Form 10-QSB
Benchmark Bankshares, Inc.
March 31, 1997
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Page 1 of 13
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, 1997.
[ ] 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 Jurisdiction of (I.R.S. Employer 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:
1,460,071.804
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Form 10-QSB
Benchmark Bankshares, Inc.
Part I - Table of Contents
March 31, 1997
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
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Page 3 of 13
Form 10-QSB
Benchmark Bankshares, Inc.
Consolidated Balance Sheet
(Unaudited) (Audited)
March 31, December 31,
1997 1996
---- ----
Assets
Cash and due from banks $ 4,552,825 $ 4,624,901
Securities
Federal Agency obligations 7,485,643 7,639,371
State and municipal obligations 9,472,563 10,676,977
Other securities 137,000 137,000
Federal funds sold 8,161,000 3,858,000
Loans 122,559,049 120,356,859
Less
Unearned interest and fees (288,083) (288,678)
Loan loss reserve (1,246,545) (1,203,866)
--------------- ---------------
Net Loans 121,024,421 118,864,315
Premises and equipment - net 3,123,466 3,121,734
Accrued interest receivable 1,369,559 1,254,441
Deferred income taxes 322,600 267,642
Refundable income taxes
- 33,681
Other assets 409,018 429,760
------------- -------------
Total Assets $156,058,095 $150,907,822
============= =============
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Form 10-QSB
Benchmark Bankshares, Inc.
Consolidated Balance Sheet
(Unaudited) (Audited)
March 31, December 31,
1997 1996
---- ----
Liabilities and Shareholders' Equity
Deposits
Demand (non-interest bearing) $ 13,195,785 $ 12,215,657
NOW accounts 14,897,893 14,724,556
Money market accounts 7,519,600 6,776,695
Savings 8,580,177 8,107,214
Time, $100,000 and over 13,139,352 14,293,648
Other time 82,452,006 79,242,048
-------------- --------------
Total Deposits 139,784,813 135,359,818
Accrued interest payable 686,260 691,945
Dividends payable - 391,510
Other liabilities 475,613 102,876
--------------- --------------
Total Liabilities 140,946,686 136,546,149
Shareholders' Equity
Common stock, par value $.21 per share,
authorized 4,000,000 shares; issued
and outstanding 03-31-97 1,460,071.804,
issued and outstanding 12-31-96
1,449,895.852 306,615 304,478
Capital surplus 3,440,248 3,262,299
Retained earnings 11,403,886 10,753,919
Unrealized security gains (losses) net
of tax effect (39,340) 40,977
------------- --------------
Total Shareholders' Equity 15,111,409 14,361,673
------------- --------------
Total Liabilities and
Shareholders' Equity $156,058,095 $150,907,822
============= =============
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date.
See notes to consolidated financial statements.
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Form 10-QSB
Benchmark Bankshares, Inc.
Consolidated Statement of Income
(Unaudited)
Three Months Ended March 31,
1997 1996
---- ----
Interest Income
Interest and fees on loans $2,978,038 $2,676,281
Interest on U. S. Government obligations 131,379 140,868
Interest on State and municipal obligations 135,284 145,442
Interest on Federal funds sold 59,069 75,065
------------ -----------
Total Interest Income 3,303,770 3,037,656
Interest Expense
Interest on deposits 1,578,970 1,485,971
------------ -----------
Net Interest Income 1,724,800 1,551,685
Provision for Loan Losses 58,806 67,988
------------ -----------
Net Interest Income after
Provision 1,665,994 1,483,697
Non-Interest Income
Service charges, commissions, and fees on
deposits 94,722 84,481
Other operating income 48,821 51,131
(Losses) on sale of securities (572) (7,700)
Rental income - 1,800
------------ -----------
Total Non-Interest Income 142,971 129,712
Non-Interest Expense
Salaries and wages 468,093 426,906
Employee benefits 108,564 84,553
Occupancy expenses 54,449 37,202
Furniture and equipment expense 35,321 34,067
Other operating expenses 205,264 182,726
------------ -----------
Total Non-Interest Expense 871,691 765,454
------------ -----------
Net Income before Taxes 937,274 847,955
Income Taxes 287,307 253,469
------------ -----------
Net Income $ 649,967 $ 594,486
============ ============
Net Income per Share $ 0.45 $ 0.41
============ ============
See notes to consolidated financial statements.
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Form 10-QSB
Benchmark Bankshares, Inc.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
March 31,
1997 1996
---- ----
Cash Provided by Operations $1,063,238 $ 655,237
Cash Provided by Financing Activities
Net increase in demand deposits
and interest bearing transaction accounts 1,153,465 1,261,182
Net increase in savings and money market
deposits 1,215,868 1,201,470
Net increase in certificates of deposit 2,055,662 2,722,017
Decrease in dividends payable (391,510) (286,709)
Sale of stock 180,086 127,301
----------- -----------
Total Cash Provided by Financing
Activities 4,213,571 5,025,261
Cash Used in Investing Activities
Purchase of securities - (1,345,000)
Sale of securities 823,870 509,747
Maturity of securities 412,580 1,037,436
Net increase in loans (2,232,495) (4,705,610)
Purchase of premises and equipment (49,840) (376,747)
----------- -----------
Total Cash Used by Investing
Activities (1,045,885) (4,880,174)
----------- -----------
Increase in Cash and Cash Equivalents $4,230,924 $ 800,324
=========== ===========
See notes to consolidated financial statements.
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Page 7 of 13
Form 10-QSB
Benchmark Bankshares, Inc.
Notes to Consolidated Financial Statements
March 31, 1997
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 Company'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.
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(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 1997 average shares
have been adjusted to reflect the sale of 10,000 shares of the
Company's common stock through the dividend reinvestment plan
on January 27, 1997, as well as the sale of 175 shares through
the employee stock option plan at various dates during the
period. The 1996 average shares have been adjusted to reflect
the sale of 8,631 shares through the dividend reinvestment
program on January 25, 1996. The average shares of outstanding
stock for the first quarter of 1997 and 1996 were 1,457,050
and 1,439,848, respectively.
The Company has granted options to purchase 70,000 shares of
Benchmark Bankshares, Inc. 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.
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(h) The table below reflects the components of the Net Deferred Tax
Asset account as of March 31, 1997:
Deferred tax assets resulting from loan
loss reserves $371,903
Deferred tax liabilities resulting from
Depreciation (69,569)
Unrealized securities losses 20,266
Net Deferred Tax Asset $322,600
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
FIRST QUARTER 1997
Earnings Summary
Net income of $649,967 for the first quarter of 1997
increased $55,481 or 9.33% as compared to net income of
$594,486 earned during the first quarter of 1996. Earnings per
share of $.45 as of March 31, 1997 increased $.04 over the
March 31, 1996 level of $.41. The annualized return on average
assets of 1.70% decreased 2.29% while the annualized return on
average equity of 17.49% decreased 5.97% when comparing first
quarter 1997 results with those of first quarter 1996.
While the steady return on assets indicates that
loans and deposits are being garnered at favorable interest
rates, the decline in return on equity is indicative of a
strengthening capital position rather than a decline in
earnings.
Interest Income and Interest Expense
Total interest income of $3,303,770 for the first
quarter of 1997 increased $266,114 or 8.76% over interest
income of $3,037,656 recorded during the first quarter of
1996. 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-term
instruments are beginning to reflect larger investment
balances.
Total interest expense in the first quarter of 1997
increased to a level of $1,578,970. This amounted to an
increase of $92,999 or 6.26% over the level reached during the
first quarter of 1996. 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 Bank's loan loss experience ratio remains
low, management continues to set aside increasing provisions
to the loan loss reserve. During the first quarter of 1997,
the Bank increased the loan loss reserve by $42,679 to a level
of $1,246,545 or 1.02% of the outstanding loan balance.
At year end 1996, the reserve level amounted to
$1,203,866 or 1.0% of the outstanding loan balance net of
unearned interest.
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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,
1997, the Bank had $1,488,000 in non-performing loans or 1.22%
of the loan portfolio. The amount of non-secured loans in this
category amounted to $744,100.
Non-Interest Income and Non-Interest Expense
Non-interest income of $142,971 increased $13,259 or
10.22% for the first quarter of 1997 as compared to the level
of $129,712 reached during the first quarter of 1996. The
increase results from the addition of the full-service branch
office in Crewe, Virginia.
Non-interest expense of $871,691 increased $106,237
or 13.88% for the first quarter of 1997 as compared to the
level of $765,454 reached during the first quarter of 1996, as
all areas of operation had additional expense related to the
staffing and support provided to the new branch office.
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 of March 31, 1997, the Bank had $854,500
outstanding letters of credit. This represents a $40,711 or
4.55% decrease over the year end level. These instruments are
based on the financial strength of the customer and the
existing relationship between the Bank and the customer. The
maturities of these letters are as follows:
1997 $281,500
1998 7,500
2000 565,500
Liquidity
As of the end of the first quarter of 1997,
$51,667,363 or 42.16% of gross loans will mature or are
subject to repricing within one year. These loans are funded
in part by $13,195,785 in certificates of deposit of $100,000
or more of which $6,356,025 mature in one year or less.
Currently, the Bank has a maturity average ratio for
the next twelve months of 58.75% when comparing asset and
certificates of deposit maturities.
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At year end 1996, $51,246,488, or 47.24% of gross
loans, were scheduled to mature or were subject to repricing
within one year and $13,829,055 in certificates of deposit
were scheduled to mature during 1997.
Capital Adequacy
Total shareholder equity was $15,111,409 or 9.68% of
total assets as of March 31, 1997. This compared to
$14,361,673 or 9.52% of total assets as of December 31, 1996.
Primary capital (shareholders' equity plus loan loss
reserves) of $16,357,954 represents 10.48% of total assets as
of March 31, 1997 as compared to $15,565,539 or 10.31% of
total assets as of December 31, 1996.
The increase in the equity position resulted from a
significant increase in earnings in the first quarter of 1997
versus the first quarter of 1996; however, this gain was
somewhat offset by a decline in the market value of securities
classified as available-for-sale. Additionally, $180,086 was
added to capital as a result of the sale of stock. Refer to
Note 2(g).
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Page 12 of 13
Form 10-QSB
Benchmark Bankshares, Inc.
March 31, 1997
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, 1997.
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Page 13 of 13
Form 10-QSB
Benchmark Bankshares, Inc.
March 31, 1997
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 21, 1997 Ben L. Watson, III
President & CEO
Date: April 21, 1997 Janice C. Whitlow
Cashier and Treasurer
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,552,825
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,161,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,990,931
<INVESTMENTS-CARRYING> 2,967,275
<INVESTMENTS-MARKET> 2,873,094
<LOANS> 122,559,049
<ALLOWANCE> 1,246,545
<TOTAL-ASSETS> 156,058,095
<DEPOSITS> 139,784,813
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,161,873
<LONG-TERM> 0
0
0
<COMMON> 306,615
<OTHER-SE> 14,804,794
<TOTAL-LIABILITIES-AND-EQUITY> 156,058,095
<INTEREST-LOAN> 2,978,038
<INTEREST-INVEST> 266,663
<INTEREST-OTHER> 59,069
<INTEREST-TOTAL> 3,303,770
<INTEREST-DEPOSIT> 1,578,970
<INTEREST-EXPENSE> 1,578,970
<INTEREST-INCOME-NET> 1,724,800
<LOAN-LOSSES> 58,806
<SECURITIES-GAINS> (572)
<EXPENSE-OTHER> 871,691
<INCOME-PRETAX> 937,274
<INCOME-PRE-EXTRAORDINARY> 649,967
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 649,967
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
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</TABLE>
