Form 10-QSB
U. S. Securities and Exchange Commission
Washington, DC 20549
[X] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the 3-month period ended March 31, 1996.
[ ] Transition Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________ to ______________
Commission File No. 000-18445
Benchmark Bankshares, Inc.
(Name of Small Business Issuer in its Charter)
Virginia 54-1460991
(State or Other (I.R.S. Employer
Jurisdiction of I.D. No.)
Incorporation or
Organization)
100-102 South Broad Street
Kenbridge, Virginia 23944
(Address of Principal Executive Offices)
Issuer's Telephone Number: (804)676-8444
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(1) Yes [X] No [ ] (2) Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest applicable date:
1,442,176.021
Form 10-QSB
Benchmark Bankshares, Inc.
Part I - Table of Contents
March 31, 1996
Part I Financial Information
Item 1 Consolidated Balance Sheet
Consolidated Statement of Income
Condensed Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Form 10-QSB
Benchmark Bankshares, Inc.
Consolidated Balance Sheet
(Unaudited) (Audited)
March 31, December 31,
1996 1995
Assets
Cash and due from banks 3,788,382 4,397,058
Securities
Federal Agency obligations 7,576,511 7,870,567
State and municipal obligations 10,974,991 11,112,356
Other securities 137,000 137,000
Federal funds sold 7,271,000 5,862,000
Loans 108,470,917 103,723,930
Less
Unearned interest and fees (270,010) (275,998)
Loan loss reserve (1,084,709) (1,037,344)
Net Loans 107,116,198 102,410,588
Premises and equipment - net 2,347,281 2,000,241
Accrued interest receivable 1,390,226 1,267,967
Deferred income taxes 245,590 151,931
Other assets 185,777 153,807
Total Assets 141,032,956 135,363,515
Liabilities and Shareholders'
Equity
Deposits
Demand (non-interest bearing) 12,241,244 12,392,332
NOW accounts 13,002,165 11,589,895
Money market accounts 5,990,613 5,542,293
Savings 8,432,463 7,679,313
Time, $100,000 and over 13,829,055 12,734,404
Other time 73,311,768 71,684,402
Total Deposits 126,807,308 121,622,639
Accrued interest payable 650,314 650,822
Accrued income tax payable 366,490 97,302
Divendends payable - 286,709
Other liabilities 137,783 205,473
Total Liabilities 127,961,895 122,862,945
Shareholders' Equity
Common stock, par value $.21
per share,authorized
4,000,000 shares; issued
and outstanding 03-31-96
1,442,176.021, issued and
outstanding 12-31-95 1,433,544.679 302,857 301,044
Capital surplus 3,132,793 3,007,305
Retained earnings 9,581,894 8,987,406
Unrealized security gains net
of tax effect 53,517 204,815
Total Shareholders' Equity 13,071,061 12,500,570
Total Liabilities and
Shareholders' Equity 141,032,956 135,363,515
Note: The balance sheet at December 31, 1995 has been derived
from the audited financial statements at that date.
See notes to consolidated financial statements.
Form 10-QSB
Benchmark Bankshares, Inc.
Consolidated Statement of Income
(Unaudited)
Three
Months
Ended March
31,
1996 1995
Interest Income
Interest and fees on loans 2,676,281 2,247,812
Interest on U. S. Government
obligations 140,868 76,748
Interest on State and
municipal obligations 145,442 129,853
Interest on Federal funds
sold 75,065 80,963
Total Interest Income 3,037,656 2,535,376
Interest Expense
Interest on deposits 1,485,971 1,153,668
Net Interest Income 1,551,685 1,381,708
Provision for Loan Losses 67,988 36,975
Net Interest Income
after Provision 1,483,697 1,344,733
Non-Interest Income
Service charges, commissions,
and fees on deposits 84,481 77,608
Other operating income 51,131 51,280
(Losses) on sale of securities (7,700) (359)
Rental income 1,800 1,800
Total Non-Interest Income 129,712 130,329
Non-Interest Expense
Salaries and wages 426,906 369,247
Employee benefits 84,553 88,179
Occupancy expenses 37,202 34,900
Furniture and equipment expense 34,067 33,446
Other operating expenses 182,726 238,979
Total Non-Interest Expense 765,454 764,751
Net Income before Taxes 847,955 710,311
Income Taxes 253,469 212,748
Net Income 594,486 497,563
Net Income per Share * .41 0.35
* Weighted average reflecting
net sale of 8,631 shares on
January 25, 1996 and 6,459
shares on January 31, 1995,
respectively.
See notes to consolidated financial statements.
Form 10-QSB
Benchmark Bankshares, Inc.
Condensed Consolidated Statement
of Cash Flows
(Unaudited)
Three
Months
Ended March 31,
1996 1995
Cash Provided by Operations 655,237 545,563
Cash Provided by Financing Activities
Net increase in demand deposits
and interest bearing transaction
accounts 1,261,182 878,888
Net increase (decrease) in
savings and money
market deposits 1,201,470 (128,243)
Net increase in certificates of deposit 2,722,017 3,325,569
Decrease in dividends payable (286,709) (213,035)
Sale of stock 127,301 93,650
Total Cash Provided by Financing
Activities 5,025,261 3,956,829
Cash Used in Investing Activities
Purchase of securities (1,345,000) (250,000)
Sale of Securities 509,747 -
Maturity of securities 1,037,436 65,475
Net increase in loans (4,705,610) (3,053,569)
Purchase of premises and equipment (376,747) (30,172)
Total Cash Used by Investing Activities (4,880,174) (3,268,266)
Increase (Decrease) in Cash and Cash
Equivalents 800,324 1,234,126
See notes to consolidated financial statements.
Form 10-QSB
Benchmark Bankshares, Inc.
Notes to Consolidated Financial Statements
March 31, 1996
1. Basis of Presentation
The accompanying consolidated financial statements and
related notes of Benchmark Bankshares, Inc. and its subsidiary
Benchmark Community Bank were prepared by management, which has
the primary responsibility for the integrity of the financial
information. The statements have been prepared in conformity
with generally accepted accounting principles appropriate in the
circumstances and include amounts that are based on management's
best estimates and judgments.
In meeting its responsibilities for the accuracy of its
financial statements, management relies on the Corporation's
internal accounting controls. The system provides reasonable
assurances that assets are safeguarded and transactions are
recorded to permit the preparation of appropriate financial
information.
The interim period financial information included herein is
unaudited; however, such information reflects all adjustments
(consisting solely of normal recurring adjustments), which are,
in the opinion of management, necessary to a fair presentation
of financial position, results of operation, and changes in
financial position for the interim periods herein reported.
2. Significant Accounting Policies and Practices
The accounting policies and practices of Benchmark
Bankshares, Inc. conform to generally accepted accounting
principles and general practice within the banking industry.
Certain of the more significant policies and practices follow:
(a) The consolidated financial statements of Benchmark
Bankshares, Inc. and its wholly owned subsidiary, Benchmark
Community Bank include the accounts of both companies. All
material inter-company balances and transactions have been
eliminated in consolidation.
(b) Investment Securities. Pursuant to guidelines established
in FAS 115, the Company has elected to classify a portion
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. The remainder of the portfolio is
classified as held to maturity. This category refers to
investments that are anticipated by management to be held
until they mature.
For purposes of financial statement reporting, securities
classified as available-for-sale are to be reported at fair
market value (net of any tax effect) as of the date of the
statements; however, unrealized holding gains or losses are
to be excluded from earnings and reported as a net amount
in a separate component of shareholders' equity until
realized. Securities classified as held to maturity are
recorded at cost. The resulting book value ignores the
impact of current market trends.
(c) Loans. Interest on loans is computed by methods which
generally result in level rates of return on principal
amounts outstanding (simple interest). Unearned interest
on certain installment loans is recognized as income using
the rule of 78's method, which materially approximates the
effective interest method. Loan fees and related costs are
recognized as income and expense in the year the fees are
charged and costs incurred.
(d) 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 collectivity of loans.
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.
(e) Premises and Equipment. Premises and equipment are stated
at cost less accumulated depreciation. Depreciation is
computed generally by the straight line basis 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 and repairs and minor replacements are expensed
as incurred. Gains and losses on dispositions are
reflected in current earnings.
(f) 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.
(g) Earnings Per Share
Earnings per share were computed by using the average
shares outstanding for each period presented. The 1996
average shares have been adjusted to reflect the sale of
8,631 shares of the Company's common stock through the
dividend reinvestment plan on January 25, 1996. The 1995
average shares have been adjusted to reflect the sale of
6,459 shares through the dividend reinvestment program on
January 31, 1995. The average shares of outstanding stock
for the first quarter of 1996 and 1995 were 1,439,848
shares and 1,424,558, respectively.
The Company has granted options to purchase 70,000 shares
of Benchmark Bankshares stock to employees and directors
under two separate incentive stock plans. Based on current
trading values of the stock, the stock options are not
considered materially dilutive; therefore, the Company's
earnings per share are reported as a simple capital
structure.
(h) The table below reflects the components of the Net
Deferred Tax Asset account as of March 31, 1996:
Deferred tax assets resulting from
loan loss reserves 330,517
Deferred tax liabilities resulting from
depreciation (57,357)
Unrealized securities losses
(27,570)
Net Deferred 245,590
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
FIRST QUARTER 1996
Earnings Summary
Net income of $594,486 for the first quarter of 1996
increased $96,923 or 19.48% as compared to net income of
$497,563 earned during the first quarter of 1995. Earnings
per share of $.41 as of March 31, 1996 increased $.06 over
the March 31, 1995 level of $.35. The annualized return on
average assets of 1.72% increased .6% while the annualized
return on average equity of 18.60% decreased 3.83% when
comparing first quarter 1996 results with those of first
quarter 1995.
The increase in earnings and return on assets reflects
a continued growth in loans and deposits with a favorable
interest rate spread.
Interest Income and Interest Expense
Total interest income of $3,037,656 for the first
quarter of 1996 increased $502,280 or 19.81% over interest
income of $2,535,376 recorded during the first quarter of
1995. The major area of increase was in interest and fees
on loans, which was a direct result from the growth of the
loan portfolio. Due to greater deposit growth than loan
growth, the investment portfolio is changing as investments
in short and long-term instruments are beginning to reflect
larger investment balances. Additionally, the Company has
continued to increase its level of investments in municipal
issues to take advantage of a more favorable tax treatment
of the investment income.
Total interest expense in the first quarter of 1996
increased to a level of $1,485,971. This amounted to an
increase of $332,303 or 28.80% over the level reached
during the first quarter of 1995. This increase in
interest expense resulted from deposit growth, as well as
the payment of higher interest rates to meet market
competition.
Provision for Loan Losses
While the Company's loan loss experience ratio remains
low, management continues to set aside increasing
provisions to the loan loss reserve. During the first
quarter of 1996, the Bank increased the loan loss reserve
by $47,365 to a level of $1,084,709 or 1.0% of the
outstanding loan balance.
At year end 1995, the reserve level amounted to
$1,037,344 or 1.0% of the outstanding loan balance net of
unearned interest.
Non-Performing Loans
Non-performing loans consist of loans accounted for on
a non-accrual 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. As
of March 31, 1996, the Company had $836,000 in non-
performing loans or .8% of the loan portfolio. All of this
amount was fully collateralized. Management feels the risk
of loss is minimal.
Non-Interest Income and Non-Interest Expense
Non-interest income of $129,712 decreased $617 or
4.73% for the first quarter of 1996 as compared to the
level of $130,329 reached during the first quarter of 1995.
The decrease primarily resulted from a large loss on the
sale of securities for the first quarter of 1996.
Non-interest expense of $765,454 increased $703 or .1%
for the first quarter of 1996 as compared to the level of
$764,751 reached during the first quarter of 1995 as
increases in salaries were offset by a decrease in other
operating expenses.
Off Balance Sheet Instruments/Credit Concentrations
The Company 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 Company does not require collateral or other
security to support these financial instruments. Standby
letters of credit are conditional commitments issued by the
Company 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 March 31, 1996, the Bank had $105,000
outstanding letters of credit all of which will mature
within twelve months. This represents a $7,500 or 6.67%
decrease over the year end level. These instruments are
based on the financial strength of the customer and the
existing relationship between the Company and the customer.
Liquidity
As of the end of the first quarter of 1996,
$51,246,488 or 47.24% of gross loans will mature or are
subject to repricing within one year. These loans are
funded in part by $13,829,055 in certificates of deposits
of $100,000 or more of which $6,681,385 mature in one year
or less.
Currently, the Bank has a maturity average ratio for
the next twelve months of 63.53% when comparing asset and
certificate of deposit maturities.
At year end 1995, $47,402,000 or 45.7% of gross loans
were scheduled to mature or were subject to repricing
within one year and $39,480,000 in certificates of deposit
were scheduled to mature during 1996.
Capital Adequacy
Total shareholder equity was $13,071,061 or 9.27% of
total assets as of March 31, 1996. This compared to
$12,500,570 or 9.23% of total assets as of December 31,
1995.
Primary capital (shareholders' equity plus loan loss
reserves) of $14,155,770 represents 10.04% of total assets
as of March 31, 1996 as compared to $13,537,914 or 10.00%
of total assets as of December 31, 1995.
The increase in the equity position resulted from a
significant increase in earnings in the first quarter of
1996 versus the first quarter of 1995; however, this gain
was somewhat offset by a decline in the market value of
securities classified as available-for-sale.
Form 10-QSB
Benchmark Bankshares, Inc.
March 31, 1996
Part II Other Information
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security
Holders
None
Item 5 Other Information
None
Item 6 Report on Form 8-K
No reports on Form 8-K have been filed during the
quarter ended March 31, 1996.
Form 10-QSB
Benchmark Bankshares, Inc.
March 31, 1996
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Benchmark Bankshares, Inc.
(Registrant)
Date: April 18, 1996
Ben L. Watson, III
Ben L. Watson, III
President CEO
Date: April 18, 1996 Janice C. Whitlow
Janice C. Whitlow
Cashier and Treasurer
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