Page 1 of 16
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 6-month period ended June 30, 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 54-1380808
(State or Other Jurisdiction of (IRS Employer ID No.)
Incorporation or Organization)
100 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:
1,460,096.804
<PAGE>
Page 2 of 16
Form 10-QSB
Benchmark Bankshares, Inc.
Part I - Table of Contents
June 30, 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
Part II Other Information
<PAGE>
Page 3 of 16
Form 10-QSB
Benchmark Bankshares, Inc.
Consolidated Balance Sheet
(Unaudited) (Audited)
June 30, December 31,
1997 1996
---- ----
Assets
Cash and due from banks $ 5,134,840 $ 4,624,901
Securities
Federal Agency obligations 7,497,245 7,639,371
State and municipal obligations 8,762,385 10,676,977
Other securities 137,000 137,000
Federal funds sold 7,323,000 3,858,000
Loans 124,597,141 120,356,859
Less
Unearned interest and fees (291,154) (288,678)
Loan loss reserve (1,296,299) (1,203,866)
------------- -------------
Net Loans 123,009,688 118,864,315
Premises and equipment - net 3,079,526 3,121,734
Accrued interest receivable 1,480,159 1,254,441
Deferred income taxes 287,172 267,642
Refundable income taxes - 33,681
Other assets 610,156 429,760
------------- -------------
Total Assets $157,321,171 $150,907,822
============= =============
<PAGE>
Page 4 of 16
Form 10-QSB
Benchmark Bankshares, Inc.
Consolidated Balance Sheet
(Unaudited) (Audited)
June 30, December 31,
1997 1996
---- ----
Liabilities and Shareholders' Equity
Deposits
Demand (non-interest bearing) $ 13,785,189 $ 12,215,657
NOW accounts 15,195,804 14,724,556
Money market accounts 7,160,182 6,776,695
Savings 8,574,086 8,107,214
Time, $100,000 and over 12,505,238 14,293,648
Other time 83,337,846 79,242,048
------------- -------------
Total Deposits 140,558,345 135,359,818
Accrued interest payable 694,789 691,945
Accrued income tax payable
11,837 -
Dividends payable 394,226 391,510
Other liabilities 190,965 102,876
------------- -------------
Total Liabilities 141,850,162 136,546,149
Shareholders' Equity
Common stock, par value $.21 per share,
authorized 4,000,000 shares; issued
and outstanding 06-30-97,
1,460,096.804, issued and outstanding
12-31-96, 1,449,895.852 306,620 304,478
Capital surplus 3,440,590 3,262,299
Retained earnings 11,661,627 10,753,919
Unrealized security gains (losses) net
of tax effect 62,172 40,977
------------- -------------
Total Shareholders' Equity 15,471,009 14,361,673
------------- -------------
Total Liabilities and
Shareholders' Equity $157,321,171 $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.
<PAGE>
Page 5 of 16
Form 10-QSB
Benchmark Bankshares, Inc.
Consolidated Statement of Income
(Unaudited)
Six Months Ended June 30,
1997 1996
---- ----
Interest Income
Interest and fees on loans $6,009,540 $5,497,061
Interest on U. S. Government obligations 262,275 272,912
Interest on State and municipal obligations 258,041 289,599
Interest on Federal funds sold 169,021 124,861
Interest on other securities 2,610 2,610
----------- -----------
Total Interest Income 6,701,487 6,187,043
Interest Expense
Interest on deposits 3,207,044 3,000,896
----------- -----------
Net Interest Income 3,494,443 3,186,147
Provision for Loan Losses 146,195 156,730
----------- -----------
Net Interest Income after Provision 3,348,248 3,029,417
Non-Interest Income
Service charges, commissions, and fees on
deposits 192,894 168,458
Other operating income 85,903 109,878
(Losses) on sale of securities (1,234) (8,101)
Rental income - 3,600
----------- -----------
Total Non-Interest Income 277,563 273,835
Non-Interest Expense
Salaries and wages 948,228 872,156
Employee benefits 178,426 185,370
Occupancy expenses 103,606 73,911
Furniture and equipment expense 72,633 62,632
Other operating expenses 441,139 401,520
----------- -----------
Total Non-Interest Expense 1,744,032 1,595,589
----------- -----------
Net Income before Taxes 1,881,779 1,707,663
Income Taxes 579,836 510,710
----------- -----------
Net Income $1,301,943 $1,196,953
=========== ===========
Net Income per Share $ 0.89 $ 0.83
=========== ===========
See notes to consolidated financial statements.
<PAGE>
Page 6 of 16
Form 10-QSB
Benchmark Bankshares, Inc.
Consolidated Statement of Income
(Unaudited)
Three Months Ended June 30,
1997 1996
---- ----
Interest Income
Interest and fees on loans $3,031,502 $2,820,780
Interest on U. S. Government obligations 130,896 132,044
Interest on State and municipal obligations 122,757 144,157
Interest on Federal funds sold 109,952 49,796
Interest on other securities 2,610 2,610
----------- -----------
Total Interest Income 3,397,717 3,149,387
Interest Expense
Interest on deposits 1,628,074 1,514,925
----------- -----------
Net Interest Income 1,769,643 1,634,462
Provision for Loan Losses 87,389 88,742
----------- -----------
Net Interest Income after Provision 1,682,254 1,545,720
Non-Interest Income
Service charges, commissions, and fees on
deposits 98,172 83,977
Other operating income 37,082 58,747
(Losses) on sale of securities (662) (401)
Rental income - 1,800
----------- -----------
Total Non-Interest Income 134,592 144,123
Non-Interest Expense
Salaries and wages 480,135 445,250
Employee benefits 69,862 100,817
Occupancy expenses 49,157 36,709
Furniture and equipment expense 37,312 28,565
Other operating expenses 235,875 218,794
----------- -----------
Total Non-Interest Expense 872,341 830,135
----------- -----------
Net Income before Taxes 944,505 859,708
Income Taxes 292,529 257,241
----------- -----------
Net Income $ 651,976 $ 602,467
=========== ===========
Net Income per Share $ 0.45 $ 0.42
=========== ===========
See notes to consolidated financial statements.
<PAGE>
Page 7 of 16
Form 10-QSB
Benchmark Bankshares, Inc.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended June 30,
1997 1996
---- ----
Cash Provided by Operations $1,255,472 $1,020,556
Cash Provided by Financing Activities
Net increase in demand deposits and interest
bearing transaction accounts 2,040,780 442,211
Net increase in savings and money market
deposits 850,359 1,070,580
Net increase in certificates of deposit 2,307,388 5,097,071
Net sale of stock 180,433 127,290
Dividends paid (391,510) (288,435)
----------- ------------
Total Cash Provided by Financing
Activities 4,987,450 6,448,717
Cash Used in Investing Activities
Purchase of securities (161,860) (1,640,000)
Sale of securities 823,870 509,747
Maturity of securities 1,415,903 1,719,260
Increase in loans net of collections (4,291,568) (10,469,457)
Purchase of premises and equipment (54,328) (849,291)
----------- ------------
Total Cash (Used) by Investing Activities (2,267,983) (10,729,741)
----------- ------------
Increase (Decrease) in Cash and Cash
Equivalents $3,974,939 $(3,260,468)
=========== ============
See notes to consolidated financial statements.
<PAGE>
Page 8 of 16
Form 10-QSB
Benchmark Bankshares, Inc.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended June 30,
1997 1996
---- ----
Cash Provided by Operations $ 192,928 $ 363,593
Cash Provided by Financing Activities
Net increase in demand deposits and interest
bearing transaction accounts (887,315) (818,971)
Net increase (decrease) in savings and money
market deposits (365,509) (130,890)
Net increase in certificates of deposit 251,726 2,375,054
Redemption of stock (347) (11)
----------- ------------
Total Cash Provided by Financing
Activities 773,185 1,425,182
Cash Used in Investing Activities
Purchase of securities (161,860) (295,000)
Maturity of securities
1,003,323 681,824
Increase in loans net of collections (2,059,073) (5,763,847)
Purchase of premises and equipment (4,488) (472,544)
----------- ------------
Total Cash (Used) by Investing Activities (1,222,098) (5,849,567)
----------- ------------
Increase (Decrease) in Cash and Cash
Equivalents $ (255,985) $(4,060,792)
=========== ============
See notes to consolidated financial statements.
<PAGE>
Page 9 of 16
Form 10-QSB
Benchmark Bankshares, Inc.
Notes to Consolidated Financial Statements
June 30, 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.
<PAGE>
Page 10 of 16
(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. 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 six months of 1997
and 1996 were 1,460,074.254 and 1,441,012.14 shares,
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.
<PAGE>
Page 11 of 16
(h) The table below reflects the components of the Net Deferred Tax
Asset account as of June 30, 1997:
Deferred tax assets resulting from loan
loss reserves $ 388,769
Deferred tax liabilities resulting from
depreciation (69,569)
Unrealized securities losses (32,028)
----------
Net Deferred Tax Asset $ 287,172
==========
<PAGE>
Page 12 of 16
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Six Months Ending June 30: 1997 Versus 1996
Earnings Summary
Net income of $1,301,943 for the first six months of 1997
increased $104,990 or 8.77% as compared to net income of $1,196,953
earned during the first six months of 1996. Earnings per share
of $.89 as of June 30, 1997 increased $.06 over the June 30, 1996
level of $.83. The annualized return on average assets of 1.69%
decreased 1.74% while the annualized return on average equity of
17.46% decreased 1.80% when comparing first six months 1997 results
with those of first six months 1996.
The increase in earnings resulted from continued growth in
loans; however, the rate of return declined as deposit growth out paced
loan growth resulting in the Bank holding more highly liquid
investments which earn a lesser rate of income than loans.
Interest Income and Interest Expense
Total interest income of $6,701,487 for the first six months
of 1997 increased $514,444 or 8.31% over interest income of
$6,187,043 recorded during the first six months 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. Of the investments,
only the return in Federal Funds Sold increased as the Bank held
short-term investments to meet anticipated loan demand.
Total interest expense in the first six months of 1997
increased to a level of $3,207,044. This amounted to an increase of
$206,148 or 6.87% over the level reached during the first six months
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 six months of 1997, the Bank increased
the loan loss reserve by $92,433 to a level of $1,296,299 or 1.04% of
the outstanding loan balance.
At year end 1996, the reserve level amounted to $1,143,482
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 June 30, 1997, the Bank had $2,596,231
in non-performing loans or 2.09% of the loan portfolio. The amount of
non-secured loans in this category amounted to $1,606,865.
<PAGE>
Page 13 of 16
Non-Interest Income and Non-Interest Expense
Non-interest income of $277,563 increased $3,728 or 1.36%
for the first six months of 1997 as compared to the level of
$273,835 reached during the first six months of 1996. The increase
resulted from an increase in overdraft fees collected as the Bank
changed its fee policy.
Non-interest expense of $1,744,032 increased $148,443 or 9.30%
for the first six months of 1997 as compared to the level of $1,595,589
reached during the first six months of 1996. The change resulted from
increases in salaries due to the expanding staff needs of the Bank's
branch offices.
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
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 June 30, 1997, the Bank had $1,148,478 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. The maturities of these instruments are as follows:
1997 $276,500
1998 406,478
2000 465,500
Liquidity
As of the end of the first six months of 1997, $49,319,432
or 39.58% of gross loans will mature or are subject to repricing
within one year. These loans are funded in part by $12,505,238 in
certificates of deposit of $100,000 or more of which $5,992,242 mature
in one year or less.
Currently, the Bank has a maturity average ratio for the next
twelve months of 68.70% when comparing current assets and current
liabilities.
At year end 1996, $51,246,468 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 $15,471,009 or 9.83% of total
assets as of June 30, 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 $16,767,308 represents 10.66% of total assets as of June 30, 1997
as compared to $15,565,539 or 10.31% of total assets as of December 31,
1996.
<PAGE>
Page 14 of 16
The increase in the equity position resulted from an increase
in earnings in the first six months of 1997 versus the first six
months of 1996 and an increase in capital through the sale of
common stock from the dividend reinvestment program.
Three Months Ending June 30: 1997 Versus 1996
The same operating policies and philosophies discussed in the
six month discussion were prevalent throughout the second quarter and
the operating results were predictably similar.
Earnings Summary
Net income of $651,976 for the second quarter of 1997
increased $49,509 or 8.22% as compared to the $602,467 earned during
the second quarter of 1996. Earnings per share of $.45 for the second
quarter of 1997 increased $.03 or 7.14% when compared to the
corresponding period in 1996. The annualized return on average assets
was 1.70% and the return on average equity was 17.70% for the second
quarter of 1997. This compares to a return on average assets of 1.70%
and a return on average equity of 18.31% for the same period in 1996.
The increased earnings is an indication of the growth
experienced during the second quarter. The return on average equity
reflects the growth in equity through the dividend reinvestment plan.
Interest Income and Interest Expense
Total interest income of $3,397,717 for the second quarter of
1997 increased $248,330 or 7.89% from the total interest income of
$3,149,387 for the corresponding quarter in 1996. The increase resulted
primarily from growth in the loan portfolio. Interest and fees on loans
amounted to $3,031,502. This represented an increase of $210,722 or
7.47% over the corresponding period in 1996.
Interest expense for the second quarter of 1997 increased
$113,149 or 7.47% over the same period in 1996. The increase in
interest expense reflected the current economic trend of increased
interest rates as well as steady deposit growth.
Provision for Loan Losses
During the second quarter, the demand for loans was strong and
the level of quality loans continued to increase. During the period,
the Bank provided an additional $87,389 to the reserve through its
provision for loan losses.
Loans and Deposits
During the second quarter of 1997, net loans grew $1,985,267.
This growth resulted from the continued strong loan demand experienced
throughout the Bank's trade area.
Deposits increased by $2,065,349 for the three month period
ending June 30, 1997. Management feels that the growth in deposits has
resulted from an increase in the size of the trade area as well as
further penetration into existing market areas.
<PAGE>
Page 15 of 16
Form 10-QSB
Benchmark Bankshares, Inc.
June 30, 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 June 30, 1997.
<PAGE>
Page 16 of 16
Form 10-QSB
Benchmark Bankshares, Inc.
June 30, 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: July 23, 1997 Ben L. Watson, III
------------------
President & CEO
Date: July 23, 1997 Janice C. Whitlow
-----------------
Cashier and Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,134,840
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,323,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,292,267
<INVESTMENTS-CARRYING> 3,104,363
<INVESTMENTS-MARKET> 2,932,117
<LOANS> 124,597,141
<ALLOWANCE> 1,296,299
<TOTAL-ASSETS> 157,321,171
<DEPOSITS> 140,558,345
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,291,817
<LONG-TERM> 0
0
0
<COMMON> 306,620
<OTHER-SE> 15,164,389
<TOTAL-LIABILITIES-AND-EQUITY> 157,321,171
<INTEREST-LOAN> 6,009,540
<INTEREST-INVEST> 522,926
<INTEREST-OTHER> 169,021
<INTEREST-TOTAL> 6,701,487
<INTEREST-DEPOSIT> 3,207,044
<INTEREST-EXPENSE> 3,207,044
<INTEREST-INCOME-NET> 3,494,443
<LOAN-LOSSES> 146,195
<SECURITIES-GAINS> (1,234)
<EXPENSE-OTHER> 1,744,032
<INCOME-PRETAX> 1,881,779
<INCOME-PRE-EXTRAORDINARY> 1,301,943
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,301,943
<EPS-PRIMARY> .89
<EPS-DILUTED> .89
<YIELD-ACTUAL> 4.85
<LOANS-NON> 1,927,594
<LOANS-PAST> 668,636
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 8,310,387
<ALLOWANCE-OPEN> 1,203,866
<CHARGE-OFFS> 128,000
<RECOVERIES> 75,000
<ALLOWANCE-CLOSE> 1,296,299
<ALLOWANCE-DOMESTIC> 1,296,299
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,296,299
</TABLE>
