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                                    FORM 10-K

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 For the fiscal year ended December 31, 1999.

                                       OR

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 For the transition period from ________ to ________.

Commission file number 000-18445.

                           Benchmark Bankshares, Inc.

             (Exact name of registrant as specified in its charter)

           Virginia                                     54-1380808
           --------                                     ----------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
 incorporations or organization)

     100 South Broad Street
       Kenbridge, Virginia                                 23944
       -------------------                                 -----
(Address of principal executive offices)                (Zip Code)

Registrant's telephone number, including area code (804)676-8444.

Securities registered pursuant to Section 12(b) of the Act:  None

    Title of each class               Name of each exchange on which registered
    -------------------               -----------------------------------------

-----------------------------                -----------------------------

           Securities registered pursuant to Section12(g) of the Act:

                      Common Stock, Par Value $.21 a share
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark if the disclosure of delinquent  filers  pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [X]

Based on the closing sales price of March 1, 2000, the aggregate market value of
the voting and nonvoting  common equity held by  nonaffiliates of the registrant
was $28,648,786.25.

The number of shares  outstanding  of the  registrant's  common stock,  $.21 par
value was 3,015,661.71 at March 1, 2000.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None


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                           Benchmark Bankshares, Inc.

                                Table of Contents

                                                                       Page No.

Part I

     Item 1.      Business                                                    3
     Item 2.      Properties                                                  6
     Item 3.      Legal Proceedings                                           7
     Item 4.      Submission of Matters to a Vote of Security Holders         7

Part II

     Item 5.      Market for Registrant's Common Equity and Related
                    Stockholder Matters                                       8
     Item 6.      Selected Financial Data                                    10
     Item 7.      Management's Discussion and Analysis of Financial
                    Condition and Results of Operations                      11
     Item 7A.     Quantitative and Qualitative Disclosures About
                    Market Risk                                              35
     Item 8.      Financial Statements and Supplementary Data                35
     Item 9.      Changes in and Disagreements with Accountants
                    on Accounting and Financial Disclosure                   63

Part III

     Item 10.     Directors and Executive Officers of the Registrant         64
     Item 11.     Executive Compensation                                     65
     Item 12.     Security Ownership of Certain Beneficial Owners
                    and Management                                           66
     Item 13.     Certain Relationships and Related Transactions             68

Part IV

     Item 14.     Exhibits, Financial Statement Schedules, and
                    Reports on Form 8-K                                      69



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PART I

ITEM I    BUSINESS

Benchmark Bankshares, Inc.

         Benchmark   Bankshares,   Inc.  (the  "Company"),   formerly  Lunenburg
Community  Bankshares,  Inc., is a bank holding company  incorporated  under the
laws of the  Commonwealth of Virginia on March 7, 1986. The Company became a one
bank holding  company  under the Bank Holding  Company Act of 1956 on January 1,
1987 subsequent to its acquiring all of the issued and outstanding shares of The
Lunenburg  County  Bank's,  now Benchmark  Community  Bank (the "Bank"),  common
stock. The Company does not own or operate any other businesses.

         At  December  31,  1999,  the Company  and its  subsidiary  employed 85
full-time and 16 part-time persons.

Benchmark Community Bank

         The Bank opened for  business on  September  8, 1971 under its original
name of The Lunenburg County Bank. It started business in temporary quarters and
in 1974 moved to its  present  location at 100 South  Broad  Street,  Kenbridge,
Virginia 23944. The Bank opened its first branch office in the Town of Victoria,
also in Lunenburg  County, in 1974. In 1989, the Bank expanded its branch system
to include two offices in adjacent counties.  In June of 1989, the Bank opened a
full-service  branch in  Farmville,  Prince Edward  County,  and in September of
1989, the Bank opened a full-service  branch in South Hill,  Mecklenburg County.
In March of 1993, the Bank opened its fifth  full-service  office,  which became
its  second  Farmville  location.  In May of 1996,  the Bank  opened  its  sixth
full-service office in Crewe,  Nottoway County. All banking locations are within
the State of  Virginia.  During  1999,  the Bank  opened  three loan  production
offices, one each in Lawrenceville,  Clarksville,  and Chase City. By the end of
the year, the Lawrenceville office had been converted to a full-service branch.

         The Bank offers a wide range of banking and related financial  services
to individuals and small to medium ranged  businesses.  The services offered are
in the form of  checking,  savings  accounts,  NOW and  money  market  accounts,
certificates of deposit,  business loans,  personal loans,  mortgage loans,  and
other  consumer  oriented  financial  services  including  IRA's,  safe deposit,
drive-up, night deposit, and automatic-teller  machines at each office. The Bank
does not offer any trust services.

Competition

         The Bank encounters strong  competition for its banking services within
its primary market area.  There are nine  commercial  banks actively  engaged in
business  in  the  market  area,   including   five  major   statewide   banking
organizations.  The Bank is the only community bank actively engaged in business
in Lunenburg County, and one of two such banks in the Town of Farmville,  Prince
Edward County, and Mecklenburg  County.  Finance companies,  mortgage companies,
credit  unions,  and  savings  banks  also  compete  with the Bank for loans and
deposits.  In addition,  in some  instances,  the Bank must compete for deposits
with money market mutual funds that are marketed nationally.

Supervision and Regulation

         The summaries of statutes and  regulations  included in the information
provided below do not purport to be complete and are qualified in their entirety
by reference to the pertinent statutes and regulations.

         The  Company is subject to the Bank  Holding  Company  Act of 1956.  As
such,  the Company is required to file with the  Federal  Reserve  Board  annual
reports and other  information  regarding the business  operations of itself and
its subsidiaries and is subject to examination by the Federal Reserve Board.


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         A bank  holding  company is required to obtain  Federal  Reserve  Board
approval  prior to acquiring  ownership  or control of the voting  shares of any
bank if,  after the  acquisition,  it would own or  control  more than 5% of the
voting stock of that bank, unless it already owns a majority of the voting stock
of the bank. A bank holding company is, with limited exceptions, prohibited from
acquiring  ownership  or control of voting  stock of any company  which is not a
bank or a bank holding  company and must engage only in the business of banking,
managing or controlling banks, or furnishing  services to or performing services
for  subsidiary  banks.  The Federal  Reserve Board is authorized to approve the
ownership of shares by a bank holding company in any company,  the activities of
which the  Federal  Reserve  Board has  determined  to be so closely  related to
banking or to managing or controlling  banks as to be a proper incident thereto.
The Federal  Reserve Board has  determined  that certain  activities are closely
related to  banking,  including  making  loans  that would be made by  mortgage,
finance,  credit  card,  or  factoring  companies;  acting as an  investment  or
financial  advisor;  performing  the  functions  of a trust  company;  providing
certain data processing services;  leasing certain personal property; and acting
as an insurance agent or broker for insurance  directly related to the extension
of credit or other financial services. Although, a bank holding company may file
an  application  for  approval  of other  nonbanking  activities  involved  in a
particular  case,  the  Federal  Reserve  Board has  stated  that,  at  present,
permissible  nonbanking  activities  do not include  real estate  brokerage  and
syndication, land development, property management,  underwriting,  operation of
savings and loan associations,  management consulting, or industrial development
corporations.

         A bank holding  company and its  subsidiaries  are also prohibited from
acquiring any voting shares of, or interest in, any banks located outside of the
state in which the operations of the bank holding company's banking subsidiaries
are located unless the acquisition is specifically authorized by the statutes of
the state in which the bank to be acquired is located.  Further,  a bank holding
company and its  subsidiaries  generally  may not extend  credit,  lease or sell
property,  or furnish any services on the condition that the customer  obtain or
provide some additional credit, property or services from or to the bank holding
company or its  subsidiaries,  or that the  customer  obtain some other  credit,
property, or services from a competitor.

Bank Supervision and Regulation

         The Bank is a member of the  Federal  Reserve  System and is subject to
regulation and  supervision,  of which regular bank  examinations are a part, by
the Virginia  Bureau of Financial  Institutions  and the Federal Reserve Bank as
are all state member banks. The Bank by virtue of its Federal Reserve membership
qualifies for Federal Deposit Insurance Corporation (FDIC) insurance coverage of
up to a maximum of $100,000 per depositor. For the deposit insurance protection,
the Bank pays a semi-annual statutory assessment and is subject to the rules and
regulations  of the FDIC.  The Company is an  "affiliate"  of the Bank, and that
status imposes  restrictions on loans by the Bank to the Company,  on investment
by the Bank in the Company,  and on the use of Company  stock or  securities  as
collateral  security for loans by the Bank to any borrower.  The Company is also
subject to certain  restrictions  on its  engaging  in the  business of issuing,
floatation, underwriting, public sale, and distribution of securities.

Government Monetary Policies and Economic Controls

         The  monetary  policies of  regulatory  authorities,  most  notably the
Federal Reserve Bank, have a significant effect on the operating results of bank
holding companies and banks. In particular,  the Federal Reserve Board regulates
money and credit  conditions  and interest  rates in order to influence  general
economic conditions.  These policies have a significant influence on the overall
growth and  distribution  of bank loans,  investments  and deposits,  and affect
interest rates charged on loans or paid for time and savings  deposits.  Federal
Reserve Board monetary  policies have had a significant  effect on the operating
results of commercial banks in the past and are expected to continue to do so in
the future;  however,  the Company and its subsidiary bank are unable to predict
the specific nature or extent of these effects on their business and earnings.


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Restrictions

Investments

         As required by the Virginia  Security for Public Deposits Act, the Bank
has pledged  $4,549,105 at cost of its investment  portfolio to safeguard  State
and local municipalities' deposits as of December 31, 1999.

         By virtue of the Bank holding deposits for the Federal  government,  it
is  subject  to  Section  31CFR202  of the  Code of  Federal  Regulation,  which
requires, in part, the collateralization of Federal deposits. As of December 31,
1999, the Bank had $515,000 pledged for Federal deposits.

         The Bank is  required  by  Section  19 of the  Federal  Reserve  Act to
maintain a certain level of reserves  consisting of cash and other liquid assets
in proportion to types of deposit  accounts  held. At year end 1999,  the Bank's
vault cash met the statutory requirement so designated by the Act.

Anti-Takeover Provisions

         The Articles of Incorporation and Bylaws of the Company contain certain
anti-takeover provisions.  Said provisions provide (i) for division of the Board
of Directors  into three  classes,  with one class  elected each year to serve a
three year term;  (ii) that  Directors may be removed only upon the  affirmative
vote of the  holders  of 80% of the  outstanding  voting  stock;  (iii) that any
vacancy on the Board may be filled by the remaining Directors; (iv) that advance
notification   is  required  for  a  stockholder  to  bring  business  before  a
stockholders'  meeting or to nominate a person for  election as a Director;  and
(v) that the affirmative  vote of the holders of 80% of the  outstanding  voting
stock is required to alter, amend, or repeal the foregoing provisions.

         The Articles  also contain a "fair price"  provision  that requires the
affirmative  vote of the  holders of 80% of the  outstanding  voting  stock as a
condition for certain mergers or business  combinations,  unless the transaction
is either  approved  by a majority  of the  disinterested  Directors  or certain
minimum price and procedural requirements are met.

         The  foregoing  provisions  of the  Articles and Bylaws are intended to
prevent inequitable  stockholder  treatment in a two-tier takeover and to reduce
the  possibility  that a third party could effect a sudden or surprise change in
majority control of the Board of Directors  without the support of the incumbent
Board,  even if such a  change  were  desired  by or would  be  beneficial  to a
majority of the Company's  stockholders.  Such provisions may have the effect of
discouraging  certain  unsolicited tender offers for the Company's capital stock
and,  at the same time,  may  provide for a  continuation  of current  Company's
philosophy and leadership style.

Limitation on Liability

         The Company's Articles of Incorporation  provide, in part in accordance
with the provisions of a recent amendment to the Virginia Stock  Corporation Act
(the "Act"),  that in every  instance  permitted by the Act, the  liability of a
Director or Officer of the Company for monetary  damages arising out of a single
transaction,  occurrence,  or course of conduct  shall be limited to one dollar.
This limit on damages  does not apply in the event of  willful  misconduct  or a
knowing  violation of the criminal law or any Federal or State  securities  law.
The  limitation  does not change or eliminate a Director's or Officer's  duty of
care to the Company;  it only  eliminates,  in certain  circumstances,  monetary
damages  occasioned  by a breach of that duty. It should also be noted that such
limitation of liability in no way limits or otherwise  affects liability for the
violation  of, or otherwise  relieves  the Company or its  Directors or Officers
from the necessity of complying with, the Federal or State securities laws.


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Indemnification

         The Articles of Incorporation of the Company mandate indemnification of
Directors and Officers as a result of liability  incurred by them in proceedings
instituted  against  them by third  parties,  or by or on behalf of the  Company
itself,  relating to the manner in which they have performed their duties unless
they have been  guilty of  "willful  misconduct  or a knowing  violation  of the
criminal law" in the performance of their duties. The indemnification  provision
is consistent with another recent  amendment to the  Corporation  Act. Thus, the
protection of the proposed  amendment will extend to grossly  negligent  conduct
but not to willful misconduct.

         The  Company's  Board of Directors is authorized to contract in advance
to indemnify  any Director or Officer and to indemnify or contract in advance to
indemnify other persons  including  Directors and Officers of  subsidiaries  and
employees  and agents of the  Company and its  subsidiaries,  to the same extent
that it is required to indemnify Directors and Officers of the Company.

         The  Act  and  the  Company's  Articles  of  Incorporation  permit  the
advancement of expenses incurred by a Director or Officer in a proceeding.

         The Company has entered into  indemnification  agreements  with each of
its Directors and Officers,  entitling them to (i)  indemnification  to the full
extent permitted by the Act, and (ii) reimbursement of all expense advancements,
including  attorneys'  fees,  paid or  incurred  in  connection  with any  claim
relating to any indemnifiable event.

Executive Officers

         For information concerning the Executive Officers of the Company, refer
to Item 10 found on pages 64 and 65 of this report.

ITEM 2    PROPERTIES

         The main  office of the Bank,  which is owned by the Bank,  consists of
three  contiguous  buildings.  The  combined  office is a two-story  building of
masonry  construction and contains  approximately  6,200 square feet of space on
the first  floor,  all of which is used for a  full-service  banking  operation,
including five teller windows,  loan offices, an automatic-teller  machine,  and
customer service for Kenbridge.  The bookkeeping and computer operations for the
entire  bank are  located on the  second  floor of the  office,  which has 3,200
square feet of floor space.  Additionally,  there is an adjacent,  but separate,
three-lane drive-up facility located just behind the office.

         The Victoria branch office,  also owned by the Bank, was constructed in
1982 and contains approximately 2,500 square feet of floor space. It houses four
teller windows, has a drive-up window, which serves two lanes of traffic, and an
automatic-teller machine.

         The Farmville  branch  office,  which opened in June of 1989,  contains
approximately  1,650  square feet of floor space and is a leased  facility.  The
Bank signed a new lease  effective  October 15, 1998.  The lease has a five year
original term with five additional  options to renew for additional twelve month
terms. The current monthly lease amount as of December 31, 1999 was $1,150.  The
office  contains  three teller  windows.  Currently,  the office has no drive-up
window. The Bank added a third office to the Branch in 1998.

         The South Hill office, which opened for business in September, 1989, is
also housed in a leased facility.  During 1997, the Bank  renegotiated its lease
to extend the agreement to June 30, 2000. The lease provides for renewal options
of twelve month periods for an additional five years.  The current monthly lease
amount as of December 31, 1999 was $1,250.  This amount can be  renegotiated  in
June of 2000.  This office  contains  approximately  2,500  square feet of floor
space and operates  four teller  windows,  a drive-up  window,  which serves two
lanes of traffic, and an automatic-teller machine.


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         In 1993,  the Bank opened a second  office in the town of  Farmville on
Milnwood Road. The office is a two story  structure of modern design.  The first
floor  contains  3,967 square feet and provides space for the operation of three
loan offices, four teller windows, a large customer lobby and new accounts area,
a three lane drive-up,  and an  automatic-teller  machine.  The branch  office's
second floor has 2,240 square feet of space available for future expansion.

         On May 31, 1996,  the Bank opened a full-service  branch in Crewe.  The
office is a one story brick structure.  The office contains 2,600 square feet of
floor space,  which  provides for an open lobby with three teller  windows,  two
loan offices, and a new accounts area. The office has a three lane drive-up unit
with an automatic-teller machine.

         During 1999,  the Bank opened three  offices,  one each in the towns of
Chase City, Clarksville, and Lawrenceville.

         In Chase City,  the Bank  currently  rents  temporary  quarters on Main
Street.  This  facility  serves  as a  loan  production  office  and  a  limited
depository.  Additionally,  the Bank has purchased  property that was formally a
banking office.  The Bank plans to remodel the facility and open a full- service
office as soon as the  customer  base grows to a point that can  support  such a
facility.

         The Bank leases  office space on Virginia  Avenue in  Clarksville.  The
office which includes a reception area, a loan office,  and a conference room is
used as a loan  production  and  limited  depository  office.  The Bank has also
purchased  property  on College  Avenue for a potential  site of a  full-service
branch.

         In the  fall  of  1999,  the  Bank  opened  a  full-service  branch  in
Lawrenceville.  Currently,  the  Bank  leases a  facility  on Main  Street  that
includes a lobby,  teller  station,  and a loan  office.  The Bank is pursuing a
permanent location within the town limits.

ITEM 3      LEGAL PROCEEDINGS

         None

ITEM 4      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None


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PART II

ITEM 5      MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
            MATTERS

Market for Common Equity

         The Company's stock is listed and quoted daily in the Virginia Over the
Counter Section.  This information is supplied daily by the National Association
of Security Dealers to Virginia newspapers.

         The following table sets forth information  concerning the market price
of the stock since its initial listing:

                                Bid Price
                             of Common Stock

         1999

First Quarter                     $12.50
Second Quarter                     12.75
Third Quarter                      12.00
Fourth Quarter                     10.75

          1998

First Quarter                     $19.00
Second Quarter                     19.00
Third Quarter                      15.50
Fourth Quarter                     13.75

         1997

First Quarter(1)                  $ 8.88
Second Quarter(1)                   9.63
Third Quarter(1)                   12.50
Fourth Quarter                     15.50

        1996(1)

First Quarter                     $ 7.88
Second Quarter                      8.38
Third Quarter                       8.38
Fourth Quarter                      8.63

        1995(1)

First Quarter                     $ 6.75
Second Quarter                      7.00
Third Quarter                       6.88
Fourth Quarter                      7.00

         During 1999, the Company declared a $.16 per share semi-annual dividend
in June and $.16 per share  semi-annual  dividend in December.  The  semi-annual
dividends declared in 1998 amounted to $.15 per share in June and $.16 per share
in December.

         As of December 31, 1999,  there were 636 stock  certificates  issued to
holders of record.

(1)Adjusted for a 2 for 1 stock split on October 2, 1997.


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Related Stockholder Matters

         Article III,  Section 1 of the Articles of Incorporation of the Company
authorize the issuance of 200,000  shares of a preferred  class stock with a par
value of $25.00. Except to the extent to which the Board of Directors shall have
specified  voting  power with respect to the  preferred  stock of any series and
except as otherwise  provided by law, the exclusive voting power shall be vested
in the common stock.  The  dividends of the  preferred  stock shall have a fixed
rate of dividends if and when declared by the Board of Directors. Such dividends
shall be cumulative.

         As of December 31, 1999,  there has been no issuance of preferred stock
as authorized in the Articles of Incorporation.


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ITEM 6      SELECTED FINANCIAL DATA

                                           Years Ended December 31,
                                  1999      1998      1997      1996      1995
                                  ----      ----      ----      ----      ----
                             (In thousands of dollars, except per share amounts)

Interest income                 $15,126   $14,328   $13,653   $12,729   $11,182
Interest expense                  7,376     7,006     6,508     6,162     5,401
                                -------   -------   -------   -------   -------
Net interest income               7,750     7,322     7,145     6,567     5,781
Provision for loan losses           606       357       360       295       188
Other operating revenue             742       647       586       565       602
Other operating expense           4,317     3,825     3,600     3,327     3,048
                                -------   -------   -------   -------   -------

   Income Before Income Taxes     3,569     3,787     3,771     3,510     3,147

Income Taxes                      1,057     1,143     1,192     1,064       938
                                -------   -------   -------   -------   -------

Net Income                        2,512     2,644     2,579     2,446     2,209

Per Share Data (1) (2)
   Net income                      0.83      0.89      0.88      0.85      0.77
   Cash dividends declared         0.32      0.31      0.29      0.24      0.18

Balance Sheet Amounts
   (at end of period)
      Total assets              193,324   185,381   158,735   150,908   135,364
      Total loans (3)           150,675   133,033   125,422   118,864   102,411
      Total deposits            164,741   164,892   140,742   135,360   121,623
      Total equity               20,048    19,015    16,652    14,362    12,501

Book value per share
(at end of period) (2)             6.65      6.34      5.66      4.96      4.36

Selected Financial Ratios
   Net income to average equity   13.30     15.65     17.31     17.91     18.68
   Net income to average assets    1.31      1.53      1.66      1.70      1.74
   Loans to deposits (4)          92.39     81.62     90.10     88.70     85.06
   Primary capital to total
     assets (at end of period)
     (5)                          10.65     10.95     10.99      9.25      9.62
   Net interest yield (6)          4.33      4.54      4.90      4.57      4.82
   Allowance for loan losses
     to loans (at end of
     period) (7)                   1.00      1.16      1.00      1.00      1.00
   Nonperforming loans to loans
     (at end of period) (8)        1.04      1.05      1.12      1.02      0.66
   Net charge offs to average
     loans (4)                     0.45      0.15      0.14      0.11      0.05

(1) Average shares outstanding.
(2) 1995 and 1996  adjusted  for a 2 for 1 stock split  occurring  on October 2,
      1997.
(3) Total loans net of unearned  discount on installment loans and reserve
      for loan losses.
(4) For purposes of this ratio,  loans  represent  gross loans less unearned
      interest income.
(5) Equity  exclusive of unrealized  securities gains plus allowance for loan
      loss less the deferred taxes related to loan losses to assets.
(6) Net interest income to total average earning assets.
(7) The  difference of gross loans minus unearned  interest  income divided into
      the allowance for loan losses.
(8) Nonperforming  loans are loans accounted for on a nonaccrual basis and loans
      which are contractually past due 90 days or more.  Average loans are gross
      average loans minus the average unearned interest income.


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ITEM 7    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

         This  section  of the  report  should be read in  conjunction  with the
statistical  information,  financial  statements  and  related  notes,  and  the
selected financial data appearing elsewhere in the report. Since the Bank is the
only  subsidiary of the Company,  all operating data will be referred to in this
discussion as that of the Bank.

Overview

         The  Company  continued  to  grow  through  its  subsidiary,  Benchmark
Community  Bank,  as the Bank reached out to serve an extended  trade area.  The
Bank  experienced  significant  growth in loans  which  led to record  levels of
interest  earned and net interest  margins.  During the year,  however,  deposit
growth was flat.  Because  of the lack of growth in  deposits,  the Bank  funded
these new loans not only through  highly liquid Federal funds  investments,  but
also by purchasing Federal funds to a level of $7,035,000 at December 31, 1999.

         The  growth in loans was part of a  long-term  strategy  by  management
designed to  maximize  profits as well as better  serve the credit  needs of the
trade area as Southside Virginia began a long anticipated growth cycle for small
business and housing.  To generate additional loan growth, the Bank opened three
loan production offices, one each in the towns of Chase City,  Clarksville,  and
Lawrenceville.  Through  production  in these offices along with the offering of
new loan products designed to better match customer needs, the loans grew 12.94%
over the prior year's level.

         The second phase of the long-term  strategy of  management  consists of
converting  the  loan  production  offices  into  full-service  branches  and to
continue to pursue  expansion  opportunities  in and around the  existing  trade
area. At the present time, one of the offices has been converted while the other
two are in the early stages of the  conversion  process.  It is the intention of
management  to gain a proper  asset/liability  maturity  mix with a high loan to
deposit ratio within a framework that will maximize  customer service and return
to the stockholders.

A Comparison of 1999 Versus 1998

Results of Operations and Financial Conditions

         Net income of $2,511,507 in 1999  decreased  $132,658 or 5.02% from net
income of $2,644,165 in 1998.  Earnings per share of $.83 in 1999 decreased $.06
or 6.74% from earnings per share of $.89 in 1998.

         The growth in loans without a corresponding growth in deposits led to a
loan to deposit  ratio  increase to 92.39% from  81.62% for the  previous  year.
Deposits  decreased  $151,616  or .09% while  gross  loans grew  $17,444,507  or
12.94%. As a result,  the Bank liquidated  short-term  investments and purchased
Federal funds.

         In 1999,  the Bank  achieved  a return  on  average  assets of 1.31% as
compared to a 1.53% return on average  assets in 1998.  While the rate of return
was strong once again,  it was lower than the previous year as rates declined on
loans and investments at a greater rate than the rates on deposits.

         The year ended  1999  reflected  a decrease  in return on equity as net
income to average  equity  amounted  to 13.30% as  compared to the 1998 level of
15.65%.  This decrease resulted from equity increasing through the sale of stock
from the dividend  reinvestment  plan and the  exercising  of stock options at a
greater  rate than the income  grew.  During  1999,  the Bank  discontinued  its
dividend reinvestment plan.


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Page 12 of 83


Net Interest Income

         Net  interest  income of  $7,749,159  in 1999  reflected an increase of
$427,750 or 5.84% over net interest income of $7,321,409 in 1998.

         Total  interest  income of  $15,125,540  in 1999  showed an increase of
$798,056  or 5.57% over total  interest  income of  $14,327,484  in 1998.  Total
interest  expense of  $7,376,381  in 1999  reflected  an increase of $370,306 or
5.29% over total interest expense of $7,006,075 in 1998.

         The increase in interest income resulted from a significant increase in
loans  rather  than  being a  function  of rate  increases.  (Refer  to Table D,
"Analysis of Changes in Net  Interest  Income," for an analysis of the impact of
volume and rate.)

         To remain  competitive in the marketplace,  the Bank lowered loan rates
by an average of 53 basis points.  During the same period of time, deposit rates
declined on average by 24 basis  points as lower  market rates were the norm for
the industry.  (Refer to Table C, "Interest  Rates Earned and Paid," for further
analysis of interest rate activity.)

Loans

         The Bank utilizes the  following  types of loans in servicing the trade
area:

        Commercial (Time and Demand)                         15.38%
        Consumer (Installment)                               17.23%
        Real Estate (Construction)                             .75%
        Real Estate (Mortgage)                               66.64%

         These types of loans have traditionally provided the Bank with a steady
source of quality  interest-earning  assets. The maturities of these loans range
from commercial loans and real estate  construction  loans maturing in less than
one year to installment and real estate credits that may exceed five years.  The
mortgage loans,  which represent 67.39% of the portfolio,  are typically fifteen
to twenty year payback loans with three to five year balloon options. By setting
maturities  of loans  for a  short-term,  the Bank can  effectively  manage  its
asset/liability match, as most deposit accounts mature in one year or less.

Allowance for Loan Losses

         The 1999 year ending level of the allowance for loan losses amounted to
$1,522,632. This amount represented a decrease of $36,109 or 2.32% over the 1998
level of $1,558,741.  During 1999, the gross loan portfolio  increased 12.94% as
the Bank opened three loan  production  offices to secure quality  loans.  Loans
collateralized  by real estate  represented  a majority of the loans.  As of the
year end 1999, the Bank's allowance for loan losses  represented  1.00% of gross
loans.

         The Bank  incurred  net  charge  offs for loan  losses  for the year of
$642,139.  As a result of the net charge offs, the provision was $249,515 higher
which represented a 69.99% increase over the amount expended in 1998.

Noninterest Income and Noninterest Expense

         Total noninterest income, i.e., fees charged for customer services, for
1999 was  $742,372.  This  represents  an increase of $95,573 or 14.78% over the
1998 level of $646,799.  The  increase  was  directly  related to an increase in
other  operating  income  as the Bank  continued  to  experience  the  effect of
diversification  into  the area of  investments  and  expanded  automatic-teller
machine markets in 1998.

         Total noninterest expense in 1999 of $4,317,143 reflects an increase of
$492,241 or 12.87% over the 1998 level of $3,824,902. The increase resulted from
normal  increases in operations  and salaries and benefits,  as the Bank's three
loan production offices opened and then prepared to be converted to full-service
banking offices.


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Page 13 of 83


Premises and Equipment

         The Bank's premises and equipment increased $494,982 during the year.

                 Increase in Capitalized Premises and Equipment
                            (in thousands of dollars)


                                                                    Equipment,
                                                    Leasehold     Furniture, and
     Office/Area               Land     Building   Improvements      Fixtures

Kenbridge                    $      -   $      -     $      -        $ 30,795
Victoria                            -          -            -          13,720
Farmville #1                        -          -            -          20,408
South Hill                          -          -            -          46,841
Farmville #2                        -          -            -           3,603
Crewe                               -          -            -           6,509
Chase City                          -          -            -           2,565
Clarksville                   110,429     50,000            -          11,602
Lawrenceville                       -          -            -          10,541
Construction in Progress            -    187,969            -               -
                             --------   --------     --------        --------

     Total                   $110,429   $237,969     $      -        $146,584
                             ========   ========     ========        ========


Federal Funds Purchased

         The 1999 year end level of  Federal  funds  purchased  was  $7,035,000.
Federal funds purchased were used to fund short-term deficits in cash flow since
loan growth exceeded deposit growth.

Securities

         Pursuant to guidelines  established in FAS 115, the Bank has elected to
classify a majority of its current  portfolio as securities  available-for-sale.
This category  refers to  investments  that are not actively  traded but are not
anticipated  by management  to be  held-to-maturity.  Typically,  these types of
investments  will be utilized by management to meet  short-term  asset/liability
management needs.

         For purposes of financial statement reporting, securities classified as
available-for-sale are to be reported at fair market value as of the date of the
statements; however, unrealized holding gains and losses are to be excluded from
earnings and reported as a net amount in a separate  component of  stockholders'
equity  until  realized.  The  impact  of this  unrealized  loss  on  securities
negatively impacted  stockholders' equity in the amount of $542,544,  therefore,
affecting the book value of the Company's stock. The book value per share of the
stock  inclusive of the FAS 115 adjustment  was $6.65,  while the book value per
share would have been $6.83 if reported exclusive of the FAS 115 impact.

Off-Balance-Sheet Instruments/Credit Concentrations

         The Bank is a party to  financial  instruments  with  off-balance-sheet
risk in the  normal  course  of  business  to meet  the  financing  needs of its
customers.  Standby letters of credit are conditional  commitments issued by the
Bank  to  guarantee  the  performance  of a  customer  to a third  party.  Those
guarantees  are  primarily  issued to  facilitate  the  transaction  of business
between these parties where the exact  financial  amount of the  transaction  is
unknown,  but a limit can be  projected.  The credit  risk  involved  in issuing
letters of credit is  essentially  the same as that  involved in extending  loan
facilities to customers. There is a fee charged for this service.


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Page 14 of 83


         As of December 31, 1999, the Bank had $1,825,989 in outstanding letters
of credit. These instruments are based on the financial strength of the customer
and the existing relationship between the Bank and the customer.

         At current  year end,  the Bank also had unused  commitments  resulting
from credit line deeds of trust, home equity lines, and unfunded business loans.
The total amount of these commitments amounted to $18,561,686.

Concentrations

         The  Bank has no  concentrations  of  credit  involving  an  individual
borrower and his related  interest.  The Bank does have a concentration  in loan
type in that a majority of the loan portfolio is secured by  noncommercial  real
estate.  Due to the  subjectivity  of the real estate market to the condition of
the economy and sensitivity to interest rate  fluctuation,  there is an inherent
risk;  however,  the Bank  has,  as a matter  of  policy,  a  loan-to-collateral
percentage  that  allows  for a level of  decline in  collateral  value  without
affecting the quality of the loan.

Liquidity

         The  Bank's  funding  requirements  are  supplied  by a wide  range  of
traditional  banking sources,  including various types of demand,  money market,
savings,  certificates of deposit, and, more recently,  Federal funds purchased.
Large  certificates  of deposit of $100,000 or more  decreased by  $1,615,442 or
8.89% in 1999.  These deposits  currently  represent 10.05% of the total deposit
base.  The Bank feels  that the large  certificates  are more of a  function  of
customer  service  than  a  competitive  bid  situation.  The  amount  of  these
certificates  of deposit  maturing during 2000 is $9,850,919,  while  $6,710,000
matures between one and five years.

         A GAP  analysis is  presented  in Table L. This  analysis  reflects the
difference  between  maturing  and  repricing  of  interest-earning  assets  and
interest-bearing  liabilities. A positive gap indicates more assets are maturing
than liabilities.  Conversely,  a negative gap indicates more liabilities mature
than assets during a given period. Assets classified as immediately maturing are
those assets which can be repriced or converted to cash immediately upon demand.
Liabilities  classified as immediately maturing are those which can be withdrawn
on  demand.  The GAP  analysis  shows a net  negative  gap of  $43,981,000  when
immediately maturing interest-bearing  liabilities are deducted from immediately
maturing interest-earning assets. The cumulative gap increases to a negative gap
of $51,255,000  when comparing  assets and liabilities  maturing up to one year;
however,  the  cumulative gap shifts to a positive  position of $25,599,000  for
five years. The deficit gap results from the customer  preference for short-term
liquidity in the current  period of  fluctuating  rates,  which affects not only
deposits but also callable investments.

         The nature of the large gap deficit is an industry-wide  situation that
is typical of the  banking  industry  where a bulk of the assets is  financed by
short-term  deposits.  To further  compound the  situation,  Bank customers have
shown a preference for longer terms on loans versus  deposits as financial rates
remain low.

         The Bank is satisfied that it can meet the liquidity needs by utilizing
three to five  year  balloon  notes  for real  estate  financing  and a one year
maturity for commercial loans. This strategy,  while not meeting exact liquidity
needs on a dollar  for dollar  asset/liability  mix,  does  provide a near match
without sacrificing a positive interest rate spread.

         To compensate for the resultant  mismatching of assets and liabilities,
the Bank has invested in highly liquid  investments.  In the unlikely event of a
liquidity  hardship,  these  investments are available to be sold to fund assets
currently being supported by deposit liabilities.

         The GAP model does not  consider  the impact of core  deposit  loyalty.
Management  feels  that  these core  deposits  along with the highly  marketable
securities  available  will provide  sufficient  reserves to fund any short-term
loss of deposits.


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Page 15 of 83


Capital Resources and Adequacy

         In the past,  the  Company has blended  internally  generated  retained
earnings  with  capital  stock  sales  to  maintain  a strong  capital  position
necessary to support future growth.

         The Company began a capital buy back program during 1999.  Through this
program,  the  Company  has  repurchased  21,300  shares of stock  amounting  to
$267,094.  The Company  continued  to  experience  strong  earnings  through the
operation of the Bank.  Through  earnings,  the Company  generated an additional
$712,586 in capital.  This activity,  plus the net sale of $457,857 common stock
through the dividend  reinvestment  plan and the stock option plan,  raised year
end capital exclusive of unrealized  security gains net of tax effect to a level
of  $20,590,290  or a  9.22%  increase  over  the  1998  year  ending  level  of
$18,852,113.

         The  primary  capital  to total  assets  ratio  stands  at 10.37% as of
December 31, 1999. This amount is well above current industry  standards.  Refer
to Item 14(d)(5) for additional  capital ratio analysis.  Due to the increase in
earnings, subsequent earnings retention, and sale of common stock, the Company's
capital  position was  strengthened  and, as a result,  the Company remains well
capitalized for the banking industry.

         Pursuant to  regulations of the Federal  Reserve Board,  the Company is
required to maintain  certain minimum levels of capital in its Bank  subsidiary.
At December 31, 1999, the Bank maintained the following capital ratios:

        Total Capital to Risk Weighted Assets                 13.38%
        Tier I Capital to Risk Weighted Assets                12.30%
        Tier I Capital to Total Book Assets                    9.09%

         These  ratios  exceed  the  minimum   ratios   required  by  regulatory
authorities for the Bank to be considered well capitalized.

Inflationary Factors

         The Bank's  earnings are greatly  impacted by inflation and the actions
of the Federal Reserve Board. The year 1999 saw declining rates that resulted in
decreases  in deposit  rates and more  significant  declines in loan rates.  The
interest  spread for the year was 4.12% or a 4.85% decline from 1998's  interest
spread margin.

Lending and Funding Strategies

         The Bank  relies  on  traditional  sources  of  funding  such as demand
deposits,  interest-  bearing checking,  money market deposit accounts,  savings
accounts,  and  certificates of deposit for funding its activities.  These funds
are subsequently  loaned to the local community,  with the exception of cash and
prudent liquidity needs.  Traditionally,  the Bank has experienced a strong loan
demand.

         At year end 1999, the  loan-to-deposit  ratio amounted to 92.39%.  This
represents  an  increase  of 12.89%  over the year end level of 1998 as the Bank
experienced a greater rate of growth from loans versus deposits.


<PAGE>

Page 16 of 83


Looking Forward

         The Bank has experienced tremendous success in its operation since 1989
when it moved  into two new  market  areas and raised  additional  capital.  The
capital  provided a solid  foundation upon which to grow by affording the Bank a
degree of  aggressiveness  in operation during a favorable  economic climate for
banks and banking services.  This  aggressiveness took the form of expansion and
competitive  pricing of services.  Management plans to utilize this capital in a
way that will increase  market share without  sacrificing  quality of service to
its customers.

         The Bank  experienced  significant  growth  during the last decade.  By
expanding the trade area into neighboring  counties and towns, the Bank has been
able to attract quality loans and deposits at profitable  levels.  As management
looks to the  future,  they feel  that the trade  area  provides  future  growth
potential as the Bank offers new  financial  services.  The new computer  system
acquired during 1998 has the capability to expand the Bank's services beyond the
traditional services offered thus providing a solid technological  platform upon
which to grow.

         With the expansion of the trade area through three new  locations,  the
Bank has  increased  its loan  portfolio.  As these  offices  are  converted  to
full-service  branches,  Management  intends to follow the successful pattern of
the 1989 expansion  project by developing  new loan and deposit  markets and new
products to compete in the financial marketplace.


<PAGE>


Page 17 of 83


A Comparison of 1998 Versus 1997

Results of Operations and Financial Conditions

         Net income of  $2,644,165 in 1998  increased  $65,457 or 2.54% from net
income of $2,578,708 in 1997.  Earnings per share of $.89 in 1998 increased $.01
or 1.14% from earnings per share of $.88 in 1997.

         During the year, the Bank posted a record earnings level. The growth in
income  resulted  from  growth in  earning  assets  fueled by strong  demand for
deposit accounts within the trade area. The growth in loans did not parallel the
increases in deposits and,  correspondingly,  the loan to deposit ratio declined
to 81.62% from 90.10% for the previous year.  Deposits increased  $24,150,051 or
17.16%  while loans grew a modest  $7,777,600  or 6.13%.  As a result,  the Bank
increased  its  level  of  investments  in  secondary  reserves  and  short-term
investments.  The level of Federal funds sold  increased  $12,062,000 or 225.33%
when compared to the previous year end total while  investment  securities  grew
$5,447,696 or 30.16%.

         In 1998,  the Bank  achieved  a return  on  average  assets of 1.53% as
compared to a 1.66% return on average  assets in 1997.  While the rate of return
was  strong  once  again,  it was  lower  than  the  previous  year as the  Bank
experienced  a decline in the interest  rate margin spread as high yielding loan
growth did not match deposit growth.

         The year ended  1998  reflected  a decrease  in return on equity as net
income to average  equity  amounted  to 15.65% as  compared to the 1997 level of
17.31%.  This decrease resulted from equity increasing through the sale of stock
from the dividend  reinvestment  plan and the  exercising  of stock options at a
greater rate than the income grew.

Net Interest Income

         Net  interest  income of  $7,321,409  in 1998  reflected an increase of
$176,550 or 2.47% over net interest income of $7,144,859 in 1997.

         Total  interest  income of  $14,327,484  in 1998  showed an increase of
$674,112  or 4.94% over total  interest  income of  $13,653,372  in 1997.  Total
interest  expense of  $7,006,075  in 1998  reflected  an increase of $497,562 or
7.64% over total interest expense of $6,508,513 in 1997.

         The increase in interest income resulted from a significant increase in
investments  rather than being a function of rate increases.  (Refer to Table D,
"Analysis of Changes in Net  Interest  Income," for an analysis of the impact of
volume and rate.)

         To remain  competitive in the marketplace,  the Bank lowered loan rates
by an average of 41 basis points.  During the same period of time, deposit rates
declined on average by 11 basis  points as lower  market rates were the norm for
the industry.  (Refer to Table C, "Interest  Rates Earned and Paid," for further
analysis of interest rate activity.)

Loans

         The Bank utilizes the  following  types of loans in servicing the trade
area:

        Commercial (Time and Demand)                      15.56%
        Consumer (Installment)                            17.24%
        Real Estate (Construction)                          .80%
        Real Estate (Mortgage)                            66.40%









<PAGE>

Page 18 of 83


         These types of loans have traditionally provided the Bank with a steady
source of quality  interest-earning  assets. The maturities of these loans range
from commercial loans and real estate  construction  loans maturing in less than
one year to installment and real estate credits that may exceed five years.  The
mortgage loans,  which represent 67.20% of the portfolio,  are typically fifteen
to twenty year payback loans with three to five year balloon options. By setting
maturities  of loans  for a  short-term,  the Bank can  effectively  manage  its
asset/liability match, as most deposit accounts mature in one year or less.

Allowance for Loan Losses

         The 1998 year ending level of the allowance for loan losses amounted to
$1,558,741.  This amount  represented an increase of $167,317 or 12.02% over the
1997 level of $1,391,424.  During 1998, the gross loan portfolio increased 6.06%
as the Bank  capitalized  on a favorable  interest rate market to secure quality
loans.  While loans  collateralized by real estate represented a majority of the
loans,  and the Bank's  loan loss  experience  continued  to be low,  management
elected to increase the allowance  position due to a combination of loan growth,
loan restructuring,  and the general economic condition of the trade area. As of
the year end 1998,  the Bank's  allowance for loan losses  represented  1.16% of
gross loans.

         During  1998,  the Bank's  loan loss ratio  continued  to be low as the
ratio of net loan  losses  to  average  loans  was .15%  resulting  from  losses
exceeding  recoveries by $188,728.  At year end,  management feels the allowance
for loan losses is adequate.  In 1999,  further  provisions  to  supplement  the
allowance balance will be made periodically based on management's judgment as to
the performance of the loan portfolio.

Noninterest Income and Noninterest Expense

         Total noninterest income, i.e., fees charged for customer services, for
1998 was  $646,799.  This  represents  an increase of $61,163 or 10.44% over the
1997 level of $585,636.  The  increase  was  directly  related to an increase in
other operating  income as the Bank diversified into the area of investments and
expanded automatic-teller machine markets.

         Total noninterest expense in 1998 of $3,824,902 reflects an increase of
$225,165 or 6.26% over the 1997 level of $3,599,737.  The increase resulted from
normal  increases in operations  and salaries and benefits,  as the Bank's Crewe
office was open for the entire year and  management  continued to staff  support
people to handle the growth in operations.

Premises and Equipment

         The Bank's premises and equipment increased $424,658 during the year.

                 Increase in Capitalized Premises and Equipment
                           (in thousands of dollars)


                                                                  Equipment,
                                               Leasehold        Furniture, and
         Office/Area            Building      Improvements         Fixtures

Kenbridge                       $      -        $     -            $102,687
Victoria                               -              -              90,386
Farmville #1                           -         23,831              43,838
South Hill                             -              -             101,703
Farmville #2                           -              -              52,209
Crewe                                  -              -              10,004
                                --------        -------            --------

     Total                      $      -        $23,831            $400,827
                                ========        =======            ========



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Page 19 of 83


Federal Funds Sold and Purchased

         The 1998 year end level of  Federal  funds sold was  $17,415,000.  This
level  reflects an increase of  $12,062,000 or 225.33% over the year ending 1997
level of $5,353,000.  Federal funds sold are utilized as a short-term investment
vehicle,  as well as to provide  liquidity.  As of year end 1998,  Federal funds
sold as a percent of total  assets  increased  to 9.39% as  compared to 3.37% in
1997.

Securities

         Pursuant to guidelines  established in FAS 115, the Bank has elected to
classify a majority of its current  portfolio as securities  available-for-sale.
This category  refers to  investments  that are not actively  traded but are not
anticipated  by management  to be  held-to-maturity.  Typically,  these types of
investments  will be utilized by management to meet  short-term  asset/liability
management needs.

         For purposes of financial statement reporting, securities classified as
available-for-sale are to be reported at fair market value as of the date of the
statements; however, unrealized holding gains and losses are to be excluded from
earnings and reported as a net amount in a separate  component of  stockholders'
equity  until  realized.  The  impact  of this  unrealized  gain  on  securities
positively impacted  stockholders' equity in the amount of $163,100,  therefore,
affecting the book value of the Company's stock. The book value per share of the
stock  inclusive of the FAS 115 adjustment  was $6.34,  while the book value per
share would have been $6.29 if reported exclusive of the FAS 115 impact.

Off-Balance-Sheet Instruments/Credit Concentrations

         The Bank is a party to  financial  instruments  with  off-balance-sheet
risk in the  normal  course  of  business  to meet  the  financing  needs of its
customers.  Standby letters of credit are conditional  commitments issued by the
Bank  to  guarantee  the  performance  of a  customer  to a third  party.  Those
guarantees  are  primarily  issued to  facilitate  the  transaction  of business
between these parties where the exact  financial  amount of the  transaction  is
unknown,  but a limit can be  projected.  The credit  risk  involved  in issuing
letters of credit is  essentially  the same as that  involved in extending  loan
facilities to customers. There is a fee charged for this service.

         As of December 31, 1998, the Bank had $2,196,802 in outstanding letters
of credit. These instruments are based on the financial strength of the customer
and the existing relationship between the Bank and the customer.

         At current  year end,  the Bank also had unused  commitments  resulting
from credit line deeds of trust,  home equity  lines,  and an unfunded  business
loan. The total amount of these commitments amounted to $16,736,442.

Concentrations

         The  Bank has no  concentrations  of  credit  involving  an  individual
borrower and his related  interest.  The Bank does have a concentration  in loan
type in that a majority of the loan portfolio is secured by  noncommercial  real
estate.  Due to the  subjectivity  of the real estate market to the condition of
the economy and sensitivity to interest rate  fluctuation,  there is an inherent
risk;  however,  the Bank  has,  as a matter  of  policy,  a  loan-to-collateral
percentage  that  allows  for a level of  decline in  collateral  value  without
affecting the quality of the loan.  The Bank confines its lending  activities to
within the State and more specifically its local geographic areas.

         The  Bank  has  significant   concentrations  of  deposits  with  other
financial  institutions  with balances  consisting mainly of daily Federal funds
sales and depository banking services with its primary correspondent bank. These
deposits  exclusive of Federal  funds sold amounted to $3,924,156 as of December
31, 1998. Of this amount, $3,715,645 was in excess of FDIC insurance levels.


<PAGE>

Page 20 of 83


Liquidity

         The  Bank's  funding  requirements  are  supplied  by a wide  range  of
traditional  banking sources,  including various types of demand,  money market,
savings, and certificates of deposit.  Large certificates of deposit of $100,000
or more  increased by $5,806,276  or 46.94% in 1998.  These  deposits  currently
represent  11.02% of the  total  deposit  base.  The Bank  feels  that the large
certificates  are more of a function of customer  service than a competitive bid
situation.  The amount of these  certificates of deposit maturing during 1999 is
$10,506,798, while $7,669,570 matures between one and five years.

         A GAP  analysis is  presented  in Table L. This  analysis  reflects the
difference  between  maturing  and  repricing  of  interest-earning  assets  and
interest-bearing  liabilities. A positive gap indicates more assets are maturing
than liabilities.  Conversely,  a negative gap indicates more liabilities mature
than assets during a given period. Assets classified as immediately maturing are
those assets which can be repriced or converted to cash immediately upon demand.
Liabilities  classified as immediately maturing are those which can be withdrawn
on  demand.  The GAP  analysis  shows a net  negative  gap of  $18,826,000  when
immediately maturing interest-bearing  liabilities are deducted from immediately
maturing interest-earning assets. The cumulative gap decreases to a negative gap
of $27,658,000  when comparing  assets and liabilities  maturing up to one year;
however,  the cumulative gap shifts to a positive position of $5,802,000 for one
to five  years.  The  deficit  gap  results  from the  customer  preference  for
short-term  liquidity in the current period of fluctuating  rates, which affects
not only deposits but also callable investments.

         The nature of the large gap deficit is an industry-wide  situation that
is typical of the  banking  industry  where a bulk of the assets is  financed by
short-term  deposits.  To further  compound the  situation,  Bank customers have
shown a preference for longer terms on loans versus  deposits as financial rates
remain low.

         The Bank is satisfied that it can meet the liquidity needs by utilizing
three to five  year  balloon  notes  for real  estate  financing  and a one year
maturity for commercial loans. This strategy,  while not meeting exact liquidity
needs on a dollar  for dollar  asset/liability  mix,  does  provide a near match
without sacrificing a positive interest rate spread.

         To compensate for the resultant  mismatching of assets and liabilities,
the Bank has invested in highly liquid  investments.  In the unlikely event of a
liquidity  hardship,  these  investments are available to be sold to fund assets
currently being supported by deposit liabilities.

         The GAP model does not  consider  the impact of core  deposit  loyalty.
Management  feels  that  these core  deposits  along with the highly  marketable
securities  available  will provide  sufficient  reserves to fund any short-term
loss of deposits.

Capital Resources and Adequacy

         In the past,  the  Company has blended  internally  generated  retained
earnings  with  capital  stock  sales  to  maintain  a strong  capital  position
necessary to support future growth.

         During the year ended 1998, the Company  continued to experience record
earnings  through  the  operation  of the Bank.  Through  earnings,  the Company
generated an additional $1,716,941 in capital. This activity,  plus the net sale
of $11,688  common stock  through the dividend  reinvestment  plan and the stock
option plan, raised year end capital exclusive of unrealized  security gains net
of tax effect to a level of $18,852,113 or a 14.43%  increase over the 1997 year
ending level of $16,474,727.

         The  primary  capital  to total  assets  ratio  stands  at 10.25% as of
December 31, 1998. This amount is well above current industry  standards.  Refer
to Item 14(d)(5) for additional  capital ratio analysis.  Due to the increase in
earnings, subsequent earnings retention, and sale of common stock, the Company's
capital  position was  strengthened  and, as a result,  the Company remains well
capitalized for the banking industry.


<PAGE>

Page 21 of 83


         Pursuant to  regulations of the Federal  Reserve Board,  the Company is
required to maintain  certain minimum levels of capital in its Bank  subsidiary.
At December 31, 1998, the Bank maintained the following capital ratios:

        Total Capital to Risk Weighted Assets               14.64%
        Tier I Capital to Risk Weighted Assets              13.40%
        Tier I Capital to Total Book Assets                  9.33%

         These  ratios  exceed  the  minimum   ratios   required  by  regulatory
authorities for the Bank to be considered well capitalized.

Inflationary Factors

         The Bank's  earnings are greatly  impacted by inflation and the actions
of the Federal Reserve Board. The year 1998 saw declining rates that resulted in
decreases  in deposit  rates and more  significant  declines in loan rates.  The
interest  spread for the year was 4.33% or a 6.48% decline from 1997's  interest
spread margin.

Lending and Funding Strategies

         The Bank  relies  on  traditional  sources  of  funding  such as demand
deposits,  interest-  bearing checking,  money market deposit accounts,  savings
accounts,  and  certificates of deposit for funding its activities.  These funds
are subsequently  loaned to the local community,  with the exception of cash and
prudent liquidity needs.  Traditionally,  the Bank has experienced a strong loan
demand.

         At year end 1998, the  loan-to-deposit  ratio amounted to 81.62%.  This
represents  a  decrease  of 9.41%  over  the year end  level of 1997 as the Bank
experienced a greater rate of growth from deposits versus loans.


<PAGE>


Page 22 of 83

TABLE A.  COMPARATIVE SUMMARY OF EARNINGS

                                          Years Ending December 31,
                                    1999             1998            1997
                                    ----             ----            ----
                              (In thousands of dollars, except per share data)

Interest Income
   Loans                      $      13,209   $      12,456   $      12,235
   U. S. Government agencies            931             680             533
   State and political
     subdivision securities             616             493             492
   Other securities                       6               6               6
   Federal funds sold                   363             693             388
                              -------------   -------------   -------------

      Total Interest Income          15,125          14,328          13,654

Interest Expense
   Deposits
      Interest-bearing checking         811             760             709
      Savings                           299             286             282
      Time                            6,225           5,960           5,518
      Federal funds purchased            41               -               -
                              -------------   -------------   -------------

      Total Interest Expense          7,376           7,006           6,509
                              -------------   -------------   -------------

Net Interest Income                   7,749           7,322           7,145

Provision for Loan Losses               606             357             360
                              -------------   -------------   -------------

      Net Interest Income
        After Provision for
        Loan Losses                   7,143           6,965           6,785

Noninterest Income
   Service charges on
     deposit accounts                   450             431             411
   Other                                292             214             169
   Net investment securities
     gains (losses)                      (1)             (1)             (2)
   Gain on sale of other
     real estate                         (4)              3               7
   Rental                                 5               -               -
                              -------------   -------------   -------------

      Total Noninterest Income          742             647             585

Noninterest Expense
   Salaries                           2,300           2,036           1,890
   Employee benefits                    517             448             392
   Occupancy expense                    226             199             210
   Other operating expense            1,274           1,142           1,107
                              -------------   -------------   -------------

      Total Noninterest Expense       4,317           3,825           3,599
                              -------------   -------------   -------------

Net Income Before Taxes               3,568           3,787           3,771
Income Tax                            1,056           1,143           1,192
                              -------------   -------------   -------------

      Net Income              $       2,512   $       2,644   $       2,579
                              =============   =============   =============

Per Share - Based on Weighted Average
   Net income                 $        0.83   $        0.89   $        0.88 (1)
   Average shares
     outstanding              3,011,913.354   2,978,930.855   2,925,206.402 (1)

(1) Restated to reflect a 2 for 1 stock split effective October 2, 1997.

<PAGE>

Page 23 of 83


TABLE B.  AVERAGE BALANCE SHEETS

                            (In thousands of dollars)

                                           Years Ended December 31,

                                     1999             1998             1997
                                     ----             ----             ----

                               Amount     %     Amount     %     Amount     %
                               ------     -     ------     -     ------     -

Assets
   Cash and due from banks    $  5,924   3.10  $  5,056   2.94  $  4,548   2.92
   Investment securities        27,657  14.47    20,492  11.90    17,071  10.97
   Federal funds sold            7,557   3.95    12,941   7.51     7,045   4.53
   Loans                       143,610  75.12   128,054  74.34   121,780  78.22
   Bank premises and equipment   3,273   1.71     3,121   1.81     3,080   1.98
   Accrued interest              1,462   0.76     1,471   0.85     1,388   0.89
   Other assets                  1,682   0.89     1,122   0.65       768   0.49
                              -------- ------  -------- ------  -------- ------

                              $191,165 100.00  $172,257 100.00  $155,680 100.00
                              ======== ======  ======== ======  ======== ======

Liabilities and Stockholders' Equity
   Deposits
      Demand                  $ 38,866  20.33  $ 34,661  20.12  $ 28,440  18.27
      Savings and MMA           18,454   9.65    16,043   9.31    15,677  10.07
      Time                     113,178  59.20   103,770  60.24    95,726  61.49
   Federal funds purchased         822   0.43         -      -         -      -
   Accrued interest                726   0.38       717   0.42       651   0.42
   Other liabilities               225   0.12       174   0.10       287   0.18
   Stockholders' equity         18,894   9.89    16,892   9.81    14,899   9.57
                              -------- ------  -------- ------  -------- ------
                              $191,165 100.00  $172,257 100.00  $155,680 100.00
                              ======== ======  ======== ======  ======== ======




<PAGE>



Page 24 of 83


TABLE C.  INTEREST RATES EARNED AND PAID (In thousands of dollars)

<TABLE>
<CAPTION>
<S>                                      <C>        <C>       <C>      <C>        <C>       <C>      <C>        <C>       <C>
                                                     1999                          1998                          1997
                                                     ----                          ----                          ----
                                         Average              Yield/   Average              Yield/   Average              Yield/
Description                              Balance    Interest   Rate    Balance    Interest   Rate    Balance    Interest   Rate
-----------                              -------    --------   ----    -------    --------   ----    -------    --------   ----

Interest-Earning Assets
   Investment securities                 $ 27,657   $ 1,502    5.43%   $ 20,492   $ 1,179    5.75%   $ 17,071   $ 1,031    6.04%
   Federal funds sold                       7,557       363    4.80%     12,941       693    5.36%      7,045       388    5.51%
   Loans (1) (2)                          143,610    13,209    9.20%    128,054    12,456    9.73%    123,078    12,234    9.94%
                                         --------   -------    ----    --------   -------    -----   --------   -------    -----

                                         $178,824    15,074    8.43%   $161,487    14,328    8.87%   $147,194    13,653    9.28%
                                         ========   =======    =====   ========    ======    =====   ========   =======    =====

Interest-Bearing Liabilities
   Deposits                              $170,498     7,335    4.30%   $154,474     7,006    4.54%   $139,843     6,509    4.65%
   Federal funds purchased                    822        41    4.99%          -         -    0.00%          -         -    0.00%
                                         --------   -------    -----   --------   -------    -----   --------   -------    -----

             Total Interest-Bearing
                Liabilities              $171,320     7,376    4.31%   $154,474     7,006    4.54%   $139,843     6,509    4.65%
                                         ========   =======    =====   --------   =======    =====   ========   =======    =====

Net interest income/yield (3) (4)                   $ 7,698                       $ 7,322                       $ 7,144
                                                    =======                       =======                       =======

Interest spread (5)                                            4.12%                         4.33%                         4.63%
</TABLE>







(1) Loans net of unearned income.

(2) These figures do not reflect interest and fees to be collected on nonaccrual
    loans.  To date, the impact of nonaccrual loans on the interest income
    earned has been minimal.  Refer to Table G.

(3) Net interest income is the difference between income from earning assets and
    interest expense.

(4) Net interest yield is net interest  income divided by total average  earning
    assets.

(5) Interest spread is the difference between the average interest rate received
    on earning assets and the average interest rate paid for interest-earning
    liabilities.


<PAGE>


Page 25 of 83


TABLE D.  ANALYSIS OF CHANGE IN NET INTEREST INCOME (In thousands of dollars)

<TABLE>
<CAPTION>
<S>                         <C>       <C>       <C>          <C>       <C>            <C>
                                 Year 1999 over 1998              Year 1998 over 1997
                            Increase (Decrease)   Total      Increase (Decrease)    Total
                            Due to Change In:    Increase    Due to Change In:     Increase
                            Volume     Rate     (Decrease)   Volume     Rate      (Decrease)

Increase (Decrease) in
  Investment securities     $  389    $ (15)      $ 374      $  313    $  (165)      $148
  Federal funds sold          (288)     (42)       (330)        647       (342)       305
  Loans                      1,515     (761)        754         747       (526)       221
                            -------   ------      ------     ------    --------      ----

          Total              1,616     (818)        798       1,707     (1,033)       674

Interest Expense
   Deposit accounts            689     (360)        329       1,096       (598)       498
   Federal funds purchased      41        -          41           -          -          -
                            -------   ------      ------     ------    --------      ----

          Total                730     (360)        370       1,096       (598)       498
                            -------   ------      ------     ------    --------      ----

Increase (Decrease) in
  Net Interest Income       $  886    $(458)      $ 428      $  611    $ (435)       $176
                            =======   ======      ======     ======    =======       ====


                                Year 1997 over 1996
                            Increase (Decrease)   Total
                            Due to Change In:    Increase
                            Volume       Rate   (Decrease)

Increase (Decrease) in
  Investment securities     $  (91)   $ (14)      $(105)
  Federal funds sold           129      (15)        114
  Loans                      1,040     (124)        916
                            -------   ------      ------

          Total              1,078     (153)        925

Interest Expense
  Deposit accounts             508     (161)        347
                            -------   ------      ------

Increase (Decrease) in
  Net Interest Income       $  570    $   8       $ 578
                            =======   ======      =====
</TABLE>





<PAGE>


Page 26 of 83


TABLE E.  INVESTMENT SECURITIES

         The  carrying  amount  and  approximate  market  values  of  investment
securities are summarized below:

                                      Book    Unrealized  Unrealized    Market
                                      Value      Gains      Losses      Value

Available-for-Sale
 December 31, 1999
  U. S. Government agencies        $ 9,287,788 $      -   $ 465,636  $ 8,822,152
  State and political subdivisions  12,109,027   71,068     335,864   11,844,231
  Pooled securities                  2,359,516      909      92,510    2,267,915
                                   ----------- --------   ---------  -----------

                                   $23,756,331 $ 71,977   $ 894,010  $22,934,298
                                   =========== ========   =========  ===========
 December 31, 1998
  U. S. Government agencies        $ 6,087,700 $ 32,040   $ 29,844   $ 6,089,896
  State and political subdivisions  11,103,051  287,810     42,584    11,348,277
  Pooled securities                  1,685,303    5,547      5,849     1,685,001
                                   ----------- --------   --------   -----------

                                   $18,876,054 $325,397   $ 78,277   $19,123,174
                                   =========== ========   ========   ===========
Held-to-Maturity
 December 31, 1999
  U. S. Government agencies        $ 4,500,000 $      -   $280,105   $ 4,219,895
  State and political subdivisions     746,170      971     31,889       715,252
  Other securities                     137,000        -          -       137,000
                                   ----------- --------   --------   -----------

                                   $ 5,383,170 $    971   $311,994   $ 5,072,147
                                   =========== ========   ========   ===========
 December 31, 1998
  U. S. Government agencies        $ 3,499,716 $  5,284   $ 23,878   $ 3,481,122
  State and political subdivisions     747,622    8,289      7,999       747,912
  Other securities                     137,000        -          -       137,000
                                   ----------- --------   --------   -----------

                                   $ 4,384,338 $ 13,573   $ 31,877   $ 4,366,034
                                   =========== ========   ========   ===========


         The  maturities of  investment  securities at December 31, 1999 were as
follows:

                                                 Book Value      Market Value

Available-for-Sale
   Due in one year or less                      $   105,000      $   105,738
   Due from one to five years                     7,519,363        7,376,103
   Due from five to ten years                    12,216,300       11,817,889
   After ten years                                3,915,668        3,634,568

Held-to-Maturity
   Due from one to five years                     1,516,170        1,435,531
   Due from five to ten years                     3,730,000        3,499,616
   Other securities                                 137,000          137,000


         Securities having a book value of $5,064,105 and $3,643,382 at December
31, 1999 and 1998, respectively,  were pledged to secure public deposits and for
other purposes.

         In the event of the sale of securities, the cost basis of the security,
adjusted  for the  amortization  of  premium  or  discounts,  will be used  when
calculating gains or losses.


<PAGE>

Page 27 of 83


         The maturity  distribution,  book value, and approximate tax equivalent
yield  (assuming a 34%  Federal  income tax rate) of the  investment  securities
portfolio at December 31, 1999 is presented in the following table (in thousands
of dollars):


<TABLE>
<CAPTION>
<S>                       <C>        <C>         <C>           <C>         <C>            <C>         <C>          <C>
                                                        Maturity

                                                    After One but              After Five but
                           Within One Year           Within Five                 Within Ten                 After Ten
                           Amount    Yield(2)       Amount     Yield(2)       Amount     Yield(2)       Amount     Yield(2)
                           ------    -----          ------     -----          ------     -----          ------     -----

U. S. Government
   Securities             $      -               $4,987,954    5.84%       $9,016,413    6.52%       $        -
State and Political
   Subdivisions            105,000   7.87%        2,171,330    7.81%        3,199,887    6.96%        3,915,668    6.11%
Pooled Securities                -                  360,079    7.03%                -                         -
                          --------               ----------                ----------                ----------

          Total(1)        $105,000               $7,519,363               $12,216,300               $3,915,668
                          ========               ==========               ===========               ==========
</TABLE>



(1)Values  stated at book value,  exclusive of other  securities,  which include
   Federal Reserve Bank stock and Community  Bankers' Bank stock which amount to
   $87,000 and $50,000, respectively, at year end 1999.

(2) The yield is the weighted average Federal Tax Equivalent yield on cost.


<PAGE>


Page 28 of 83


TABLE F.  LOAN PORTFOLIO

         The table below classifies gross loans by major category and percentage
distribution at December 31 for 1999, 1998, and 1997:

                                  1999               1998              1997
                            Amount     %       Amount     %      Amount      %

Commercial               $23,423,032 15.38  $20,978,190 15.56  $20,826,296 16.38
Installment               26,232,943 17.23   23,240,533 17.24   24,011,216 18.89
Real Estate-Construction   1,132,526  7.44    1,079,593  0.80    1,101,316  0.87
Real Estate-Mortgage     101,474,226 59.95   89,519,904 66.40   81,172,133 63.86


         The following  table shows  maturities of the major loan categories and
their  sensitivity to changes in investment rates at December 31, 1999 for fixed
interest rate and floating interest rate loans:

                                          Due After
                                          One Year
                             One Year     but Within   Due After
                             or Less      Five Years   Five Years
                            Fixed Rate    Fixed Rate   Fixed Rate       Total

Commercial                 $21,995,500   $ 1,427,532   $        -   $ 23,423,032
Installment                  2,894,317    23,168,445      161,957     26,224,719
Real Estate-Construction     1,132,526             -            -      1,132,526
Real Estate-Mortgage        28,748,682    62,924,150    8,530,546    100,203,378
                           -----------   -----------   ----------   ------------

     Total                 $54,771,025   $87,520,127   $8,692,503   $150,983,655
                           ===========   ===========   ==========   ============


                                          Over One
                                          Year but
                             One Year    Within Five      Over
                             or Less        Years       Five Years
                           Floating Rate Floating Rate Floating Rate    Total

Commercial                 $         -   $         -   $        -   $          -
Installment                          -             -        8,224          8,224
Real Estate                  1,196,975        73,873            -      1,270,848
                           -----------   -----------   ----------   ------------

     Total                 $ 1,196,975   $    73,873   $    8,224   $  1,279,072
                           ===========   ===========   ==========   ============





<PAGE>


Page 29 of 83


TABLE G.  NONPERFORMING LOANS

         The loan  portfolio  of the Bank is  reviewed  by  senior  officers  to
evaluate  loan  performance.  The frequency of the review is based on predefined
guidelines approved by the Board of Directors that includes individual review of
certain  loans by the  Loan  Committee  and the  Board  if  certain  past due or
nonperformance  criteria  are met.  The areas of  criteria  include  in part net
worth,  credit history,  and customer  relationship.  The evaluations  emphasize
different factors depending upon the type of loan involved.  Commercial and real
estate loans are reviewed on the basis of estimated net realizable value through
an  evaluation  of  collateral  and  the  financial  strength  of the  borrower.
Installment loans are evaluated largely on the basis of delinquency data because
of the large number of such loans and relatively  small size of each  individual
loan.

         Management's  review  of  commercial  and other  loans may  result in a
determination  that a loan should be placed on a  nonaccrual  basis.  Nonaccrual
loans consist of loans which are both contractually past due 90 days or more and
are not  considered  fully secured or in the process of  liquidation.  It is the
policy of the Bank to  discontinue  the accrual of interest of any loan on which
full collection of principal and/or interest is doubtful.  Subsequent collection
of interest is recognized as income on a cash basis upon receipt. Placing a loan
on nonaccrual  status for the purpose of income  recognition  is not in itself a
reliable indication of potential loss of principal.  Other factors,  such as the
value of the  collateral  securing the loan and the  financial  condition of the
borrower, serve as more reliable indications of potential loss of principal.

         Nonperforming  loans  consist of loans  accounted  for on a  nonaccrual
basis and loans which are contractually  past due 90 days or more as to interest
and/or  principal  payments  regardless  of the amount of collateral  held.  The
following  table presents  information  concerning  nonperforming  loans for the
periods indicated:

                                                             December 31,
                                                       1999      1998       1997
                                                       ----      ----       ----
                                                      (In thousands of dollars)

Commercial
  Nonaccrual                                          $  49    $  115     $   -
  Contractually past due 90 days or more                 14         3          6

Installment
  Nonaccrual                                            212        97         25
  Contractually past due 90 days or more                 54        59         39

Real Estate
  Nonaccrual                                            534       378        603
  Contractually past due 90 days or more                629       709        753
                                                     ------    ------     ------

                                                     $1,492    $1,361     $1,426
                                                     ======    ======     ======

Nonperforming loans to gross loans at year end        0.98%     1.01%      1.12%

Effect of nonaccrual loans on interest revenue       $   54    $   50     $   96













<PAGE>

Page 30 of 83


TABLE H.  SUMMARY OF LOAN LOSS EXPERIENCE

         Loan losses have not been a significant  negative  factor for the Bank.
The following  table presents the Bank's loan loss  experience and selected loan
ratios for the three years ended December 31, 1999, 1998, and 1997:

                                                  1999       1998       1997
                                                  ----       ----       ----
                                                   (In thousands of dollars)

Allowance for loan losses at beginning of year  $  1,559   $  1,392   $  1,204

Loan Charge Offs
   Commercial                                        (23)       (16)       (78)
   Installment                                      (622)      (236)      (186)
   Real Estate                                      (109)       (54)       (22)
                                                ---------  ---------  ---------

               Total Charge Offs                    (754)      (306)      (286)

Recoveries of Loans Previously Charged Off
   Commercial                                          -          -         10
   Installment                                        91        117        104
   Real Estate                                        21          -          -
                                                ---------  ---------  ---------

               Total Recoveries                      112        117        114
                                                ---------  ---------  ---------

Net loans charged off                               (642)      (189)      (172)

Provision for loan losses                            606        356        360
                                                ---------  ---------  ---------

Allowance for loan losses at end of year        $  1,523   $  1,559   $  1,392
                                                =========  =========  =========

Average total loans (net of unearned income)    $145,139   $129,534   $123,073
Total loans (net of unearned income) at
   year end                                      152,198    134,591    126,814

Selected Loan Loss Ratios
   Net charge offs to average loans                0.45%      0.15%      0.14%
   Provision for loan losses to average loans      0.42%      0.28%      0.30%
   Provision for loan losses to net
      charge offs %                               81.67%    188.36%    209.30%
   Allowance for loan losses to year end loans     1.02%      1.15%      1.10%
   Loan loss coverage(1)                           6.50X     21.92X     24.02X















(1) Income  before income taxes plus  provision for loan losses,  divided by net
    charge offs.


<PAGE>



Page 31 of 83


TABLE I.  COMPOSITION OF ALLOWANCE FOR LOAN LOSSES (In thousands of dollars)

<TABLE>
<CAPTION>
<S>                         <C>        <C>        <C>           <C>        <C>        <C>          <C>        <C>        <C>
                                         1999                                1998                               1997
                                         ----                                ----                               ----
                                                   Percentage                          Percentage                         Percentage
                            Allowance  Breakdown   of Loans     Allowance  Breakdown    of Loans   Allowance  Breakdown    of Loans
                             Amount         %     Outstanding    Amount        %      Outstanding   Amount        %      Outstanding
                             ------        -      -----------    ------        -      -----------   ------        -      -----------

Commercial                   $   61       4.01       15.38      $  324      20.78       15.56      $  548      39.40       27.33
Installment                   1,249      82.01       17.23         923      59.20       17.24         634      45.58       18.92
Real Estate - Construction        -          -        0.75           -          -        0.80           -          -        0.75
Real Estate - Mortgage          213          -       66.64         312      20.02       66.40         209      15.02       53.00
                             ------      -----      ------      ------     ------      ------      ------     ------      ------

          Total              $1,523      13.98      100.00      $1,559     100.00      100.00      $1,391     100.00      100.00
                             ======      =====      ======      ======     ======      ======      ======     ======      ======
</TABLE>




<PAGE>


Page 32 of 83


TABLE J.  DEPOSITS

     The  breakdown on average  deposits for the years  indicated is as follows:
(In thousands of dollars)


<TABLE>
<CAPTION>
<S>                                    <C>       <C>    <C>        <C>    <C>         <C>
                                             1999             1998              1997
                                             ----             ----              ----
                                       Average          Average           Average
                                       Balance   Rate   Balance    Rate   Balance     Rate

Noninterest-bearing demand deposits   $ 18,113      -   $ 17,263      -   $ 14,354        -
Interest-bearing demand deposits        20,753   2.63     17,398   3.00     14,550    3.18
Money market accounts                    8,303   3.13      6,785   3.50      6,536    3.50
Savings                                 10,151   2.93      9,258   3.07      8,678    3.25
Time                                   113,178   5.36    103,770   5.78     95,726    5.67
                                      --------          --------          --------

                                      $170,498          $154,474          $139,844
                                      ========          ========          ========
</TABLE>


         Remaining  maturities  of time  certificates  of deposit of $100,000 or
more at December 31, 1999 are shown below (in thousands of dollars):

              Maturity                              December 31, 1999

        Three months or less                             $ 4,824
        Three to six months                                2,349
        Six to twelve months                               2,717
        One to three years                                 4,953
        Three to five years                                1,718
                                                         -------

                    Total                                $16,561
                                                         =======




<PAGE>


Page 33 of 83


TABLE K.  RETURN ON EQUITY AND ASSETS

         The following table highlights certain ratios for the three years ended
December 31, 1999, 1998, and 1997 (in thousands of dollars):

                                                      1999      1998      1997
                                                      ----      ----      ----

Income before securities gains and losses to
   Average total assets                               1.31%     1.54%     1.66%
   Average stockholders' equity                      13.29%    15.66%    17.32%

Net income to
   Average total assets                               1.31%     1.53%     1.66%
   Average stockholders' equity                      13.29%    15.65%    17.30%

Dividend pay out ratio (dividends declared per
   share divided by net income per share)            38.55%    34.83%    32.95%

Average stockholders' equity to average total
   assets ratio                                       9.88%     9.81%     9.57%



<PAGE>



Page 34 of 83


TABLE L.

                                  GAP Analysis

                                December 31, 1999

         The  following  table  reflects  interest-rate   sensitive  assets  and
liabilities   only.  The  following  table  sets  forth  at  December  31,  1999
interest-earning assets and interest-bearing  liabilities scheduled to mature or
reprice within a specific period. (In thousands of dollars)

<TABLE>
<CAPTION>
<S>                                 <C>           <C>        <C>          <C>            <C>         <C>              <C>
                                                       Scheduled Maturity or Repricing

                                    Immediately   3 Months
                                      Adjusted    or Less    3-6 Months   6 Mos.-1 Yr.   1-5 Years   Over 5 Years     Total
                                      --------    -------    ----------   ------------   ---------   ------------     -----

Gross loans                          $    769     $13,575     $10,683       $30,941      $87,594       $ 8,701      $152,263
Investment securities (1)(2)                -           -           -          -           9,036        19,862        28,898
                                     ---------    --------    --------      --------     --------      --------    ---------

     Total Interest-Earning Assets   $    769     $13,575     $10,683       $30,941      $96,630       $28,563     $181,161
                                     =========    ========    ========      ========     ========      ========    =========

Interest-Bearing Liabilities
   Interest-bearing demand deposits  $ 19,906     $     -     $     -       $     -      $     -       $     -     $ 19,906
   Money market deposits                8,046           -           -             -            -             -        8,046
   Savings                              9,763           -           -             -            -             -        9,763
   Time deposits                            -      21,950      17,616        22,907       48,339             -      110,812
   Federal funds purchased              7,035           -           -             -            -             -        7,035
                                     ---------    --------    --------      --------     --------      --------    --------

      Total Interest-Bearing
         Deposits                    $ 44,750     $21,950     $17,616       $22,907      $48,339       $     -     $155,562
                                     =========    ========    ========      ========     ========      ========    =========

Difference Between Interest-Earning
   Assets and Interest-Bearing
      Liabilities (GAP)              $(43,981)    $(8,375)     $(6,933)     $ 8,034      $48,291       $28,563     $ 25,599
      Cumulative (GAP)                (43,981)    (52,356)     (59,289)     (51,255)      (2,964)       25,599
      Cumulative interest-earning
         assets to interest-bearing
         liabilities                     1.72%     21.51%       29.68%       52.20%       98.12%       116.49%
</TABLE>




(1) Does not include  $87,000 in Federal  Reserve stock and $50,000 in Community
    Bankers' Bank stock.

(2) All   securities   are  stated  at  book  value   regardless   of  security
    classification as to available-for-sale and held-to-maturity.


<PAGE>


Page 35 of 83


ITEM 7A       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Refer to Footnote  18 in the annual  financial  statements  included in
this document on page 57.

ITEM 8        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management's Report on Financial Statements
Independent Auditor's Report

Financial Statements

     Consolidated Statements of Financial Condition - December 31, 1999 and 1998
     Consolidated  Statements of Income - Years Ended  December 31, 1999,  1998,
        and 1997
     Consolidated Statements of Changes in Stockholders' Equity - Years Ended
        December 31, 1999 and 1998
     Consolidated  Statements  of Cash Flows - Years Ended  December  31,  1999,
        1998, and 1997
     Notes to  Consolidated  Financial  Statements - December 31, 1999, 1998,
        and 1997


<PAGE>


Page 36 of 83


Management's Report on Financial Statements

         The following  consolidated  financial  statements and related notes of
Benchmark  Bankshares,  Inc. and its subsidiary,  Benchmark Community Bank, were
prepared by Management which has the primary responsibility for the integrity of
the financial information.  The statements have been prepared in conformity with
generally accepted  accounting  principles  appropriate in the circumstances and
include  amounts that are based on  Management's  best  estimates and judgments.
Financial  information  elsewhere  in the Annual  Report is presented on a basis
consistent with that in the financial statements.

         In  meeting  its  responsibility  for  the  accuracy  of the  financial
statements,  Management relies on the Company's  internal  accounting  controls.
This  system  provides  reasonable  assurance  that assets are  safeguarded  and
transactions  are recorded to permit the  preparation of  appropriate  financial
information.

         The financial statements have been audited by Creedle, Jones, and Alga,
P. C., the Company's  independent  certified public accountants.  Their audit is
conducted in accordance with generally  accepted auditing standards and includes
a review of internal controls and a test of transactions in sufficient detail to
allow  them to report on the fair  presentation  of the  consolidated  operating
results  and  financing  condition  of  Benchmark   Bankshares,   Inc.  and  its
subsidiary, Benchmark Community Bank.


<PAGE>


Page 37 of 83



















                           Benchmark Bankshares, Inc.

                     Report on Audit of Financial Statements


<PAGE>


Page 38 of 83



                           Benchmark Bankshares, Inc.

                                Table of Contents

                                                                         Pages

Independent Auditor's Report                                                 i

Exhibits

     A            Consolidated Statements of Financial Condition           1-2

     B            Consolidated Statements of Income                        3-4

     C            Consolidated Statements of Changes in
                     Stockholders' Equity                                    5

     D            Consolidated Statements of Cash Flows                    6-7

Notes to Consolidated Financial Statements                                8-22



<PAGE>



Page 39 of 83












                                January 31, 2000

                          Independent Auditor's Report

Board of Directors
Benchmark Bankshares, Inc.
Kenbridge, Virginia

         We have audited the accompanying  consolidated  statements of financial
condition of Benchmark Bankshares, Inc. (a Virginia corporation) and Subsidiary,
as of December 31, 1999 and 1998,  and the related  consolidated  statements  of
income,  changes in stockholders'  equity,  and cash flows for each of the three
years then ended.  These  financial  statements  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Benchmark Bankshares, Inc. and Subsidiary, as of December 31, 1999 and 1998, and
the  consolidated  results of their  operations and their cash flows for each of
the three years then ended,  in conformity  with generally  accepted  accounting
principles.

                                      Creedle, Jones, and Alga, P. C.
                                      Certified Public Accountants


<PAGE>


Page 40 of 83
                                                                      Exhibit A
                                                                         Page 1

                           Benchmark Bankshares, Inc.

                 Consolidated Statements of Financial Condition

                           December 31, 1999 and 1998


                                   A S S E T S

                                                    1999              1998
                                                    ----              ----

Cash and due from banks                         $  7,533,280      $  5,235,130
Federal funds sold                                         -        17,415,000
Investment securities                             28,317,465        23,507,512

Loans                                            152,262,727       134,818,220
  Less
    Unearned interest income                         (64,643)         (226,755)
    Allowance for loan losses                     (1,522,632)       (1,558,741)
                                                -------------     -------------

               Net Loans                         150,675,452       133,032,724

Premises and equipment - net                       3,423,779         3,200,391
Accrued interest receivable                        1,390,010         1,562,214
Deferred income taxes                                642,481           328,393
Refundable income taxes                                    -            33,961
Other real estate                                    667,808           697,862
Other assets                                         674,670           367,764
                                                -------------     -------------

               Total Assets                     $193,324,945      $185,380,951
                                                =============     =============




<PAGE>


Page 41 of 83
                                                                      Exhibit A
                                                                         Page 2

                           Benchmark Bankshares, Inc.

                 Consolidated Statements of Financial Condition

                           December 31, 1999 and 1998


                      Liabilities and Stockholders' Equity

                                                     1999              1998
                                                     ----              ----

Deposits
   Demand (noninterest-bearing)                  $ 16,213,541      $ 16,201,313
   NOW accounts                                    19,905,599        19,726,296
   Money market accounts                            8,046,212         6,850,631
   Savings                                          9,763,624         9,663,857
   Time, $100,000 and over                         16,560,926        18,176,368
   Other time                                      94,250,638        94,273,691
                                                 -------------     ------------

               Total Deposits                     164,740,540       164,892,156

Federal funds purchased                             7,035,000                 -
Accrued interest payable                              766,964           808,284
Accrued income tax payable                             23,005                 -
Dividends payable                                     482,493           479,594
Other liabilities                                     229,197           185,704
                                                 -------------     ------------

               Total Liabilities                  173,277,199       166,365,738

Stockholders' Equity
   Common stock, par value $.21 per share,
      authorized 4,000,000 shares;  issued
      and outstanding 12-31-99 3,015,577.591,
      issued and outstanding 12-31-98
      2,997,465.366 shares                            633,272           629,678
   Capital surplus                                  4,501,508         4,314,339
   Retained earnings                               15,455,510        13,908,096
   Unrealized security gains net of tax effect       (542,544)          163,100
                                                 -------------     ------------

               Total Stockholders' Equity          20,047,746        19,015,213
                                                 -------------     ------------

               Total Liabilities and
                  Stockholders' Equity           $ 193,324,945     $185,380,951
                                                 ==============    ============













See independent auditor's report and accompanying notes to financial statements.


<PAGE>


Page 42 of 83
                                                                      Exhibit B
                                                                         Page 1

                           Benchmark Bankshares, Inc.

                        Consolidated Statements of Income

                  Years Ended December 31, 1999, 1998, and 1997


                                        1999            1998            1997
                                        ----            ----            ----

Interest Income
  Interest and fees on loans        $ 13,209,176   $ 12,455,825   $ 12,234,895
  Interest on investment securities
    U. S. Government agencies            931,242        680,074        533,239
    State and political subdivisions     615,887        492,758        491,853
    Other securities                       5,845          5,795          5,770
    Interest on Federal funds sold       363,390        693,032        387,615
                                    -------------  -------------  -------------

          Total Interest Income       15,125,540     14,327,484     13,653,372

Interest Expense
  Interest-bearing checking deposits     811,399        759,973        709,162
  Savings deposits                       298,675        286,247        281,848
  Time deposits                        6,225,469      5,959,855      5,517,503
  Federal funds purchased                 40,838              -              -
                                    -------------  -------------  -------------

          Total Interest Expense       7,376,381      7,006,075      6,508,513
                                    -------------  -------------  -------------

Net Interest Income                    7,749,159      7,321,409      7,144,859

Provision for Loan Losses                606,030        356,515        359,617
                                    -------------  -------------  -------------

Net Interest Income After
  Provision for Loan Losses            7,143,129      6,964,894      6,785,242

Other Income
  Service charges on deposit accounts    449,641        431,144        411,430
  Other operating income                 292,618        213,641        169,015
  Net investment securities gains
    (losses)                                (547)          (986)        (1,674)
  Gain (Loss) on sale of other real
    estate                                (3,854)         3,000          6,865
  Rental                                   4,514              -              -
                                    -------------  -------------  -------------

          Total Other Income             742,372        646,799        585,636

Other Expenses
  Salaries                             2,300,266      2,036,436      1,890,099
  Employee benefits                      517,009        447,663        392,111
  Occupancy expense                      225,530        198,601        210,302
  Other operating expenses             1,274,338      1,142,202      1,107,225
                                    -------------  -------------  -------------

          Total Other Expenses         4,317,143      3,824,902      3,599,737
                                    -------------  -------------  -------------

Income Before Income Taxes             3,568,358      3,786,791      3,771,141
Provision for Income Taxes             1,056,851      1,142,626      1,192,433
                                    -------------  -------------  -------------

          Net Income                   2,511,507      2,644,165      2,578,708


<PAGE>

Page 43 of 83
                                                                      Exhibit B
                                                                         Page 2


                                         1999           1998          1997(1)
                                         ----           ----          ----

Other Comprehensive Income, Net of Tax
  Net unrealized holding losses arising
    during period                       (705,644)       (14,445)             -
                                    -------------  -------------  -------------

Comprehensive Income                $  1,805,863   $  2,629,720   $  2,578,708
                                    =============  =============  =============

Earnings Per Share of Common Stock  $       0.83   $       0.89   $       0.88
                                    =============  =============  =============

Average Shares Outstanding          3,011,913.354  2,978,930.855  2,925,206.402
                                    =============  =============  =============









































(1) Adjusted for a 2 for 1 stock split on October 2, 1997.

See independent auditor's report and accompanying notes to financial statements.


<PAGE>


Page 44 of 83
                                                                      Exhibit C

                           Benchmark Bankshares, Inc.

           Consolidated Statements of Changes in Stockholders' Equity

                     Years Ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
<S>                           <C>             <C>         <C>           <C>           <C>          <C>
                                                                                      Unrealized
                                               Common                    Retained      SEC Gain
                                 Shares        Stock       Surplus       Earnings      (Loss)(1)      Total

Balance January 1, 1998       2,942,811.048   $617,990    $3,667,557    $12,189,180   $ 177,545    $16,652,272

Net Income                                                                2,644,165                  2,644,165

Sale of Stock                    55,055.478     11,562       653,800                                   665,362
Redemption of Stock                (401.160)       (84)       (7,018)                                   (7,102)

Semi-Annual Cash
  Dividend Declared
    June 18, 1998, $.15 per share                                          (447,630)                  (447,630)
    December 17, 1998, $.16 per
      Share                                                                (479,594)                  (479,594)

Adjustments                                        210                        1,975                      2,185

Unrealized Security Gains
  (Losses)                                                                              (14,445)       (14,445)
                              --------------  ---------   -----------   ------------  ----------   ------------

Balance December 31, 1998     2,997,465.366    629,678     4,314,339     13,908,096     163,100     19,015,213

Net Income                                                                2,511,507                  2,511,507

Sale of Stock                    39,438.237      8,072       450,102                                   458,174
Redemption of Stock                 (23.947)        (5)         (312)                                     (317)
Stock repurchase                (21,300.000)    (4,473)     (262,621)                                 (267,094)

Semi-Annual Cash
  Dividend Declared
    June 17, 1999, $.16 per share                                          (481,426)                  (481,426)
    December 16, 1999, $.16
      per share                                                            (482,493)                  (482,493)

Adjustments                                                                    (174)                      (174)

Unrealized Security Gains
  (Losses)                                                                             (705,644)      (705,644)
                              --------------  ---------   -----------   ------------  ----------   ------------

Balance December 31, 1999     3,015,579.656   $633,272    $4,501,508    $15,455,510   $(542,544)   $20,047,746
                              ==============  =========   ===========   ============  ==========   ============
</TABLE>









(1) Net of tax effect.

See independent auditor's report and accompanying notes to financial statements.


<PAGE>


Page 45 of 83
                                                                      Exhibit D
                                                                         Page 1

                           Benchmark Bankshares, Inc.

                      Consolidated Statements of Cash Flows

                  Years Ended December 31, 1999, 1998, and 1997

                                           1999          1998          1997
                                           ----          ----          ----

Cash Flows from Operating Activities
  Interest received                     $15,297,744   $14,001,654   $13,671,429
  Fees and commissions received             556,706       765,183       206,312
  Interest paid                          (7,417,701)   (6,906,106)   (6,492,143)
  Cash paid to suppliers and employees   (4,270,751)   (3,780,710)   (3,366,903)
  Income taxes paid                        (950,460)   (1,314,685)   (1,177,997)
                                        ------------  ------------  ------------

             Net Cash Provided by
                Operating Activities      3,215,538     2,765,336     2,840,698

Cash Flows from Investing Activities
  Proceeds from sale of investment
    securities available-for-sale           280,167       190,951       822,196
  Proceeds from maturity of investments   1,087,343    10,978,575     3,690,660
  Purchase of investment securities      (8,070,160)  (17,021,520)   (3,921,787)
  Loans originated                      (90,308,177)  (84,916,074)  (73,215,505)
  Principal collected on loans           72,863,670    77,208,816    66,312,331
  Purchase premises and equipment          (494,982)     (453,986)      (70,331)
                                        ------------  ------------  ------------

             Net Cash (Used) by
                Investing Activities    (24,642,139)  (14,013,238)   (6,382,436)

Cash Flows from Financing Activities
  Net increase in Federal funds
    purchased                             7,035,000             -             -
  Net increase in demand deposits and
    savings accounts                      1,486,879     7,990,732     2,627,243
  Payments for maturing certificates
    of deposit                          (41,821,954)  (24,428,638)  (25,883,507)
  Proceeds from sales of certificates
    of deposit                           40,183,459    40,587,957    28,638,551
  Dividends paid                           (961,020)     (888,454)     (785,736)
  Proceeds from sale of common stock        458,174       658,470       410,380
  Payments to reacquire stock              (267,411)            -             -
  Proceeds from sale of other real
    estate                                  196,624        29,871             -
                                        ------------  ------------  ------------

             Net Cash Provided by
                Financing Activities      6,309,751    23,949,938     5,006,931
                                        ------------  ------------  ------------

Net Increase (Decrease) in Cash and
  Cash Equivalents                      (15,116,850)   12,702,036     1,465,193

Cash and Cash Equivalents -
  Beginning of Year                      22,650,130     9,948,094     8,482,901
                                        ------------  ------------  ------------

Cash and Cash Equivalents -
  End of Year                           $ 7,533,280   $22,650,130   $ 9,948,094
                                        ============  ============  ============



<PAGE>

Page 46 of 83
                                                                      Exhibit D
                                                                         Page 2

                                           1999          1998          1997
                                           ----          ----          ----

Reconciliation of Net Income to Net
  Cash Provided by Operating Activities
    Net income                          $ 2,511,507   $ 2,644,165   $ 2,578,708
    Adjustments to reconcile net income
      to net cash provided by operating
      activities
        Depreciation                        271,594       221,590       194,199
        Provision for probable credit
          losses and recoveries             718,293       473,736       359,617
        Increase (Decrease) in taxes
          payable                            23,005       (49,867)       49,867
        (Increase) Decrease in refundable
          taxes                              33,961       (33,961)       33,681
        (Increase) Decrease in interest
          receivable                        172,204      (325,830)       18,057
        Increase (Decrease) in interest
          payable                           (41,320)       99,969        16,370
        (Increase) Decrease in other
          real estate                      (166,570)     (164,628)     (314,360)
        (Increase) Decrease in other
          assets                           (306,906)      (91,105)      (59,773)
        (Increase) Decrease in deferred
          taxes exclusive of unrealized
          security gains (losses)           (48,124)      (50,911)      (69,113)
        Increase (Decrease) in other
          liabilities                        43,493        44,192        38,636
        Loss on sale of securities              547           986         1,674
        (Gain) loss on sale of other
          real estate                         3,854        (3,000)       (6,865)
                                        ------------  ------------  ------------

             Net Cash Provided by
                Operating Activities    $ 3,215,538   $ 2,765,336   $ 2,840,698
                                        ============  ============  ============

For purposes of reporting cash flows, cash and cash equivalents  include cash on
hand, Amounts due from banks, and Federal funds sold.  Generally,  Federal funds
sold are purchased and sold for one day periods.

During 1999 and 1998, net losses of $547 and $986,  respectively,  in securities
available-for-sale  Resulted from sales of mortgage  backed  securities that had
experienced significant paydowns. Capitalized interest amounted to $821.

During 1997,  sales of  securities  available-for-sale  grossed $96 in gains and
$1,700 in losses.

See independent auditor's report and accompanying notes to financial statements.


<PAGE>


Page 47 of 83


                           Benchmark Bankshares, Inc.

                   Notes to Consolidated Financial Statements

                  Years Ended December 31, 1999, 1998, and 1997


1.       Significant Accounting Policies and Practices

                  The accounting policies and practices of Benchmark Bankshares,
         Inc. conform to generally  accepted  accounting  principles and general
         practice within the banking  industry.  Certain of the more significant
         policies and practices follow:

         (a)      The consolidated financial statements of Benchmark Bankshares,
                  Inc. and its wholly-owned subsidiary, Benchmark Community
                  Bank, include the accounts of both companies.  All material
                  inter-company balances and transactions have been eliminated
                  in consolidation.

         (b)      Use of Estimates in Preparation of Financial  Statements.  The
                  preparation of the accompanying  combined financial statements
                  in conformity with generally  accepted  accounting  principles
                  requires  management to make certain estimates and assumptions
                  that   directly   affect  the  results  of  reported   assets,
                  liabilities,  revenue, and expenses. Actual results may differ
                  from these estimates.

         (c)      Cash  and  Cash  Equivalents.  The  term  cash  as used in the
                  Condensed  Consolidated  Statement of Cash Flows refers to all
                  cash and cash  equivalent  investments.  For  purposes  of the
                  statement,  Federal funds sold, which have a one day maturity,
                  are classified as cash equivalents.

         (d)      Investment  Securities.  Pursuant to guidelines established in
                  FAS 115, Accounting for Certain Investments in Debt and Equity
                  Securities,  the Company has elected to classify a majority of
                  its current portfolio as securities  available-for-sale.  This
                  category  refers to investments  that are not actively  traded
                  but are not anticipated by management to be  held-to-maturity.
                  Typically,  these  types of  investments  will be  utilized by
                  management  to  meet  short-term   asset/liability  management
                  needs.

                  For  purposes of  financial  statement  reporting,  securities
                  classified  as  available-for-sale  are to be reported at fair
                  market  value  as of  the  date  of the  statements;  however,
                  unrealized  holding  gains or losses are to be  excluded  from
                  earnings and reported as a net amount in a separate  component
                  of  stockholders'  equity until  realized.  The impact of this
                  unrealized    loss   on   securities    negatively    impacted
                  stockholders'  equity in the amount of $542,544 as of December
                  31, 1999.

                  Premiums and discounts are amortized or accreted over the life
                  of the  related  security  as an  adjustment  to  yield  using
                  methods that approximate the interest method.

          (e)     Loans.   Interest  on  loans  is  computed  by  methods  which
                  generally result in level rates of return on principal amounts
                  outstanding  (simple  interest).  Unearned interest on certain
                  installment  loans is  recognized  as income using the Rule of
                  78ths  Method,  which  materially  approximates  the effective
                  interest  method.  The Bank  has  initiated  a policy  that no
                  longer  provides  for the  Rule of 78ths  for any new  credit.
                  Management estimates that all unearned interest will clear the
                  Bank's books within three years.


<PAGE>

Page 48 of 83


                  In December,  1986, the Financial  Accounting  Standards Board
                  issued  Statement of Financial  Accounting  Standards  No. 91,
                  Accounting for  Nonrefundable  Fees and Costs  Associated with
                  Originating  or  Acquiring  Loans and Initial  Direct Costs of
                  Leases.   This  statement   requires  loan   origination   and
                  commitment fees and certain direct loan  origination  costs to
                  be deferred and the net amount  amortized as an  adjustment of
                  the related  loan's yield.  This standard has been adopted for
                  all loan  types with an  original  maturity  greater  than one
                  year.

         (f)      Allowance for Loan Losses.  The allowance for loan losses is
                  increased by provisions charged to expense and decreased by
                  loan losses net of recoveries.  The provision for loan losses
                  is based on the Bank's loan loss experience and management's
                  detailed review of the loan portfolio which considers economic
                  conditions, prior loan loss experience, and other factors
                  affecting the collectibility of loans.  With the exception of
                  loans secured by 1-4 family residential property, accrual of
                  interest is discontinued on loans past due 90 days or more
                  when collateral is inadequate to cover principal and interest
                  or immediately if management believes, after considering
                  economic and business conditions and collection efforts, that
                  the borrower's financial condition is such that collection is
                  doubtful.

         (g)      Premises and  Equipment.  Premises and equipment are stated at
                  cost less accumulated  depreciation.  Depreciation is computed
                  generally  by the  straight-line  method  over  the  estimated
                  useful  lives  of  the  assets.   Additions  to  premises  and
                  equipment and major  betterments and replacements are added to
                  the  accounts  at  cost.   Maintenance,   repairs,  and  minor
                  replacements  are  expensed as  incurred.  Gains and losses on
                  dispositions are reflected in current earnings.

         (h)      Other Real Estate.  As a normal course of business, the Bank
                  periodically has to foreclose on property used as collateral
                  on nonperforming loans.  The assets are recorded at cost plus
                  capital improvement cost.

         (i)      Depreciation.  For financial reporting, property and equipment
                  are depreciated using the straight-line method; for income tax
                  reporting,    depreciation   is   computed   using   statutory
                  accelerated methods.  Leasehold  improvements are amortized on
                  the  straight-line  method over the estimated  useful lives of
                  the improvements.  Income taxes in the accompanying  financial
                  statements reflect the depreciation  method used for financial
                  reporting  and,  accordingly,  include  a  provision  for  the
                  deferred  income  tax  effect of  depreciation  which  will be
                  recognized in different periods for income tax reporting.

         (j)      Earnings Per Share.  Earnings per share of common stock are
                  calculated on the basis of the weighted average number of
                  shares outstanding during the period.

         (k)      Income Taxes. Deferred income taxes are reported for temporary
                  differences between items of income or expense reported in the
                  financial   statements  and  those  reported  for  income  tax
                  purposes.  Deferred  taxes  also  reflect  the  impact  of the
                  unrealized  security losses which are reflected on the balance
                  sheet only,  pursuant to FAS 115  guidelines.  The differences
                  relate   principally   to  the   provision  for  loan  losses,
                  depreciation, and unrealized security losses.


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                  The table below  reflects the  components  of the Net Deferred
                  Tax Asset account as of December 31, 1999:

        Deferred tax assets resulting from loan loss
           reserves                                               $ 427,927
        Deferred tax asset resulting from deferred
           compensation                                              58,914
        Deferred tax asset resulting from unrealized
           security gains                                           279,492
        Deferred tax liabilities resulting from
           depreciation                                            (123,852)
                                                                  ----------

                       Net Deferred Tax Asset                     $ 642,481
                                                                  ==========


2.       Investment Securities

                  The  carrying   amount  and   approximate   market  values  of
         investment securities are summarized below:

                                       Book    Unrealized Unrealized   Market
                                       Value      Gains     Losses     Value

Available-for-Sale
 December 31, 1999
   U. S. Government agencies        $ 9,287,788  $      -  $465,636  $ 8,822,152
   State and political subdivisions  12,109,027    71,068   335,864   11,844,231
   Pooled securities                  2,359,516       909    92,510    2,267,915
                                    -----------  --------  --------  -----------

                                    $23,756,331  $ 71,977  $894,010  $22,934,298
                                    ===========  ========  ========  ===========
 December 31, 1998
   U. S. Government agencies        $ 6,087,700  $ 32,040  $ 29,844  $ 6,089,896
   State and political subdivisions  11,103,051   287,810    42,584   11,348,277
   Pooled securities                  1,685,303     5,547     5,849    1,685,001
                                    -----------  --------  --------  -----------

                                    $18,876,054  $325,397  $ 78,277  $19,123,174
                                    ===========  ========  ========  ===========
Held-to-Maturity
 December 31, 1999
   U. S. Government agencies        $ 4,500,000  $      -  $280,105  $ 4,219,895
   State and political subdivisions     746,170       971    31,889      715,252
   Other securities                     137,000         -         -      137,000
                                    -----------  --------  --------  -----------

                                    $ 5,383,170  $    971  $311,994  $ 5,072,147
                                    ===========  ========  ========  ===========
 December 31, 1998
   U. S. Government agencies        $ 3,499,716  $  5,284  $ 23,878  $ 3,481,122
   State and political subdivisions     747,622     8,289     7,999      747,912
   Other securities                     137,000         -         -      137,000
                                    -----------  --------  --------  -----------

                                    $ 4,384,338  $ 13,573  $ 31,877  $ 4,366,034
                                    ===========  ========  ========  ===========










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                  The  maturities of investment  securities at December 31, 1999
         were as follows:

                                              Book Value       Market Value

         Available-for-Sale
           Due in one year or less            $   105,000       $   105,738
           Due from one to five years           7,519,363         7,376,103
           Due from five to ten years          12,216,300        11,817,889
           After ten years                      3,915,668         3,634,568

         Held-to-Maturity
           Due from one to five years           1,516,170         1,435,531
           Due from five to ten years           3,730,000         3,499,616
           Other securities                       137,000           137,000


                  Securities having a book value of $5,064,105 and $3,643,382 at
         December 31, 1999 and 1998, respectively, were pledged to secure public
         deposits and for other purposes.

                  In the event of the sale of securities,  the cost basis of the
         security,  adjusted for the amortization of premium or discounts,  will
         be used when calculating gains or losses.

                  Other  securities  consist of required  investments in Federal
         Reserve  Bank  stock  and  a  regional   bankers'  bank  stock.   These
         investments are recorded at original cost.

3.       Loans

                  A summary of loans net of  participation-out  activity by type
         follows:

                                            1999               1998
                                            ----               ----

                Demand                  $    769,352       $  1,944,475
                Time                      22,653,680         19,033,715
                Installment               26,232,943         23,240,533
                Real estate              102,606,752         90,599,497
                                        ------------       ------------

                                        $152,262,727       $134,818,220
                                        ============       ============


                  Demand  deposit  overdrafts  amounting  to  $29,721  have been
         reclassified as demand loans for reporting purposes.

4.       Allowance for Loan Losses

                  An  analysis of the  transactions  in the  allowance  for loan
         losses follows:

                                                       1999           1998
                                                       ----           ----

         Balance - Beginning of Year                $ 1,558,741    $ 1,391,424
         Provision charged to operating expense         606,030        356,046
         Recoveries on loans                            112,263        117,690
         Loans charged off                             (754,402)      (306,419)
                                                    ------------   ------------

         Balance - End of Year                      $ 1,522,632    $ 1,558,741
                                                    ============   ============




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                  As of December 31,  1999,  the Bank had $470,980 in loans that
         resulted from restructuring of nonperforming loans.

                  As an additional  condition to the restructuring of one of the
         loans, the Bank transferred $400,000 of collateral to other real estate
         and plans to sell the property in the future. As of the statement date,
         the Bank had a total of $667,808 in foreclosed real estate.

                  As of December 31, 1999,  the Bank had $794,732  classified as
         nonaccrual loans. A loan in this status ceases to accrue interest.

5.       Office Buildings, Equipment, and Leasehold Improvements

                  Major  classifications  of  these  assets  are  summarized  as
         follows:

                                         Estimated
                                          Useful
                                       Lives (Years)      1999          1998
                                       -------------      ----          ----

         Land                                          $  799,690    $  689,261
         Buildings and improvements        6-40         2,401,090     2,351,090
         Furniture and equipment           2-10         2,033,002     1,886,461
         Leasehold improvements            5-6            166,521       166,521
         Buildings under construction                     187,969             -
                                                       -----------   -----------
                                                        5,588,272     5,093,333
         Less:  Accumulated depreciation               (2,164,493)   (1,892,942)
                                                       -----------   -----------

                                                       $3,423,779    $3,200,391
                                                       ===========   ===========


                  The cost basis of fully depreciated assets totaled $962,865 at
         December 31, 1999.

6.       Other Real Estate

                  As of December  31,  1999,  the Bank held other real estate in
         the  amount  of  $667,808.   The  amount  represents  cost  related  to
         converting  collateral on nonperforming  loans from the customer to the
         Bank. All lots are being marketed or being prepared for marketing.

7.       Time Deposits

                  The maturities of time deposits are as follows:

                                                   $100,000 or      Less Than
                                                     Greater         $100,000

         Due in six months                         $ 7,134,311     $32,392,208
         Due from six months to one year             2,716,608      20,190,427
         Due from one year to three years            4,952,953      35,093,852
         Due from three years to five years          1,757,054       6,574,151
                                                   -----------     -----------

                       Total                       $16,560,926     $94,250,638
                                                   ===========     ===========


                  Interest  expense  on time  deposits  exceeding  $100,000  was
         $852,448 in 1999.


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8.       Federal Income Taxes

                  Federal  income  taxes  payable,  as of December  31, 1999 and
         1998, were as follows:

                                                         1999            1998
                                                         ----            ----

         Currently payable                            $  23,005       $       -
         Deferred                                      (642,481)       (328,393)
                                                      ----------      ----------

                                                      $(619,476)      $(328,393)
                                                      ==========      ==========

                  The components of applicable income taxes are as follows:

                                                          1999          1998
                                                          ----          ----

         Current                                       $1,370,939    $1,080,634
         Deferred from income and
           expense items                                 (314,088)       61,992
                                                       -----------   -----------

               Total                                   $1,056,851    $1,142,626
                                                       ===========   ===========

                  Temporary   differences  in  the  recognition  of  income  and
         expenses  for tax and  financial  reporting  purposes  resulted  in the
         deferred income tax asset as follows:

                                                          1999          1998
                                                          ----          ----

         Accelerated depreciation                      $  (15,861)   $  (55,696)
         Excess of provision for loan losses
           over deduction for Federal income
           tax purposes                                   (35,965)      106,422
         Deferred compensation                             17,230        18,708
                                                       -----------   -----------

               Total Tax Impact of Temporary
                  Differences in Recognition of
                  Income and Expenses                     (34,596)       69,434

         Tax impact of balance sheet recognition
           of unrealized security losses                 (279,492)       (7,442)
                                                       -----------   -----------

               Total Change to Deferred Tax
                  for the Year                         $ (314,088)   $   61,992
                                                       ===========   ===========

                  The reasons for the difference  between income tax expense and
         the amount computed by applying the statutory  Federal income tax rates
         are as follows:

                                                         1999          1998
                                                         ----          ----

        Statutory rates                                   34%           34%

        Income tax expense at statutory
           rates                                       $1,211,880    $1,287,509

        Increase (Decrease) due to
           Tax exempt income                             (159,581)     (124,874)
           Other                                            4,552       (20,009)
                                                       -----------   -----------

                                                       $1,056,851    $1,142,626
                                                       ===========   ===========

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                  Federal income tax returns are subject to examination  for all
         years which are not barred by the statute of limitations.

9.       Commitments and Contingent Liabilities

                  At  December  31,  1999 and 1998,  commitments  under  standby
         letters of credit aggregated  $1,825,989 and $2,196,802,  respectively.
         These  commitments are an integral part of the banking business and the
         Bank does not anticipate  any losses as a result of these  commitments.
         These  commitments  are not  reflected  in the  consolidated  financial
         statements. (See Note 13).

                  During the year ended  December  31, 1999,  the Bank  incurred
         operating lease expense amounting to $37,641.

                  Minimum   lease   payments   at   December   31,   1999  under
         noncancelable  real property operating lease commitments for succeeding
         years are:

                        2000                     $33,540
                        2001                      33,540
                        2002                       4,410
                                                 -------

                        Total                    $71,490
                                                 =======


                  The Bank has  options  to renew  the  leased  properties.  The
         additional lease expense  resulting from the future exercising of these
         options is not included in the 1999 totals listed herein.

                  The Bank has entered  into several  agreements  to service and
         maintain  equipment.   The  only  long-term  commitment  relates  to  a
         maintenance agreement on the elevator. The terms are as follows:

                        2000                     $ 1,452
                        2001                       1,452
                        2002                       1,089
                                                 -------

                        Total                    $ 3,993
                                                 =======


                  Operating  expenses  include  amortization of improvements and
         occupancy rentals of $44,231 and $33,139 at December 31, 1999 and 1998,
         respectively.

10.      Retirement Plan

                  The Bank  provides for a retirement  program for all qualified
         employees  through a 401(k)  plan.  The plan offers a salary  reduction
         election of up to 14% of W-2 compensation  less incentive pay. The plan
         also has a proportional  matching feature by the Company.  In addition,
         the plan provides for the Company to make discretionary  contributions.
         Both the percentage of the employer match and the annual  discretionary
         contribution are based on the Bank's performance.

                  During 1999, Bank payments through matching and  discretionary
         contributions   totaled  $96,588  while  employees'   salary  reduction
         amounted to  $93,317.  The cost of  administration  for the 401(k) plan
         paid in 1999 amounted to $13,305.


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11.      Incentive Compensation

                  The Bank offers its employees  incentive  compensation  and/or
         bonus arrangements based on the Bank's annual financial performance and
         other  criteria  such as length of service and officer  classification.
         Incentive  compensation  totaled  $129,419  and  $165,157 for the years
         ended December 31, 1999 and 1998, respectively.

12.      Related Parties

         Loans

                  Loans to  Directors  and  Executive  Officers  of the Bank and
         loans to companies in which they have a  significant  interest are made
         on  substantially  the same terms as those  prevailing  at the time for
         other loan  customers.  The  balances  of such loans  outstanding  were
         $3,212,221 and $2,330,282 at December 31, 1999 and 1998,  respectively.
         During  the year of 1999,  new loans to the group  totaled  $1,890,791,
         while  repayments   amounted  to  $1,008,852.   Certain  Directors  and
         Executive  Officers have home equity  loans.  The net activity of these
         open-end credits has been reported herein.

                  As  of  December  31,  1999,  W.  J.  Callis,   Director,  had
         outstanding  loans  in  excess  of 5.0% of  stockholders'  equity.  The
         beginning  balance of loans was  $1,405,724  with current year activity
         consisting  of $912,963 in advances and $322,063 in  repayments  for an
         ending balance of $1,996,624.

         Deposits

                  As of December 31, 1999,  the Bank held deposits of Directors,
         Executive Officers, and their related interest amounting to $1,808,997.

13.      Off-Balance-Sheet Instruments/Credit Concentrations

                  The   Bank  is  a  party   to   financial   instruments   with
         off-balance-sheet  risk in the normal  course of  business  to meet the
         financing needs of its customers. Unless noted otherwise, the Bank does
         not require  collateral or other  security to support  these  financial
         instruments.  Standby  letters  of credit are  conditional  commitments
         issued by the Bank to  guarantee  the  performance  of a customer  to a
         third party.  Those  guarantees are primarily  issued to facilitate the
         transaction of business between these parties where the exact financial
         amount of the transaction is unknown, but a limit can be projected. The
         credit risk involved in issuing  letters of credit is  essentially  the
         same as that involved in extending loan facilities to customers.  There
         is a fee charged for this service.

                  As  noted  in  Note 9 on  December  31,  1999,  the  Bank  had
         outstanding  letters  of  credit.  These  instruments  are based on the
         financial  strength  of the  customer  and  the  existing  relationship
         between the Bank and the customer.

                  As of December 31, 1999, the Bank also had unused  commitments
         resulting  from credit line deeds of trust,  home equity lines,  and an
         unfunded business loan. The total amount of these commitments  amounted
         to $18,561,686.

                  For related information  concerning  contract  commitments not
         reflected in the balance sheet refer to Note 9.

         Concentrations

                  The  Bank  has  no  concentrations  of  credit  concerning  an
         individual borrower or economic segment.  The Bank confines its lending
         activities  to  within  the  state  and  more  specifically  its  local
         geographic  areas.  The  concentrations  of credit by loan type are set
         forth in Note 3.  Regulatory  requirements  limit the Bank's  aggregate
         loans to any one borrower to a level of approximately $2,693,400.


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14.      Regulatory Matters

                  Pursuant to  regulations  of the Federal  Reserve  Board,  the
         banking  operation  of the  Company is  required  to  maintain  certain
         minimum levels of capital.  The Bank  maintained the following  capital
         ratios as of December 31:

                                        1999    1998      Well
                                       Actual  Actual  Capitalized  Adequately
                                        Rate    Rate   Target Rate  Capitalized

Total Capital to Risk Weighted Assets  13.38%  14.64%     10.00%        8.00%
                                       ======  ======     ======        =====

Tier I Capital to Risk Weighted Assets 12.30%  13.40%      6.00%        4.00%
                                       ======  ======     ======        =====

Tier I Capital to Total Average Assets  9.09%   9.33%      5.00%        4.00%
                                       ======  ======     ======        =====


                  These ratios exceed the minimum ratios  required by regulatory
         authorities.

15.      Capital

                  During  1999,  net  purchase  of  Company  stock  through  the
         dividend  reinvestment plan amounted to 29,329.29  shares.  Also, 9,085
         shares were purchased through the exercising of employee stock options.
         This  translated  to a $8,067  increase in common  stock and a $449,790
         increase in capital surplus.

                  Beginning in 1999,  the Company  initiated a stock  repurchase
         plan.  Throughout the year, the Company purchased back 21,300 shares of
         stock at a cost of $267,094.  This  translated  in a decrease in common
         stock of $4,473 and a $262,621 decrease in capital surplus.

                  The Company is authorized to issue 200,000 shares of preferred
         stock with a par value of $25.00.  To date, no preferred stock has been
         issued by the Company.  Currently,  management  has no plans to utilize
         this second class of stock.

16.      Stock Option Plan

                  On April 20, 1995, the stockholders retroactively approved two
         incentive  stock option plans with an effective date of March 16, 1995.
         One plan consisting of option awards to purchase  120,000(1)  shares of
         the  Company's  common  stock was  approved  for the  employees  of the
         Company,  while the second plan consisting of option awards to purchase
         80,000(1)  shares of the  Company's  common  stock was approved for the
         "outside"  Directors of the Company.  All  participants  must have been
         employed for two calendar years.

                  At the annual stockholders meeting held on April 15, 1999, the
         stockholders approved a plan that increased the number of shares in the
         Employee Stock Option Plan from 120,000 shares by an additional 150,000
         shares for a total of 270,000  shares.  All of the  options  expire ten
         years from the date of grant.

----------------
(1) Adjusted for a 2 for 1 stock split on October 1, 1997.


<PAGE>

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                  The table below details the status of the shares in the plan
         as of December 31, 1999 and 1998:

                                      1999

                             Prior Year    Current Year Activity
                             Exercised
                                and
Incentive Stock  Original   Outstanding  Options   Options   Options   Remaining
  Option Plan    Pool(1)      Options    Granted  Exercised  Canceled   in Pool

Employees        270,000      120,000    14,072     8,085     4,000     139,928
Directors         80,000       54,000         -         -         -      26,000

(1)Amended in 1999.

                                      1998

                            Prior Year     Current Year Activity
                            Exercised
                               and
Incentive Stock  Original  Outstanding   Options   Options   Options   Remaining
  Option Plan      Pool      Options     Granted  Exercised  Canceled   in Pool

Employees        120,000       99,000    21,928    27,050       928           -
Directors         80,000       54,000         -     6,000         -      26,000


                  The  Company  has  elected to report  the  results of the plan
         pursuant to APB Opinion Number 25. Due to the pricing  schedule,  there
         is no impact on earnings under the fair value based method.

17.      Disclosures about Fair Value of Financial Instruments

                  The intent of FAS 107 is to depict the market's  assessment of
         the  present  value of net  future  cash  flows  discounted  to reflect
         current interest rates.

                  The following  methods and  assumptions  were used to estimate
         the fair value of each class of financial  instruments  for which it is
         practicable to estimate that value.

         Cash and Short-Term Investments

                  For those  short-term  investments,  the carrying  amount is a
         reasonable estimate of fair value. For reporting purposes, the Bank has
         included  Cash and Due from Banks as well as Federal Funds Sold in this
         category.

         Investment Securities

                  For    marketable    equity    securities     classified    as
         available-for-sale  and  held-to-  maturity,  fair  values are based on
         quoted market prices or dealer quotes.  If a quoted market price is not
         available,  fair value is  estimated  using  quoted  market  prices for
         similar securities.

         Loans Receivable

                  The fair  value of the  basic  loan  groups  is  estimated  by
         discounting  the future  cash flows  using the  current  rates at which
         similar loans would be made to borrowers  with similar  credit  ratings
         and for the same remaining  maturities.  For open-end  revolving loans,
         the carrying amount is a reasonable estimate of fair value.


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         Deposit Liabilities

                  The fair  value of  demand  deposits,  savings  accounts,  and
         certain  money market  deposits is the amount  payable on demand at the
         reporting  date.  The fair  value  of  fixed-maturity  certificates  of
         deposit is estimated using the rates currently  offered for deposits of
         similar remaining maturities.

         Other Borrowed Money

                  For short-term borrowings, the carrying amount is a reasonable
         estimate of fair value.

         Commitments to Extend Credit and Letters of Credit

                  The fair  value of  commitments  and  letters of credit is the
         amount of the unfunded  commitment  as a market rate will be set at the
         time of the funding of the commitment.

                  The estimated fair values of the Bank's financial  instruments
         are as follows:

                                      1999                        1998
                                      ----                        ----

                             Carrying       Fair        Carrying        Fair
                              Amount        Value        Amount         Value

Financial Assets
 Cash and due from banks  $  7,533,280  $  7,533,280  $  5,235,130  $  5,235,130
 Federal funds sold                  -             -    17,415,000    17,415,000
 Investments
   Available-for-sale       22,934,298    22,934,298    19,260,174    19,260,174
   Held-to-maturity          5,383,170     5,072,147     4,247,338     4,229,034
 Loans
   Demand loans                769,352       769,352     1,944,475     1,944,475
   Accrual loans            22,653,680    22,653,680    19,033,715    19,033,715
   Installment loans        26,232,943    25,146,525    25,632,095    21,247,173
   Real estate loans       108,649,662   107,206,239    90,599,497    89,341,018
   Participation loans -
     out                     6,042,910     6,042,910     3,678,438     3,678,438

Financial Liabilities
 Deposits
   Demand
     (noninterest-bearing)  16,213,541    16,213,541    16,201,313    16,201,313
   Demand
     (interest-bearing)     27,951,811    27,951,811    26,576,927    26,576,927
   Savings                   9,763,624     9,763,624     9,663,857     9,663,857
   Certificates of deposit 110,811,564   108,012,019   112,450,059   111,346,402
   Federal funds purchased   7,035,000     7,035,000             -             -

Unrecognized Financial
 Instruments
  Unused loan commitments   18,561,686    18,561,686    16,736,442    16,736,442
  Unissued letters of credit 1,825,989     1,825,989     2,196,802     2,196,802


18.      Quantitative and Qualitative Disclosures About Market Risk

                  Through  the nature of the  banking  industry,  market risk is
         inherent in the  Company's  operation.  A majority  of the  business is
         built  around  financial  products,  which are  sensitive to changes in
         market rates.  Such products,  categorized as loans,  investments,  and
         deposits are utilized to transfer financial  resources.  These products
         have varying maturities,  however,  and this provides an opportunity to
         match  assets and  liabilities  so as to offset a portion of the market
         risk.


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                  Management  follows  an  operating  strategy  that  limits the
         interest  rate  risk  by  offering  only  shorter-term   products  that
         typically  have a term of no  more  than  five  years.  By  effectively
         matching the  maturities of inflows and outflows,  management  feels it
         can  effectively  limit the amount of exposure  that is inherent in its
         financial portfolio.

                  As a separate  issue,  there is also the inherent risk of loss
         related to loans and  investments.  The impact of loss through  default
         has  been  considered  by  management  through  the  utilization  of an
         aggressive  loan loss  reserve  policy  and a  conservative  investment
         policy that limits  investments  to higher quality  issues;  therefore,
         only  the  risk  of  interest  rate  variations  is  considered  in the
         following analysis.

                  The Company does not currently utilize  derivatives as part of
         its investment strategy.

                  The tables below present  principal amounts of cash flow as it
         relates to the major  financial  components  of the  Company's  balance
         sheet. The cash flow totals represent the amount that will be generated
         over the life of the product at its stated  interest  rate. The present
         value  discount is then  applied to the cash flow stream at the current
         market rate for the  instrument  to determine  the current value of the
         individual category.  Through this two-tiered analysis,  management has
         attempted to measure the impact not only of a rate change, but also the
         value  at risk in  each  financial  product  category.  Only  financial
         instruments that do not have price  adjustment  capabilities are herein
         presented.

                  In Table One,  the cash flows are spread  over the life of the
         financial  products  in annual  increments  as of December 31 each year
         with the final column  detailing the present value  discounting  of the
         cash flows at current market rates.


                                        Fair Value of Financial Assets

                                          Benchmark Bankshares, Inc.

                                              December 31, 1999


<TABLE>
<CAPTION>
<S>                            <C>           <C>           <C>           <C>           <C>        <C>              <C>
                                                                                                                   Current
Categories                     2000          2001          2002          2003          2004       Thereafter       Value
----------                     ----          ----          ----          ----          ----       ----------       -----

Loans
  Commercial                $23,423,032   $         -   $         -   $         -   $         -   $        -   $ 23,423,032
  Mortgage                   45,185,483    20,244,432    18,000,571    19,982,394    22,364,015    5,655,689    107,206,239
  Consumer                   12,579,179     8,529,399     5,143,995     2,507,493     1,466,798       53,447     25,146,525

Investments
  U. S. Government Agencies           -             -       516,187     2,037,032     2,516,820    7,972,008     13,042,087
  Muncipals
    Nontaxable                  110,785       354,557     1,399,178     2,470,577     1,566,492    5,728,229     11,629,818
    Taxable                           -             -             -             -       513,052      416,614        929,666
  Mortgage Backed Securities          -       247,168             -       136,342             -    1,884,405      2,267,915

Certificates of Deposits
  < 182 days                  3,409,518             -             -             -             -            -      3,340,683
  182 - 364 days              5,579,480             -             -             -             -            -      5,452,172
  1 year - 2 years           31,441,089     4,463,640             -             -             -            -     34,043,727
  2 years - 3 years           6,535,284     5,118,773     4,079,916             -             -            -     14,342,705
  3 years - 4 years           1,062,292     2,041,484     1,421,737             -             -            -      4,067,657
  4 years - 5 years           1,156,928     1,059,604       575,944       939,890        14,019            -      3,316,421
  5 years and over           15,436,423     6,447,359     4,921,767    14,166,013    10,080,000      159,798     43,448,654
</TABLE>



<PAGE>






Page 59 of 83


                  In Table Two, the cash flows are present  value  discounted by
         predetermined  factors to measure the impact on the financial  products
         portfolio at six and twelve month intervals.


                                           Variable Interest Rate Disclosure

                                               Benchmark Bankshares, Inc.

                                                   December 31, 1999

<TABLE>
<CAPTION>
<S>                                      <C>            <C>            <C>            <C>            <C>

                                           Valuation of Securities          No           Valuation of Securities
                                           Given an Interest Rate       Change In        Given an Interest Rate
                                        Decrease of (x) Basis Points     Interest     Increase of (x) Basis Points
Categories                                (200 BPS)        (100 BPS)       Rate         100 BPS          200 BPS
----------                                ---------        ---------       ----         -------          -------

Loans
 Commercial                              $ 23,664,765   $ 23,550,992   $ 23,423,032   $ 23,326,697   $ 23,216,144
 Mortgage                                 112,276,907    109,681,555    107,206,239    104,843,513    102,586,502
 Consumer                                  26,141,899     25,635,798     25,146,525     24,673,307     24,215,416

Investments
 U. S. Government Agencies                 14,665,910     13,827,493     13,042,047     12,317,144     11,636,742
 Muncipals
   Nontaxable                              12,882,898     12,237,924     11,629,818     11,065,799     10,533,009
   Taxable                                  1,033,507        979,648        929,666        881,593        836,954
 Pooled Securities                          2,518,254      2,388,771      2,267,915      2,153,470      2,046,539

Certificates of Deposit
 < 182 days                                 3,373,998      3,357,279      3,340,683      3,324,210      3,307,859
 182 - 364 days                             5,505,975      5,478,941      5,452,172      5,425,663      5,399,410
 1 year - 2 years                          34,786,152     34,410,981     34,043,727     33,684,142     33,331,993
 2 years - 3 years                         14,851,893     14,593,424     14,342,705     14,099,419     13,863,265
 3 years - 4 years                          4,231,278      4,148,165      4,067,657      3,989,646      3,914,028
 4 years - 5 years                          3,465,798      3,389,719      3,316,421      3,245,768      3,177,636
 5 plus years                              45,863,196     44,628,932     43,448,654     42,319,345     41,238,187
</TABLE>

                  Only  financial  instruments  that  do not  have  daily  price
         adjustment capabilities are herein presented.

19.      Parent Company

                  Financial statements for Benchmark Bankshares, Inc. (not
         consolidated) are herein presented.  Since the parent company has not
         entered into any substantial transactions, only the parent company's
         statements are presented.



<PAGE>


Page 60 of 83
                           Benchmark Bankshares, Inc.

                              (Parent Company Only)

                                 Balance Sheets

                        December 31, 1999, 1998, and 1997

                                   A S S E T S

                                            1999          1998          1997
                                            ----          ----          ----

Cash                                    $ 3,111,052   $ 1,909,855   $ 1,566,556
Investment in subsidiary                 17,419,106    17,584,952    15,526,540
Receivable - reimbursement                       81             -             -
                                        -----------   -----------   -----------

          Total Assets                  $20,530,239   $19,494,807   $17,093,096
                                        ===========   ===========   ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
   Dividends payable                    $   482,493   $   479,594   $   440,824

Stockholders' Equity
  Common stock, par value $.21 per
    share, authorized 4,000,000
    shares; issued and outstanding
    3,015,577.591 12-31-99, issued and
    outstanding 2,997,465.366 12-31-98      633,272       629,678       617,990
  Surplus                                 4,501,508     4,314,339     3,667,557
  Retained earnings                      14,912,966    14,071,196    12,366,725
                                        -----------   -----------   -----------

         Total Stockholders' Equity      20,047,746    19,015,213    16,652,272
                                        -----------   -----------   -----------

         Total Liabilities and
            Stockholders' Equity        $20,530,239   $19,494,807   $17,093,096
                                        ===========   ===========   ===========

                              Statements of Income

                  Years Ended December 31, 1999, 1998, and 1997

                                            1999          1998          1997
                                            ----          ----          ----
Income
  Dividends from subsidiary             $ 2,000,000   $   600,000   $ 1,500,000
                                        -----------   -----------   -----------

               Total Income               2,000,000       600,000     1,500,000

Expenses
  Professional fees                          20,038        16,470        15,623
  Supplies, printing, and postage             7,410         8,654         9,317
  Taxes - miscellaneous                         825           850           850
                                        -----------   -----------   -----------

               Total Expenses                28,273        25,974        25,790
                                        -----------   -----------   -----------

Income (Loss) Before Equity in
   Undistributed Income of Subsidiary     1,971,727       574,026     1,474,210

Equity in Income of Subsidiary
   (includes tax benefit of parent
   company operating loss)                  739,780     2,070,139     1,104,498
                                        -----------   -----------   -----------

               Net Income               $ 2,711,507   $ 2,644,165   $ 2,578,708
                                        ===========   ===========   ===========



<PAGE>



Page 61 of 83
                           Benchmark Bankshares, Inc.

                              (Parent Company Only)

                  Statements of Changes in Stockholders' Equity

                     Years Ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
<S>                                   <C>         <C>           <C>            <C>          <C>
                                                                               Unrealized
                                       Common                    Retained      SEC Gain
                                       Stock       Surplus       Earnings      (Loss) *       Total
                                       -----       -------       --------      ------         -----

Balance January 1, 1998               $617,990    $3,667,557    $12,189,180    $ 177,545    $16,652,272

Net Income
   Parent                                                           574,026                     574,026
   Equity in income of subsidiary                                 2,070,139                   2,070,139

Sale of Stock                           11,562       653,800                                    665,362
Redemption of Stock                        (84)       (7,018)                                    (7,102)

Semi-Annual Cash
   Dividend Declared
      June 18, 1998, $.15 per share                                (447,630)                   (447,630)
      December 17, 1998, $.16 per
         share                                                     (479,594)                   (479,594)

Adjustments                                210                        1,975                       2,185

Unrealized Security Gains
   (Losses)                                                                      (14,445)       (14,445)
                                      ---------   -----------   ------------   ----------   ------------
Balance December 31, 1998              629,678     4,314,339     13,908,096      163,100     19,015,213

Net Income
   Parent                                                         1,971,727                   1,971,727
   Equity in income of subsidiary                                   539,780                     539,780

Sale of Stock                            8,072       450,102                                    458,174
Redemption of Stock                         (5)         (312)                                      (317)
Stock repurchase                        (4,473)     (262,621)                                  (267,094)

Semi-Annual Cash
   Dividend Declared
      June 17, 1999, $.16 per share                                (481,426)                   (481,426)
      December 16, 1999, $.16
         per share                                                 (482,493)                   (482,493)

Adjustments                                                            (174)                       (174)
Unrealized Security Gains
   (Losses)                                                                     (705,644)      (705,644)
                                      ---------   -----------   ------------   ----------   ------------

Balance December 31, 1999             $633,272    $4,501,508    $15,455,510    $(542,544)   $20,047,746
                                      =========   ===========   ============   ==========   ============
</TABLE>



* Net of tax effect.


<PAGE>

Page 62 of 83


                           Benchmark Bankshares, Inc.

                              (Parent Company Only)

                            Statements of Cash Flows

                  Years Ended December 31, 1999, 1998, and 1997


                                            1999          1998          1997
                                            ----          ----          ----
Cash Flows from Operating Activities
   Net income                            $2,711,507    $2,644,165    $2,578,708
   Increase in receivable                       (81)            -             -
                                         -----------   -----------   -----------

               Net Cash Provided by
                  Operating Activities    2,711,426     2,644,165     2,578,708

Cash Flows from Investing Activities
   Undistributed earnings of subsidiary    (739,972)   (2,031,902)     (874,503)
                                         -----------   -----------   -----------

               Net Cash (Used) by
                  Investing Activities     (739,972)   (2,031,902)     (874,503)

Cash Flows from Financing Activities
   Sale of stock                            458,174       665,362       410,574
   Redemption of stock                     (267,411)       (7,102)         (194)
   Dividends paid                          (961,020)     (927,224)     (785,736)
                                         -----------   -----------   -----------

               Net Cash (Used) by
                  Financing Activities     (770,257)     (268,964)     (375,356)
                                         -----------   -----------   -----------

Net Increase (Decrease) in Cash           1,201,197       343,299     1,328,849

Cash - Beginning of Year                  1,909,855     1,566,556       237,707
                                         -----------   -----------   -----------

Cash - End of Year                       $3,111,052    $1,909,855    $1,566,556
                                         ===========   ===========   ===========





<PAGE>


Page 63 of 83


ITEM 9    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
           AND FINANCIAL DISCLOSURE

                  None


<PAGE>


Page 64 of 83


PART III

ITEM 10    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The Directors of the Company, their ages, and principal occupations are
set forth in the table below as of December 31, 1999:

<TABLE>
<CAPTION>
<S>                             <C>                                                <C>
                                Principal Occupation for Last Five Years           Director of the Company
     Name (Age)                 Position Held with Company and Subsidiary            or Subsidiary Since

R. Michael Berryman             Pharmacist                                                  1978
   (59)                         Principal, Smith's Pharmacy, Inc.
                                Pharmacy Associates, Inc.
                                Chairman of Board, Company and Subsidiary

Mark F. Bragg                   Principal, Atlantic Medical, Inc.                           1999
   (38)

Lewis W. Bridgforth             Physician                                                   1971
   (60)

William J. Callis               Building Contractor                                         1989
   (57)                         Vice President, Kenbridge Construction Co., Inc.
                                Vice Chairman of Board, Company and Subsidiary

Earl C. Currin, Jr.             Provost,                                                    1986
   (56)                         John H. Daniel Campus of Southside
                                Virginia Community College

C. Edward Hall                  Pharmacist                                                  1971
   (59)                         Partner, Victoria Drug Company

J. Ryland Hamlett               Retired Personnel Manager,                                  1986
   (57)                         Southside Electric Cooperative

H. Clarence Love                Retired President, Commonwealth Tobacco                     1971
   (74)                         Co., Inc.

Wayne J. Parrish                Principal, Parrish Trucking Co., Inc.                       1979
   (61)

Ben L. Watson, III              President and CEO,                                          1976
   (56)                         Company and Subsidiary

Executive Officers of the Company

         The  Executive  Officers of the Bank and their  positions are set forth
below:

     Name (Age)                 Position Held with Subsidiary                          Officer Since

Ben L. Watson, III  (A)         Director, President and CEO                                 1971
   (56)

Michael O. Walker (B)           Senior Vice President for Branch Administration and         1975
   (49)                         Marketing and Recording Secretary

Janice C. Whitlow  (C)          Senior Vice President, Cashier, Assistant                   1976
   (53)                         Secretary, and Compliance Officer
</TABLE>



<PAGE>


Page 65 of 83


(A)      Mr. Watson serves in a dual capacity of President and CEO for both the
         Company and the subsidiary.

(B)      Mr. Walker also serves as Recording Secretary of the Company.

(C)      Mrs. Whitlow also serves as Cashier and Treasurer of the Company.

         Mr. Watson and Mrs. Whitlow have  served  the Bank  since it  commenced
business in 1971.  Mr. Watson started with the Bank as Operations  Officer,  was
appointed  Cashier in 1973,  appointed  Executive  Vice  President in 1975,  and
appointed to his current  position in March of 1990. Mrs.  Whitlow was appointed
Operations Officer and Cashier in 1978,  Assistant Vice President and Cashier in
1980,  Vice  President,  Cashier,  and  Compliance  Officer in 1988,  and to her
current position of Senior Vice President,  Cashier,  Assistant  Secretary,  and
Compliance Officer in 1993.

         Mr.  Walker came to the Bank in 1974 as Branch  Manager of the Victoria
office.  He was appointed  Assistant Vice  President in 1980,  Vice President in
1988, Vice President for Branch Administration and Marketing in 1989, and to his
current position of Senior Vice President in 1993.

ITEM 11    EXECUTIVE COMPENSATION

A.       Summary of Cash and Certain Other Compensation to Executive Officer


<TABLE>
<CAPTION>
<S>                         <C>     <C>       <C>         <C>        <C>       <C>            <C>
                                                                                Long-Term
                                            Annual Compensation                Compensation
                                                                                Number of
                                                                                Securities
    Name and Principal                        Incentive              (1) (2)    Underlying     All Other
         Position           Year    Salary      Bonus     Deferred    Other       Option      Compensation
         --------           ----    ------      -----     --------    -----       ------      ------------

Ben L. Watson, III          1999   $106,004   $ 25,580    $10,000    $4,200      $6,000(3)        None
President & CEO             1998    102,500     34,271     10,000     4,800       7,000(3)        None
                            1997     75,000     55,239     10,000     5,900       8,000           None

Michael O. Walker           1999     83,708     15,167      1,300     1,800       6,000           None
Senior Vice President       1998     81,600     22,277        900     1,800       6,000           None
                            1997     62,568     33,553      2,100     2,100       6,000           None

Janice C. Whitlow           1999     80,008     15,167      5,000     None        5,850(3)        None
Senior Vice President       1998     79,500     22,277      3,000     None        5,850(3)        None
</TABLE>

         (1)    The value of  perquisites  and other  personal  benefits did not
                exceed the lesser of $50,000 or 10% of total  annual  salary and
                incentive bonus.

         (2)    Other Annual Compensation represents Director's fees paid to Mr.
                Watson for  services  performed  as a Director of the Bank,  and
                fees paid to Mr.  Walker for  services  performed  as  Recording
                Secretary of the Board of the Bank.

         (3)    Mr.  Watson  exercised  1,000 options on March 2, 1998 and 1,000
                options  on  February  5, 1999 and Mrs.  Whitlow  exercised  150
                options on January 27, 1998.

B.       Compensation to Directors

                  No fees are paid to Directors  for service on the Board of the
         Company.  During  1999,  for service on the Board of the Bank, a fee of
         $1,200 per Director  was paid,  based on the  performance  of the Bank,
         plus $250 for each  Bank  Board  meeting  attended  and,  except to Mr.
         Watson,  $175 for each Bank Board Committee meeting attended during the
         year.


<PAGE>

Page 66 of 83


C.       Employment Agreements

                  The Company, or its subsidiary,  has no employment  agreements
         with any of its employees.

ITEM 12    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT

         The following  table sets forth  information  regarding the  beneficial
ownership of the Company's common stock as of March 1, 2000:

<TABLE>
<CAPTION>
<S>                          <C>                         <C>                       <C>
                                                                                      Shares
                                                                                   Beneficially
                                                                                      Owned
                                                                                   % of Shares
                                                         Director/Officer of       Beneficially
       Name and Age          Principal Occupation        Company/Subsidiary           Owned

R. Michael Berryman          Pharmacist                         1978               89,843.886(1)
   (59)                                                                               2.98%

Mark F. Bragg                Principal, Atlantic                1999                  897.409(2)
   (38)                      Medical, Inc.                                             .03%

Lewis W. Bridgforth          Physician                          1971               35,680.657(3)
   (60)                                                                               1.18%

William J. Callis            Building Contractor                1989               28,120.974(4)
   (57)                                                                                .93%

Earl C. Currin, Jr.          Provost                            1986               13,178.000
   (56)                                                                                .44%

C. Edward Hall               Pharmacist                         1971               31,145.037(5)
   (59)                                                                               1.03%

J. Ryland Hamlett            Retired Personnel Manager          1986               10,721.000
   (57)                                                                                .36%

H. Clarence Love             Retired President,                 1971               83,200.000(6)
   (74)                      Commonwealth Tobacco                                     2.76%
                             Co., Inc.

Wayne J. Parrish             Principal, Parrish                 1979               27,409.872(7)
   (61)                      Trucking Co., Inc.                                        .91%

Ben L. Watson, III           President and CEO                  1971               16,471.508(8)
   (56)                      Company and Subsidiary                                    .55%

Michael O. Walker            Senior Vice President for          1975               42,500.000(9)
   (49)                      Branch Administration and                                1.41%
                             Marketing and Recording
                             Secretary, Benchmark Community
                             Bank

Janice C. Whitlow            Senior Vice President,             1976                5,486.375
   (53)                      Cashier, Assistant Secretary,                             .18%
                             and Compliance Officer,
                             Benchmark Community Bank
</TABLE>


<PAGE>

Page 67 of 83


<TABLE>
<CAPTION>
<S>                                                                                        <C>
                                                                                              Shares
                                                                                           Beneficially
                                                                                              Owned
                                                                                           % of Shares
                                                                                           Beneficially
                                                                                              Owned

Number and Percentage of Company Common Stock Held
Beneficially as of March 1, 2000 by Directors and Executive                                384,654.718
Officers of the Company (12 persons).                                                         12.76%
</TABLE>


(1)   Includes   2,114.494  shares  held  jointly  with  Mr.   Berryman's  wife,
      38,302.704  shares  owned  solely by her,  and  5,728.074  shares  held as
      custodian for one of his children.

(2    Includes 97.409 shares held jointly with Mr. Bragg's wife.

(3)   Includes 20,337.218 shares owned solely by Dr. Bridgforth's wife.

(4)   Includes 17,140.644 shares held jointly with Mr. Callis's wife.

(5)   Includes 260 shares owned solely by Mr. Hall's wife.

(6)   Includes  65,400 shares held jointly with Mr. Love's wife and 4,100 shares
      owned solely by her.

(7)   Includes  6,971.168  shares  held  jointly  with  Mr.  Parrish's  wife and
      5,925.035 shares owned solely by her.

(8)   Includes 457.508 shares owned solely by Mr. Watson's wife.

(9)   Includes 25,000.000 shares owned jointly with Mr. Walker's wife.

The share  ownership  listed  above  reflects  the shares  necessary to meet the
ownership requirements for bank directors pursuant to the Virginia Banking Act.

No person owned of record or was known to own beneficially more than 5.0% of the
outstanding  common stock of the Company as of December 31, 1999.  The following
table details  information  concerning a stock certificate holder that is in the
business of marketing investments.

Actual  ownership of shares or partial shares by investors  through this company
is not known by  management.  The following  table provides  certificate  holder
information:

                                     No. of Shares                 Percentage
          Name                      in Certificates              Of Shares Held

CEDE & Company                          727,760                      24.13%
Box 20
Bowling Green Station
New York, New York  10081




<PAGE>


Page 68 of 83


ITEM 13    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Loans to Related Parties

         During the past year,  Directors and Executive Officers of the Company,
their affiliates, and members of their immediate families were customers of, and
had borrowing  transactions with, the Company's banking subsidiary in the normal
course of  business.  All  outstanding  loans and  commitments  included in such
transactions are made on substantially the same terms,  including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other  persons and did not involve  more than  normal  risk of  collectivity  or
present other unfavorable features.

         Balances, as of December 31, of the year are summarized below:

                                              1999         1998         1997
                                              ----         ----         ----

Executive Officers and their families      $  235,034   $  204,123   $  190,515
Directors and their families (1)              188,610      397,172      557,423
Corporations in which Directors and
   Officers had an interest                 2,788,577    1,728,987    1,204,864
                                           ----------   ----------   ----------

               Total                       $3,212,221   $2,330,282   $1,952,802
                                           ==========   ==========   ==========


(1) Loans to Mr. Watson that are reported as loans to Executive Officers are not
    included in loans to Directors.

Refer to Item 14(a) - Financial Statement Schedules

         At year end 1999,  Directors  and  Executive  Officers had been granted
lines of credit in the amount of $2,416,550. As of December 31, 1999, $1,655,099
of these lines was unexercised and available.

Stock Sales to Related Parties

         The Directors  and  Executive  Officers  acquired  4,868.601  shares of
Company  stock during 1999 through  dividend  reinvestment,  exercising of stock
options,  and purchases of shares on the open market.  All shares were purchased
through the dividend reinvestment program. The average price of shares purchased
through dividend reinvestment was $13.38.


<PAGE>


Page 69 of 83


PART IV

ITEM 14    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
           ON FORM 8-K

(a)  (1)          The following consolidated financial  statements  of Benchmark
           Bankshares,  Inc.  and  its  subsidiary,  Benchmark  Community  Bank,
           included in the annual report of the  registrant to its  stockholders
           for the year ended December 31, 1999 are included in Item 8:

                  Consolidated  Statements of Financial Condition - December 31,
                     1999 and 1998
                  Consolidated  Statements of Income - Years Ended December 31,
                     1999, 1998, and 1997
                  Consolidated Statements of Changes in Stockholders' Equity -
                     Years Ended December 31, 1999 and 1998
                  Consolidated  Statements of Cash Flows - Years Ended
                     December 31, 1999, 1998, and 1997
                  Notes to Consolidated Financial Statements - December 31,
                     1999, 1998, and 1997

     (2)          The following consolidated financial statement schedules of
           Benchmark Bankshares, Inc. and its subsidiary, Benchmark Community
           Bank, are included in Item 14 (d):

                  Schedule II - Indebtedness to Related Parties

                  Schedule V - Property, Plant, and Equipment

                  Schedule VI - Accumulated Depreciation, Depletion, and
                     Amortization of Property, Plant, and Equipment

                  Supplemental  Information to the Audited Financial  Statements
                     pursuant to SEC regulations.

                  All  other  schedules  for  which  provision  is  made  in the
           applicable  accounting  regulation  of the  Securities  and  Exchange
           Commission  are not required  under the related  instructions  or are
           inapplicable and, therefore, have been omitted.


<PAGE>


Page 70 of 83


ITEM 14 (a) (3)    LISTING OF EXHIBITS INCLUDED IN 14 (c)

                                                      Page Number of
                                               Incorporation by Reference to

( 1)  Articles of Incorporation             Page 57 - Item 14(c) - Exhibit 1 of
                                            Form 10K, December 31, 1989

( 2)  (a)  Amendments to Articles of        Page 76 - Item 14(c) - Exhibit 2 of
             Incorporation                  Form 10K, December 31, 1989

       (b)  Amendments to Articles of       Page 58 - Item 14(c) - Exhibit 2(b)
             Incorporation                  of Form 10K, December 31, 1990

       (c)  Amendment to Articles of        Page 68 - Item 14(c) - Exhibit 2(c)
             Incorporation                  of Form 10K, December 31, 1992

( 3)  Bylaws of Incorporation               Page 83 - Item 14(c) - Exhibit 3 of
                                            Form 10K, December 31, 1989

( 4)  Amendments to Bylaws                  Page 106 - Item 14(c) - Exhibit 4 of
                                            Form 10K, December 31, 1989

( 5)  Indemnity Agreement                   Page II-11-26 in Exhibit 10.1 of
                                            Form S-1 filed September 1, 1989

( 6)  List of Subsidiaries

( 7)  Bonus Plans of Bank Officers          Page 60 - Item 14(c) - Exhibit 7(a)-
                                            7(b) of Form 10K, December 31, 1990

( 8)  Directors Performance                 Page 72 - Item 14(c) - Exhibit 8 of
         Compensation Schedule              Form 10K, December 31, 1992

( 9)  Resolution to Amend the Articles      Page 71 - Item 14(c) - Exhibit 9(a)
         of Incorporation to increase the   of Form 10K, December 31, 1993
         number of authorized shares
         from 2,000,000 to 4,000,000
         concurrent with the Directors
         election to have a 2 for 1 stock
         split

(10)  Stock Option Plans                    Exhibits A and B of 1995 Proxy and
                                            Information Statement for the
                                            April 20, 1995 Annual Meeting of
                                            Stockholders





<PAGE>


Page 71 of 83


ITEM 14(b)    REPORTS ON FORM 8-K

         There  was no  required  filing  of Form 8-K  warranted  as a result of
action taken by the Company during the reporting period.


<PAGE>


Page 72 of 83


SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  had duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 15, 2000.

                           Benchmark Bankshares, Inc.

                 (formerly Lunenburg Community Bankshares, Inc.)

                                  (Registrant)

By       Ben L. Watson, III                     By         Janice C. Whitlow,
               President                                  Cashier and Treasurer

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
following  persons on behalf of the registrant and in the capacities have signed
this report on March 15, 2000.

R. Michael Berryman, Director  03-15-00  Ben L. Watson, III, President  03-15-00
---------------------------------------  ---------------------------------------




Wayne J. Parrish, Director     03-15-00  J. Ryland Hamlett, Director    03-15-00
---------------------------------------  ---------------------------------------




C. Edward Hall, Director       03-15-00  H. Clarence Love, Director     03-15-00
---------------------------------------  ---------------------------------------




Mark F. Bragg, Director        03-15-00  Lewis W. Bridgforth, Director  03-15-00
---------------------------------------  ---------------------------------------




William J. Callis, Director    03-15-00  Earl C. Currin, Jr., Director  03-15-00
---------------------------------------  ---------------------------------------




<PAGE>


Page 73 of 83


ITEM 14(c)    EXHIBIT 6

         The only  subsidiary of the Registrant is Benchmark  Community  Bank, a
Virginia banking corporation,  located in Kenbridge, Lunenburg County, Virginia.
It is owned 100% by Registrant.


<PAGE>


Page 74 of 83


ITEM 14(d)    SCHEDULE II - INDEBTEDNESS TO RELATED PARTIES

                          Year Ended December 31, 1999

                                    Balance                             Balance
                                  at Beginning                         at End of
      Name of Person               of Period    Additions  Deductions   Period

Executive Officers,
   Directors, and Their
   Related Interest               $2,330,282  $1,890,791  $1,008,852  $3,212,221

W. J. Callis, Director(1)(2)(3)    1,405,724     912,963     322,063   1,996,624



                          Year Ended December 31, 1998

Executive Officers,
   Directors, and Their
   Related Interest               $1,952,802  $1,424,928  $1,047,448  $2,330,282

W. J. Callis, Director(1)(2)(3)      945,664   1,284,062     824,002   1,405,724



                          Year Ended December 31, 1997

Executive Officers,
   Directors, and Their
   Related Interest               $1,408,516  $ 865,418   $ 321,132   $1,952,802

W. J. Callis, Director(1)(2)(3)      671,072    339,000      64,408      945,664


















(1) Loans to related parties that exceed 5% of the capital of the Company.

(2) Loans to business interest.

(3) Loans are included in the totals  presented  for the  Executive  Officers,
    Directors, and their interest.


<PAGE>


Page 75 of 83


ITEM 14(d)    SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT
Page 1

                           Benchmark Bankshares, Inc.

                          Year Ended December 31, 1999

    Col. A                   Col. B    Col. C     Col. D     Col. E      Col. F
                                                              Other
                           Balance at                        Changes    Balance
                           Beginning  Additions                Add     at End of
Classification             of Period   at Cost  Retirement   (Deduct)   Period

Land                       $  689,261 $110,429   $      -   $      -  $  799,690

Buildings and improvements  2,351,090   50,000          -          -   2,401,090
Leasehold improvements        166,521        -          -          -     166,521
Construction in progress            -  187,969          -          -     187,969
                           ---------- --------   --------   --------  ----------

                            2,517,611  237,969          -          -   2,755,580

Equipment, furniture, and
   fixtures                 1,886,461  146,541          -          -   2,033,002
                           ---------- --------   --------   --------  ----------

               Total       $5,093,333 $494,939   $      -   $      -  $5,588,272
                           ========== ========   ========   ========  ==========


                          Year Ended December 31, 1998

Land                       $  689,261 $      -   $      -   $      -  $  689,261

Buildings and improvements  2,351,090        -          -          -   2,351,090
Leasehold improvements        142,690   23,831          -          -     166,521
                           ---------- --------   --------   --------  ----------

                            2,493,780   23,831          -          -   2,517,611

Equipment, furniture, and
   fixtures                 1,485,634  400,827          -          -   1,886,461
                           ---------- --------   --------   --------  ----------

               Total       $4,668,675 $424,658   $      -   $      -  $5,093,333
                           ========== ========   ========   ========  ==========

















<PAGE>

Page 76 of 83


ITEM 14(d)    SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT
Page 2

                          Year Ended December 31, 1997

Land                       $  668,336 $20,925    $      -   $      -  $  689,261

Buildings and improvements  2,339,092  11,998           -          -   2,351,090
Leasehold improvements        142,690       -           -          -     142,690
                           ---------- -------    --------   --------  ----------

                            2,481,782  11,998           -          -   2,493,780

Equipment, furniture, and
   fixtures                 1,448,227  37,407           -          -   1,485,634
                           ---------- -------    --------   --------  ----------

               Total       $4,598,345 $70,330    $      -   $      -  $4,668,675
                           ========== =======    ========   ========  ==========




<PAGE>


Page 77 of 83


ITEM 14(d)    SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION, AND
              AMORTIZATION OF PROPERTY, PLANT, AND EQUIPMENT

                           Benchmark Bankshares, Inc.

                          Year Ended December 31, 1999

                                      Additions               Other
                           Balance at Charged to              Changes Balance at
                           Beginning  Cost and                 Add      End of
     Description           of Period  Expenses   Retirements (Deduct)   Period

Building and improvements  $  685,890 $ 98,785    $     -    $     -  $  784,675
Leasehold improvements        115,820    6,589          -          -     122,409
                           ---------- --------    -------    -------- ----------

               Total          801,710  105,374          -          -     907,084

Equipment, furniture, and
   fixtures                 1,091,232  166,220          -        (43)  1,257,409
                           ---------- --------    -------    -------- ----------

               Total       $1,892,942 $271,594    $     -    $   (43) $2,164,493
                           ========== ========    =======    ======== ==========


                          Year Ended December 31, 1998

Building and improvements  $  581,308 $ 98,963    $     -    $ 5,619  $  685,890
Leasehold improvements        111,657    4,163          -          -     115,820
                           ---------- --------    -------    -------  ----------

               Total          692,965  103,126          -      5,619     801,710

Equipment, furniture, and
   fixtures                   977,844  119,007          -     (5,619)  1,091,232
                           ---------- --------    -------    -------- ----------

               Total       $1,670,809 $222,133    $     -    $     -  $1,892,942
                           ========== ========    =======    ======== ==========


                          Year Ended December 31, 1997

Building and improvements  $  488,564 $ 92,744    $     -    $     -  $  581,308
Leasehold improvements        107,715    3,942          -          -     111,657
                           ---------- --------    -------    -------- ----------

               Total          596,279   96,686          -          -     692,965

Equipment, furniture, and
   fixtures                   880,332   97,512          -          -     977,844
                           ---------- --------    -------    -------- ----------

               Total       $1,476,611 $194,198    $    -     $     -  $1,670,809
                           ========== ========    ======     =======  ==========





<PAGE>


Page 78 of 83


ITEM 14(d)(1)    SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
                 PURSUANT TO SEC REGULATIONS

                           Benchmark Bankshares, Inc.

                             (Parent Company Only)

                   Balance Sheet, December 31, 1999 and 1998


                                     Assets

                                                          1999          1998
                                                          ----          ----

Cash                                                  $ 3,111,052   $ 1,909,855
Investment in subsidiary                               17,419,106    17,584,952
Receivable - reimbursement                                     81             -
                                                      -----------   -----------

               Total Assets                           $20,530,239   $19,494,807
                                                      ===========   ===========


                      Liabilities and Stockholders' Equity

Liabilities
   Dividends payable                                  $   482,493   $   479,594

Stockholders' Equity
   Common stock, par value $.21 per share,
      authorized 4,000,000 shares; issued and
      outstanding 3,015,577.591 12-31-99, issued
      and outstanding 2,997,465.366 12-31-98              633,272       629,678
   Surplus                                              4,501,508     4,314,339
   Retained earnings                                   14,912,966    14,071,196
                                                      -----------   -----------

               Total Stockholders' Equity              20,047,746    19,015,213
                                                      -----------   -----------

               Total Liabilities and
                  Stockholders' Equity                $20,530,239   $19,494,807
                                                      ===========   ===========









<PAGE>


Page 79 of 83


ITEM 14(d)(2)    SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
Page 1           PURSUANT TO SEC REGULATIONS

                           Benchmark Bankshares, Inc.

                              (Parent Company Only)

                              Statements of Income

                  Years Ended December 31, 1999, 1998, and 1997


                                              1999         1998         1997
                                              ----         ----         ----

Income
   Dividends from subsidiary               $2,000,000   $  600,000   $1,500,000
                                           ----------   ----------   ----------

               Total Income                 2,000,000      600,000    1,500,000

Expenses
   Professional fees                           20,038       16,470       15,623
   Supplies, printing, and postage              7,410        8,654        9,317
   Taxes - miscellaneous                          825          850          850
                                           ----------   ----------   ----------

               Total Expenses                  28,273       25,974       25,790
                                           ----------   ----------   ----------

Income (Loss) Before Equity in
   Undistributed Income of Subsidiary       1,971,727      574,026    1,474,210

Equity in Income of Subsidiary (includes
   tax benefit of parent company
   operating loss)                            739,780    2,070,139    1,104,498
                                           ----------   ----------   ----------

               Net Income                  $2,711,507   $2,644,165   $2,578,708
                                           ==========   ==========   ==========




<PAGE>


Page 80 of 83

ITEM 14(d)(2)    SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
Page 2           PURSUANT TO SEC REGULATIONS

                           Benchmark Bankshares, Inc.
                              (Parent Company Only)
                  Statement of Changes in Stockholders' Equity

                  Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
<S>                                 <C>         <C>           <C>            <C>          <C>
                                                                             Unrealized
                                     Common                    Retained       SEC Gain
                                     Stock       Surplus       Earnings       (Loss) *       Total

Balance January 1, 1997             $304,478    $3,262,299    $10,753,919    $  40,977    $14,361,673

Net Income
   Parent                                                       1,474,210                   1,474,210
   Equity in income of subsidiary                               1,104,498                   1,104,498

Sale of Stock                          5,124       405,450                                    410,574
Redemption of Stock                       (2)         (192)                                      (194)

Semi-Annual Cash
   Dividend Declared
      June 19, 1997, $.14 per share(1)                           (394,226)                   (394,226)
      December 18, 1997, $.15 per
        share                                                    (440,824)                   (440,824)

Capitalization of Retained Earnings  308,390                     (308,390)                          -
Adjustments                                                            (7)                         (7)

Unrealized Security Gains Net of Tax                                           136,568        136,568
                                    ---------   -----------   ------------   ----------   ------------
Balance December 31, 1997            617,990     3,667,557     12,189,180      177,545     16,652,272

Net Income
   Parent                                                         574,026                     574,026
   Equity in income of subsidiary                               2,070,139                   2,070,139

Sale of Stock                         11,562       653,800                                    665,362
Redemption of Stock                      (84)       (7,018)                                    (7,102)

Semi-Annual Cash
   Dividend Declared
      June 18, 1998, $.15 per share                              (447,630)                   (447,630)
      December 17, 1998, $.16 per
         share                                                   (479,594)                   (479,594)

Adjustment                               210                        1,975                       2,185
Unrealized Security Gains (Losses)                                             (14,445)       (14,445)
                                    ---------   -----------   ------------   ----------   ------------
Balance December 31, 1998            629,678     4,314,339     13,908,096      163,100     19,015,213
Net Income
   Parent                                                       1,971,727                   1,971,727
   Equity in income of subsidiary                                 539,780                     539,780

Sale of Stock                          8,072       450,102                                    458,174
Redemption of Stock                       (5)         (312)                                      (317)
Stock repurchase                      (4,473)     (262,621)                                  (267,094)

Semi-Annual Cash
   Dividend Declared
      June 17, 1999, $.16 per share                              (481,426)                   (481,426)
      December 16, 1999, $.16 per
         share                                                   (482,493)                   (482,493)

Adjustments                                                          (174)                       (174)
Unrealized Security Gains (Losses)                                            (705,644)      (705,644)
                                    ---------   -----------   ------------   ----------   ------------

Balance December 31, 1999           $633,272    $4,501,508    $15,455,510    $(542,544)   $20,047,746
                                    =========   ===========   ============   ==========   ===========
</TABLE>

* Net of tax effect.

(1)Adjusted for a 2 for 1 stock split on October 2, 1997.


<PAGE>


Page 81 of 83


ITEM 14(d)(3)    SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
                 PURSUANT TO SEC REGULATIONS

                           Benchmark Bankshares, Inc.

                              (Parent Company Only)

                            Statements of Cash Flows

                  Years Ended December 31, 1999, 1998, and 1997


                                              1999         1998         1997
                                              ----         ----         ----

Cash Flows from Operating Activities
  Net income                               $2,711,507   $2,644,165   $2,578,708
  Less:  Sale of real estate to subsidiary        (81)           -            -
                                           -----------  -----------  -----------

             Net Cash Provided by
                Operating Activities        2,711,426    2,644,165    2,578,708

Cash Flows from Investing Activities
  Undistributed earnings of subsidiary       (739,972)  (2,031,902)    (874,503)
                                           -----------  -----------  -----------

             Net Cash (Used) by Investing
                Activities                   (739,972)  (2,031,902)    (874,503)

Cash Flows from Financing Activities
  Sale of stock                               458,174      665,362      410,574
  Redemption of stock                        (267,411)      (7,102)        (194)
  Dividends paid                             (961,020)    (927,224)    (785,736)
                                           -----------  -----------  -----------

             Net Cash (Used) by Financing
                Activities                   (770,257)    (268,964)    (375,356)
                                           -----------  -----------  -----------

Net Increase (Decrease) in Cash             1,201,197      343,299    1,328,849

Cash - Beginning of Year                    1,909,855    1,566,556      237,707
                                           -----------  -----------  -----------

Cash - End of Year                         $3,111,052   $1,909,855   $1,566,556
                                           ===========  ===========  ===========





<PAGE>


Page 82 of 83


ITEM 14(d)(4)    SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
                 PURSUANT TO SEC REGULATIONS

Investment Securities - Realized Gains and Losses

                                                   Realized    Realized
                                                     Gains      Losses

For the Year Ended December 31, 1999
   U. S. Government Agencies                        $   -       $ 547
   State and Political Subdivisions                     -           -
                                                    -----       -----

               Total                                $   -       $ 547
                                                    =====       =====

For the Year Ended December 31, 1998
   U. S. Government Agencies                        $   -       $ 986
   State and Political Subdivisions                     -           -
                                                    -----       -----

               Total                                $   -       $ 986
                                                    =====       =====




<PAGE>


Page 83 of 83


ITEM 14(d)(5)    SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
                 PURSUANT TO SEC REGULATIONS

Capital Ratios for the Bank Subsidiary

                                                                       Bank
                                                                      Ratios

Total Capital to Risk Weighted Assets                                 13.38%

Tier I Capital to Risk Based Assets                                   12.30%

Tier I Capital to Total Book Assets                                    9.09%