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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, 2003.

                                       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.)
 incorporation or organization)

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

Registrant's telephone number, including area code (434)676-9054.

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 Section 12(g) of the Act:

                      Common Stock, Par Value $0.21 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]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).  [  ] Yes  [X] No

The number of shares outstanding of the registrant's common stock, $0.21 par
value was 2,963,404.198 at March 1, 2004.

                       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                                             34
     Item 8.      Financial Statements and Supplementary Data                34
     Item 9.      Changes in and Disagreements with Accountants on
                     Accounting and Financial Disclosure                     64

Part III
     Item 10.     Directors and Executive Officers of the Registrant         65
     Item 11.     Executive Compensation                                     66
     Item 12.     Security Ownership of Certain Beneficial Owners and
                     Management                                              67
     Item 13.     Certain Relationships and Related Transactions             69

Part IV
     Item 14.     Exhibits, Financial Statement Schedules, and Reports
                     on Form 8-K                                             70



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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, 2003, the Company and its subsidiary employed 106
full-time and 10 part-time persons.

Benchmark Community Bank

         The Bank opened for business on September 8, 1971 under its original
name of The Lunenburg County Bank. It started business in temporary quarters and
in 1974 moved to its present location at 100 South Broad Street, Kenbridge,
Virginia 23944.

         Also in 1974, the Bank opened its first full-service branch in the Town
of Victoria, Virginia. Today, the Bank has nine full-service banking offices in
the Towns of Kenbridge and Victoria in Lunenburg County, the Town of Farmville
(two offices) in Prince Edward County, the Town of Crewe in Nottoway County, the
Towns of South Hill, Clarksville, and Chase City in Mecklenburg County, and the
Town of Lawrenceville in Brunswick County. The Bank has also established an
office in the Town of Blackstone in Nottoway County and is in the process of
constructing a new full-service branch adjacent to a current temporary facility.
All offices are located in the State of Virginia.

         The Bank offers a wide range of banking and related financial services
to individuals and small to medium ranged businesses. The services offered are
in the form of checking, savings accounts, NOW and money market accounts,
certificates of deposit, business loans, personal loans, mortgage loans, and
other consumer oriented financial services including IRAs, safe deposit,
drive-up, night deposit, internet banking, and automatic-teller machines at all
but its downtown Farmville location. 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 seven commercial banks actively engaged in
business in the market area, including four major statewide banking
organizations. The Bank is the only community bank actively engaged in business
in Lunenburg and Brunswick Counties, and one of two such banks in the Town of
Farmville, Prince Edward County, and one of three such banks in Mecklenburg
County, and one of two such banks in Nottoway County. Finance companies,
mortgage companies, credit unions, and savings banks also compete with the Bank
for loans and deposits. In addition, 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 $6,856,441 at cost of its investment portfolio to safeguard State
and local municipalities' deposits as of December 31, 2003.

         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,
2003, the Bank had $394,149 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 2003, 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 Part III, Item 10, found on pages 65 and 66 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 four 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. Administrative offices for the entire Bank are also
located in this building. Additionally, there is an adjacent, but separate,
three-lane drive-up facility located just behind the office. In October of 2003,
the Bank purchased a building located behind the existing drive-up facility in
Kenbridge. This building contains approximately 5,200 square feet of space.
Current plans are to remodel and convert this facility to a new Operations
Department during 2004.

         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 unit, 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, 2003 was $1,250. The
office contains three teller windows. Currently, the office has no drive-up
unit. The Bank added a third office to the Branch in 1998.








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         The South Hill office, which opened for business in September, 1989, is
also housed in a leased facility. During 2000, the Bank renegotiated its lease
to extend the agreement to June 30, 2005. The lease provides for renewal options
of twelve month periods for an additional five years. The current monthly lease
amount as of December 31, 2003 was $1,950. This amount can be renegotiated in
August of 2004. This office contains approximately 2,900 square feet of floor
space and operates four teller windows, a drive-up unit, which serves two lanes
of traffic, and an automatic-teller machine.

         In 1993, the Bank opened a second office in the Town of Farmville on
South Main Street at 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 unit, 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 has remodeled a former banking office of a
state-wide financial institution facility and opened a full-service office in
January of 2001. The branch building consists of 2,142 square feet and contains
a lobby, teller windows, a two-lane drive-up unit, and automatic-teller machine.
The facility is constructed of brick and is situated in a shopping center on the
east side of town.

         During 2001, the Bank opened a full-service banking facility on Highway
15 South in Clarksville. The branch building consists of 1,680 square feet and
contains a lobby, teller windows, three offices, a two-lane drive-up and
automatic-teller unit. The facility is a modular unit.

         During 1999, the Bank began operating a full-service bank in a
temporary location in Lawrenceville. In 2000, the Bank moved to a permanent
banking facility which is a one-story brick building. The facility contains
2,021 square feet on the ground level which houses a lobby, teller stations, a
two-lane drive-up unit, and an automatic-teller machine. There is also a full
basement which is currently being utilized for storage.

         During 2003, the Bank acquired three adjoining lots in Blackstone,
Virginia upon which a new facility, similar in size and structure to the Bank's
facility in Crewe, would be constructed. During the construction of the new
branch building, the Bank currently operates out of a leased, temporary facility
adjacent to the permanent facility. A lease for the temporary Bank facility was
entered into on December 9, 2002 and has a monthly payment of $875. The lease
for the vacant lot was entered into on December 11, 2002 and has a monthly
payment of $600. Both lease agreements are entered into on a month-to-month
basis.

         The construction period is anticipated to last until July 2004, after
which time the Bank would move its banking operations in Blackstone from the
temporary facility into the new building.

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 under the ticker symbol BMRB.OB. This information is supplied
daily by the National Association of Security Dealers to Virginia newspapers.

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

                              Closing Price
                             of Common Stock

    2003

First Quarter                     $12.50
Second Quarter                     14.50
Third Quarter                      14.90
Fourth Quarter                     14.75

    2002

First Quarter                     $10.60
Second Quarter                     13.00
Third Quarter                      12.00
Fourth Quarter                     12.60

    2001

First Quarter                     $ 9.25
Second Quarter                     10.00
Third Quarter                      10.00
Fourth Quarter                     10.00

    2000

First Quarter                     $ 9.00
Second Quarter                      8.88
Third Quarter                       9.75
Fourth Quarter                      9.25

    1999

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

         The Company declared a $0.21 per share semi-annual dividend in June and
$0.21 per share semi-annual dividend in December, for total dividends of $0.42
per share paid during 2003. The semi-annual dividends declared in 2002 amounted
to $.18 per share in June and $.20 per share in December, for a total of $.38
per share paid in 2002.

         As of December 31, 2003, the Bank had 941 shareholders of record,
exclusive of shares held in street name.


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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, 2003, 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,
                                 2003      2002      2001      2000      1999
                                 ----      ----      ----      ----      ----
                             (In thousands of dollars, except per share amounts)

Interest income                $ 16,807  $ 17,047  $ 17,401  $ 16,422  $ 15,126
Interest expense                  6,267     7,200     8,755     8,002     7,376
                               --------  --------  --------  --------  --------
Net interest income              10,540     9,847     8,646     8,420     7,750
Provision for loan losses           292       419       198       201       606
Other operating revenue           1,452     1,395     1,044     1,006       742
Other operating expense           6,724     6,085     5,600     5,069     4,317
                               --------  --------  --------  --------  --------

Income Before Income Taxes        4,976     4,738     3,892     4,156     3,569

Income Taxes                      1,381     1,340     1,156     1,311     1,057
                               --------  --------  --------  --------  --------

Net Income                        3,595     3,398     2,736     2,845     2,512

Per Share Data (1)
   Net income                      1.21      1.15      0.92      0.95      0.83
   Cash dividends declared         0.42      0.38      0.36      0.34      0.32

Balance Sheet Amounts
   (at end of period)
      Total assets              283,886   265,058   241,813   205,253   193,324
      Total loans (2)           214,704   198,256   176,077   163,038   150,675
      Total deposits            253,200   236,544   216,361   181,197   164,741
      Total equity               28,613    26,546    23,477    22,185    20,048

Book value per share
(at end of period)                 9.63      8.96      7.90      7.38      6.65

Selected Financial Ratios
(as a percentage)
  Net income to average equity    13.02     13.57     11.87     13.49     12.76
  Net income to average assets     1.30      1.39      1.23      1.42      1.31
  Loans to deposits (3)           84.80     83.81     82.20     90.90     92.39
  Primary capital to total
    assets (at end
      of period) (4)              10.40     10.28     10.30     11.46     10.65
  Net interest yield (5)           4.17      4.37      4.12      4.50      4.33
  Allowance for loan losses
    to loans (at end of
    period) (6)                    0.92      1.00      1.00      1.01      1.00
  Nonperforming loans to loans
    (at end of period) (7)         0.50      0.05      0.70      0.92      1.04
  Net charge offs to average
    loans (3)                      0.14      0.11      0.05      0.04      0.45

(1)   Average shares outstanding.
(2)   Total loans net of unearned discount on installment loans and reserve for
         loan losses.
(3)   For purposes of this ratio, loans represent gross loans less unearned
         interest income.
(4)   Equity exclusive of unrealized securities gains (losses) plus allowance
         for loan loss less the deferred taxes related to loan losses to assets.
(5)   Net interest income to total average earning assets.
(6)   The difference of gross loans minus unearned interest income divided into
         the allowance for loan losses.
(7)   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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Page 11 of 90


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.

Forward-Looking Statements

         This report contains forward-looking statements that are subject to
risks and uncertainties that could cause actual results to differ materially
from those reflected in such forward-looking statements. The Company takes no
obligation to update any forward-looking statements contained herein. Factors
that may cause actual results to differ materially from those contemplated by
such forward-looking statements may include, but are not limited to, significant
increases in competitive pressure, changes in the interest rate environment,
changes in general economic conditions, and legislative or regulatory changes.
Although these statements are based upon reasonable assumptions, there is no
assurance as to their accuracy. Prospective investors are cautioned not to place
undue reliance on these forward-looking statements.

Overview

         The Company continued to grow through its subsidiary, Benchmark
Community Bank, as the Bank experienced steady growth in both loans and deposits
over the past twelve months. Despite an increase of over $16.6 million in
deposits during this time, the Bank's overall cost of deposits continued to
decline as interest rates continued to remain at record-low levels. As a result,
interest expense incurred during 2003 amounted to $6.3 million, representing a
$932,000 decline from interest paid in 2002.

         Loan growth of $16.4 million essentially mirrored deposit growth during
2003. While low interest rates have reduced the Bank's cost of funds, they have
also continued to negatively impact earnings, as evidenced by the $238,718
decline in interest income during 2003. Overall, the effect was a $693,832
increase in net interest income. This increase, combined with a $57,356 increase
in noninterest income, served to offset a $639,214 increase in noninterest
expense. The end result was a 5.81% increase in net income to a record level of
$3,59 million in 2003, marking the second straight year that the Bank has
recorded earnings in excess of $3.0 million.

         Management continues to focus on growth by researching ways to improve
existing services, by implementing new services, and by looking for additional
expansion opportunities throughout Southside Virginia. With this in mind, the
Bank has made plans to expand its current lending efforts in South
Boston/Halifax County while also constructing a new branch location in
Blackstone, Virginia.

A Comparison of 2003 Versus 2002

Results of Operations and Financial Conditions

         Net income of $3,595,527 in 2003 was an increase of $197,487, or 5.81%,
from net income of $3,398,040 in 2002. Earnings per share of $1.21 in 2003
increased by $0.06, or 5.22%, from earnings per share of $1.15 in 2002. Total
interest income declined by $238,718 as lower interest rates resulted in
decreased earnings from the investment portfolio. Despite an 8.30% increase in
loans, amounting to $16,448,081, interest and fees earned on loans increased by
only $24,272. On the other hand, even with a $16,656,055, or 7.04%, increase in
deposits, interest expense declined by $932,550 as a result of sustained low
interest rates during the year.

         In 2003, the Bank achieved a return on average assets of 1.30% as
compared to a 1.39% in 2002. Return on equity of 13.02% for the year ended 2003
reflected a decrease from the 2002 level of 13.57%. Total assets increased by
$18,828,217 during 2003, while increased salaries and other expenses kept net
income slightly higher than that achieved in 2002. This increased asset base,
combined with similar earnings, resulted in the decline in return on assets. On
the equity side, the $2,066,993 increase in total equity, which resulted from
increased earnings over the past two years, combined with the slight increase in
earnings contributed to the lower return on equity.


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Net Interest Income

         Net interest income of $10,539,983 in 2003 reflected an increase of
$693,832, or 7.05%, over net interest income of $9,846,151 in 2002.

         Total interest income of $16,807,833 in 2003 was down $238,718, or
1.40%, from total interest income of $17,046,551 in 2002, while total interest
expense of $6,267,850 in 2003 decreased by $932,550, or 12.95%, from total
interest expense of $7,200,400 incurred during 2002.

         The increase in net interest income resulted from a continued decline
in interest rates, which, despite the negative impact on interest received from
loans, served to reduce the Bank's cost of funds. (Refer to Table D, "Analysis
of Changes in Net Interest Income," for an analysis of the impact of volume and
rate.)

         Although market rates declined in 2003, the Bank experienced only a
slight decrease in interest margin. The cost of deposits dropped 121 basis
points while earnings on loans and investments decreased by 122 basis points,
resulting in an interest rate spread of 3.76% in 2003 versus an interest rate
spread of 3.77% in 2002. (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                     $ 24,566,093      11.44%
              Consumer                         30,635,698      14.27%
              Real Estate - Construction        1,686,791       0.79%
              Real Estate - Mortgage          157,815,164      73.50%

         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. With
the exception of home equity loans, which are short-term in nature, mortgage
loans, which represent 73.50% 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 mix, as most deposit accounts mature in one year or less.

Allowance for Loan Losses

         The 2003 year ending level of the allowance for loan losses amounted to
$1,984,101, which was $1,542, or 0.08%, higher than the level of $1,982,559 one
year ago. By obtaining a high degree of collateral, the Bank has avoided a
portion of credit risk; however, the Bank constantly monitors its loan portfolio
for credit weaknesses. During 2003, the Bank incurred net charge offs for loan
losses of $290,070. As of the year end 2003, the Bank's allowance for loan
losses represented 0.92% of gross loans.

         In the fourth quarter of 2003, the Bank began working to adopt a new
loan loss reserve methodology that better conforms to FAS 5, Accounting for
Contingencies and FAS 114, Accounting by Creditors for Impairment of a Loan.
This new methodology is expected to be finalized and in place by the end of the
first quarter of 2004. The Bank's current methodology dictates that a reserve
level of 1.00% of gross loans, which previously was the regulatory minimum, is
more than is needed in reserve based on identified problem loans. As a result,
loans charged off during the fourth quarter were charged to the reserve account,
which in turn was not replenished from earnings back to a level of 1.00%. The
result was a decrease in both the loan loss reserve and the current year's
provision, which was $126,970 lower when compared to the prior year.


<PAGE>

Page 13 of 90


Noninterest Income and Noninterest Expense

         Total noninterest income, which is primarily due to fees charged for
customer services, amounted to $1,452,685 during 2003. This represents an
increase of $57,356, or 4.11%, over the 2002 level of $1,395,329. This increase
is attributable in part to an increase in the Bank's deposit customer base as a
result of continued growth among the Bank's branches and a new branch location
in Blackstone.

         Total noninterest expense in 2003 of $6,724,193 reflects an increase of
$639,214, or 10.50%, over the 2002 level of $6,084,979. The increase resulted
primarily from an increase in salaries as a result of several factors, including
the addition of personnel to support the Bank's growth initiatives and a
restructuring of the Bank's health insurance plan. Other factors, such as normal
increases in operating expenses, contributed to the increase.

Premises and Equipment

         The Bank's premises and equipment increased by $683,845 during the
year, as shown in the table below.

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

Kenbridge        $ 13,800    $    -   $          -    $ 20,464      $284,216
Victoria                -         -              -      16,144             -
Farmville #1            -         -              -      24,286             -
South Hill              -         -              -      20,048             -
Farmville #2            -         -              -      16,457             -
Crewe                   -         -              -       8,178             -
Lawrenceville           -         -              -      12,287             -
Clarksville             -         -              -      10,530             -
Chase City              -         -              -       6,039             -
Blackstone        202,125     9,760              -      39,511             -
                 --------    ------   ------------    --------      --------

     Total       $215,925    $9,760   $          -    $173,944      $284,216
                 ========    ======   ============    ========      ========

Securities

         Pursuant to guidelines established in FAS 115, Accounting for Certain
Investments in Debt and Equity Securities, 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 $541,816, therefore,
affecting the book value of the Company's stock. The book value per share of the
stock inclusive of the FAS 115 adjustment was $9.63, while the book value per
share is $9.45 when reported exclusive of the FAS 115 impact.


<PAGE>

Page 14 of 90


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, 2003, the Bank had $1,283,313 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, construction loans, and
unfunded business loans. The total amount of these commitments amounted to
$35,509,335.

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 Federal funds purchased. Certificates of
deposit of $100,000 or more decreased by $3,870,839, or 10.37%, in 2003 to a
level of $33,331,859. These deposits currently represent 13.16% of the Bank's
total deposit base. The amount of these certificates of deposit maturing during
2004 is $14,772,672, while $18,559,187 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 except that the Bank has assigned an 84% retention rate on core
savings, money market accounts and a 76% retention rate to interest checking
deposits. The GAP analysis shows a net positive gap of $14.48 million when
immediately maturing interest-bearing liabilities are deducted from immediately
maturing interest-earning assets. The cumulative gap remains positive throughout
the comparison; however, the one to three year period and the three to five year
period both show a negative gap of $30.12 and $15.54 million, respectively.
These deficit gap results from the customer preference for longer term
certificates of deposit in an effort to improve portfolio yields.

         The nature of the large gap deficit is an industry-wide situation that
is typical of the banking industry where a bulk of the Bank's assets are
financed by short-term deposits; however, 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.




<PAGE>

Page 15 of 90


         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. As mentioned previously, management has factored in
anticipated retention levels for core 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.

         The Company began a capital buyback program during 1999. Through this
program, the Company repurchased 25,307 shares of stock, amounting to $349,766,
during the year of 2003. The Company also began expensing stock options in 2003
(see Note 16 on page 55) which resulted in a $14,220 increase in capital during
2003. In addition, strong earnings through the operation of the Bank generated
an additional $2,349,774 in capital, after paying dividends of $1,275,753, or
$0.42 per share, during the year. This activity, plus the sale of $212,626 in
common stock through the stock option plan, raised year end capital exclusive of
unrealized security losses, net of tax effect, to a level of $28,071,084
representing a 2.71% increase over the 2002 year ending level of $25,844,260.

         The primary capital to total assets ratio stands at 10.08% as of
December 31, 2003. 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 even after initiating a stock buyback
program.

         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, 2003, the Bank maintained the following capital ratios:

        Total Risk-Based Capital Ratio                     12.91%
        Tier I Risk-Based Capital Ratio                    11.91%
        Tier I Leverage Ratio                               8.35%

         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 2003 was a period of falling interest
rates as the Federal Reserve attempted to stimulate the economy by again
lowering the Federal discount window rate and the targeted Federal funds rate.
The interest spread margin for the year was 3.76% versus a 3.77% margin spread
for 2002. Refer to Table C.

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 as evidenced by the $16.4 million increase in loans during 2003.







<PAGE>

Page 16 of 90


A Comparison of 2002 Versus 2001

Results of Operations and Financial Conditions

         Net income of $3,398,040 in 2002 was an increase of $662,272 or 24.21%
from net income of $2,735,768 in 2001. Earnings per share of $1.15 in 2002
increased $0.23 or 25.00% from earnings per share of $0.92 in 2001.

         Growth in loans, with a corresponding but lesser growth in deposits,
resulted in an increase in the loan to deposit ratio to 83.81% from 82.20% for
the previous year. Gross loans grew $20,402,716 or 11.47% while deposits
increased $20,183,329 or 9.33% during the year.

         In 2002, the Bank achieved a return on average assets of 1.39% as
compared to a 1.23% return on average assets in 2001. Increased loan demand,
which provided a higher yielding alternative for incoming funds than short-term
investments, combined with a lower cost of funds due to declining interest
rates, accounted for the higher rate of return.

         Return on equity of 15.45% for the year ended 2002 reflected an
increase over the 2001 level of 13.61%. The higher rate of return resulted from
an increase in earnings due to the continued decline in interest rates, which
lowered the Bank's cost of funds, along with an increase in noninterest income
that served to offset a decline in interest income.

Net Interest Income

         Net interest income of $9,846,151 in 2002 reflected an increase of
$1,200,142 or 13.88% over net interest income of $8,646,009 in 2001.

         Total interest income of $17,046,551 in 2002 was down $354,515 or 2.04%
from total interest income of $17,401,066 in 2001. Total interest expense of
$7,200,400 in 2002 reflected a decrease of $1,554,657 or 17.76% from total
interest expense of $8,755,057 in 2001.

         The increase in net interest income resulted from a continued decline
in interest rates, which, despite the negative impact on interest received from
loans, served to reduce the Bank's cost of funds. (Refer to Table D, "Analysis
of Changes in Net Interest Income," for an analysis of the impact of volume and
rate.)

         Although market rates declined in 2002, the Bank experienced a higher
interest margin. The cost of deposits dropped 126 basis points while the decline
in interest income rates amounted to 80 basis points, resulting in an interest
rate spread of 3.77% in 2002 versus an interest rate spread of 3.31% in 2001.
(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                            $21,872,278      11.03%
        Consumer                               29,903,542      15.08%
        Real Estate - Construction              1,619,807       0.82%
        Real Estate - Mortgage                144,860,038      73.07%

         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. With
the exception of home equity loans, which are short-term in nature, mortgage
loans, which represent 73.07% 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 mix, as most deposit accounts mature in one year or less.


<PAGE>

Page 17 of 90


Allowance for Loan Losses

         The 2002 year ending level of the allowance for loan losses amounted to
$1,982,559. This amount represented an increase of $207,927 or 11.72% over the
2001 level of $1,774,632. Loans collateralized by real estate represented a
majority of the loans. By obtaining a high degree of collateral, the Bank has
avoided a portion of credit risk; however, the Bank constantly monitors its loan
portfolio for credit weaknesses. As of the year end 2002, 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
$210,655. As a result of the increased level of net charge offs, the current
year provision was $220,696 higher when compared to the prior year. The year
2002 level represented a 111.53% increase over the amount expended in 2001.

Noninterest Income and Noninterest Expense

         Total noninterest income, i.e., fees charged for customer services, for
2002 was $1,395,329. This represents an increase of $351,941 or 33.73% over the
2001 level of $1,043,388. Gains were experienced in service charges on deposit
accounts and other operating income as the Bank increased its customer base due
to the continued growth of the Bank's branches.

         Total noninterest expense in 2002 of $6,084,979 reflects an increase of
$485,142 or 8.66% over the 2001 level of $5,599,837. The increase resulted from
normal increases in operating expenses, salaries, and employee benefits.

Premises and Equipment

         The Bank's premises and equipment increased $447,021 during the year.

              Increase in Capitalized Premises and Equipment


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

Kenbridge                 $51,500   $     -    $          -      $ 57,333
Victoria                        -         -               -        45,507
Farmville #1                    -         -               -        43,102
South Hill                      -         -               -        55,834
Farmville #2                    -         -               -        50,237
Crewe                           -         -               -        18,934
Lawrenceville                   -    28,921               -        26,287
Clarksville                     -    27,162               -        17,776
Chase City                      -         -               -        24,429
                          -------   -------    ------------      --------

     Total                $51,500   $56,083    $          -      $339,439
                          =======   =======    ============      ========

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.


<PAGE>

Page 18 of 90



         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 $701,647, therefore,
affecting the book value of the Company's stock. The book value per share of the
stock inclusive of the FAS 115 adjustment was $8.96, while the book value per
share is $8.72 when 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, 2002, the Bank had $1,152,056 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, construction loans, and
unfunded business loans. The total amount of these commitments amounted to
$37,149,451.

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 Federal funds purchased. Large
certificates of deposit of $100,000 or more increased by $6,228,093 or 20.03% in
2002. These deposits currently represent 15.78% 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 2003 is $9,936,497, while $15,810,498 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 except that the Bank has assigned a 90% retention rate on core
savings, money market, and checking deposits. The GAP analysis shows a net
positive gap of $11,894 when immediately maturing interest-bearing liabilities
are deducted from immediately maturing interest-earning assets. The cumulative
gap changes to a negative gap of $15,298 when comparing assets and




<PAGE>

Page 19 of 90


liabilities maturing up to one year; however, the cumulative gap shifts to a
positive position of $32,546 for the "over five years" period. 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
have continued to decline.

         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. As mentioned previously, management has factored in
anticipated retention levels for core 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.

         The Company began a capital buyback program during 1999. Through this
program, the Company has repurchased 14,000 shares of stock amounting to
$141,500 during the year of 2002. The Company continued to experience strong
earnings through the operation of the Bank. Through earnings, the Company
generated an additional $2,270,446 in capital. This activity, plus the sale of
$89,450 common stock through the stock option plan, raised year end capital
exclusive of unrealized security gains net of tax effect to a level of
$25,844,260 or a 9.39% increase over the 2001 year ending level of $23,625,972.

         The primary capital to total assets ratio stands at 10.28% as of
December 31, 2002. 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 even after initiating a stock buyback
program.

         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, 2002, the Bank maintained the following capital ratios:

        Total Risk-Based Capital Ratio                         11.46%
        Tier I Risk-Based Capital Ratio                        10.54%
        Tier I Leverage Ratio                                   8.87%

         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 2002 was a period of falling interest
rates as the Federal Reserve attempted to stimulate the economy by lowering the
Federal discount window rate and the targeted Federal funds rate. The interest
spread margin for the year was 3.77% versus a 3.31% margin spread for 2001.
Refer to Table C.


<PAGE>

Page 20 of 90


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 2002, the loan-to-deposit ratio had risen as the rate of
loan growth exceeded inflow of deposits.




<PAGE>


Page 21 of 90

TABLE A.  COMPARATIVE SUMMARY OF EARNINGS

                                            Years Ending December 31,
                                       2003           2002           2001
                               (In thousands of dollars, except per share data)

Interest Income
  Interest and fees on loans       $      15,407  $      15,383  $      15,611
  Interest on investment securities
    U. S. Government agencies
      and mortgage backed securities         576            806            721
    State and political subdivisions         638            746            579
    Other securities                           -              -             10
    Interest on Federal funds sold           186            112            481
                                   -------------  -------------  -------------

          Total Interest Income           16,807         17,047         17,402

Interest Expense
   Interest-bearing checking deposits        290            430            626
   Savings deposits                           99            183            250
   Time deposits                           5,878          6,577          7,879
   Federal funds purchased                     -             10              -
                                   -------------  -------------  -------------

          Total Interest Expense           6,267          7,200          8,755
                                   -------------  -------------  -------------

Net Interest Income                       10,540          9,847          8,647

Provision for Loan Losses                    292            419            198
                                   -------------  -------------  -------------

          Net Interest Income
             After Provision
             for Loan Losses              10,248          9,428          8,449

Noninterest Income
   Service charges on deposit accounts       637            641            555
   Other operating income                    722            646            482
   Net investment securities gains
      (losses)                                19              9              2
   Gain (Loss) on sale of other assets        13             58              4
   Dividends                                  61             41              -
                                   -------------  -------------  -------------

          Total Noninterest Income         1,452          1,395          1,043

Noninterest Expense
   Salaries                                3,463          3,085          2,837
   Employee benefits                         878            866            652
   Occupancy expense                         344            338            327
   Other operating expense                 2,039          1,796          1,784
                                   -------------  -------------  -------------

          Total Noninterest Expense        6,724          6,085          5,600
                                   -------------  -------------  -------------

Net Income Before Taxes                    4,976          4,738          3,892
Provision for Income Tax                   1,381          1,340          1,155
                                   -------------  -------------  -------------

          Net Income               $       3,595  $       3,398  $       2,737
                                   =============  =============  =============

Per Share - Based on Weighted Average
  Net income                       $        1.21  $        1.15  $        0.92
  Average shares outstanding       2,962,993.670  2,967,443.297  2,970,003.060
  Average shares assuming dilution 3,008,000.835  3,004,426.000  2,997,357.000


<PAGE>

Page 22 of 90


TABLE B.  AVERAGE BALANCE SHEETS

                            (In thousands of dollars)

                                          Years Ended December 31,
                                2003               2002              2001
                                ----               ----              ----

                           Amount     %      Amount     %      Amount     %

Assets
  Cash and due from banks $ 13,053    4.72  $ 11,703    3.55  $  9,447    2.92
  Investment securities     31,323   11.32    31,843   13.05    24,282   10.94
  Federal funds sold        17,439    6.30     7,543    3.09    14,225    6.41
  Loans (net)              204,020   73.71   186,078   76.28   169,434   76.31
  Bank premises and
    equipment                4,397    1.59     4,319    1.77     3,981    1.79
  Accrued interest           1,330    0.48     1,395    0.57     1,599    0.72
  Cash value life insurance  3,707    1.34     1,972    0.81         -       -
  Other assets               1,528    0.54     2,150    0.88     2,014    0.91
                          --------  ------  --------  ------  --------  ------

                          $276,797  100.00  $247,003  100.00  $224,982  100.00
                          ========  ======  ========  ======  ========  ======

Liabilities and Stockholders' Equity
   Deposits
      Demand              $ 54,377   19.65  $ 47,728   19.32  $ 44,599   19.82
      Savings and MMA       36,508   13.19    26,613   10.78    19,859    8.83
      Time                 156,880   56.68   145,881   59.06   136,054   60.47
   Federal funds purchased       -       -       427    0.17         -       -
   Accrued interest            690    0.25       767    0.31       929    0.41
   Other liabilities           727    0.25       546    0.22       485    0.22
   Stockholders' equity     27,615    9.98    25,041   10.14    23,056   10.25
                          --------  ------  --------  ------  --------  ------

                          $276,797  100.00  $247,003  100.00  $224,982  100.00
                          ========  ======  ========  ======  ========  ======



<PAGE>



Page 23 of 90


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

<TABLE>
<CAPTION>
<S>                                     <C>      <C>       <C>      <C>      <C>       <C>      <C>      <C>       <C>
                                                  2003                        2002                        2001
                                                  ----                        ----                        ----
                                        Average            Yield/   Average            Yield/   Average            Yield/
Description                             Balance  Interest   Rate    Balance  Interest   Rate    Balance  Interest   Rate
-----------                             -------  --------   ----    -------  --------   ----    -------  --------   ----

Interest-Earning Assets
   Investment securities               $ 31,323  $ 1,292    4.12%  $ 31,843  $ 1,552    4.87%  $ 24,282  $ 1,309    5.39%
   Federal funds sold                    17,439      186    1.07%     7,543      112    1.48%    14,225      481    3.38%
   Loans (1) (2)                        204,020   14,392    7.05%   187,950   15,383    8.18%   171,145   15,611    9.12%
                                       --------  -------    -----  --------  -------    -----  --------  -------    -----

                                       $252,782   15,870    6.28%  $227,336   17,047    7.50%  $209,652   17,401    8.30%
                                       ========                    ========                    ========

Interest-Bearing Liabilities
   Deposits                            $248,337    6,270    2.52%  $192,655    7,190    3.73%  $175,291    8,755    4.99%
   Federal funds purchased                    -        -    0.00%       427       10    2.34%         -        -    0.00%
                                       --------  -------    -----  --------  -------    -----  --------  -------    -----

          Total Interest-Bearing
             Liabilities               $248,337    6,270    2.52%  $193,082    7,200     3.73%  $175,291   8,755    4.99%
                                       ========  -------           ========  -------            ======== -------

Net interest income/yield (3) (4)                $ 9,600                     $ 9,847                     $ 8,646
                                                 =======                     =======                     =======

Interest spread (5)                                         3.76%                        3.77%                      3.31%
</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 24 of 90


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

<TABLE>
<CAPTION>
<S>                                    <C>      <C>         <C>            <C>       <C>         <C>
                                            Year 2003 over 2002                 Year 2002 over 2001
                                       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                $  172   $  (509)     $ (337)       $   369   $ (126)      $   243
  Federal funds sold                       93       (19)         74           (226)    (143)        (369)
  Loans                                 1,159    (1,135)         24            157     (385)        (228)
                                       -------  --------     -------       --------  -------      -------

          Total                         1,424    (1,663)       (239)           300     (654)        (354)

Interest Expense
   Deposit accounts                       419    (1,341)       (922)         1,343   (2,908)      (1,565)
   Federal funds purchased                (10)        -         (10)            10        -           10
                                       -------  --------     -------       --------  -------      -------

          Total                           409    (1,341)       (932)         1,353   (2,908)      (1,555)
                                       -------  --------     -------       --------  -------      -------

Increase (Decrease) in
   Net Interest Income                 $1,015   $  (322)     $  693        $(1,053)  $2,254       $1,201
                                       =======  ========     =======       ========  =======      =======


                                            Year 2001 over 2000
                                       Increase (Decrease)    Total
                                        Due to Change In:    Increase
                                        Volume   Rate       (Decrease)
Increase (Decrease) in
  Investment securities                $   50   $ (197)      $ (147)
  Federal funds sold                      510     (438)          72
  Loans                                 1,240     (186)       1,054
                                       -------  -------      ------

          Total                         1,800     (821)         979

Interest Expense
   Deposit accounts                     1,108     (301)         807
   Federal funds purchased                (54)       -          (54)
                                       -------  -------      -------

          Total                         1,054     (301)         753
                                       -------  -------      -------

Increase (Decrease) in
  Net Interest Income                  $  746   $ (520)      $  226
                                       =======  =======      =======
</TABLE>



<PAGE>


Page 25 of 90


TABLE E.  INVESTMENT SECURITIES

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

                                    Book     Unrealized  Unrealized     Market
                                    Value       Gains      Losses       Value

Available-for-Sale
 December 31, 2003
   U. S. Government agencies    $   498,125  $    9,175    $     -   $   507,300
   Mortgage backed securities    14,533,929     134,223     71,060    14,597,092
   State and political
     subdivisions                13,051,756     761,489     12,893    13,800,352
   Other securities                 259,506           -          -       259,506
                                -----------  ----------    -------   -----------

                                $28,343,316  $  904,887    $83,953   $29,164,250
                                ===========  ==========    =======   ===========

 December 31, 2002
   Mortgage backed securities   $10,849,727  $  363,783    $     -   $11,213,510
   State and political
      subdivisions               14,858,319     699,318          -    15,557,637
   Other securities                 195,490           -          -       195,490
                                -----------  ----------    -------   -----------

                                $25,903,536  $1,063,101    $     -   $26,966,637
                                ===========  ==========    =======   ===========

Held-to-Maturity
 December 31, 2003
   U. S. Government agencies    $ 2,492,812  $   36,135    $     -   $ 2,528,947
                                ===========  ==========    =======   ===========
 December 31, 2002
   State and political
      subdivisions              $   511,809  $   17,497    $     -   $   529,306
                                ===========  ==========    =======   ===========

         The maturities of investment securities at December 31, 2003 were as
follows:

                                    Book Value      Market Value

Available-for-Sale
   Due from one to five years      $16,837,547     $  16,978,253
   Due from five to ten years       10,178,138        10,849,191
   After ten years                   1,068,125         1,077,300
   Other securities                    259,506           259,506

Held-to-Maturity
   Due from five to ten years          500,000           508,905
   After 10 years                    1,992,812         2,020,042

         Securities having a market value of $7,250,590 and $8,994,013 at
December 31, 2003 and 2002, respectively, were pledged to secure public deposits
and for other purposes.

         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 26 of 90


         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, 2003 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)
                        ------   -----         ------     -----         ------     -----        ------     -----

Mortgage Backed
   Securities           $    -   0.00%      $13,631,717   3.73%      $   902,212   5.22%      $        -   0.00%
State and Political
   Subdivisions              -   0.00%        3,205,829   6.06%        9,275,926   6.32%         570,000   5.30%
Federal Agencies             -   0.00%                -   0.00%          500,000   5.00%       2,490,938   6.03%
                        ------   -----      -----------   -----      -----------   -----      ----------   -----

          Total(1)      $    -   0.00%      $16,837,546   4.18%      $10,678,138   6.16%      $3,060,938   5.90%
                        ======   =====      ===========   =====      ===========   =====      ==========   =====
</TABLE>



(1) Values stated at book value, exclusive of other securities, which include
    Federal Reserve Bank stock, Community Bankers' Bank stock, CBS Holdings, and
    Bankers' Title, which amount to $259,506 at year end 2003.

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




<PAGE>


Page 27 of 90


TABLE F.  LOAN PORTFOLIO

         The table below classifies gross loans by major category and percentage
distribution at December 31 for 2003, 2002, and 2001:

                        2003                  2002                  2001
                   Amount       %        Amount       %        Amount       %

Commercial      $ 24,566,093  11.44   $ 21,872,278  11.03   $ 19,293,070  10.85
Consumer          30,635,698  14.27     29,903,542  15.08     32,954,231  18.53
Real Estate -
  Construction     1,686,791   0.79      1,619,807   0.82        947,775   0.53
Real Estate -
  Mortgage       157,815,164  73.50    144,860,038  73.07    124,657,873  70.09


         The following table shows maturities of the major loan categories and
their maturity schedules at December 31, 2003 for fixed interest rate and
floating interest rate loans:

Table 1 - Fixed Rate Loans

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

Commercial              $16,141,156   $    483,630   $         -   $ 16,624,786
Consumer                  2,729,513     26,493,212     1,230,851     30,453,576
Real Estate -
  Construction            1,686,791              -             -      1,686,791
Real Estate -
  Mortgage               18,589,897    108,954,250    14,553,873    142,098,020
                        -----------   ------------   -----------   ------------

     Total              $39,147,357   $135,931,092   $15,784,724   $190,863,173
                        ===========   ============   ===========   ============


Table 2 - Floating Rate Loans

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

Commercial              $ 7,866,307   $     75,000   $         -   $  7,941,307
Consumer                      2,122        180,000             -        182,122
Real Estate -
   Mortgage               6,201,970      2,720,370     6,794,804     15,717,144
                        -----------   ------------   -----------   ------------

     Total              $14,070,399   $  2,975,370   $ 6,794,804   $ 23,840,573
                        ===========   ============   ===========   ============




<PAGE>


Page 28 of 90


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 include 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,
                                                        2003     2002    2001
                                                        ----     ----    ----
                                                      (In thousands of dollars)

Commercial
  Nonaccrual                                           $    -   $    -   $   -
  Contractually past due 90 days or more                   26        -      18

Consumer
  Nonaccrual                                                4        -      74
  Contractually past due 90 days or more                   57       53       -

Real Estate
  Nonaccrual                                               26    1,048     604
  Contractually past due 90 days or more                1,013       97     273
                                                       ------   ------   -----

                                                       $1,126   $1,198   $ 969
                                                       ======   ======   =====

Nonperforming loans to gross loans at year end          0.52%    0.60%   0.54%

Effect of nonaccrual loans on interest revenue         $    2   $    9   $  34



<PAGE>


Page 29 of 90


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, 2003, 2002, and 2001:

                                                  2003       2002       2001
                                                  ----       ----       ----
                                                   (In thousands of dollars)

Allowance for loan losses at beginning of year  $  1,983   $  1,775   $  1,668

Loan Charge Offs
   Commercial                                        (21)         -         (1)
   Consumer                                         (284)      (192)      (242)
   Real Estate                                       (51)       (82)        (9)
                                                ---------  ---------  ---------

               Total Charge Offs                    (356)      (274)      (252)

Recoveries of Loans Previously Charged Off
   Commercial                                          -          -          -
   Consumer                                           65         63        118
   Real Estate                                         -          -         43
                                                ---------  ---------  --------

               Total Recoveries                       65         63        161
                                                ---------  ---------  --------

Net loans charged off                               (291)      (211)       (91)

Provision for loan losses                            292        418        198
                                                ---------  ---------  ---------

Allowance for loan losses at end of year        $  1,984   $  1,982   $  1,775
                                                =========  =========  =========

Average total loans (net of unearned income)    $204,020   $187,950   $171,149
Total loans (net of unearned income) at
   year end                                      214,703    198,255    177,852

Selected Loan Loss Ratios
   Net charge offs to average loans                0.14%      0.11%      0.05%
   Provision for loan losses to average loans      0.14%      0.22%      0.12%
   Provision for loan losses to net
      charge offs %                              100.34%    198.10%    217.58%
   Allowance for loan losses to year end loans     0.92%      1.00%      1.00%
   Loan loss coverage(1)                          18.10X     24.44X     44.95X












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



<PAGE>



Page 30 of 90


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

<TABLE>
<CAPTION>
<S>                        <C>        <C>        <C>           <C>        <C>        <C>           <C>        <C>        <C>
                                        2003                                2002                                2001
                                        ----                                ----                                ----
                                                 Percentage                          Percentage                          Percentage
                           Allowance  Breakdown   of Loans     Allowance  Breakdown   of Loans     Allowance  Breakdown   of Loans
                             Amount       %      Outstanding     Amount       %      Outstanding     Amount       %      Outstanding
                             ------       -      -----------     ------       -      ----------      ------       -      -----------

Commercial                   $  178      8.97        11.44       $   99      4.99        11.03       $   90      5.00        10.85
Consumer                      1,051     52.98        14.27          693     34.96        15.08          990     55.00        18.53
Real Estate - Construction        -         -         0.79            -         -         0.82            -         -         0.53
Real Estate - Mortgage          755     38.05        73.50        1,190     60.05        73.07          720     40.00        70.09
                             ------    ------       ------       ------    ------       ------       ------    ------       ------

          Total              $1,984    100.00       100.00       $1,982    100.00       100.00       $1,800    100.00       100.00
                             ======    ======       ======       ======    ======       ======       ======    ======       ======
</TABLE>



<PAGE>


Page 31 of 90


TABLE J.  DEPOSITS

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

                                       2003            2002            2001
                                       ----            ----            ----
                                  Average         Average         Average
                                  Balance  Rate   Balance  Rate   Balance  Rate

Noninterest-bearing demand
   deposits                      $ 29,913   -    $ 27,567   -    $ 25,221   -
Interest-bearing demand deposits   24,464  0.36    20,161  0.90    19,378  1.80
Money market accounts              21,889  0.96    13,794  1.74     9,543  2.97
Savings                            14,619  0.71    12,819  1.44    10,316  2.43
Time                              156,880  3.77   145,881  4.51   136,054  5.83
                                 --------        --------        --------

                                 $247,765        $220,222        $200,512
                                 ========        ========        ========


         Remaining maturities of time certificates of deposit of $100,000 or
more at December 31, 2003 are shown below (in thousands of dollars):

                Maturity                                      December 31, 2003

Three months or less                                             $ 3,680,315
Three to six months                                                3,719,470
Six to twelve months                                               7,372,885
One to three years                                                 8,039,433
Three to five years                                               10,519,753
                                                                 -----------

                    Total                                        $33,331,856
                                                                 ===========




<PAGE>


Page 32 of 90


TABLE K.  RETURN ON EQUITY AND ASSETS

         The following table highlights certain ratios for the three years ended
December 31, 2003, 2002, and 2001 (in thousands of dollars):

                                                       2003     2002     2001
                                                       ----     ----     ----

Income before securities gains and losses to
   Average total assets                                1.30%    1.39%    1.23%
   Average stockholders' equity                       13.02%   15.45%   13.60%

Net income to
   Average total assets                                1.30%    1.39%    1.23%
   Average stockholders' equity                       13.02%   13.57%   11.87%

Dividend pay out ratio (dividends declared per
   share divided by net income per share)             34.71%   33.04%   39.13%

Average stockholders' equity to average total
   assets ratio                                        9.98%   10.14%   10.25%



<PAGE>



Page 33 of 90


TABLE L.
                                  GAP Analysis
                                December 31, 2003


         The following table reflects interest-rate sensitive assets and
liabilities only. The following table sets forth at December 31, 2003
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    3-12 Months   1-3 Years   3-5 Years   Over 5 Years   Total
                                              --------     -------    -----------   ---------   ---------   ------------   -----

Gross loans                                   $26,928      $35,590      $55,282     $ 62,973    $ 25,651      $ 8,279      $214,703

Investment securities (1)                           -        3,637        2,050        3,272       4,074       18,463        31,496
Federal funds sold                             15,466            -            -            -           -            -        15,466
                                              -------      -------      -------     --------    --------      -------      --------

     Total Interest-Earning Assets            $42,394      $39,227      $57,332     $ 66,245    $ 29,725      $26,742      $261,665
                                              =======      =======      =======     ========    ========      =======      ========

Interest-Bearing Liabilities
   Interest-bearing demand deposits(2)        $ 4,680      $     -      $     -     $ 24,574    $      -      $     -      $ 29,254
   MMDA and savings(2)                          9,796            -            -       31,020           -            -        40,816
   Time deposits                                    -       17,253       49,265       40,774      45,264            -       152,556
                                              -------      -------      -------     --------    --------      -------      --------

      Total Interest-Bearing Deposits         $14,476      $17,253      $49,265     $ 96,368    $ 45,264      $     -      $222,626
                                              =======      =======      =======     ========    ========      =======      ========

Difference Between Interest-Earning
   Assets and Interest-Bearing Liabilities
      Period (GAP)                            $27,918      $21,974      $ 8,067     $(30,123)   $(15,539)     $26,742      $ 39,039
      Cumulative (GAP)                         27,918       49,892       57,959       27,836      12,297       39,039
      Cumulative interest-earning
         assets to interest-bearing
         liabilities                          292.86%      257.24%      171.56%       115.69%     105.52%     117.54%
</TABLE>

(1) Does not include $87,000 in Federal Reserve stock, $50,000 in Community
       Bankers' Bank stock, $112,506 in Bankers' Title, and $10,000 in CBS
       Holdings stock.
(2) Assumes Interest Checking accounts will retain 84% and MMDA and Savings will
       retain 76% up to three years.



<PAGE>


Page 34 of 90


ITEM 7A       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Refer to Footnote 18 in the annual financial statements included in
this document on page 58.


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, 2003 and 2002
     Consolidated Statements of Income - Years Ended December 31, 2003, 2002,
        and 2001
     Consolidated Statements of Changes in Stockholders' Equity - Years
        Ended December 31, 2003 and 2002
     Consolidated Statements of Cash Flows - Years Ended December 31, 2003,
        2002, and 2001
     Notes to Consolidated Financial Statements - December 31, 2003, 2002,
        and 2001



<PAGE>


Page 35 of 90


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
accounting principles generally accepted in the United States of America
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 auditing standards generally accepted in the United
States of America 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 36 of 90



















                           Benchmark Bankshares, Inc.

                     Report on Audit of Financial Statements




<PAGE>


Page 37 of 90



                           Benchmark Bankshares, Inc.

                                Table of Contents


                                                                         Pages

Independent Auditor's Report                                                38

Exhibits

     A            Consolidated Statements of Financial Condition         39-40

     B            Consolidated Statements of Income                      41-42

     C            Consolidated Statements of Changes in
                     Stockholders' Equity                                   43

     D            Consolidated Statements of Cash Flows                  44-45

Notes to Consolidated Financial Statements                               46-63



<PAGE>




Page 38 of 90












                          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, 2003 and 2002, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for each of the three
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Benchmark
Bankshares, Inc. and Subsidiary, as of December 31, 2003 and 2002, and the
results of their operations and their cash flows for each of the three years
then ended, in conformity with accounting principles generally accepted in the
United States of America.





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

South Hill, Virginia
January 20, 2004



<PAGE>


Page 39 of 90
                                                                      Exhibit A
                                                                         Page 1

                           Benchmark Bankshares, Inc.

                 Consolidated Statements of Financial Condition

                           December 31, 2003 and 2002


                                   A S S E T S

                                                   2003            2002
                                                   ----            ----

Cash and due from banks                        $ 12,897,917    $ 13,340,576
Interest-bearing deposits in other banks            100,000               -
Federal funds sold                               15,466,000      17,255,000
Investment securities                            31,657,062      27,478,446
Loans                                           214,703,746     198,255,665
  Less
    Allowance for loan losses                    (1,984,101)     (1,982,559)
                                               -------------   -------------

               Net Loans                        212,719,645     196,273,106

Premises and equipment - net                      4,531,321       4,285,102
Accrued interest receivable                       1,267,134       1,292,070
Deferred income taxes                               302,829         195,611
Other real estate                                   106,904         502,734
Cash value life insurance                         3,806,253       3,632,755
Refundable taxes                                    122,345               -
Other assets                                        908,951         802,744
                                               -------------   -------------

               Total Assets                    $283,886,361    $265,058,144
                                               =============   =============




<PAGE>


Page 40 of 90
                                                                     Exhibit A
                                                                        Page 2

                           Benchmark Bankshares, Inc.

                 Consolidated Statements of Financial Condition

                           December 31, 2003 and 2002


                      Liabilities and Stockholders' Equity

                                                       2003           2002
                                                       ----           ----

Deposits
   Demand (noninterest-bearing)                    $ 30,401,821   $ 26,372,882
   NOW accounts                                      29,254,509     23,258,069
   Money market accounts                             25,265,191     17,394,138
   Savings                                           15,550,755     13,347,995
   Time, $100,000 and over                           33,331,859     37,329,668
   Other time                                       119,396,360    118,841,688
                                                   ------------   ------------

               Total Deposits                       253,200,495    236,544,440

Accrued interest payable                                667,523        803,167
Accrued income tax payable                                    -         32,516
Dividends payable                                       623,317        593,088
Other liabilities                                       782,126        539,026
                                                   ------------   ------------

               Total Liabilities                    255,273,461    238,512,237

Stockholders' Equity
   Common stock, par value $.21 per share,
      authorized 4,000,000 shares; issued
      and outstanding 12-31-03 2,970,373.959,
      issued and outstanding 12-31-02
      2,967,443.301 shares                              623,779        623,164
   Additional paid-in capital                         3,881,671      4,005,238
   Retained earnings                                 23,565,634     21,215,858
   Unrealized security gains net of tax effect          541,816        701,647
                                                   ------------   ------------

               Total Stockholders' Equity            28,612,900     26,545,907
                                                   ------------   ------------

               Total Liabilities and
                  Stockholders' Equity             $283,886,361   $265,058,144
                                                   ============   ============










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



<PAGE>


Page 41 of 90
                                                                     Exhibit B
                                                                        Page 1

                           Benchmark Bankshares, Inc.

                        Consolidated Statements of Income

                  Years Ended December 31, 2003, 2002, and 2001


                                         2003           2002           2001
                                         ----           ----           ----

Interest Income
   Interest and fees on loans        $  15,407,584  $  15,383,312  $  15,610,703
   Interest on investment securities
      U. S. Government agencies and
         mortgage backed securities        576,279        806,026        720,685
      State and political subdivisions     638,170        745,723        578,611
      Other securities                           -              -          9,674
      Interest on Federal funds sold       185,800        111,490        481,393
                                     -------------  -------------  -------------

          Total Interest Income         16,807,833     17,046,551     17,401,066

Interest Expense
   Interest-bearing checking deposits      290,342        429,474        625,880
   Savings deposits                         99,413        183,290        250,242
   Time deposits                         5,878,095      6,577,285      7,878,935
   Federal funds purchased                       -         10,351              -
                                     -------------  -------------  -------------

          Total Interest Expense         6,267,850      7,200,400      8,755,057
                                     -------------  -------------  -------------

Net Interest Income                     10,539,983      9,846,151      8,646,009

Provision for Loan Losses                  291,612        418,582        197,886
                                     -------------  -------------  -------------

Net Interest Income After Provision
   for Loan Losses                      10,248,371      9,427,569      8,448,123

Other Income
   Service charges on deposit accounts     637,466        641,399        555,495
   Other operating income                  722,072        646,362        481,636
   Net investment securities gains          19,488          8,879          2,434
   Gain on sale of other assets             13,047         58,272          3,823
   Dividends                                60,612         40,417              -
                                     -------------  -------------  -------------
          Total Other Income             1,452,685      1,395,329      1,043,388

Other Expenses
   Salaries                              3,463,371      3,085,290      2,837,297
   Employee benefits                       878,027        865,803        651,720
   Occupancy expense                       344,010        337,523        327,230
   Other operating expenses              2,038,785      1,796,363      1,783,590
                                     -------------  -------------  -------------

          Total Other Expenses           6,724,193      6,084,979      5,599,837
                                     -------------  -------------  -------------

Income Before Income Taxes               4,976,863      4,737,919      3,891,674
Provision for Income Taxes               1,381,336      1,339,879      1,155,906
                                     -------------  -------------  -------------

          Net Income                 $   3,595,527  $   3,398,040  $   2,735,768
                                     =============  =============  =============

<PAGE>

Page 42 of 90
                                                                      Exhibit B
                                                                         Page 2


                                         2003           2002           2001
                                         ----           ----           ----

Earnings Per Common Share - Basic    $        1.21  $        1.15  $        0.92
                                     =============  =============  =============

Earnings Per Common Share - Diluted  $        1.19  $        1.13  $        0.91
                                     =============  =============  =============

Average Shares Outstanding           2,962,993.670  2,968,723.180  2,982,679.694
                                     =============  =============  =============

Average Shares Assuming Dilution     3,013,735.670  3,011,495.000  2,997,357.000
                                     =============  =============  =============













































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



<PAGE>


Page 43 of 90
                                                                      Exhibit C
                           Benchmark Bankshares, Inc.

           Consolidated Statements of Changes in Stockholders' Equity

                     Years Ended December 31, 2003 and 2002
<TABLE>
<CAPTION>
<S>                                  <C>              <C>         <C>           <C>            <C>           <C>
                                                                                               Unrealized
                                                                  Additional                   Securities
                                                       Common      Paid-in       Retained         Gain
                                        Shares          Stock       Capital      Earnings       (Loss)(1)       Total

Balance January 1, 2002              2,970,003.060    $623,701    $4,056,859    $18,945,412     $(148,811)   $23,477,161

Net Income
  Parent                                                                           (25,897)                     (25,897)
  Equity in income of subsidiary                                                 3,423,937                    3,423,937

Sale of Stock                           11,450.000       2,405        87,045                                      89,450
Redemption of Stock                         (9.759)         (2)         (106)                                       (108)
Stock repurchase                       (14,000.000)     (2,940)     (138,560)                                   (141,500)

Semi-Annual Cash
   Dividend Declared
      June 20, 2002, $.18 per
         share                                                                    (532,988)                     (532,988)
      December 19, 2002, $.20 per
         share                                                                    (593,088)                     (593,088)

Adjustments                                                                         (1,518)                       (1,518)

Other Comprehensive Income
  (Net of Tax)
    Unrealized Security Gains
       (Losses)                                                                                   850,458        850,458
                                     --------------   ---------   -----------   ------------    ----------   ------------

Balance December 31, 2002            2,967,443.301     623,164     4,005,238     21,215,858       701,647     26,545,907

Net Income
   Parent                                                                         2,472,661                    2,472,661
   Equity in income of subsidiary                                                 1,122,866                    1,122,866

Sale of Stock                           28,240.000       5,930       206,696                                     212,626
Redemption of Stock                         (2.342)          -           (32)                                        (32)
Stock repurchase                       (25,307.000)     (5,315)     (344,451)                                   (349,766)
Stock option compensation                                             14,220                                      14,220

Semi-Annual Cash
   Dividend Declared
      June 19, 2003, $.21 per
         share                                                                     (622,436)                    (622,436)
      December 18, 2003, $.21
         per share                                                                 (623,317)                    (623,317)

Adjustments                                                                               2                            2

Other Comprehensive Income
  (Net of Tax)
    Unrealized Security Gains
       (Losses)                                                                                  (159,831)      (159,831)
                                     --------------   ---------   -----------   ------------    ----------   ------------

Balance December 31, 2003            2,970,373.959    $623,779    $3,881,671    $23,565,634     $ 541,816    $28,612,900
                                     ==============   =========   ===========   ============    ==========   ============
</TABLE>

 (1) Net of tax effect.

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


<PAGE>


Page 44 of 90
                                                                     Exhibit D
                                                                        Page 1

                           Benchmark Bankshares, Inc.

                      Consolidated Statements of Cash Flows

                  Years Ended December 31, 2003, 2002, and 2001

                                          2003          2002          2001
                                          ----          ----          ----
                                      $114,992,160)  $30,595,576)  $20,955,994)
Cash Flows from Operating Activities
   Interest received                  $ 15,894,573   $17,473,165   $17,553,659
   Fees and commissions received         2,582,790     1,395,329     1,028,469
   Interest paid                        (6,405,960)   (7,399,494)   (8,746,489)
   Cash paid to suppliers and employees (6,074,516)   (6,084,979)   (5,383,602)
   Income taxes paid                    (1,562,227)   (1,378,385)   (1,178,176)
                                      -------------  ------------  ------------

               Net Cash Provided by
                  Operating Activities   4,434,660     4,005,636     3,273,861

Cash Flows from Investing Activities
   Proceeds from sale of investment
      securities available-for-sale        827,335     4,542,862       200,719
   Proceeds from maturity or calls of
      investments                       13,205,869     6,063,889    13,435,348
   Purchase of investment securities   (19,294,971)     (509,913)  (25,667,579)
   Loans originated                   (114,992,160)  (98,624,431)  (90,687,195)
   Principal collected on loans         98,544,079    78,221,715    77,541,503
   Purchase premises and equipment        (683,845)     (455,579)   (1,100,702)
   Cash value life insurance              (173,498)   (3,632,755)            -
   Interest-bearing deposits in
      other banks                         (100,000)            -             -
                                      -------------  ------------  ------------

               Net Cash (Used) by
                  Investing Activities (22,667,191)  (14,394,212)  (26,277,906)

Cash Flows from Financing Activities
   Net increase in demand deposits and
      savings accounts                  20,099,192    10,464,414    10,468,711
   Payments for maturing certificates
      of deposit                       (43,184,096)  (57,686,984)  (34,598,237)
   Proceeds from sales of certificates
     of deposit                         39,740,959    67,405,899    59,293,820
   Dividends paid                       (1,215,524)   (1,067,588)   (1,078,044)
   Proceeds from sale of common stock      212,626        89,450        22,140
   Payments to reacquire stock            (349,798)     (141,608)     (376,934)
   Proceeds from sale of other assets      697,513       964,575       359,846
                                      -------------  ------------  ------------
               Net Cash Provided by
                  Financing Activities  16,000,872    20,028,158    34,091,302
                                      -------------  ------------  ------------
Net Increase (Decrease) in Cash and
   Cash Equivalents                     (2,231,659)    9,639,582    11,087,257

Cash and Cash Equivalents -
   Beginning of Year                    30,595,576    20,955,994     9,868,737
                                      -------------  ------------  ------------
Cash and Cash Equivalents -
   End of Year                        $ 28,363,917   $30,595,576   $20,955,994
                                      =============  ============  ============


<PAGE>

Page 45 of 90
                                                                     Exhibit D
                                                                        Page 2


                                          2003          2002          2001
                                          ----          ----          ----

Reconciliation of Net Income to Net
   Cash Provided by Operating Activities
      Net income                      $  3,595,527   $ 3,398,040   $ 2,735,768
      Adjustments to reconcile net
         income to net cash provided
         by operating activities
            Depreciation                   420,120       440,854       346,621
            Provision for credit losses    291,612       481,711       358,977
            (Increase) Decrease in
               Interest receivable          24,936       133,875       152,593
               Other real estate           395,830      (249,647)     (347,956)
               Other assets               (106,207)        5,773       (14,919)
               Deferred taxes             (107,218)      (72,411)      (61,675)
               Refundable taxes           (122,345)            -             -
            Increase (Decrease) in
               Interest payable           (135,644)     (199,094)       18,102
               Taxes payable               (32,516)       (6,889)       27,964
               Other liabilities           243,100       140,575        64,643
            (Gain) Loss on sale of
               securities                  (19,488)       (8,879)       (2,434)
            (Gain) Loss on sale of
               other assets                (13,047)      (58,272)       (3,823)
                                      -------------  ------------  ------------

          Net Cash Provided by
             Operating Activities     $  4,434,660   $ 4,005,636   $ 3,273,861
                                      =============  ============  ============

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

During 2003 net gains of $16,037 and during 2002 net gains of $1,727 in
securities available-for-sale resulted from sales of mortgage backed securities
that had experienced significant paydowns. Capitalized interest amounting to
$2,465 resulted from construction of bank facilities.















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



<PAGE>



Page 46 of 90


                           Benchmark Bankshares, Inc.

                   Notes to Consolidated Financial Statements

                  Years Ended December 31, 2003, 2002, and 2001


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)      Consolidated Financial Statements. 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 gain on securities positively impacted
                  stockholders' equity in the amount of $541,816 as of December
                  31, 2003.

                  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).

                  Loan origination and commitment fees, as well as certain
                  direct obligation cost, are deferred and amortized as a yield
                  adjustment over the lives of the related loans using the
                  interest method. Amortization of deferred loan fees is
                  discontinued when a loan is placed on nonaccrual status. As of
                  December 31, 2003, the Company had net deferred income of
                  $168,753.



<PAGE>

Page 47 of 90


        (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.

                  The table below reflects the components of the Net Deferred
                  Tax Asset account as of December 31, 2003:

Deferred tax assets resulting from loan loss reserves                $538,663
Deferred tax asset resulting from deferred
   compensation                                                       166,247
Deferred tax liability resulting from unrealized
   security gains                                                    (279,118)
Deferred tax liabilities resulting from depreciation                 (166,648)
Deferred tax asset resulting from insurance investment                 38,850
Deferred tax asset resulting from stock option compensation             4,835
                                                                     ---------

               Net Deferred Tax Asset                                $302,829
                                                                     =========



<PAGE>

Page 48 of 90


         (l)      Stock Option Disclosure.  At December 31, 2003, the Company
                  has two stock-based compensation plans (one for the employees
                  and the other for the Directors of the Company), which are
                  described more fully in Note 16.  Prior to 2003, the Company
                  accounted for those plans under the recognition and
                  measurement provisions of APB Opinion No. 25, Accounting for
                  Stock Issued to Employees, and related interpretations.  No
                  stock-based employee compensation cost is reflected in 2001
                  and 2002 net income, as all options granted under those plans
                  had an exercise price greater than the market value of the
                  underlying common stock on the date of grant.  Effective
                  January 1, 2003, the Company adopted the fair value
                  recognition provisions of FASB Statement No. 123, Accounting
                  for Stock-Based Compensation, prospectively to all employee
                  awards granted, modified, or settled after January 1, 2003.
                  Awards under the Company's plans vest over a period of five
                  years.  Therefore, the cost related to stock-based employee
                  compensation included in the determination of net income for
                  2003 is less than that which would have been recognized if the
                  fair value based method had been applied to all awards since
                  the original effective date of Statement 123.  The following
                  table illustrates the effect on net income and earnings per
                  share if the fair value based method had been applied to all
                  outstanding and unvested awards in each period.  Refer to
                  Note 16 for additional disclosures.

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, 2003
   U. S. Government agencies    $   498,125  $    9,175    $     -  $   507,300
   Mortgage backed securities    14,533,929     134,223     71,060   14,597,092
   State and political
      subdivisions               13,051,756     761,489     12,893   13,800,352
   Other securities                 259,506           -          -      259,506
                                -----------  ----------    -------  -----------

                                $28,343,316  $  904,887    $83,953  $29,164,250
                                ===========  ==========    =======  ===========
  December 31, 2002
   Mortgage backed securities   $10,849,727  $  363,783    $     -  $11,213,510
   State and political
      subdivisions               14,858,319     699,318          -   15,557,637
   Other securities                 195,490           -          -      195,490
                                -----------  ----------    -------  -----------

                                $25,903,536  $1,063,101    $     -  $26,966,637
                                ===========  ==========    =======  ===========
Held-to-Maturity
  December 31, 2003
   U. S. Government agencies    $ 2,492,812  $   36,135    $     -  $ 2,528,947
                                ===========  ==========    =======  ===========
  December 31, 2002
   State and political
      subdivisions              $   511,809  $   17,497    $     -  $   529,306
                                ===========  ==========    =======  ===========











<PAGE>

Page 49 of 90


                  The maturities of investment securities at December 31, 2003
        were as follows:

                                           Book Value       Market Value

        Available-for-Sale
           Due from one to five years      $16,837,547     $  16,978,253
           Due from five to ten years       10,178,138        10,849,191
           After ten years                   1,068,125         1,077,300
           Other securities                    259,506           259,506

        Held-to-Maturity
           Due from five to ten years          500,000           508,905
           After 10 years                    1,992,812         2,020,042

                  Securities having a market value of $6,853,172 and $8,994,013
         at December 31, 2003 and 2002, respectively, were pledged to secure
         public deposits and for other purposes.

                  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. In 2003, the only bonds sold
         were mortgage backed obligations that had experienced significant pay
         downs due to the availability of lower market rate financing available.

                  Other securities consist of required investments in Federal
         Reserve Bank stock, a regional bankers' bank stock, a title insurance
         company, and a brokerage company. All of these investments are booked
         at cost.

3.       Loans

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

                                     2003              2002
                                     ----              ----

                Commercial       $ 24,540,786      $ 21,872,278
                Consumer           30,648,597        29,903,542
                Real estate       159,514,363       146,479,845
                                 ------------      ------------

                                 $214,703,746      $198,255,665
                                 ============      ============

                  Demand deposit overdrafts amounting to $24,288 have been
         reclassified as short-term loans for reporting purposes.

4.       Allowance for Loan Losses

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

                                      2003          2002          2001
                                      ----          ----          ----

Balance - Beginning of Year        $1,982,559    $1,774,632    $1,667,723
Provision for loan losses             291,612       418,582       197,886
Recoveries on loans                    65,852        63,129       161,091
Loans charged off                    (355,922)     (273,784)     (252,068)
                                   -----------   -----------   -----------
Balance - End of Year              $1,984,101    $1,982,559    $1,774,632
                                   ===========   ===========   ===========
<PAGE>

Page 50 of 90


                  As of December 31, 2003, the Bank had no restructured loans in
         the portfolio. There were $29,479 in nonaccrual loans and $12,917,380
         in loans identified by management as having various degrees of
         weakness. As of the same date in 2002, the Bank had no restructured
         loans, $98,630 in nonaccrual loans, and $10,920,663 in loans with
         weaknesses.

5.       Office Buildings, Equipment, and Leasehold Improvements

                Major classifications of these assets are summarized as follows:

                                        Estimated
                                          Useful
                                      Lives (Years)       2003         2002
                                      -------------       ----         ----

Land                                                   $1,230,485   $1,014,560
Buildings and improvements                 6-40         3,090,411    3,080,651
Furniture and equipment                    2-10         2,519,097    2,353,744
Leasehold improvements                     5-6             66,854       66,854
Construction in progress                                  284,216            -
                                                       -----------  -----------
                                                        7,191,063    6,515,809
Less:  Accumulated depreciation                        (2,659,742)  (2,230,707)
                                                       -----------  -----------

                                                       $4,531,321   $4,285,102
                                                       ===========  ===========

                  The cost basis of fully depreciated assets totaled $882,455 at
         December 31, 2003.

6.       Other Real Estate

                  As of December 31, 2003, the Bank held other real estate in
         the amount of $106,904. The amount represents cost related to
         converting collateral on nonperforming loans from the customer to the
         Bank. All properties 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                          $ 7,399,786     $ 26,759,782
Due from six months to one year              7,372,885       25,072,765
Due from one year to three years             8,039,433       32,733,540
Due from three years to five years          10,519,753       34,810,256
Due from five years to ten years                     -           20,017
                                           -----------     ------------

               Total                       $33,331,857     $119,396,360
                                           ===========     ============

                  Interest expense on time deposits greater than or equal to
         $100,000 was $1,233,822 in 2003.



<PAGE>

Page 51 of 90


8.       Federal Income Taxes

                  Federal income taxes payable, as of December 31, 2003 and
         2002, were as follows:

                                                 2003           2002
                                                 ----           ----

                Currently payable             $       -      $  32,516
                Deferred                       (302,829)      (195,611)
                                              ----------     ----------

                                              $(302,829)     $(163,095)
                                              ==========     ==========

                  The components of applicable income taxes are as follows:

                                                 2003           2002
                                                 ----           ----

                Current                       $1,488,554     $1,704,583
                Deferred from income and
                   expense items                (107,218)      (364,704)
                                              -----------    -----------

                               Total          $1,381,336     $1,339,879
                                              ===========    ===========

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

                                                         2003         2002

Accelerated depreciation                               $    714    $ (47,572)
Excess (Deficiency) of provision for loan
   losses over deduction for Federal
   income tax purposes                                  (39,297)      79,236
Deferred compensation                                    38,373       23,154
Cash value life insurance                                20,257       18,593
Stock option compensation                                 4,835            -
                                                       ---------   ----------

               Total Tax Impact of Temporary
                  Differences in Recognition
                  of Income and Expenses                 24,882       73,411

Tax impact of balance sheet recognition
   of unrealized security losses                         82,336     (438,115)
                                                       ---------   ----------

               Total Change to Deferred Tax
                  for the Year                         $107,218    $(364,704)
                                                       =========   ==========









<PAGE>

Page 52 of 90


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

                                                       2003          2002
                                                       ----          ----

Statutory rates                                         34%           34%

Income tax expense at statutory
   rates                                            $1,680,960    $1,610,892

Increase (Decrease) due to
   Tax exempt income                                  (228,678)     (252,770)
   Other                                               (70,946)       52,779
                                                    -----------   -----------

                                                    $1,381,336    $1,410,901
                                                    ===========   ===========

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

9.       Commitments and Contingent Liabilities

                  At December 31, 2003 and 2002, commitments under standby
         letters of credit aggregated $1,283,313 and $1,152,056, 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, 2003, the Bank incurred
         operating lease expense amounting to $53,276 for banking offices in
         addition to $7,175 depreciated for leasehold improvements.

                  Minimum lease payment at December 31, 2003 under noncancelable
         real property operating lease commitments for the succeeding year is:

                               2004               $26,150
                                                  ========

                  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 2003 totals listed herein.

                  The Bank has entered into several agreements to service and
         maintain equipment and software, including the Bank's core processing
         system, proof machines, and mailing equipment. Many of the Bank's
         contracts and agreements are due for renewal during 2004, resulting in
         the large difference between the amount shown in 2004 and that shown in
         succeeding years. The costs, based on current rates and contract terms,
         are as follows:

                            2004                   $234,484
                            2005                     13,555
                            2006                     13,555
                            2007                     10,560
                            2008                     10,560
                         Thereafter                  10,560
                                                   --------

                           Total                   $293,274
                                                   ========


<PAGE>

Page 53 of 90


                  At year end, the Bank had entered into several purchase
         commitments amounting to $613,737. These commitments relate to the
         establishment of a new full- service branch banking office in
         Blackstone, Virginia.

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 percent 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 2003, Bank payments through matching and discretionary
         contributions totaled $153,851 while employees' salary reduction
         amounted to $163,078. The cost of administration for the 401(k) plan
         paid in 2003 amounted to $3,397.

                  The Bank has adopted a non-tax qualified retirement plan for
         certain officers to supplement their retirement benefits. The plan is
         funded through split dollar insurance instruments that provide
         retirement as well as a death benefit. The plan was funded by a single
         payment premium. The premium payment is classified as a cash value of
         life insurance; therefore, investment risk is present. To ensure the
         safety of this investment, the insurance carriers holding the prepaid
         premiums are to be rated no lower than AA by Standard & Poor's. The
         Bank has contracted with an outside agency to administer and monitor
         the plan. During 2002, the year of adoption, the Company expensed
         $71,111 for the program.

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 $120,448 and $163,974 for the years
         ended December 31, 2003 and 2002, 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
         $7,911,390 and $7,637,532 at December 31, 2003 and 2002, respectively.
         During the year of 2003, new loans to the group totaled $2,534,006,
         while repayments amounted to $2,260,148. 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, 2003, two directors, W. J. Callis and R. M.
         Berryman, had outstanding loans in excess of 5 percent of stockholders'
         equity. The beginning balance of loans to Mr. Callis was $4,217,179
         with current year activity consisting of $840,434 in advances and
         $1,332,485 in repayments for an ending balance of $3,725,128. The
         beginning balance of loans to Mr. Berryman was $311,000 with current
         year activity consisting of $1,148,206 in advances and $19,348 in
         repayments for an ending balance of $1,439,858.

         Deposits

                  As of December 31, 2003, the Bank held deposits of Directors,
         Executive Officers, and their related interest amounting to $2,895,687.


<PAGE>

Page 54 of 90


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, 2003, 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, 2003, the Bank also had unused commitments
         resulting from credit line deeds of trust, home equity lines,
         construction lines, and an unfunded business loan. The total amount of
         these commitments amounted to $35,509,335.

                  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 $3,484,563, or 15
         percent, of the Bank's equity, exclusive of unrealized gains or losses.

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:

                                                   2003     2002       Well
                                                  Actual   Actual   Capitalized
                                                   Rate     Rate     Standards

Total Risk Based Capital to Risk
   Weighted Assets                                12.92%   11.46%      10.00%
                                                  ======   ======      ======

Tier I Capital to Risk Weighted Assets            11.92%   10.54%       6.00%
                                                  ======   ======      ======

Tier I Capital to Total Average Assets             8.35%    8.87%       5.00%
                                                  ======   ======      ======

                  The capital ratios continued to exceed minimum standards and
         were strengthened due to both increased earnings and the stock
         repurchase program.

15.      Capital

                  The Company continued the stock repurchase program initiated
         in 1999.  Through the repurchase program, the Company bought back
         25,307 shares of common stock in 2003.



<PAGE>

Page 55 of 90


                  The Company also sold stock through the employee stock option
         plan. The sales for the year amounted to 28,240 shares of common stock.
         The net result of the stock plans resulted in an increase of $615 in
         common stock and a decrease of $137,787 in additional paid-in capital.

                  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 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
         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, and all options were fully vested one year after
         the grant date.

                  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. In addition, the vesting schedule for
         options granted after April 15, 1999 was changed to five years, 20
         percent in each year, beginning one year after the grant date. Prior to
         January 1, 2003, the Company accounted for both plans in accordance
         with Accounting Principles Board (APB) Opinion 25, "Accounting for
         Stock Issued to Employees," and related interpretations. Because
         options are issued at a price above the current market price of the
         stock at the time of issue, no impact on earnings has been recognized
         in years prior to 2003.

                  Beginning January 1, 2003, the Company adopted the fair value
         based method of accounting for stock options using the prospective
         method of transition pursuant to FAS 148, Accounting for Stock-Based
         Compensation. The following table shows the effect on net income and
         earnings per share if the fair value based method of accounting had
         been applied to all outstanding and unvested awards as of December 31,
         2003:

                                                 Years Ended December 31,
                                              2003         2002         2001
                                              ----         ----         ----

Net Income, as reported                    $3,595,527   $3,398,040   $2,735,768
Add:  Stock-based employee compensation
   expense included in reported net income,
   net of related tax effects                   9,304            -            -
Deduct:  Total stock-based employee
   compensation expense determined under
   fair value based method for all awards,
   net of related tax effects                 (33,183)     (61,038)     (23,880)
                                           -----------  -----------  -----------

Pro forma net income                       $3,571,648   $3,337,002   $2,711,888
                                           ===========  ===========  ===========
Earnings per share
   Basic - as reported                     $     1.21   $     1.15   $     0.92
                                           ===========  ===========  ===========

   Basic - pro forma                       $     1.21   $     1.12   $     0.91
                                           ===========  ===========  ===========

   Diluted - as reported                   $     1.19   $     1.13   $     0.91
                                           ===========  ===========  ===========

   Diluted - pro forma                     $     1.19   $     1.11   $     0.90
                                           ===========  ===========  ===========


<PAGE>

Page 56 of 90


                  The fair value of each option grant is estimated as of the
         date the option is granted using the Black-Scholes option-pricing model
         with the following weighted-average assumptions:

                                                       2003           2002
                                                       ----           ----

        Dividend Yield                                 3.00%          3.13%

        Expected Stock Volatility                     20.17%         41.88%

        Expected Life of the Stock Option            10 Years       10 Years

        Risk-Free Interest Rate                        4.01%          4.76%

                  Table 1 below details the status of the shares in the Employee
         Plan as of December 31, 2003 and 2002. Table 2 details the status of
         the shares in the Director Plan as of December 31, 2003 and 2002:

TABLE 1
Employee Stock Option Plan
<TABLE>
<CAPTION>
<S>                                            <C>       <C>              <C>       <C>
                                                     2003                       2002
                                                     ----                       ----
                                                           Weighted-                  Weighted-
                                                            Average                    Average
                                               Shares    Exercise Price   Shares    Exercise Price

Shares Outstanding at January 1                108,217       $ 9.84       115,267       $ 9.61
   Add:   Options Granted During the Year       25,000        14.24        10,000        12.93
   Less:  Options Exercised During the Year     19,240         7.60         6,250         7.85
   Less:  Options Forfeited During the Year      2,000        12.25        10,800        11.46
Shares Outstanding at December 31              111,977        11.16       108,217         9.84
Exercisable at Year End                         53,757         9.19        60,657         8.60

                                               Exercise       Fair        Exercise       Fair
                                                Price         Value        Price         Value
Weighted Average of Options Granted
   During the Year                              $14.24       $ 2.82        $12.93       $ 4.79

TABLE 2
Director Stock Option Plan
                                                     2003                       2002
                                                     ----                       ----
                                                           Weighted-                  Weighted-
                                                            Average                    Average
                                               Shares    Exercise Price   Shares    Exercise Price

Shares Outstanding at January 1                 58,000       $ 8.18        51,000       $ 8.00
   Add:   Options Granted During the Year            -            -        12,000        12.50
   Less:  Options Exercised During the Year      9,000         7.38         5,000         7.38
   Less:  Options Forfeited During the Year          -            -             -            -
Shares Outstanding at December 31               49,000            -        58,000         8.18
Exercisable at Year End                         49,000         8.33        46,000         8.00

                                               Exercise       Fair        Exercise       Fair
                                                Price         Value        Price         Value
Weighted Average of Options Granted
   During the Year                              $    -       $    -        $12.50       $ 7.40
</TABLE>


<PAGE>

Page 57 of 90


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.

         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.

         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:

                                      2003                        2002
                                      ----                        ----

                            Carrying        Fair         Carrying       Fair
                             Amount         Value         Amount        Value
Financial Assets
  Cash and due from banks $ 12,897,917  $ 12,897,917  $ 13,340,576  $ 13,340,576
  Federal funds sold        15,466,000    15,466,000    17,255,000    17,255,000
  Investments
     Available-for-sale     28,083,809    28,904,748    26,966,637    26,966,637
     Held-to-maturity        2,492,813     2,528,948       511,809       529,306
  Loans
     Commercial loans       24,566,093    23,272,438    21,872,278    20,988,557
     Consumer loans         30,635,698    29,941,086    29,903,542    29,906,419
     Real estate loans     159,501,955   153,436,669   147,321,191   127,340,941
     Participation loans -
        out                  1,519,159     1,519,159       841,346       841,346
  Cash value life insurance  3,806,253     3,806,253     3,632,755     3,632,755


<PAGE>

Page 58 of 90


                                      2003                        2002
                                      ----                        ----

                            Carrying        Fair         Carrying       Fair
                             Amount         Value         Amount        Value
Financial Liabilities
  Deposits
    Demand (noninterest-
       bearing)             30,401,821    30,401,821    26,372,882    26,372,882
    Demand (interest-
       bearing)             44,805,264    44,805,264    40,652,207    40,652,207
    Savings                 15,550,755    15,550,755    13,347,995    13,347,995
    Certificates of
       deposit             152,728,219   152,954,384   156,171,356   156,963,338

Unrecognized Financial Instruments
  Unused loan commitments   35,509,335    35,509,335    37,149,451    37,149,451
  Unissued letters of
     credit                  1,283,313     1,283,313     1,152,056     1,152,056

18.      Quantitative and Qualitative Disclosures About Market Risk

                  As with the banking industry in general, 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.

                  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.

                  For purposes of this footnote disclosure, the other
         investments which consist of nonliquid stocks and investments are not
         included.






<PAGE>

Page 59 of 90


Table 1


                           Benchmark Bankshares, Inc.

                         Fair Value of Financial Assets

                                December 31, 2003
<TABLE>
<CAPTION>
<S>                              <C>           <C>           <C>           <C>           <C>           <C>           <C>

                                                                                                                       Current
           Categories               2004          2005          2006          2007          2008       Thereafter       Value
           ----------               ----          ----          ----          ----          ----       ----------       -----

Loans
  Commercial                     $24,540,786   $         -   $         -   $         -   $         -   $         -   $ 23,272,438
  Consumer                        13,462,002     9,140,387     7,105,045     3,073,650     1,427,428       539,246     29,941,086
  Mortgage                        33,685,445    22,949,838    26,935,000    30,850,579    46,983,081    27,054,690    153,436,669

Investments
  U. S. Government Agencies          174,900       174,900       174,900       174,900       174,900     1,299,500      3,036,248
  Mortgage Backed Securities       4,733,312     2,991,576     2,028,430     1,454,383     1,418,554     2,457,054     14,597,094
  Municipals
    Nontaxable                       582,464       590,855     1,230,855     1,291,926     2,319,560    10,379,530     13,880,355

Certificates of Deposits
  < 182 days                       1,724,063             -             -             -             -           -        1,720,298
  182 - 364 days                   8,200,154             -             -             -             -           -        8,149,158
  1 year - 2 years                38,130,534     1,770,492             -             -             -           -       39,326,019
  2 years - 3 years                9,890,590     6,089,111         3,121             -             -           -       15,552,263
  3 years - 4 years                3,248,737     3,774,311     3,711,643        39,109             -           -       10,244,006
  4 years - 5 years                  811,681       669,907       689,126       906,418             -           -        2,872,957
  5 years and over                 6,257,244    18,564,147    10,184,363    20,522,055    29,240,030      31,207       75,089,683
</TABLE>

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

Table 2

                           Benchmark Bankshares, Inc.

                        Variable Interest Rate Disclosure

                                December 31, 2003

<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                         $ 23,722,364   $ 23,495,247    $ 23,272,438   $ 23,053,815   $ 22,775,671
   Consumer                             31,142,395     30,531,081      29,941,086     29,371,389     28,821,029
   Mortgage                            163,922,970    158,546,969     153,436,669    148,575,714    143,948,921
Investments
   U. S. Government Agencies             3,164,325      3,137,599       3,036,248      2,999,906      2,755,418
   Mortgage Backed Securities           15,422,525     15,009,810      14,597,094     14,184,378     13,771,664
   Municipals
     Nontaxable                         15,277,864     14,532,350      13,800,355     13,009,613     12,185,313
</TABLE>


<PAGE>



Page 60 of 90


<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
----------                              ---------      ---------         ----         -------        -------

Certificates of Deposit
   < 182 days                            1,730,366      1,725,321       1,720,298      1,715,297      1,710,319
   182 - 364 days                        8,251,663      8,200,154       8,149,158      8,098,668      8,048,678
   1 year - 2 years                     40,152,630     39,735,034      39,326,019     38,925,324     38,532,698
   2 years - 3 years                    15,982,824     15,764,826      15,552,263     15,344,944     15,142,684
   3 years - 4 years                    10,664,283     10,450,663      10,244,006     10,044,009      9,850,387
   4 years - 5 years                     3,019,189      2,944,612       2,872,957      2,804,075      2,737,828
   5 years and over                     80,430,218     77,694,251      75,089,683     72,608,722     70,244,115
</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 61 of 90


                           Benchmark Bankshares, Inc.

                              (Parent Company Only)

                                 Balance Sheets

                        December 31, 2003, 2002, and 2001

                                     Assets

                                          2003          2002          2001
                                          ----          ----          ----

Cash                                   $ 4,840,661   $ 3,720,694   $ 3,867,818
Investment in subsidiary                24,395,556    23,418,838    20,143,862
Receivable - reimbursement                       -             -            81
                                       -----------   -----------   -----------

               Total Assets            $29,236,217   $27,139,532   $24,011,761
                                       ===========   ===========   ===========

                      Liabilities and Stockholders' Equity

Liabilities
   Dividends payable                   $   623,317   $   593,088   $   534,600

Stockholders' Equity
   Common stock, par value $.21 per
      share, authorized 4,000,000 shares;
      issued and outstanding 12-31-03
      2,962,993.670, issued and
      outstanding 12-31-02 2,967,443.301,
      issued and outstanding 12-31-01
      2,970,003.06                         623,779       623,701       623,701
   Capital surplus                       3,881,671     4,005,238     4,056,859
   Retained earnings                    24,107,450    21,917,505    18,796,601
                                       -----------   -----------   -----------

              Total Stockholders'
                 Equity                 28,612,900    26,546,444    23,477,161
                                       -----------   -----------   -----------

              Total Liabilities and
                 Stockholders' Equity  $29,236,217   $27,139,532   $24,011,761
                                       ===========   ===========   ===========

                              Statements of Income

                  Years Ended December 31, 2003, 2002, and 2001

                                          2003          2002          2001
                                          ----          ----          ----
Income
   Dividends from subsidiary           $ 2,500,000   $ 1,000,000   $ 1,000,000
                                       -----------   -----------   -----------
               Total Income              2,500,000     1,000,000     1,000,000
Expenses
   Professional fees                        14,621        12,550        12,872
   Supplies, printing, and postage           9,923        13,347        10,515
   Taxes - miscellaneous                     2,795             -           850
                                       -----------   -----------   -----------
               Total Expenses               27,339        25,897        24,237
                                       -----------   -----------   -----------
Income Before Equity in Undistributed
   Income of Subsidiary                  2,472,661       974,103       975,763
Equity in Income of Subsidiary (includes
   tax benefit of parent company
   operating loss)                       1,122,866     2,423,937     1,760,005
                                       -----------   -----------   -----------
               Net Income              $ 3,595,527   $ 3,398,040   $ 2,735,768
                                       ===========   ===========   ===========


<PAGE>


Page 62 of 90
                           Benchmark Bankshares, Inc.
                              (Parent Company Only)

                  Statements of Changes in Stockholders' Equity

                  Years Ended December 31, 2003, 2002, and 2001

<TABLE>
<CAPTION>
<S>                                           <C>         <C>           <C>            <C>             <C>
                                                          Additional                   Unrealized
                                               Common       Paid-in       Retained     Securities
                                                Stock       Capital       Earnings     Gain (Loss) *      Total

Balance January 1, 2001                       $631,307    $4,404,047    $17,281,168    $(131,331)      $22,185,191
Net Income
   Parent                                                                   975,763                        975,763
   Equity in income of subsidiary                                         1,760,005                      1,760,005

Sale of Stock                                      630        21,510                                        22,140
Redemption of Stock                                 (4)         (161)                                         (165)
Stock repurchase                                (8,232)     (368,537)                                     (376,769)

Semi-Annual Cash
   Dividend Declared
      June 21, 2001, $.18 per share                                        (536,528)                      (536,528)
      December 20, 2001, $.18 per share                                    (534,600)                      (534,600)

Adjustments                                                                    (396)                          (396)
Unrealized Security Gains (Losses)                                                       (17,480)          (17,480)
                                              ---------   -----------   ------------   ----------      ------------

Balance December 31, 2001                      623,701     4,056,859     18,945,412     (148,811)       23,477,161

Net Income
   Parent                                                                   974,103                        974,103
   Equity in income of subsidiary                                         2,423,937                      2,423,937

Sale of Stock                                    2,405        87,045                                        89,450
Redemption of Stock                                 (2)         (106)                                         (108)
Stock repurchase                                (2,940)     (138,560)                                     (141,500)

Semi-Annual Cash
   Dividend Declared
      June 20, 2002, $.18 per share                                        (532,988)                      (532,988)
      December 19, 2002, $.20 per share                                    (593,088)                      (593,088)

Adjustments                                                                  (1,518)                        (1,518)
Unrealized Security Gains (Losses)                                                       850,458           850,458
                                              ---------   -----------   ------------   ----------      ------------

Balance December 31, 2002                      623,164     4,005,238     21,215,858      701,647        26,545,907

Net Income
   Parent                                                                 2,472,661                      2,472,661
   Equity in income of subsidiary                                         1,122,866                      1,122,866

Sale of Stock                                    5,930       206,696                                       212,626
Redemption of Stock                                              (32)                                          (32)
Stock repurchase                                (5,315)     (344,451)                                     (349,766)
Stock option compensation                                     14,220                                        14,220

Semi-Annual Cash
   Dividend Declared
      June 19, 2003, $.21 per share                                        (622,436)                      (622,436)
      December 18, 2003, $.21 per share                                    (623,317)                      (623,317)

Adjustments                                                                       2                              2
Unrealized Security Gains (Losses)                                                      (159,831)         (159,831)
                                              ---------   -----------   ------------   ----------      ------------

Balance December 31, 2003                     $623,779    $3,881,671    $23,565,634    $ 541,816       $28,612,900
                                              =========   ===========   ============   ==========      ============
</TABLE>
* Net of tax effect.

<PAGE>

Page 63 of 90


                           Benchmark Bankshares, Inc.

                              (Parent Company Only)

                            Statements of Cash Flows

                  Years Ended December 31, 2003, 2002, and 2001


                                           2003          2002          2001
                                           ----          ----          ----
Cash Flows from Operating Activities
   Net income                           $3,595,527    $3,398,040    $2,735,768
   Decrease in payables                          -           (81)            -
                                        -----------   -----------   -----------

               Net Cash Provided by
                  Operating Activities   3,595,527     3,397,959     2,735,768

Cash Flows from Investing Activities
   (Un)distributed earnings of
      subsidiary                        (1,122,866)   (2,423,937)   (1,760,005)
   Capital adjustment                            2        (1,400)           (1)
                                        -----------   -----------   -----------

               Net Cash (Used) by
                  Investing Activities  (1,122,864)   (2,425,337)   (1,760,006)

Cash Flows from Financing Activities
   Sale of stock                           212,626        89,450        22,140
   Redemption of stock                         (32)         (108)         (165)
   Stock repurchase                       (349,766)     (141,500)     (376,769)
   Dividends paid                       (1,215,524)   (1,067,588)   (1,078,044)
                                        -----------   -----------   -----------

               Net Cash (Used) by
                  Financing Activities  (1,352,696)   (1,119,746)   (1,432,838)
                                        -----------   -----------   -----------

Net Increase (Decrease) in Cash          1,119,967      (147,124)     (457,076)

Cash - Beginning of Year                 3,720,694     3,867,818     4,324,894
                                        -----------   -----------   -----------

Cash - End of Year                      $4,840,661    $3,720,694    $3,867,818
                                        ===========   ===========   ===========


<PAGE>


Page 64 of 90


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

                  None


<PAGE>


Page 65 of 90


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, 2003:

<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             Retired Pharmacist                                                    1978
   (63)                         Principal, Smith's Pharmacy, Inc.
                                Pharmacy Associates, Inc.
                                Chairman of Board, Company and Subsidiary

David K. Biggs                  Principal, Biggs Construction Co., Inc.                               2002
   (47)

Mark F. Bragg                   Principal, Atlantic Medical, Inc.                                     1999
   (42)

Lewis W. Bridgforth             Physician                                                             1971
   (64)

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

Earl H. Carter, Jr.             Principal, Taylor-Forbes Equipment                                    2000
   (55)                         Company, Inc.

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

Mary Jane Elkins                Dean of Institutional Advancement,                                    2002
   (52)                         Southside Virginia Community College

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

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

Wayne J. Parrish                Principal, Parrish Trucking Co., Inc.                                 1979
   (65)

Ben L. Watson, III              President and CEO,                                                    1976
   (60)                         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
   (60)

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

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


<PAGE>




Page 66 of 90

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

Jay A. Stafford                 Vice President Branch Administrator                                   1988
   (44)
</TABLE>

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

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

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

         Mr. Watson and Mrs. Pernell 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. Pernell 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, Senior
Vice President in 1993, and to his current position of Executive Vice President
in 2002.

         Mr. Stafford has been Vice President Branch Administrator of the Bank
since 2003. He was promoted to Branch Administrator after having served as Vice
President Regional Manager since 1998. He joined the Bank in 1988 and has served
as Regional Manager, Assistant Vice President, and Branch Manager.

ITEM 11    EXECUTIVE COMPENSATION

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

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

Ben L. Watson, III        2003   $135,288    $15,527       $3,600         2,000(3)        None
President and Chief       2002    126,684     35,063        3,600         4,000(3)        None
Executive Officer         2001    121,812     22,022        3,000         6,000(3)        None

Michael O. Walker         2003    104,352      8,816        2,100         3,000           None
Executive                 2002     96,552     22,790        2,100         6,000           None
Vice President            2001     89,268     15,835        1,800         6,000           None

Janice W. Pernell         2003    100,524      8,316         None         4,150           None
Senior Vice President     2002     92,844     22,790         None         5,850           None
                          2001     89,268     15,835         None         5,850           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 500 options on January 7, 2002, 500 on June
             25, 2003, 500 on August 1, 2003, 500 on December 22, 2003, and
             500 on December 24, 2003.


<PAGE>

Page 67 of 90


B.       Compensation to Directors

                  No fees are paid to Directors for service on the Board of the
         Company. During 2003, each Director was paid $300 for each Board
         meeting and, with the exception of Mr. Watson, each Director received
         $225 for each Committee meeting attended during the year.

C.       Employment Agreements

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

ITEM 12    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                 MANAGEMENT

         The following table sets forth information regarding the beneficial
ownership of the Company's common stock as of December 31, 2003:
<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          Retired Pharmacist                        1978                  86,963.000(1)
   (63)                                                                                         21.82%

David K. Biggs               Principal,                                2002                   2,600.000(2)
   (47)                      Biggs Construction Co., Inc.                                          *

Mark F. Bragg                Principal, Atlantic                       1999                   7,097.409(3)
   (42)                      Medical, Inc.                                                       1.78%

Lewis W. Bridgforth          Physician                                 1971                  41,680.657(4)
   (64)                                                                                         10.46%

William J. Callis            Building Contractor                       1989                  36,620.974(5)
   (61)                                                                                          9.19%

Earl H. Carter, Jr.          Principal, Taylor-Forbes                  2000                   3,705.000
   (55)                      Equipment Company, Inc.                                               *

Earl C. Currin, Jr.          Provost, Southside Virginia               1986                  13,179.000
   (60)                      Community College                                                   3.31%

Mary Jane Elkins             Dean of Institutional                     2002                     700.000
   (52)                      Advancement,                                                          *
                             Southside Virginia
                             Community College

C. Edward Hall               Pharmacist                                1971                  37,185.037(6)
   (63)                                                                                          9.33%

J. Ryland Hamlett            Retired Personnel Manager                 1986                  44,977.000(7)
   (61)                                                                                         11.28%

Wayne J. Parrish             Principal, Parrish                        1979                  28,878.872(8)
   (65)                      Trucking Co., Inc.                                                  7.25%
</TABLE>

* Less than 1%.


<PAGE>

Page 68 of 90

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

Ben L. Watson, III           President and CEO,                        1971                  22,471.508(9)
   (60)                      Company and Subsidiary                                              5.64%

Janice W. Pernell            Senior Vice President                     1976                  11,536.375(10)
   (57)                                                                                          2.89%

Jay A. Stafford              Vice President Branch                     1988                   8,982.063(11)
   (44)                      Administrator                                                       2.25%

Michael O. Walker            Executive Vice President                  1975                  52,000.000(12)
   (53)                                                                                         13.05%

All Directors and                                                                           398,575.895
Executive Officers as                                                                           13.45%
A Group (15 persons)
</TABLE>

(1)  Includes 45,073 shares owned solely by Mr. Berryman's wife.

(2)  Includes 1,400 shares owned by Biggs Construction Co., Inc.

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

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

(5)  Includes 20,640.644 shares held jointly with Mr. Callis's wife.

(6)  Includes 260 shares owned solely by Mr. Hall's wife and 5,040 shares held
     jointly with his mother.

(7)  Includes 17,128 shares held as trustee for the John A. Cordle Family Trust
     and 17,128 shares held as trustee for the Mary F. Cordle Marital Trust.

(8)  Includes 6,971.168 shares held jointly with Mr. Parrish's wife and
     7,419.035 shares owned solely by her.

(9)  Includes 457.508 shares owned solely by Mr. Watson's wife and 2,000
     unexercised option shares for him.

(10) Includes 4,150 unexercised option shares.

(11) Includes 2,000 unexercised option shares.

(12) Includes 25,000 shares held jointly with Mr. Walker's wife and 3,000
     unexercised option shares for him.

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, 2003. 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                         983,508                      33.11%
Box 20
Bowling Green Station
New York, New York  10081


<PAGE>


Page 69 of 90


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:

                                              2003         2002         2001
                                              ----         ----         ----

Executive Officers and their families      $  467,532   $  300,198   $  297,313
Directors and their families (1)              548,185      652,248      522,267
Corporations in which Directors and
   Officers had an interest                 6,895,674    6,685,086    4,721,239
                                           ----------   ----------   ----------

               Total                       $7,911,391   $7,637,532   $5,540,819
                                           ==========   ==========   ==========

(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 2003, Directors and Executive Officers had been granted
lines of credit in the amount of $5,938,000. As of December 31, 2003, $1,961,756
of these lines was unexercised and available.

         At December 31, 2003, the aggregate amount of loans outstanding to all
Directors and Executive Officers of the Company and members of their immediate
families was approximately $6,946,000 representing 24.28% of the total equity of
the Company. Also as of December 31, 2003, two Directors had aggregate
outstanding loans in excess of 5.00% of shareholders' equity: Directors R. M.
Berryman with $1,440,000 and W. J. Callis with $3,725,000.

Stock Sales to Related Parties

         The current Directors and Executive Officers acquired 15,700 shares of
Company stock during 2003 through exercising of stock options. The average price
of options exercised was $7.38. Current Directors and Executive Officers
acquired an additional 9,182 shares of Company stock through purchases of shares
on the open market. The average price of shares purchased on the open market was
$13.33.




<PAGE>


Page 70 of 90


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, 2003 are included in Item 8:

                  Consolidated Statements of Financial Condition - December 31,
                     2003 and 2002
                  Consolidated Statements of Income - Years Ended December 31,
                     2003, 2002, and 2001
                  Consolidated Statements of Changes in Stockholders' Equity -
                     Years Ended December 31, 2003 and 2002
                  Consolidated Statements of Cash Flows - Years Ended December
                     31, 2003, 2002, and 2001
                  Notes to Consolidated Financial Statements - December 31,
                     2003, 2002, and 2001

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

                  Schedule II - Indebtedness to Related Parties

                  Schedule V - Property, Plant, and Equipment

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

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

                  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 71 of 90


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

                                                         Page Number of
                                                  Incorporation by Reference to

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

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

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

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

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

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

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

( 6)  List of Subsidiaries

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

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

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

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

(11)  Section 906 Certification

(12)  Controls and Procedures Certification

(13)  Code of Ethics

(14)  Principal Accounting Fees and Services




<PAGE>


Page 72 of 90


ITEM 14(b)    REPORTS ON FORM 8-K

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



<PAGE>


Page 73 of 90


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 90









Item 14(c)10




               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
Benchmark Bankshares, Inc.


         We have audited the consolidated balance sheets of Benchmark
Bankshares, Inc. and Subsidiary as of December 31, 2003 and 2002, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Benchmark
Bankshares, Inc. and Subsidiary as of December 31, 2003 and 2002 and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2003, in conformity with generally accepted accounting
principles.

         Our audits referred to above included audits of the financial statement
schedules listed under Item 14(a)(2). In our opinion, those financial statement
schedules present fairly, in all material respects, in relation to the financial
statements taken as a whole, the information required to be stated therein.





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

South Hill, Virginia
March 18, 2004




<PAGE>


Page 75 of 90


Item 14(c)11


                    STATEMENT OF CHIEF EXECUTIVE OFFICER AND
           CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350


         In connection with the Form 10-K of Benchmark Bankshares, Inc. for the
year ended December 31, 2003, we, Ben L. Watson, III, President and Chief
Executive Officer of Benchmark Bankshares, Inc., and Janice W. Pernell, Senior
Vice President, Treasurer, and Assistant Secretary of Benchmark Bankshares,
Inc., hereby certify pursuant to 18 U.S.C.ss.1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge:

         (a)      such Form 10-K for the year ended December 31, 2003 fully
                  complies with the requirements of Section 13(a) of the
                  Securities Exchange Act of 1934, as amended; and

         (b)      the information contained in such Form 10-K for the year ended
                  December 31, 2003 fairly presents, in all material respects,
                  the financial condition and results of operations of Benchmark
                  Bankshares, Inc. as of, and for, the year presented in such
                  Form 10-K.



By:      Ben L. Watson, III                              Date:  March 18, 2004
         President and Chief Executive Officer



By:      Janice W. Pernell                               Date:  March 18, 2004
         Senior Vice President, Treasurer,
         and Assistant Secretary




<PAGE>


Page 76 of 90


Item 14(c)12      Section 302 Certification

I, Ben L. Watson, III, certify that:

1.       I have reviewed this annual report on Form 10-K of Benchmark
         Bankshares, Inc.;

2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the year
         covered by this annual report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the years presented in
         this annual report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

         a)       designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the year
                  in which this annual report is being prepared;

         b)       evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         c)       presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's Board of Directors (or persons
         performing the equivalent functions):

         a)       all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize, and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.


Date:    March 18, 2004                   Ben L. Watson, III
                                          President and Chief Executive Officer



<PAGE>


Page 77 of 90


Item 14(c)12      Section 302 Certification

I, Janice W. Pernell, certify that:

1.       I have reviewed this annual report on Form 10-K of Benchmark
         Bankshares, Inc.;

2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the year
         covered by this annual report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the years presented in
         this annual report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

         a)       designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the year
                  in which this annual report is being prepared;

         b)       evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         c)       presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's Board of Directors (or persons
         performing the equivalent functions):

         a)       all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize, and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.


Date:    March 18, 2004                   Janice W. Pernell
                                          Senior Vice President, Treasurer, and
                                          Assistant Secretary





<PAGE>

Page 78 of 90


Item 14(c)13

                                 CODE OF ETHICS

                 BENCHMARK BANKSHARES, INC. AND ITS SUBSIDIARY,
                            BENCHMARK COMMUNITY BANK


The banking business is based on trust.

Benchmark's customers and stockholders entrust us with their money and
confidential information because of our reputation for honesty, integrity, and
high ethical standards.

Appearances can be as important as reality in the appropriate standard of
ethical conduct. Since no list can take into account every situation,
Benchmark's Code of Ethics is based on the exercise of conservative good
judgment. It is the obligation of all Employees, Officers, and Directors to know
and understand the Code of Ethics and Benchmark's other polices and procedures
and to consult with the company's Legal Counsel, Robert E. Hawthorne, Sr.,
regarding any questions.

Employees, Officers, or Directors who discover any Employee, Officer, or
Director engaging in an illegal or unethical act (other than accounting,
accounting controls, or auditing matters - see the next paragraph) have the
responsibility to promptly notify:

         Legal Counsel for Benchmark Bankshares, Inc./Benchmark Community Bank
         Robert E. Hawthorne, Sr.
         Hawthorne and Hawthorne, Attorneys at Law
         110 South Broad Street
         P. O. Box 603 Kenbridge, Virginia 23944 Phone (434)676-3275

Any phone notification should be followed up with a written report. Reports can
be submitted anonymously or on a confidential basis. If such reports are
submitted on a confidential basis, the reporting Employee's, Officer's, or
Director's name will not be disclosed in Benchmark's investigation, but
Benchmark may be required to disclose the person's name to government entities.
There will be no retaliation against a person making good faith reports or
complaints.

If an Employee, Officer, or Director has a complaint or concern about any
accounting, accounting control, or auditing matters at Benchmark (for example,
if it is believed that an accounting or auditing practice is questionable or
incorrect), the Employee, Officer, or Director should follow procedures as set
forth in Benchmark Bank's Communication Policy.

Benchmark's Employees, Officers, and Directors must keep the Company's
information and customers' information confidential (except where disclosure is
legally mandated, such as in a court proceeding). "Confidential" information
includes all non-public information that might be of use to competitors or
harmful to the Company or its customers, if disclosed.

Benchmark's Employees, Officers, and Directors must comply with all applicable
laws, rules, and regulations in conducting the Company's business. This includes
(but is not limited to) antitrust laws, insider trading laws, and employment
laws, as well as laws and regulations of the Federal Reserve Bank and the Bureau
of Financial Institutions of the Commonwealth of Virginia as they pertain to the
conduct of banking business.

Failure to abide by this Code of Ethics can be grounds for disciplinary action
up to and including dismissal.

In summary, it is the expectation that all Employees, Officers, and Directors of
Benchmark Bankshares, Inc. and Benchmark Community Bank are to act in a manner
that is always consistent with the highest possible standards of ethics.

<PAGE>

Page 79 of 90


Item 14(c)14


                     Principal Accounting Fees and Services


The Board of Directors has appointed Creedle, Jones, and Alga, P. C. of South
Hill, Virginia to perform the audit of the Company's financial statements for
the year ending December 31, 2004.  Creedle, Jones, and Alga, P. C. served as
the Company's independent auditors for the year ended December 31, 2003.
Representatives from Creedle, Jones, and Alga, P. C. will be present at the
Annual Meeting and will be given the opportunity to make a statement, if they
so desire, and will be available to respond to appropriate questions from
shareholders.

The aggregate fees billed by Creedle, Jones, and Alga, P. C. for professional
services rendered during 2003 and 2002 can be found in the Bank's proxy
statement for 2003.



<PAGE>


Page 80 of 90


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 18, 2004.

                           Benchmark Bankshares, Inc.
                 (formerly Lunenburg Community Bankshares, Inc.)
                                  (Registrant)




By       Ben L. Watson, III                    By          Janice W. Pernell
              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 18, 2004.




C. Edward Hall                03-18-04    Wayne J. Parrish             03-18-04
--------------------------------------    -------------------------------------




Mark F. Bragg                 03-18-04    Earl C. Currin, Jr.          03-18-04
--------------------------------------    -------------------------------------




Mary Jane Elkins              03-18-04    David K. Biggs               03-18-04
--------------------------------------    -------------------------------------




J. Ryland Hamlett             03-18-04    Lewis W. Bridgforth          03-18-04
--------------------------------------    -------------------------------------




William J. Callis             03-18-04    R. Michael Berryman          03-18-04
--------------------------------------    -------------------------------------




Earl H. Carter, Jr.           03-18-04    Ben L. Watson, III           03-18-04
--------------------------------------    -------------------------------------



<PAGE>


Page 81 of 90


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

                          Year Ended December 31, 2003

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

Executive Officers,
   Directors, and Their
   Related Interest              $7,637,532  $2,534,006  $2,260,148  $7,911,390

W. J. Callis, Director(1)(2)(3)   4,217,179     840,434   1,332,485   3,725,128
R. M. Berryman(1)(2)(3)             311,000   1,148,206      19,348   1,439,858



                          Year Ended December 31, 2002

Executive Officers,
   Directors, and Their
   Related Interest              $5,540,819  $3,058,728  $  962,015  $7,637,532

W. J. Callis, Director(1)(2)(3)   3,321,515   1,401,297     505,633   4,217,179



                          Year Ended December 31, 2001

Executive Officers,
   Directors, and Their
   Related Interest              $4,444,931  $2,407,743  $1,311,855  $5,540,819

W. J. Callis, Director(1)(2)(3)   2,433,923   1,112,942     225,350   3,321,515













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

(2)   Loans to business interest.

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



<PAGE>


Page 82 of 90


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


                           Benchmark Bankshares, Inc.

                          Year Ended December 31, 2003

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

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

Land                              $1,014,560   $215,925     $      -      $     -      $1,230,485

Buildings and improvements         3,080,651      9,760            -            -       3,090,411
Leasehold improvements                66,854          -            -            -          66,854
Construction in progress                   -    284,216            -            -         284,216
                                  ----------   --------     ---------     -------      ----------
                                   3,147,505    293,976            -            -       3,441,481

Equipment, furniture, and
   fixtures                        2,353,744    173,944       (8,591)           -       2,519,097
                                  ----------   --------     ---------     -------      ----------

               Total              $6,515,809   $683,845     $ (8,591)     $     -      $7,191,063
                                  ==========   ========     =========     =======      ==========


                                       Year Ended December 31, 2002



Land                              $  963,060   $ 51,500     $      -      $     -      $1,014,560

Buildings and improvements         3,024,568     56,083            -            -       3,080,651
Leasehold improvements                66,854          -            -            -          66,854
Construction in progress                   -          -            -            -               -
                                  ----------   --------     ---------     -------      ----------
                                   3,091,422     56,083            -            -       3,147,505

Equipment, furniture, and
   fixtures                        2,014,306    397,856      (58,418)           -       2,353,744
                                  ----------   --------     ---------     -------      ----------

               Total              $6,068,788   $505,439     $(58,418)     $     -      $6,515,809
                                  ==========   ========     =========     =======      ==========
</TABLE>



<PAGE>


Page 83 of 90


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


                          Year Ended December 31, 2001


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

Land                              $  917,748   $   45,312   $         -    $       -    $  963,060

Buildings and improvements         2,633,457      491,218      (100,107)           -     3,024,568
Leasehold improvements               167,390        2,734      (103,270)           -        66,854
Construction in progress             217,042            -             -     (217,042)            -
                                  ----------   ----------   ------------   ----------   ----------

                                   3,017,889      493,952      (203,377)    (217,042)    3,091,422

Equipment, furniture, and
   fixtures                        2,257,349      599,330      (842,373)           -     2,014,306
                                  ----------   ----------   ------------   ----------   ----------

               Total              $6,192,986   $1,138,594   $(1,045,750)   $(217,042)   $6,068,788
                                  ==========   ==========   ============   ==========   ==========
</TABLE>




<PAGE>


Page 84 of 90


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


                           Benchmark Bankshares, Inc.

                          Year Ended December 31, 2003
<TABLE>
<CAPTION>
<S>                              <C>          <C>          <C>            <C>            <C>

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

Building and improvements        $1,034,100    $129,007    $         -      $     -      $1,163,107
Leasehold improvements               40,061       7,175              -            -          47,236
                                 ----------    --------    ------------     -------      ----------

               Total              1,074,161     136,182              -            -       1,210,343

Equipment, furniture, and
   fixtures                       1,156,546     283,691           (955)      12,584       1,451,866
                                 ----------    --------    ------------     -------      ----------

               Total             $2,230,707    $419,873    $      (955)     $12,584      $2,662,209
                                 ==========    ========    ============     =======      ==========


                          Year Ended December 31, 2002

Building and improvements        $  901,133    $132,967    $         -      $     -      $1,034,100
Leasehold improvements               32,886       7,175              -            -          40,061
                                 ----------    --------    ------------     -------      ----------

               Total                934,019     140,142              -            -       1,074,161

Equipment, furniture, and
   fixtures                         851,113     363,851        (58,418)           -       1,156,546
                                 ----------    --------    ------------     -------      ----------

               Total             $1,785,132    $503,993    $   (58,418)     $     -      $2,230,707
                                 ==========    ========    ============     =======      ==========


                          Year Ended December 31, 2001

Building and improvements        $  886,356    $114,884    $  (100,107)     $     -      $  901,133
Leasehold improvements              129,040       7,116       (103,270)           -          32,886
                                 ----------    --------    ------------     -------      ----------

               Total              1,015,396     122,000       (203,377)           -         934,019

Equipment, furniture, and
   fixtures                       1,438,006     224,621       (811,514)           -         851,113
                                 ----------    --------    ------------     -------      ----------

               Total             $2,453,402    $346,621    $(1,014,891)     $     -      $1,785,132
                                 ==========    ========    ============     =======      ==========
</TABLE>





<PAGE>


Page 85 of 90


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

                           Benchmark Bankshares, Inc.

                              (Parent Company Only)

                Balance Sheet, December 31, 2003, 2002, and 2001


                                     Assets

                                            2003          2002          2001
                                            ----          ----          ----

Cash                                    $ 4,840,661   $ 3,720,694   $ 3,867,818
Investment in subsidiary                 24,395,556    23,418,301    20,143,862
Receivable - reimbursement                        -             -            81
                                        -----------   -----------   -----------

               Total Assets             $29,236,217   $27,138,995   $24,011,761
                                        ===========   ===========   ===========


                      Liabilities and Stockholders' Equity

Liabilities
   Dividends payable                    $   623,317   $   593,088   $   534,600

Stockholders' Equity
   Common stock, par value $.21 per
      share, authorized 4,000,000 shares;
      issued and outstanding 12-31-03
      2,962,993.670, issued and
      outstanding 12-31-02
      2,967,443.301, issued and
      outstanding 12-31-01 2,970,003.06     623,779       623,164       623,701
   Surplus                                3,881,671     4,005,238     4,056,859
   Retained earnings                     24,107,450    21,917,505    18,796,601
                                        -----------   -----------   -----------

               Total Stockholders'
                  Equity                 28,612,900    26,545,907    23,477,161
                                        -----------   -----------   -----------

               Total Liabilities and
                  Stockholders' Equity  $29,236,217   $27,138,995   $24,011,761
                                        ===========   ===========   ===========


















<PAGE>


Page 86 of 90


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


                           Benchmark Bankshares, Inc.

                              (Parent Company Only)

                              Statements of Income

                  Years Ended December 31, 2003, 2002, and 2001


                                           2003          2002          2001
                                           ----          ----          ----

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

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

Expenses
   Professional fees                        14,621        12,550        12,872
   Supplies, printing, and postage           9,923        13,347        10,515
   Taxes - miscellaneous                     2,795             -           850
                                        ----------    ----------    ----------

               Total Expenses               27,339        25,897        24,237
                                        ----------    ----------    ----------

Income Before Equity in Undistributed
   Income of Subsidiary                  2,472,661       974,103       975,763

Equity in Income of Subsidiary
   (includes tax benefit of parent
   company operating loss)               1,122,866     2,423,937             -
                                        ----------    ----------    ----------

               Net Income               $3,595,527    $3,398,040    $  975,763
                                        ==========    ==========    ==========



<PAGE>


Page 87 of 90
ITEM 14(d)(2)     SUPPLEMENTAL INFORMATION TO AUDITED FINANCIAL STATEMENTS
Page 2            PURSUANT TO SEC REGULATIONS

                           Benchmark Bankshares, Inc.
                              (Parent Company Only)

                  Statement of Changes in Stockholders' Equity

                  Years Ended December 31, 2003, 2002, and 2001

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

Balance January 1, 2001                $631,307    $4,404,047    $17,281,168    $(131,331)     $22,185,191

Net Income
   Parent                                                            975,763                       975,763
   Equity in income of subsidiary                                  1,760,005                     1,760,005

Sale of Stock                               630        21,510                                       22,140
Redemption of Stock                          (4)         (161)                                        (165)
Stock Repurchase                         (8,232)     (368,537)                                    (376,769)

Semi-Annual Cash
   Dividend Declared
      June 21, 2001, $.18 per share                                 (536,528)                     (536,528)
      December 20, 2001, $.18 per share                             (534,600)                     (534,600)

Adjustments                                                             (396)                         (396)
Unrealized Security Gains (Losses)                                                (17,480)         (17,480)
                                       ---------   -----------   ------------   ----------     ------------

Balance December 31, 2001               623,701     4,056,859     18,945,412     (148,811)      23,477,161

Net Income
   Parent                                                            974,103                       974,103
   Equity in income of subsidiary                                  2,423,937                     2,423,937

Sale of Stock                             2,405        87,045                                       89,450
Redemption of Stock                          (2)         (106)                                        (108)
Stock Repurchase                         (2,940)     (138,560)                                    (141,500)

Semi-Annual Cash
   Dividend Declared
      June 20, 2002, $.18 per share                                 (532,988)                     (532,988)
      December 19, 2002, $.20 per
         share                                                      (593,088)                     (593,088)

Adjustments                                                           (1,518)                       (1,518)
Unrealized Security Gains (Losses)                                                850,458          850,458
                                       ---------   -----------   ------------   ----------     ------------
Balance December 31, 2002               623,164     4,005,238     21,215,858      701,647       26,545,907

Net Income
   Parent                                                          2,472,661                     2,472,661
   Equity in income of subsidiary                                  1,122,866                     1,122,866

Sale of Stock                             5,930       206,696                                      212,626

Redemption of Stock                                       (32)                                         (32)
Stock Repurchase                         (5,315)     (344,451)                                    (349,766)
Stock option compensation                              14,220                                       14,220

Semi-Annual Cash
   Dividend Declared
      June 19, 2003, $.21 per share                                 (622,436)                     (622,436)
      December 18, 2003, $.21 per
         share                                                      (623,317)                     (623,317)

Adjustments                                                                2                             2
Unrealized Security Gains (Losses)                                               (159,831)        (159,831)
                                       ---------   -----------   ------------   ----------     ------------

Balance December 31, 2003              $623,779    $3,881,671    $23,565,634    $ 541,816      $28,612,900
                                       =========   ===========   ============   ==========     ============
</TABLE>
* Net of tax effect.


<PAGE>


Page 88 of 90


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

                           Benchmark Bankshares, Inc.

                              (Parent Company Only)

                            Statements of Cash Flows

                  Years Ended December 31, 2003, 2002, and 2001


                                           2003          2002          2001
                                           ----          ----          ----

Cash Flows from Operating Activities
   Net income                           $3,595,527    $3,398,040    $2,735,768
   Decrease in payables                          -           (81)            -
                                        -----------   -----------   -----------

               Net Cash Provided by
                  Operating Activities   3,595,527     3,397,959     2,735,768

Cash Flows from Investing Activities
   (Un)distributed earnings of
      subsidiary                        (1,122,866)   (2,423,937)   (1,760,005)
   Capital adjustment                            2        (1,400)           (1)
                                        -----------   -----------   -----------

               Net Cash (Used) by
                  Investing Activities  (1,122,864)   (2,425,337)   (1,760,006)

Cash Flows from Financing Activities
   Sale of stock                           212,626        89,450        22,140
   Redemption of stock                         (32)         (108)         (165)
   Stock repurchase                       (349,766)     (141,500)     (376,769)
   Dividends paid                       (1,215,524)   (1,067,588)   (1,078,044)
                                        -----------   -----------   -----------

               Net Cash (Used) by
                  Financing Activities  (1,352,696)   (1,119,746)   (1,432,838)
                                        -----------   -----------   -----------

Net Increase (Decrease) in Cash          1,119,967      (147,124)     (457,076)

Cash - Beginning of Year                 3,720,694     3,867,818     4,324,894
                                        -----------   -----------   -----------

Cash - End of Year                      $4,840,661    $3,720,694    $3,867,818
                                        ===========   ===========   ===========





<PAGE>


Page 89 of 90


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

Investment Securities - Realized Gains and Losses

                                                     Realized   Realized
                                                       Gains     Losses

For the Year Ended December 31, 2003
   U. S. Government Agencies                         $     -    $     -
   Pooled Securities                                  16,037          -
   State and Political Subdivisions                    3,451          -
                                                     -------    -------

               Total                                 $19,488    $     -
                                                     =======    =======

For the Year Ended December 31, 2002
   U. S. Government Agencies                         $ 1,890    $     -
   Pooled Securities                                   6,584     (4,857)
   State and Political Subdivisions                    9,814     (4,552)
                                                     -------    --------

               Total                                 $18,288    $(9,409)
                                                     =======    ========




<PAGE>


Page 90 of 90


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


Capital Ratios for the Bank Subsidiary

                                               Bank
                                              Ratios

Total Risk-Based Capital Ratio                12.91%

Tier 1 Risk-Based Capital Ratio               11.91%

Tier 1 Leverage Ratio                          8.35%