11-26 in Exhibit 10.1 of Form S-1 filed September 1, 1989 ( 6) List of Subsidiaries ( 7) Bonus Plans of Bank Officers Page 60 - Item 14(c) - Exhibit 7(a)- 7(b) of Form 10K, December 31, 1990 ( 8) Directors Performance Page 72 - Item 14(c) - Exhibit 8 of Compensation Schedule Form 10K, December 31, 1992 ( 9) Resolution to Amend the Articles Page 71 - Item 14(c) - Exhibit 9(a) of Incorporation to increase the of Form 10K, December 31, 1993 number of authorized shares from 2,000,000 to 4,000,000 concurrent with the Directors election to have a 2 for 1 stock split (10) Stock Option Plans Exhibits A and B of 1995 Proxy and Information Statement for the April 20, 1995 Annual Meeting of Stockholders Page 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 75 of 83 ITEM 14(d) SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT Benchmark Bankshares, Inc. Year Ended December 31, 2001 Page 76 of 83 ITEM 14(d) SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT Year Ended December 31, 1999 Page 77 of 83 ITEM 14(d) SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION OF PROPERTY, PLANT, AND EQUIPMENT Benchmark Bankshares, Inc. Year Ended December 31, 2001 Page 78 of 83 ITEM 14(d)(1) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS PURSUANT TO SEC REGULATIONS Benchmark Bankshares, Inc. (Parent Company Only) Balance Sheet, December 31, 2001, 2000, and 1999 Assets 2001 2000 1999 ---- ---- ---- Cash $ 3,867,818 $ 4,324,894 $ 3,111,052 Investment in subsidiary 20,143,862 18,401,336 17,419,106 Receivable - reimbursement 81 81 81 ----------- ----------- ----------- Total Assets $24,011,761 $22,726,311 $20,530,239 =========== =========== =========== Liabilities and Stockholders' Equity Liabilities Dividends payable $ 534,600 $ 541,120 $ 482,493 Stockholders' Equity Common stock, par value $.21 per share, authorized 4,000,000 shares; issued and outstanding 12-31-01 2,970,003.06, issued and outstanding 12-31-00 3,006,219.501, issued and outstanding 12-31-99 3,015,577.591 623,701 631,307 633,272 Surplus 4,056,859 4,404,047 4,501,508 Retained earnings 18,796,601 17,149,837 14,912,966 ----------- ----------- ----------- Total Stockholders' Equity 23,477,161 22,185,191 20,047,746 ----------- ----------- ----------- Total Liabilities and Stockholders' Equity $24,011,761 $22,726,311 $20,530,239 =========== =========== =========== Page 79 of 83 ITEM 14(d)(2) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS Page 1 PURSUANT TO SEC REGULATIONS Benchmark Bankshares, Inc. (Parent Company Only) Statements of Income Years Ended December 31, 2001, 2000, and 1999 2001 2000 1999 ---- ---- ---- Income Dividends from subsidiary $1,000,000 $2,300,000 $2,000,000 ---------- ---------- ---------- Total Income 1,000,000 2,300,000 2,000,000 Expenses Professional fees 12,872 11,500 20,038 Supplies, printing, and postage 10,515 10,809 7,410 Taxes - miscellaneous 850 900 825 ---------- ---------- ---------- Total Expenses 24,237 23,209 28,273 ---------- ---------- ---------- Income (Loss) Before Equity in Undistributed Income of Subsidiary 975,763 2,276,791 1,971,727 Equity in Income of Subsidiary (includes tax benefit of parent company operating loss) - 568,270 739,780 ---------- ---------- ---------- Net Income $ 975,763 $2,845,061 $2,711,507 ========== ========== ========== Page 80 of 83 ITEM 14(d)(2) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS Page 2 PURSUANT TO SEC REGULATIONS Benchmark Bankshares, Inc. (Parent Company Only) Statement of Changes in Stockholders' Equity Years Ended December 31, 2001, 2000, and 1999 Page 81 of 83 ITEM 14(d)(3) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS PURSUANT TO SEC REGULATIONS Benchmark Bankshares, Inc. (Parent Company Only) Statements of Cash Flows Years Ended December 31, 2001, 2000, and 1999 2001 2000 1999 ---- ---- ---- Cash Flows from Operating Activities Net income $2,735,768 $2,845,061 $2,711,507 Increase in receivable - - (81) ---------- ---------- ----------- Net Cash Provided by Operating Activities 2,735,768 2,845,061 2,711,426 Cash Flows from Investing Activities Undistributed earnings of subsidiary (1,760,005) (568,270) (739,972) Capital adjustment (1) (34) - ----------- ----------- ----------- Net Cash (Used) by Investing Activities (1,760,006) (568,304) (739,972) Cash Flows from Financing Activities Sale of stock 22,140 55,984 458,174 Redemption of stock (165) (114) (267,411) Stock repurchase (376,769) (155,296) - Dividends paid (1,078,044) (963,489) (961,020) ----------- ----------- ----------- Net Cash (Used) by Financing Activities (1,432,838) (1,062,915) (770,257) ----------- ----------- ----------- Net Increase (Decrease) in Cash (457,076) 1,213,842 1,201,197 Cash - Beginning of Year 4,324,894 3,111,052 1,909,855 ----------- ----------- ----------- Cash - End of Year $3,867,818 $4,324,894 $3,111,052 =========== =========== =========== Page 82 of 83 ITEM 14(d)(4) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS PURSUANT TO SEC REGULATIONS Investment Securities - Realized Gains and Losses Realized Realized Gains Losses For the Year Ended December 31, 2001 U. S. Government Agencies $ - $ - Pooled Securities - - State and Political Subdivisions 2,434 - ------ ------ Total $2,434 $ - ====== ====== For the Year Ended December 31, 2000 U. S. Government Agencies $ - $ - Pooled Securities 300 2,428 State and Political Subdivisions 3,199 4,379 ------ ------ Total $3,499 $6,807 ====== ====== Page 83 of 83 ITEM 14(d)(5) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS PURSUANT TO SEC REGULATIONS Capital Ratios for the Bank Subsidiary Bank Ratios Total Risk-Based Capital Ratio 13.07% Tier 1 Risk-Based Capital Ratio 11.97% Tier 1 Leverage Ratio 8.73% |
ITEM 6 SELECTED FINANCIAL DATA Years Ended December 31, 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (In thousands of dollars, except per share amounts) Interest income $16,422 $15,126 $14,328 $13,653 $12,729 Interest expense 8,002 7,376 7,006 6,508 6,162 ------- ------- ------- ------- ------- Net interest income 8,420 7,750 7,322 7,145 6,567 Provision for loan losses 201 606 357 360 295 Other operating revenue 1,006 742 647 586 565 Other operating expense 5,069 4,317 3,825 3,600 3,327 ------- ------- ------- ------- ------- Income Before Income Taxes 4,156 3,569 3,787 3,771 3,510 Income Taxes 1,311 1,057 1,143 1,192 1,064 ------- ------- ------- ------- ------- Net Income 2,845 2,512 2,644 2,579 2,446 Per Share Data (1) (2) Net income 0.95 0.83 0.89 0.88 0.85 Cash dividends declared 0.34 0.32 0.31 0.29 0.24 Balance Sheet Amounts (at end of period) Total assets 205,253 193,324 185,381 158,735 150,908 Total loans (3) 163,038 150,675 133,033 125,422 118,864 Total deposits 181,197 164,741 164,892 140,742 135,360 Total equity 22,185 20,048 19,015 16,652 14,362 Book value per share (at end of period) (2) 7.38 6.65 6.34 5.66 4.96 Selected Financial Ratios (as a percentage) Net income to average equity 14.89 13.30 15.65 17.31 17.91 Net income to average assets 1.42 1.31 1.53 1.66 1.70 Loans to deposits (4) 90.90 92.39 81.62 90.10 88.70 Primary capital to total assets (at end of period) (5) 11.46 10.65 10.95 10.99 9.25 Net interest yield (6) 4.50 4.33 4.54 4.90 4.57 Allowance for loan losses to loans (at end of period) (7) 1.01 1.00 1.16 1.00 1.00 Nonperforming loans to loans (at end of period) (8) 0.92 1.04 1.05 1.12 1.02 Net charge offs to average loans (4) 0.04 0.45 0.15 0.14 0.11 (1) Average shares outstanding. |
COMPARATIVE SUMMARY OF EARNINGS Years Ending December 31, 2000 1999 1998 ---- ---- ---- (In thousands of dollars, except per share data) Interest Income Interest and fees on loans $ 14,557 $ 13,209 $ 12,456 Interest on investment securities U. S. Government agencies 980 931 680 State and political subdivisions 451 616 493 Other securities 24 6 6 Interest on Federal funds sold 410 363 693 ------------- ------------ ------------ Total Interest Income 16,422 15,125 14,328 Interest Expense Interest-bearing checking deposits 768 811 760 Savings deposits 287 299 286 Time deposits 6,892 6,225 5,960 Federal funds purchased 54 41 - Other 1 - - ------------- ------------ ------------ Total Interest Expense 8,002 7,376 7,006 ------------- ------------ ------------ Net Interest Income 8,420 7,749 7,322 Provision for Loan Losses 201 606 357 ------------- ------------ ------------ Net Interest Income After Provision for Loan Losses 8,219 7,143 6,965 Noninterest Income Service charges on deposit accounts 509 450 431 Other operating income 456 292 214 Net investment securities gains (losses) (3) (1) (1) Gain (Loss) on sale of other real estate 45 (4) 3 Rental - 5 - ------------- ------------ ------------ Total Noninterest Income 1,007 742 647 Noninterest Expense Salaries 2,661 2,300 2,036 Employee benefits 600 517 448 Occupancy expense 297 226 199 Other operating expense 1,512 1,274 1,142 ------------- ------------ ------------ Total Noninterest Expense 5,070 4,317 3,825 ------------- ------------ ------------ Net Income Before Taxes 4,156 3,568 3,787 Provision for Income Tax 1,311 1,056 1,143 ------------- ------------ ------------ Net Income $ 2,845 $ 2,512 $ 2,644 ============= ============ ============ Per Share - Based on Weighted Average Net income $ 0.95 $ 0.83 $ 0.89 Average shares outstanding 3,008,522.578 3,011,913.354 2,978,930.855 Page 23 of 84 TABLE B. |
AVERAGE BALANCE SHEETS (In thousands of dollars) Years Ended December 31, 2000 1999 1998 ---- ---- ---- Amount % Amount % Amount % ------ - ------ - ------ - Assets Cash and due from banks $ 5,480 2.74 $ 5,924 3.10 $ 5,056 2.94 Investment securities 24,529 12.28 27,657 14.47 20,492 11.90 Federal funds sold 6,351 3.18 7,557 3.95 12,941 7.51 Loans 156,089 78.13 143,610 75.12 128,054 74.34 Bank premises and equipment 3,673 1.84 3,273 1.71 3,121 1.81 Accrued interest 1,578 0.79 1,462 0.76 1,471 0.85 Other assets 2,072 1.04 1,682 0.89 1,122 0.65 -------- ------ -------- ------ -------- ------ $199,772 100.00 $191,165 100.00 $172,257 100.00 ======== ====== ======== ====== ======== ====== Liabilities and Stockholders' Equity Deposits Demand $ 41,582 20.81 $ 38,866 20.33 $ 34,661 20.12 Savings and MMA 17,591 8.81 18,454 9.65 16,043 9.31 Time 119,671 59.90 113,178 59.20 103,770 60.24 Federal funds purchased 867 0.43 822 0.43 - - Accrued interest 810 0.41 726 0.38 717 0.42 Other liabilities 150 0.08 225 0.12 174 0.10 Stockholders' equity 19,101 9.56 18,894 9.89 16,892 9.81 -------- ------ -------- ------ -------- ------ $199,772 100.00 $191,165 100.00 $172,257 100.00 ======== ====== ======== ====== ======== ====== Page 24 of 84 TABLE C. INTEREST RATES EARNED AND PAID (In thousands of dollars) (1) Loans net of unearned income. |
Page 25 of 84 TABLE D. ANALYSIS OF CHANGE IN NET INTEREST INCOME (In thousands of dollars) Page 26 of 84 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, 2000 U. S. Government agencies $ 9,289,397 $ 1,795 $ 88,572 $ 9,202,620 State and political subdivisions 8,741,141 58,556 146,928 8,652,769 Pooled securities 1,645,364 830 24,667 1,621,527 Other securities 200,492 - - 200,492 ----------- ------- -------- ----------- $19,876,394 $61,181 $260,167 $19,677,408 =========== ======= ======== =========== 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 Other securities 137,000 - - 137,000 ----------- ------- -------- ----------- $23,893,331 $71,977 $894,010 $23,071,298 =========== ======= ======== =========== Held-to-Maturity December 31, 2000 U. S. Government agencies $ 4,500,000 $ - $ 65,455 $ 4,434,545 State and political subdivisions 744,718 1,745 13,143 733,320 ----------- ------- -------- ----------- $ 5,244,718 $ 1,745 $ 78,598 $ 5,167,865 =========== ======= ======== =========== 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 ----------- ------- -------- ----------- $ 5,246,170 $ 971 $311,994 $ 4,935,147 =========== ======= ======== =========== The maturities of investment securities at December 31, 2000 were as follows: Book Value Market Value Available-for-Sale Due in one year or less $ 5,000 $ 5,000 Due from one to five years 5,935,079 5,883,716 Due from five to ten years 10,476,316 10,377,019 After ten years 3,264,507 3,216,181 Other securities 195,492 195,492 Held-to-Maturity Due from one to five years 1,774,720 1,722,070 Due from five to ten years 3,500,000 3,445,795 Securities having a book value of $5,222,596 and $5,064,105 at December 31, 2000 and 1999, respectively, were pledged to secure public deposits and for other purposes. |
Page 28 of 84 TABLE F. LOAN PORTFOLIO The table below classifies gross loans by major category and percentage distribution at December 31 for 2000, 1999, and 1998: 2000 1999 1998 Amount % Amount % Amount % Commercial $19,810,083 12.03 $23,423,032 15.38 $20,978,190 15.56 Installment 27,509,990 16.70 26,232,943 17.23 23,240,533 17.24 Real Estate-Construction 1,211,625 0.74 1,132,526 7.44 1,079,593 0.80 Real Estate-Mortgage 116,185,571 70.53 101,474,226 59.95 89,519,904 66.40 The following table shows maturities of the major loan categories and their sensitivity to changes in investment rates at December 31, 2000 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 $19,230,685 $ 579,398 $ - $ 19,810,083 Installment 3,027,497 24,236,661 245,832 27,509,990 Real Estate - Construction 1,211,625 - - 1,211,625 Real Estate - Mortgage 23,935,092 77,245,482 11,224,183 112,404,757 ----------- ------------ ----------- ------------ Total $47,404,899 $102,061,541 $11,470,015 $160,936,455 =========== ============ =========== ============ Over One Year but One Year Within Five Over or Less Years Five Years Floating Rate Floating Rate Floating Rate Total Commercial $ - $ - $ - $ - Installment - - - - Real Estate 3,780,814 - - 3,780,814 ---------- ------------ ----------- ---------- Total $3,780,814 $ - $ - $3,780,814 ========== ============ =========== ========== Page 29 of 84 TABLE G. NONPERFORMING LOANS The loan portfolio of the Bank is reviewed by senior officers to evaluate loan performance. |
The following table presents the Bank's loan loss experience and selected loan ratios for the three years ended December 31, 2000, 1999, and 1998: 2000 1999 1998 ---- ---- ---- (In thousands of dollars) Allowance for loan losses at beginning of year $ 1,523 $ 1,559 $ 1,392 Loan Charge Offs Commercial (35) (23) (16) Installment (181) (622) (236) Real Estate (60) (109) (54) --------- --------- --------- Total Charge Offs (276) (754) (306) Recoveries of Loans Previously Charged Off Commercial 107 - - Installment 100 91 117 Real Estate 13 21 - --------- --------- --------- Total Recoveries 220 112 117 --------- --------- -------- Net loans charged off 496 (642) (189) Provision for loan losses 201 606 356 --------- --------- --------- Allowance for loan losses at end of year $ 2,220 $ 1,523 $ 1,559 ========= ========= ======== Average total loans (net of unearned income) $157,671 $145,139 $129,534 Total loans (net of unearned income) at year end 164,706 152,198 134,591 Selected Loan Loss Ratios Net charge offs to average loans 0.04% 0.45% 0.15% Provision for loan losses to average loans 0.13% 0.42% 0.28% Provision for loan losses to net charge offs % 358.93% 81.67% 188.36% Allowance for loan losses to year end loans 1.01% 1.02% 1.15% Loan loss coverage(1) 77.81X 6.50X 21.92X (1) Income before income taxes plus provision for loan losses, divided by net charge offs. |
DEPOSITS The breakdown on average deposits for the years indicated is as follows (in thousands of dollars): 2000 1999 1998 ---- ---- ---- Average Average Average Balance Rate Balance Rate Balance Rate Noninterest-bearing demand deposits $ 21,816 - $ 18,113 - $ 17,263 - Interest-bearing demand deposits 19,766 2.59 20,753 2.63 17,398 3.00 Money market accounts 7,544 3.38 8,303 3.13 6,785 3.50 Savings 10,047 2.85 10,151 2.93 9,258 3.07 Time 119,671 5.77 113,178 5.36 103,770 5.78 -------- -------- -------- $178,844 $170,498 $154,474 ======== ======== ========= Remaining maturities of time certificates of deposit of $100,000 or more at December 31, 2000 are shown below (in thousands of dollars): Maturity December 31, 2000 Three months or less $ 4,788 Three to six months 3,028 Six to twelve months 2,637 One to three years 4,535 Three to five years 4,376 ------- Total $19,364 ======= Page 33 of 84 TABLE K. RETURN ON EQUITY AND ASSETS The following table highlights certain ratios for the three years ended December 31, 2000, 1999, and 1998 (in thousands of dollars): 2000 1999 1998 ---- ---- ---- Income before securities gains and losses to Average total assets 1.43% 1.31% 1.54% Average stockholders' equity 14.91% 13.29% 15.66% Net income to Average total assets 1.42% 1.31% 1.53% Average stockholders' equity 14.91% 13.29% 15.65% Dividend pay out ratio (dividends declared per share divided by net income per share) 35.93% 38.55% 34.83% Average stockholders' equity to average total assets ratio 9.56% 9.88% 9.81% Page 34 of 84 TABLE L. GAP Analysis December 31, 2000 The following table reflects interest-rate sensitive assets and liabilities only. |
Creedle, Jones, and Alga, P. C. Certified Public Accountants Page 40 of 84 Exhibit A Benchmark Bankshares, Inc. Consolidated Statements of Financial Condition December 31, 2000 and 1999 A S S E T S 2000 1999 ---- ---- Cash and due from banks $ 5,587,737 $ 7,533,280 Federal funds sold 4,281,000 - Investment securities 24,922,126 28,317,465 Loans 164,717,269 152,262,727 Less Unearned interest income (10,982) (64,643) Allowance for loan losses (1,667,723) (1,522,632) ------------- ------------- Net Loans 163,038,564 150,675,452 Premises and equipment - net 3,752,830 3,423,779 Accrued interest receivable 1,578,538 1,390,010 Deferred income taxes 489,635 642,481 Other real estate 808,508 667,808 Other assets 793,598 674,670 ------------- ------------- Total Assets $205,252,536 $193,324,945 ============= ============= Page 41 of 84 Exhibit A Benchmark Bankshares, Inc. Consolidated Statements of Financial Condition December 31, 2000 and 1999 Liabilities and Stockholders' Equity 2000 1999 ---- ---- Deposits Demand (noninterest-bearing) $ 20,033,199 $ 16,213,541 NOW accounts 22,356,687 19,905,599 Money market accounts 7,384,741 8,046,212 Savings 9,665,332 9,763,624 Time, $100,000 and over 19,364,111 16,560,926 Other time 102,392,747 94,250,638 ------------- ------------- Total Deposits 181,196,817 164,740,540 Federal funds purchased - 7,035,000 Accrued interest payable 984,159 766,964 Accrued income tax payable 11,441 23,005 Dividends payable 541,120 482,493 Other liabilities 333,808 229,197 ------------- ------------- Total Liabilities 183,067,345 173,277,199 Stockholders' Equity Common stock, par value $.21 per share, authorized 4,000,000 shares; issued and outstanding 12-31-00 3,006,219.501, issued and outstanding 12-31-99 3,015,577.591 shares 631,307 633,272 Capital surplus 4,404,047 4,501,508 Retained earnings 17,281,168 15,455,510 Unrealized security gains net of tax effect (131,331) (542,544) ------------- ------------- Total Stockholders' Equity 22,185,191 20,047,746 ------------- ------------- Total Liabilities and Stockholders' Equity $205,252,536 $193,324,945 ============= ============= See independent auditor's report and accompanying notes to financial statements. |
Page 42 of 84 Exhibit B Benchmark Bankshares, Inc. Consolidated Statements of Income Years Ended December 31, 2000, 1999, and 1998 2000 1999 1998 ---- ---- ---- Interest Income Interest and fees on loans $ 14,556,973 $ 13,209,176 $ 12,455,825 Interest on investment securities U. S. Government agencies 980,155 931,242 680,074 State and political subdivisions 451,320 615,887 492,758 Other securities 23,537 5,845 5,795 Interest on Federal funds sold 409,733 363,390 693,032 ------------- ------------- ------------- Total Interest Income 16,421,718 15,125,540 14,327,484 Interest Expense Interest-bearing checking deposits 768,009 811,399 759,973 Savings deposits 286,908 298,675 286,247 Time deposits 6,892,050 6,225,469 5,959,855 Federal funds purchased 54,283 40,838 - Other 651 - - ------------- ------------- ------------- Total Interest Expense 8,001,901 7,376,381 7,006,075 ------------- ------------- ------------- Net Interest Income 8,419,817 7,749,159 7,321,409 Provision for Loan Losses 201,187 606,030 356,515 ------------- ------------- ------------- Net Interest Income After Provision for Loan Losses 8,218,630 7,143,129 6,964,894 Other Income Service charges on deposit accounts 508,704 449,641 431,144 Other operating income 455,775 292,618 213,641 Net investment securities gains (losses) (3,308) (547) (986) Gain (Loss) on sale of other real estate 45,467 (3,854) 3,000 Rental - 4,514 - ------------- ------------- ------------- Total Other Income 1,006,638 742,372 646,799 Other Expenses Salaries 2,660,892 2,300,266 2,036,436 Employee benefits 599,515 517,009 447,663 Occupancy expense 296,888 225,530 198,601 Other operating expenses 1,511,537 1,274,338 1,142,202 ------------- ------------- ------------- Total Other Expenses 5,068,832 4,317,143 3,824,902 ------------- ------------- ------------- Income Before Income Taxes 4,156,436 3,568,358 3,786,791 Provision for Income Taxes 1,311,375 1,056,851 1,142,626 ------------- ------------- ------------- Net Income 2,845,061 2,511,507 2,644,165 Page 43 of 84 Exhibit B 2000 1999 1998 ---- ---- ---- Other Comprehensive Income, Net of Tax Net unrealized holding losses arising during period (131,331) (705,644) (14,445) -------------- -------------- -------------- Comprehensive Income $ 2,713,730 $ 1,805,863 $ 2,629,720 ============== ============== ============== Earnings Per Share of Common Stock $ 0.95 $ 0.83 $ 0.89 ============== ============== ============== Average Shares Outstanding 3,008,522.578 3,011,913.354 2,978,930.855 ============== ============== ============== See independent auditor's report and accompanying notes to financial statements. |
Page 45 of 84 Exhibit D Benchmark Bankshares, Inc. Consolidated Statements of Cash Flows Years Ended December 31, 2000, 1999, and 1998 2000 1999 1998 ---- ---- ---- Cash Flows from Operating Activities Interest received $15,400,186 $15,297,744 $14,001,654 Fees and commissions received 833,005 556,706 765,183 Interest paid (7,997,952) (7,417,701) (6,906,106) Cash paid to suppliers and employees (3,813,312) (4,270,751) (3,780,710) Income taxes paid (1,381,930) (950,460) (1,314,685) ------------ ------------ ------------ Net Cash Provided by Operating Activities 3,039,997 3,215,538 2,765,336 Cash Flows from Investing Activities Proceeds from sale of investment securities available-for-sale 4,958,619 280,167 190,951 Proceeds from maturity of investments 105,000 1,087,343 10,978,575 Purchase of investment securities (1,235,466) (8,070,160) (17,021,520) Loans originated (92,018,273) (90,308,177) (84,916,074) Principal collected on loans 79,574,713 72,863,670 77,208,816 Purchase premises and equipment (795,249) (494,982) (453,986) ------------ ------------ ------------ Net Cash (Used) by Investing Activities (9,410,656) (24,642,139) (14,013,238) Cash Flows from Financing Activities Net increase (decrease) in Federal funds purchased (7,035,000) 7,035,000 - Net increase in demand deposits and savings accounts 5,510,983 1,486,879 7,990,732 Payments for maturing certificates of deposit (50,604,717) (41,821,954) (24,428,638) Proceeds from sales of certificates of deposit 61,550,011 40,183,459 40,587,957 Dividends paid (963,489) (961,020) (888,454) Proceeds from sale of common stock 55,985 458,174 658,470 Payments to reacquire stock (155,410) (267,411) - Proceeds from sale of other real estate 347,753 196,624 29,871 ------------ ------------ ------------ Net Cash Provided by Financing Activities 8,706,116 6,309,751 23,949,938 ------------ ------------ ------------ Net Increase (Decrease) in Cash and Cash Equivalents 2,335,457 (15,116,850) 12,702,036 Cash and Cash Equivalents - Beginning of Year 7,533,280 22,650,130 9,948,094 ------------ ------------ ------------ Cash and Cash Equivalents - End of Year $ 9,868,737 $ 7,533,280 $22,650,130 ============ ============ ============ Page 46 of 84 Exhibit D 2000 1999 1998 ---- ---- ---- Reconciliation of Net Income to Net Cash Provided by Operating Activities Net income $2,845,061 $2,511,507 $2,644,165 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 288,909 271,594 221,590 Provision for probable credit losses and recoveries 145,091 718,293 473,736 Increase (Decrease) in taxes payable (11,564) 23,005 (49,867) (Increase) Decrease in refundable taxes - 33,961 (33,961) (Increase) Decrease in interest receivable (188,528) 172,204 (325,830) Increase (Decrease) in interest payable 217,195 (41,320) 99,969 (Increase) Decrease in other real estate (140,700) (166,570) (164,628) (Increase) Decrease in other assets (118,928) (306,906) (91,105) (Increase) Decrease in deferred taxes exclusive of unrealized security gains (losses) (58,991) (48,124) (50,911) Increase (Decrease) in other liabilities 104,611 43,493 44,192 Loss on sale of securities 3,308 547 986 (Gain) Loss on sale of other real estate (45,467) 3,854 (3,000) ----------- ----------- ----------- Net Cash Provided by Operating Activities $3,039,997 $3,215,538 $2,765,336 =========== =========== =========== For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and Federal funds sold. |
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, 2000 U. S. Government agencies $ 9,289,397 $ 1,795 $ 88,572 $ 9,202,620 State and political subdivisions 8,741,141 58,556 146,928 8,652,769 Pooled securities 1,645,364 830 24,667 1,621,527 Other securities 200,492 - - 200,492 ----------- ------- -------- ----------- $19,876,394 $61,181 $260,167 $19,677,408 =========== ======= ======== =========== 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 Other securities 137,000 - - 137,000 ----------- ------- -------- ----------- $23,893,331 $71,977 $894,010 $23,071,298 =========== ======= ======== =========== Held-to-Maturity December 31, 2000 U. S. Government agencies $ 4,500,000 $ - $ 65,455 $ 4,434,545 State and political subdivisions 744,718 1,745 13,143 733,320 ----------- ------- -------- ----------- $ 5,244,718 $ 1,745 $ 78,598 $ 5,167,865 =========== ======= ======== =========== 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 ----------- ------- -------- ----------- $ 5,246,170 $ 971 $311,994 $ 4,935,147 =========== ======= ======== =========== Page 50 of 84 The maturities of investment securities at December 31, 2000 were as follows: Book Value Market Value Available-for-Sale Due in one year or less $ 5,000 $ 5,000 Due from one to five years 5,935,079 5,883,716 Due from five to ten years 10,476,316 10,377,019 After ten years 3,264,507 3,216,181 Other securities 195,492 195,492 Held-to-Maturity Due from one to five years 1,774,720 1,722,070 Due from five to ten years 3,500,000 3,445,795 Securities having a book value of $5,222,596 and $5,064,105 at December 31, 2000 and 1999, respectively, were pledged to secure public deposits and for other purposes. |
Federal Income Taxes Federal income taxes payable, as of December 31, 2000 and 1999, were as follows: 2000 1999 Currently payable $ 11,440 $ 23,005 Deferred (489,635) (642,481) ---------- ---------- $(478,195) $(619,476) ========== ========== The components of applicable income taxes are as follows: 2000 1999 ---- ---- Current $1,464,221 $1,370,939 Deferred from income and expense items (152,846) (314,088) ----------- ----------- Total $1,311,375 $1,056,851 =========== =========== Temporary differences in the recognition of income and expenses for tax and financial reporting purposes resulted in the deferred income tax asset as follows: 2000 1999 Accelerated depreciation $ (568) $ (15,861) Excess (Deficiency) of provision for loan losses over deduction for Federal income tax purposes 36,907 (35,965) Deferred compensation 22,652 17,230 ---------- ---------- Total Tax Impact of Temporary Differences in Recognition of Income and Expenses 58,991 (34,596) Tax impact of balance sheet recognition of unrealized security losses (211,837) (279,492) ---------- ---------- Total Change to Deferred Tax for the Year $(152,846) $(314,088) ========== ========== The reasons for the difference between income tax expense and the amount computed by applying the statutory Federal income tax rates are as follows: 2000 1999 ---- ---- Statutory rates 34% 34% Income tax expense at statutory rates $1,311,375 $1,211,880 Increase (Decrease) due to Tax exempt income (50,251) (159,581) Other 109,242 4,552 ----------- ----------- $1,370,366 $1,056,851 =========== =========== Page 53 of 84 Federal income tax returns are subject to examination for all years which are not barred by the statute of limitations. |
The estimated fair values of the Bank's financial instruments are as follows: 2000 1999 ---- ---- Carrying Fair Carrying Fair Amount Value Amount Value Financial Assets Cash and due from banks $ 5,587,737 $ 5,587,737 $ 7,533,280 $ 7,533,280 Federal funds sold 4,281,000 4,281,000 - - Investments Available-for-sale 19,876,394 19,677,408 22,934,298 22,934,298 Held-to-maturity 5,244,718 5,167,865 5,383,170 5,072,147 Loans Demand loans - - 769,352 769,352 Accrual loans 20,969,201 20,968,201 22,653,680 22,653,680 Installment loans 27,509,990 28,181,606 26,232,943 25,146,525 Real estate loans 120,839,070 103,831,473 108,649,662 107,206,239 Participation loans - out (4,600,992) (4,600,992) 6,042,910 6,042,910 Financial Liabilities Deposits Demand (noninterest- bearing) 20,033,199 20,033,199 16,213,541 16,213,541 Demand (interest- bearing) 29,741,428 29,741,428 27,951,811 27,951,811 Savings 9,665,332 9,665,332 9,763,624 9,763,624 Certificates of deposit 121,756,858 119,871,696 110,811,564 108,012,019 Federal funds purchased - - 7,035,000 7,035,000 Unrecognized Financial Instruments Unused loan commitments 22,875,073 22,875,073 18,561,686 18,561,686 Unissued letters of credit 1,397,471 1,397,471 1,825,989 1,825,989 Page 58 of 84 18. |
Page 61 of 84 Benchmark Bankshares, Inc. (Parent Company Only) Balance Sheets December 31, 2000, 1999, and 1998 A S S E T S 2000 1999 1998 ---- ---- ---- Cash $ 4,324,894 $ 3,111,052 $ 1,909,855 Investment in subsidiary 18,401,336 17,419,106 17,584,952 Receivable - reimbursement 81 81 - ----------- ----------- ----------- Total Assets $22,726,311 $20,530,239 $19,494,807 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Dividends payable $ 541,120 $ 482,493 $ 479,594 Stockholders' Equity Common stock, par value $.21 per share, authorized 4,000,000 shares; issued and outstanding 3,006,219.501 12-31-00, issued and outstanding 3,015,577.591 12-31-99, issued and outstanding 2,997,465.366 12-31-98 631,307 633,272 629,678 Surplus 4,404,047 4,501,508 4,314,339 Retained earnings 17,149,837 14,912,966 14,071,196 ----------- ----------- ----------- Total Stockholders' Equity 22,185,191 20,047,746 19,015,213 ----------- ----------- ----------- Total Liabilities and Stockholders' Equity $22,726,311 $20,530,239 $19,494,807 =========== =========== =========== Statements of Income Years Ended December 31, 2000, 1999, and 1998 2000 1999 1998 ---- ---- ---- Income Dividends from subsidiary $ 2,300,000 $ 2,000,000 $ 600,000 ----------- ----------- ----------- Total Income 2,300,000 2,000,000 600,000 Expenses Professional fees 11,500 20,038 16,470 Supplies, printing, and postage 10,809 7,410 8,654 Taxes - miscellaneous 900 825 850 ----------- ----------- ----------- Total Expenses 23,209 28,273 25,974 ----------- ----------- ----------- Income (Loss) Before Equity in Undistributed Income of Subsidiary 2,276,791 1,971,727 574,026 Equity in Income of Subsidiary (includes tax benefit of parent company operating loss) 568,270 739,780 2,070,139 ----------- ----------- ----------- Net Income $ 2,845,061 $ 2,711,507 $ 2,644,165 =========== =========== =========== Page 62 of 84 Benchmark Bankshares, Inc. (Parent Company Only) Statements of Changes in Stockholders' Equity Years Ended December 31, 2000, 1999, and 1998 * Net of tax effect. |
Page 63 of 84 Benchmark Bankshares, Inc. (Parent Company Only) Statements of Cash Flows Years Ended December 31, 2000, 1999, and 1998 2000 1999 1998 ---- ---- ---- Cash Flows from Operating Activities Net income $2,845,061 $2,711,507 $2,644,165 Increase in receivable - (81) - ----------- ----------- ----------- Net Cash Provided by Operating Activities 2,845,061 2,711,426 2,644,165 Cash Flows from Investing Activities Undistributed earnings of subsidiary (568,270) (739,972) (2,031,902) Capital adjustment (34) - - ----------- ----------- ----------- Net Cash (Used) by Investing Activities (568,304) (739,972) (2,031,902) Cash Flows from Financing Activities Sale of stock 55,984 458,174 665,362 Redemption of stock (114) (267,411) (7,102) Stock repurchase (155,296) - - Dividends paid (963,489) (961,020) (927,224) ----------- ----------- ----------- Net Cash (Used) by Financing Activities (1,062,915) (770,257) (268,964) ----------- ----------- ----------- Net Increase (Decrease) in Cash 1,213,842 1,201,197 343,299 Cash - Beginning of Year 3,111,052 1,909,855 1,566,556 ----------- ----------- ----------- Cash - End of Year $4,324,894 $3,111,052 $1,909,855 =========== =========== =========== Page 64 of 84 ITEM 9 |
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, 2000 are included in Item 8: Consolidated Statements of Financial Condition - December 31, 2000 and 1999 Consolidated Statements of Income - Years Ended December 31, 2000, 1999, and 1998 Consolidated Statements of Changes in Stockholders' Equity - Years Ended December 31, 2000 and 1999 Consolidated Statements of Cash Flows - Years Ended December 31, 2000, 1999, and 1998 Notes to Consolidated Financial Statements - December 31, 2000, 1999, and 1998 (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. |
Page 71 of 84 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 72 of 84 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 76 of 84 ITEM 14(d) SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT Benchmark Bankshares, Inc. Year Ended December 31, 2000 Page 77 of 84 ITEM 14(d) SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT Year Ended December 31, 1998 Page 78 of 84 ITEM 14(d) SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION OF PROPERTY, PLANT, AND EQUIPMENT Benchmark Bankshares, Inc. Year Ended December 31, 2000 Page 79 of 84 ITEM 14(d)(1) SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS PURSUANT TO SEC REGULATIONS Benchmark Bankshares, Inc. (Parent Company Only) Balance Sheet, December 31, 2000 and 1999 Assets 2000 1999 ---- ---- Cash $ 4,324,894 $ 3,111,052 Investment in subsidiary 18,401,336 17,419,106 Receivable - reimbursement 81 81 ----------- ----------- Total Assets $22,726,311 $20,530,239 =========== =========== Liabilities and Stockholders' Equity Liabilities Dividends payable $ 541,120 $ 482,493 Stockholders' Equity Common stock, par value $.21 per share, authorized 4,000,000 shares; issued and outstanding 3,006,219.501 12-31-00, issued and outstanding 3,015,577.591 12-31-99 631,307 633,272 Surplus 4,404,047 4,501,508 Retained earnings 17,149,837 14,912,966 ----------- ----------- Total Stockholders' Equity 22,185,191 20,047,746 ----------- ----------- Total Liabilities and Stockholders' Equity $22,726,311 $20,530,239 =========== =========== Page 80 of 84 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, 2000, 1999, and 1998 2000 1999 1998 ---- ---- ---- Income Dividends from subsidiary $2,300,000 $2,000,000 $ 600,000 ---------- ---------- ---------- Total Income 2,300,000 2,000,000 600,000 Expenses Professional fees 11,500 20,038 16,470 Supplies, printing, and postage 10,809 7,410 8,654 Taxes - miscellaneous 900 825 850 ---------- ---------- ---------- Total Expenses 23,209 28,273 25,974 ---------- ---------- ---------- Income (Loss) Before Equity in Undistributed Income of Subsidiary 2,276,791 1,971,727 574,026 Equity in Income of Subsidiary (includes tax benefit of parent company operating loss) 568,270 739,780 2,070,139 ---------- ---------- ---------- Net Income $2,845,061 $2,711,507 $2,644,165 ========== ========== ========== Page 81 of 84 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, 2000, 1999, and 1998 * Net of tax effect. |
Page 82 of 84 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, 2000, 1999, and 1998 2000 1999 1998 ---- ---- ---- Cash Flows from Operating Activities Net income $2,845,061 $2,711,507 $2,644,165 Increase in receivable - (81) - ----------- ----------- ----------- Net Cash Provided by Operating Activities 2,845,061 2,711,426 2,644,165 Cash Flows from Investing Activities Undistributed earnings of subsidiary (568,270) (739,972) (2,031,902) Capital adjustment (34) - - ----------- ----------- ----------- Net Cash (Used) by Investing Activities (568,304) (739,972) (2,031,902) Cash Flows from Financing Activities Sale of stock 55,984 458,174 665,362 Redemption of stock (114) (267,411) (7,102) Stock repurchase (155,296) - - Dividends paid (963,489) (961,020) (927,224) ----------- ----------- ----------- Net Cash (Used) by Financing Activities (1,062,915) (770,257) (268,964) ----------- ----------- ----------- Net Increase (Decrease) in Cash 1,213,842 1,201,197 343,299 Cash - Beginning of Year 3,111,052 1,909,855 1,566,556 ----------- ----------- ----------- Cash - End of Year $4,324,894 $3,111,052 $1,909,855 =========== =========== =========== Page 83 of 84 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, 2000 U. S. Government Agencies $ - $ - Pooled Securities 300 2,428 State and Political Subdivisions 3,199 4,379 ------ ------ Total $3,499 $6,807 ====== ====== For the Year Ended December 31, 1999 U. S. Government Agencies $ - $ 547 State and Political Subdivisions - - ------ ------ Total $ - $ 547 ====== ====== Page 84 of 84 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 13.07% Tier I Capital to Risk Based Assets 11.97% Tier I Capital to Total Book Assets 8.73% |
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. |
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. |
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 24 of 83 TABLE C. INTEREST RATES EARNED AND PAID (In thousands of dollars) (1) Loans net of unearned income. |
Page 25 of 83 TABLE D. ANALYSIS OF CHANGE IN NET INTEREST INCOME (In thousands of dollars) 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. |
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 29 of 83 TABLE G. NONPERFORMING LOANS The loan portfolio of the Bank is reviewed by senior officers to evaluate loan performance. |
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. |
DEPOSITS The breakdown on average deposits for the years indicated is as follows: (In thousands of dollars) 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 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 34 of 83 TABLE L. GAP Analysis December 31, 1999 The following table reflects interest-rate sensitive assets and liabilities only. |
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