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, 1998.
[ ] 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 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:
2,942,811.048
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Form 10-QSB
Benchmark Bankshares, Inc.
Part I - Table of Contents
March 31, 1998
Part I Financial Information
Item 1 Consolidated Balance Sheet
Consolidated Statement of Income and Comprehensive 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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Form 10-QSB
Benchmark Bankshares, Inc.
Consolidated Balance Sheet
(Unaudited) (Audited)
March 31, December 31,
1998 1997
---- ----
Assets
Cash and due from banks $ 4,712,051 $ 4,595,094
Securities
Federal Agency obligations 9,944,985 9,007,268
State and municipal obligations 9,203,663 8,915,548
Other securities 137,000 137,000
Federal funds sold 10,712,000 5,353,000
Loans 128,353,265 127,110,962
Less
Unearned interest income (287,305) (297,097)
Allowance for loan losses (1,448,651) (1,391,424)
------------- -------------
Net Loans 126,617,309 125,422,441
Premises and equipment - net 3,064,505 2,997,866
Accrued interest receivable 1,383,100 1,236,384
Deferred income taxes 301,051 266,401
Other real estate 531,234 533,234
Other assets 299,242 270,659
------------- -------------
Total Assets $166,906,140 $158,734,895
============= =============
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Form 10-QSB
Benchmark Bankshares, Inc.
Consolidated Balance Sheet
(Unaudited) (Audited)
March 31, December 31,
1998 1997
---- ----
Liabilities and Stockholders' Equity
Deposits
Demand (noninterest-bearing) $ 14,779,131 $ 13,859,115
NOW accounts 17,466,231 15,707,189
Money market accounts 6,593,529 6,564,365
Savings 9,524,936 8,320,696
Time, $100,000 and over 13,096,432 12,370,092
Other time 86,607,464 83,920,648
------------- -------------
Total Deposits 148,067,723 140,742,105
Accrued interest payable 715,965 708,315
Accrued income tax payable 323,427 49,867
Dividends payable - 440,824
Other liabilities 218,545 141,512
------------- -------------
Total Liabilities 149,325,660 142,082,623
Stockholders' Equity
Common stock, par value $.21 per share,
authorized 4,000,000 shares; issued
and outstanding 03-31-98 2,969,501.675,
issued and outstanding 12-31-97
2,942,811.048 shares 623,595 617,990
Capital surplus 3,966,181 3,667,557
Retained earnings 12,842,409 12,189,180
Accumulated other comprehensive income 148,295 177,545
------------- -------------
Total Stockholders' Equity 17,580,480 16,652,272
------------- -------------
Total Liabilities and
Stockholders' Equity $166,906,140 $158,734,895
============= =============
Note: The balance sheet at December 31, 1997 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 and Comprehensive Income
(Unaudited)
Three Months Ended March 31,
1998 1997
---- ----
Interest Income
Interest and fees on loans $3,088,246 $2,978,038
Interest on U. S. Government obligations 164,299 131,379
Interest on State and municipal obligations 117,161 135,284
Interest on Federal funds sold 84,326 59,069
----------- -----------
Total Interest Income 3,454,032 3,303,770
Interest Expense
Interest on deposits 1,647,614 1,578,970
----------- -----------
Net Interest Income 1,806,418 1,724,800
Provision for Loan Losses 77,458 58,806
----------- -----------
Net Interest Income after Provision 1,728,960 1,665,994
Noninterest Income
Service charges, commissions, and fees
on deposits 100,683 94,722
Other operating income 36,772 48,821
(Losses) on sale of securities (214) (572)
----------- -----------
Total Noninterest Income 137,241 142,971
Noninterest Expense
Salaries and wages 503,646 468,093
Employee benefits 121,982 108,564
Occupancy expenses 49,297 54,449
Furniture and equipment expense 31,207 35,321
Other operating expenses 202,121 205,264
----------- -----------
Total Noninterest Expense 908,253 871,691
----------- -----------
Net Income before Taxes 957,948 937,274
Income Taxes 303,845 287,307
----------- -----------
Net Income 654,103 649,967
Other Comprehensive Income, Net of Tax
Unrealized holding gains arising during period 148,295 (39,340)
----------- -----------
Comprehensive Income $ 802,398 $ 610,627
=========== ===========
Net Income per Share $ 0.22 $ 0.22(1)
=========== ===========
(1) Adjusted for a 2 for 1 stock split on October 2, 1997.
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,
1998 1997
---- ----
Cash Provided by Operations $ 907,815 $1,063,238
Cash Provided by Financing Activities
Net increase in demand deposits
and interest-bearing transaction accounts 2,679,058 1,153,465
Net increase in savings and money market
deposits 1,233,404 1,215,868
Net increase in certificates of deposit 3,413,156 2,055,662
Decrease in dividends payable (440,824) (391,510)
Sale of stock 304,229 180,086
----------- -----------
Total Cash Provided by Financing
Activities 7,189,023 4,213,571
Cash Used in Investing Activities
Purchase of securities (3,540,000) -
Sale of securities 35,169 823,870
Maturity of securities 2,249,749 412,580
Net increase in loans (1,252,095) (2,232,495)
Purchase of premises and equipment (113,704) (49,840)
----------- -----------
Total Cash Used by Investing
Activities (2,620,881) (1,045,885)
----------- -----------
Increase in Cash and Cash Equivalents $5,475,957 $4,230,924
=========== ===========
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, 1998
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 stockholders' 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 1998 average shares
have been adjusted to reflect the sale of 12,096.807 shares of
the Company's common stock through the dividend reinvestment
plan on January 26, 1998, as well as the sale of 14,600 shares
through the employee stock option plan at various dates during
the period. 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
average shares of outstanding stock for the first quarter of
1998 and 1997 were 2,957,702.001 and 2,914,100, respectively,
as adjusted for the 2 for 1 stock split on October 2, 1997.
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, 1998:
Deferred tax assets resulting from loan
loss reserves $443,287
Deferred tax asset resulting from
deferred compensation 22,976
Deferred tax liabilities resulting from
depreciation (92,221)
Unrealized securities losses (76,395)
Net Deferred Tax Asset $297,647
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
FIRST QUARTER 1998
Earnings Summary
Net income of $654,103 for the first quarter of 1998
increased $4,136 or .64% as compared to net income of $649,967
earned during the first quarter of 1997. Earnings per share of
$.22 as of March 31, 1998 remained the same as the March 31,
1997 level. The annualized return on average assets of 1.6%
decreased 5.89% while the annualized return on average equity
of 15.29% decreased 12.58% when comparing first quarter 1998
results with those of first quarter 1997.
While the steady return on assets indicates that
loans and deposits are being garnered at favorable interest
rates, the decline in return on average assets and return on
equity is indicative of a strengthening capital position
rather than a decline in earnings. The Bank experienced a
significant level of growth in deposits that was not matched
with loan growth. This resulted in a decline in the loan to
deposit ratio to a level of 86.69%.
Interest Income and Interest Expense
Total interest income of $3,454,032 for the first
quarter of 1998 increased $150,262 or 4.55% over interest
income of $3,303,770 recorded during the first quarter of
1997. 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 has changed as investments in short-term
instruments began to reflect larger investment balances. These
short-term investments typically earn at a lesser rate than
loans.
Total interest expense in the first quarter of 1998
increased to a level of $1,647,614. This amounted to an
increase of $68,644 or 4.35% over the level reached during the
first quarter of 1997. This increase in interest expense
resulted from deposit growth.
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 1998,
the Bank increased the loan loss reserve by $57,227 to a level
of $1,448,651 or 1.13% of the outstanding loan balance.
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Page 10 of 13
At year end 1997, the reserve level amounted to
$1,246,545 or 1.02% 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,
1998, the Bank had $1,033,000 in non-performing loans or .80%
of the loan portfolio. The amount of non-secured loans in this
category amounted to $250,417.
Noninterest Income and Noninterest Expense
Noninterest income of $137,241 decreased $5,730 or
4.01% for the first quarter of 1998 as compared to the level
of $142,971 reached during the first quarter of 1997. The
decrease results from the addition of the full-service branch
office in Crewe, Virginia.
Noninterest expense of $908,253 increased $36,562 or
4.19% for the first quarter of 1998 as compared to the level
of $871,691 reached during the first quarter of 1997, as all
areas of operation had additional expense related to the
staffing and support required for an expanding customer base.
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, 1998, the Bank had $1,770,471
outstanding letters of credit. This represents a $185,478 or
9.48% 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:
1998 $ 591,500
1999 1,000
2000 1,177,971
Liquidity
As of the end of the first quarter of 1998,
$53,183,000 or 41.43% of gross loans will mature or are
subject to repricing within one year. These loans are funded
in part by $13,096,432 in certificates of deposit of $100,000
or more of which $5,364,890 mature in one year or less.
Currently, the Bank has a maturity average ratio for
the next twelve months of 137.20% when comparing asset and
certificates of deposit maturities.
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At year end 1997, $51,667,363, or 42.16% of gross
loans, were scheduled to mature or were subject to repricing
within one year and $13,195,785 in certificates of deposit
were scheduled to mature during 1998.
Capital Adequacy
Total stockholder equity was $17,580,480 or 10.53% of
total assets as of March 31, 1998. This compared to
$16,652,272 or 10.49% of total assets as of December 31, 1997.
Primary capital (stockholders' equity plus loan loss
reserves) of $19,029,131 represents 11.40% of total assets as
of March 31, 1998 as compared to $18,043,696 or 11.37% of
total assets as of December 31, 1997.
The increase in the equity position resulted from
steady earnings with no dividends payable in the first quarter
plus the sale of additional stock through the dividend
reinvestment and incentive stock option plan.
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Form 10-QSB
Benchmark Bankshares, Inc.
March 31, 1998
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, 1998.
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Page 13 of 13
Form 10-QSB
Benchmark Bankshares, Inc.
March 31, 1998
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: May 12, 1998 Ben L. Watson, III
President & CEO
Date: May 12, 1998 Janice C. Whitlow
Cashier and Treasurer
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<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
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<CASH> 4,712
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,712
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,420
<INVESTMENTS-CARRYING> 3,729
<INVESTMENTS-MARKET> 3,864
<LOANS> 128,353
<ALLOWANCE> 1,449
<TOTAL-ASSETS> 166,906
<DEPOSITS> 148,068
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<INTEREST-LOAN> 3,088
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<INTEREST-TOTAL> 3,454
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