Page 1 of 19
Form 10-Q
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 9-month period ended September 30, 1999.
[ ] 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 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:
3,014,411.827
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Page 2 of 19
Form 10-Q
Benchmark Bankshares, Inc.
Index
September 30, 1999
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
Item 3 Quantitative and Qualitative Disclosures about Market Risk
Part II Other Information
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Report on Form 8K
<PAGE>
Page 3 of 19
Form 10-Q
Benchmark Bankshares, Inc.
Consolidated Balance Sheet
(Unaudited) (Audited)
September 30, December 31,
1999 1998
---- ----
Assets
Cash and due from banks $ 7,008,201 $ 5,235,130
Securities
Federal Agency obligations 15,837,182 11,274,613
State and municipal obligations 12,656,388 12,095,899
Other securities 137,000 137,000
Federal funds sold - 17,415,000
Loans 148,995,953 134,818,220
Less
Unearned interest income (162,148) (226,755)
Allowance for loan losses (1,335,313) (1,558,741)
------------- -------------
Net Loans 147,498,492 133,032,724
Premises and equipment - net 3,282,818 3,200,391
Accrued interest receivable 1,741,677 1,562,214
Deferred income taxes 502,863 328,393
Refundable income taxes - 33,961
Other real estate 505,158 697,862
Other assets 777,308 367,764
------------- -------------
Total Assets $189,947,087 $185,380,951
============= =============
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Page 4 of 19
Form 10-Q
Benchmark Bankshares, Inc.
Consolidated Balance Sheet
(Unaudited) (Audited)
September 30, December 31,
1999 1998
---- ----
Liabilities and Stockholders' Equity
Deposits
Demand (noninterest-bearing) $ 19,196,403 $ 16,201,313
NOW accounts 19,422,701 19,726,296
Money market accounts 8,589,101 6,850,631
Savings 10,412,220 9,663,857
Time, $100,000 and over 18,598,645 18,176,368
Other time 92,009,705 94,273,691
------------- ------------
Total Deposits 168,228,775 164,892,156
Federal funds purchased 504,000 -
Accrued interest payable 761,888 808,284
Accrued income tax payable 8,233 -
Dividends payable - 479,594
Other liabilities 370,450 185,704
------------- -------------
Total Liabilities 169,873,346 166,365,738
Stockholders' Equity
Common stock, par value $.21 per share,
authorized 4,000,000 shares; issued
and outstanding 3,014,411.827 shares
as of 9-30-99; and authorized
4,000,000 shares, issued and outstanding
2,997,465.366 shares as of 12-31-98 633,027 629,678
Capital surplus 4,493,166 4,314,339
Retained earnings 15,337,405 13,908,096
Other Comprehensive Income (Loss),
Net of Tax (389,857) 163,100
------------- -------------
Total Stockholders' Equity 20,073,741 19,015,213
------------- -------------
Total Liabilities and
Stockholders' Equity $189,947,087 $185,380,951
============= =============
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date.
See notes to consolidated financial statements.
<PAGE>
Page 5 of 19
Form 10-Q
Benchmark Bankshares, Inc.
Consolidated Statement of Income
(Unaudited)
Nine Months Ended September 30,
1999 1998
---- ----
Interest Income
Interest and fees on loans $ 9,787,466 $ 9,316,058
Interest on U. S. Government obligations 673,369 508,487
Interest on State and municipal obligations 459,519 352,293
Interest on Federal funds sold 363,179 452,205
Interest on other securities 2,610 2,610
------------ ------------
Total Interest Income 11,286,143 10,631,653
Interest Expense
Interest on deposits 5,552,028 5,147,596
Interest of Federal funds purchased 9,000 -
------------ ------------
Total Interest Expense 5,561,028 5,147,596
------------ ------------
Net Interest Income 5,725,115 5,484,057
Provision for Loan Losses 355,336 228,924
------------ -----------
Net Interest Income after Provision 5,369,779 5,255,133
Noninterest Income
Service charges, commissions, and fees on
deposits 332,540 316,556
Other operating income 222,185 155,960
(Losses) on sale of securities (547) (595)
(Losses) on sale of other real estate (1,354) -
------------ ------------
Total Noninterest Income 552,824 471,921
Noninterest Expense
Salaries and wages 1,720,572 1,482,925
Employee benefits 382,193 335,104
Occupancy expense 165,802 151,099
Furniture and equipment expense 142,265 112,383
Other operating expense 781,821 699,672
------------ ------------
Total Noninterest Expense 3,192,653 2,781,183
------------ ------------
Net Income before Taxes 2,729,950 2,945,871
Income Taxes 819,041 897,230
------------ ------------
Net Income 1,910,909 2,048,641
Other Comprehensive Income (Loss), Net of Tax
Unrealized holding gains (losses) arising
during period (389,857) 265,964
------------ ------------
Comprehensive Income $ 1,521,052 $ 2,314,605
============ ============
Net Income per Share $ 0.63 $ 0.69
============ ============
See notes to consolidated financial statements.
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Page 6 of 19
Form 10-Q
Benchmark Bankshares, Inc.
Consolidated Statement of Income
(Unaudited)
Three Months Ended September 30,
1999 1998
---- ----
Interest Income
Interest and fees on loans $3,383,118 $3,136,756
Interest on U. S. Government obligations 252,050 171,314
Interest on State and municipal obligations 156,572 120,484
Interest on Federal funds sold 28,208 212,113
----------- -----------
Total Interest Income 3,819,948 3,640,667
Interest Expense
Interest on deposits 1,821,804 1,790,543
Interest on Federal funds purchased 9,000 -
----------- -----------
Total Interest Expense 1,830,804 1,790,543
----------- -----------
Net Interest Income 1,989,144 1,850,124
Provision for Loan Losses 203,717 80,974
----------- -----------
Net Interest Income after Provision 1,785,427 1,769,150
Noninterest Income
Service charges, commissions, and fees on
deposits 118,642 107,218
Other operating income 104,766 88,479
(Losses) on sale of securities - (159)
(Losses) on sale of other real estate (1,354) -
----------- -----------
Total Noninterest Income 222,054 195,538
Noninterest Expense
Salaries and wages 595,309 489,307
Employee benefits 127,791 113,725
Occupancy expense 58,074 51,152
Furniture and equipment expense 46,435 38,364
Other operating expense 252,749 252,115
----------- -----------
Total Noninterest Expense 1,080,358 944,663
----------- -----------
Net Income before Taxes 927,123 1,020,025
Income Taxes 278,128 287,844
----------- -----------
Net Income 648,995 732,181
Other Comprehensive Income, Net of Tax
Unrealized holding gains (losses) arising
during period (165,722) 103,635
----------- -----------
Comprehensive Income $ 483,273 $ 835,816
=========== ===========
Net Income per Share $ 0.22 $ 0.25
=========== ===========
See notes to consolidated financial statements.
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Page 7 of 19
Form 10-Q
Benchmark Bankshares, Inc.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended September 30,
1999 1998
---- ----
Cash Flows from Operating Activities $ 1,485,624 $ 1,817,929
Cash Flows from Financing Activities
Net increase in demand deposits and interest-
bearing transaction accounts 2,691,495 6,032,984
Net increase in savings and money market
deposits 2,486,833 1,400,704
Net increase in certificates of deposit (1,841,709) 11,010,727
Net increase in Federal funds purchased 504,000 -
Net sale of stock 182,176 651,104
Dividends paid (961,020) (888,454)
------------ ------------
Net Cash Provided by Financing
Activities 3,061,775 18,207,065
Cash Flows from Investing Activities
Purchase of securities (9,593,846) (10,961,068)
Sale of securities 346,568 114,430
Maturity of securities 3,370,428 9,457,989
Net increase in loans (14,242,340) (4,118,420)
Purchases of premises and equipment (261,488) (320,628)
Decrease (Increase) of other real estate 191,350 (17,470)
------------ ------------
Net Cash (Used) by Investing
Activities (20,189,328) (5,845,167)
------------ ------------
Increase (Decrease) in Cash and Cash Equivalents (15,641,929) 14,179,827
Beginning Cash and Cash Equivalents 22,650,130 9,948,094
------------ ------------
Ending Cash and Cash Equivalents $ 7,008,201 $24,127,921
============ ============
Supplemental Data
Interest paid $ 5,607,424 $ 5,076,209
Taxes paid 776,847 966,927
See notes to consolidated financial statements.
<PAGE>
Page 8 of 19
Form 10-Q
Benchmark Bankshares, Inc.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended September 30,
1999 1998
---- ----
Cash Flows from Operating Activities $ 274,809 $ 872,971
Cash Flows from Financing Activities
Net increase in demand deposits and
interest-bearing transaction accounts (2,226,086) 710,959
Net increase in savings and money market
deposits 89,711 5,331
Net increase (decrease) in certificates of
deposit (3,773,107) 4,902,414
Net increase in Federal funds purchased 504,000 -
Sale of stock 65,475 210,779
Dividends paid (481,426) (447,630)
------------ ------------
Net Cash Provided (Used) by
Financing Activities (5,821,433) 5,381,853
Cash Flows from Investing Activities
Purchase of securities - (3,776,983)
Sales of securities - paydowns 199,961 23,062
Maturity of securities - 4,457,989
Net increase in loans (2,743,712) (2,251,641)
Purchases of premises and equipment (60,641) (55,831)
(Increase) Decrease of other real estate 191,350 (17,470)
------------ ------------
Net Cash (Used) by Investing
Activities (2,413,042) (1,620,874)
------------ ------------
Increase (Decrease) in Cash and Cash Equivalents (7,959,666) 4,633,950
Beginning Cash and Cash Equivalents 14,967,867 19,493,971
------------ ------------
Ending Cash and Cash Equivalents $ 7,008,201 $24,127,921
============ ============
Supplemental Data
Interest paid $ 1,843,077 $ 1,741,547
Taxes paid 492,329 305,000
See notes to consolidated financial statements.
<PAGE>
Page 9 of 19
Form 10-Q
Benchmark Bankshares, Inc.
Notes to Consolidated Financial Statements
September 30, 1999
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) 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) 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.
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Page 10 of 19
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.
(d) 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.
(e) 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.
(f) 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.
(g) 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.
(h) 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.
(i) Earnings Per Share
Earnings per share were computed by using the average
shares outstanding for each period presented. The 1999 average
shares have been adjusted to reflect the sale of 15,947.619
shares of the Company's common stock through a combination of
the dividend reinvestment plan and the employee stock option
plan during the first nine months of 1999. The 1998 average
shares have been adjusted to reflect the sale of 22,105.344
shares through the dividend reinvestment program and the stock
option plan. The average shares of outstanding stock for the
first nine months of 1999 and 1998 were 3,010,698.875 shares
and 2,957,702.001 shares, respectively.
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Page 11 of 19
As of September 30, 1999, the Company had outstanding
granted options to purchase 129,072 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.
(j) 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.
(k) Income Taxes. The table below reflects the components of the
Net Deferred Tax Asset account as of September 30, 1999:
Deferred Tax Assets
Resulting from
Loan loss reserves $378,550
Deferred compensation 41,684
Unrealized security losses 200,826
Deferred Tax Liabilities
Resulting from
Depreciation 118,197
--------
Net Deferred Tax Asset $502,863
========
(l) Year 2000 Compliance
The Company has developed a plan which has resulted
in compliance, by June 30, 1999, with all Year 2000 issues
related to its operation. The Federal Reserve Bank reviewed
the Bank's existing plan and implementation thereof and
reported that the Bank had followed the regulator's guidelines
and timetable as prescribed.
While in-house operational areas are being addressed
currently, the Bank is also dependent on outside vendors and
utilities over which it has little control. In these areas,
the Bank is pressing for written guarantees for future
compliance. If these outside vendors do not provide the proper
level of assurances, the Bank will seek additional vendors or
take alternative action. Currently, there are no meaningful
cost projections for the alternative procedures.
<PAGE>
Page 12 of 19
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is management's discussion and analysis of
certain significant factors which have affected the Company's financial
position and operating results during the periods included in the
accompanying condensed financial statements.
Nine Months Ending September 30: 1999 Versus 1998
Earnings Summary
Net income of $1,910,909 for the first nine months of 1999
decreased $137,732 or 6.72% as compared to net income of $2,048,641
earned during the first nine months of 1998. Earnings per share of $.63
as of September 30, 1999 decreased $.06 over the September 30, 1998
level of $.69. The annualized return on average assets of 1.36%
decreased 16.05% while the annualized return on average equity of
13.04% decreased 15.60% when comparing first nine months 1999 results
with those of first nine months 1998.
The decrease in earnings resulted from several factors. First,
the provision for loan loss increased $126,412 as the Bank set aside
additional funds to cover potential weaknesses in the loan portfolio.
Secondly, operation cost increased by $411,470 as the Bank opened
several new loan production offices which will be converted to full
service operations in the near future.
Interest Income and Interest Expense
Total interest income of $11,286,143 for the first nine months
of 1999 increased $654,490 or 6.16% over interest income of $10,631,653
recorded during the first nine months of 1998. The major area of
increase was from interest and fees on loans which increased $471,408.
The increase resulted from a strong loan demand which dictated a
liquidation of portfolio holdings to help fund the loans.
Total interest expense in the first nine months of 1999
increased to a level of $5,561,028. This amounted to an increase of
$413,432 or 8.03% over the level reached during the first nine months
of 1998. This increase in interest expense resulted from deposit growth
as well as an increase in deposit rates.
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 nine months of 1999, the loan loss
reserve has decreased by $223,428 to a level of $1,335,313 or .89% of
the outstanding loan balance. While the Bank has contributed $355,336
during the year, net charge-offs have amounted to $578,764.
At year end 1998, the reserve level amounted to $1,522,115 or
1.16% of the outstanding loan balance net of unearned interest.
Non-Accrual Loans
Non-accrual loans consist of loans accounted for on a
non-accrual basis. These loans are maintained on a non-accrual status
because of deterioration in the financial condition of the borrower or
payment in full of principal or interest is not expected or principal
or interest has been in default for a period of 90 days or more unless
the asset is both well secured and in the process of collection.
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Page 13 of 19
As of September 30, 1999, the Bank had $875,724 or .59% of the
loan portfolio classified as non-accrual loans.
Noninterest Income and Noninterest Expense
Noninterest income of $552,824 increased $80,903 or 14.6% for
the first nine months of 1999 as compared to the level of $471,921
reached during the first nine months of 1998. The increase primarily
resulted from an increase in other operating income indicating an
increase in customers served as the Bank continued to expand its trade
area.
Noninterest expense of $3,192,653 increased $411,470 or 14.79%
for the first nine months of 1999 as compared to the level of
$2,781,183 reached during the first nine months of 1998. Additional
staffing requirements due to the opening of three loan production
offices resulted in salaries and benefits increasing by $284,736.
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 September 30, 1999, the Bank had $1,833,489 outstanding
letters of credit. These instruments are based on the financial
strength of the customer and the existing relationship between the
Company and the customer. The maturities of these instruments are as
follows:
2000 $ 40,700
2001 1,792,789
Liquidity
As of the end of the first nine months of 1999, $55,545,704 or
37.28% of gross loans will mature or are subject to repricing within
one year. These loans are funded in part by $18,598,645 in certificates
of deposit of $100,000 or more of which $12,288,560 mature in one year
or less.
Currently, the Bank has a maturity average ratio for the next
twelve months of 54.04% when comparing assets and deposits.
At year end 1998, $57,043,001 or 43.48% of gross loans were
scheduled to mature or were subject to repricing within one year and
$16,053,682 in certificates of deposit were scheduled to mature during
1999.
Capital Adequacy
Total stockholder equity was $20,073,741 or 10.57% of total
assets as of September 30, 1999. This compared to $19,015,213 or 10.26%
of total assets as of December 31, 1998.
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Page 14 of 19
Primary capital (stockholders' equity plus loan loss reserves)
of $21,409,054 represents 11.27% of total assets as of September 30,
1999 as compared to $20,513,899 or 11.44% of total assets as of
December 31, 1998.
The increase in the equity position resulted from the sale of
additional stock through the Dividend Reinvestment Program and Stock
Option Plans as well as an increase in earnings in the first nine
months of 1999 versus the first nine months of 1998. The impact of
these sales was somewhat offset by a decline in the market value of the
securities in the bond portfolio that are classified as
available-for-sale.
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Page 15 of 19
Three Months Ending September 30: 1999 Versus 1998
The same operating policies and philosophies discussed in the
nine month discussion were prevalent throughout the third quarter and
the operating results were predictably similar.
Earnings Summary
Net income of $648,995 for the third quarter of 1999 decreased
$83,186 or 11.36% as compared to the $732,181 earned during the third
quarter of 1998. Earnings per share of $.22 for the third quarter of
1999 decreased $.03 or 12.0% when compared to the corresponding period
in 1998. The annualized return on average assets was 1.35% and the
return on average equity was 13.11% for the third quarter of 1999. This
compares to a return on average assets of 1.66% and a return on average
equity of 15.86% for the same period in 1998.
The decreased earnings reflect an increase in operating cost
as the Bank begins a new initiative for growth into an expanded trade
area.
Interest Income and Interest Expense
Total interest income of $3,819,948 for the third quarter of
1999 increased $179,281 or 4.92% from the total interest income of
$3,640,667 for the corresponding quarter in 1998. The increase resulted
from growth in the loan portfolio as long demand was strong during the
period. Interest and fees on loans amounted to $3,383,118. This
represented an increase of $246,362 or 7.85% over the corresponding
period in 1998. Interest income from Federal funds sold declined as all
liquid investments were used to meet the strong loan demand.
Interest expense for the third quarter of 1999 increased
$139,020 or 7.51% over the same period in 1998. The increase in
interest expense reflected the higher interest cost during the period.
Provisions for Loan Losses
The third quarter results reflect a strong demand for loans.
During the period, the Bank provided an additional $203,717 to the
reserve through its provision for loan loss.
Loans and Deposits
During the third quarter of 1999, net loans grew $2,743,712 or
7.51% annualized. This growth resulted from the continued strong loan
demand experienced throughout the Company's trade area. The strong loan
demand also allowed the Bank to increase the quality of the loan
portfolio by increasing the loan acceptance criteria.
Deposits decreased by $5,909,482 or 13.57% annualized for the
three month period ending September 30, 1999. The decline in deposits
is mainly a result of local municipalities reducing their deposit
balance reserves.
<PAGE>
Page 16 of 19
Item 3 Quantitative and Qualitative Disclosures about Market Risk
Through the nature of the banking industry, 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 June 30 each year with
the final column detailing the present value discounting of the cash
flows at current market rates.
Fair Value of Financial Assets
Benchmark Bankshares, Inc.
September 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current
Categories 2000 2001 2002 2003 2004 Thereafter Value
---------- ---- ---- ---- ---- ---- ---------- -----
Loans
Commercial $ 22,857,480 $ - $ - $ - $ - $ - $22,857,480
Mortgage 26,872,138 21,003,565 17,794,303 14,907,912 22,815,720 5,411,285 83,121,673
Simple Interest I/L 11,180,829 7,437,861 4,361,243 1,825,188 980,448 36,632 20,856,740
Rule of 78ths I/L 1,002,788 499,896 216,716 38,608 2,838 - 1,433,429
Investments
U. S. Government Agencies - - 500,000 2,000,000 2,500,000 8,787,384 13,295,905
Municipals
Nontaxable 105,000 560,000 1,300,000 1,015,000 490,000 8,371,522 11,683,642
Taxable - - - - 510,000 506,533 949,657
Mortgage Backed Securities 249,030 140,305 582,801 - - 1,466,689 2,370,326
</TABLE>
<PAGE>
Page 17 of 19
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current
Categories 2000 2001 2002 2003 2004 Thereafter Value
---------- ---- ---- ---- ---- ---- ---------- -----
Certificates of Deposits
< 182 days 3,022,962 - - - - - 3,022,962
182 - 364 days 5,941,125 - - - - - 5,941,125
1 year - 2 years 33,502,026 3,907,367 - - - - 35,502,857
2 years - 3 years 4,883,434 7,059,320 34,900 - - - 11,090,737
3 years - 4 years 1,275,225 1,535,859 2,038,611 - - - 4,363,290
4 years - 5 years 1,122,184 1,044,029 554,999 1,134,497 - - 3,413,058
5 years 16,875,113 6,327,804 5,208,574 11,770,462 12,404,503 - 45,288,656
</TABLE>
In Table Two, the cash flows are present value discounted by predetermined
factors to measure the impact on the financial products portfolio at six and
twelve month intervals.
Variable Interest Rate Disclosure
Benchmark Bankshares, Inc.
September 30, 1999
<TABLE>
<CAPTION>
<S> <C> <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 $23,088,364 $22,972,342 $22,857,480 $22,743,761 $22,631,168
Mortgage 87,427,697 85,229,320 83,121,673 81,099,903 79,159,449
Simple Interest I/L 21,557,232 21,201,722 20,856,740 20,521,851 20,196,649
Rule of 78ths I/L 1,472,651 1,452,789 1,433,429 1,414,551 1,396,140
Investments
U. S. Government Securities 14,125,850 13,756,669 13,295,905 12,886,524 12,465,960
Municipals
Nontaxable 12,827,383 1,238,662 11,683,642 11,160,054 10,047,479
Taxable 1,059,751 1,002,908 949,657 899,738 852,911
Mortgage Backed Securities 2,597,273 2,480,184 2,370,326 2,267,070 2,170,035
Certificates of Deposit
< 182 days 3,038,153 3,030,538 3,022,962 3,015,423 3,007,922
182 - 364 days 6,001,136 5,970,980 5,941,125 5,911,567 5,882,302
1 year - 2 years 36,263,610 35,879,236 35,502,857 35,134,230 34,773,119
2 years - 3 years 11,434,273 11,260,240 11,090,737 10,925,602 10,764,681
3 years - 4 years 3,572,825 3,491,419 3,413,058 3,337,594 3,264,887
5 years 47,807,901 46,519,729 45,288,656 44,111,444 42,985,071
</TABLE>
Only financial instruments that do not have daily price adjustment capabilities
are herein presented.
<PAGE>
Page 18 of 19
Form 10-Q
Benchmark Bankshares, Inc.
September 30, 1999
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 September 30, 1999.
<PAGE>
Page 19 of 19
Form 10-Q
Benchmark Bankshares, Inc.
September 30, 1999
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: November 8, 1999 Ben L. Watson, III
------------------
President and CEO
Date: November 8, 1999 Janice C. Whitlow
-----------------
Cashier and Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> $
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 7,008,201
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 23,837,729
<INVESTMENTS-CARRYING> 5,246,533
<INVESTMENTS-MARKET> 5,052,494
<LOANS> 148,995,953
<ALLOWANCE> 1,335,313
<TOTAL-ASSETS> 189,947,087
<DEPOSITS> 168,228,775
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,140,571
<LONG-TERM> 0
0
0
<COMMON> 633,027
<OTHER-SE> 19,440,714
<TOTAL-LIABILITIES-AND-EQUITY> 189,947,087
<INTEREST-LOAN> 9,787,466
<INTEREST-INVEST> 1,498,677
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 11,286,143
<INTEREST-DEPOSIT> 5,552,028
<INTEREST-EXPENSE> 5,561,028
<INTEREST-INCOME-NET> 5,725,115
<LOAN-LOSSES> 355,336
<SECURITIES-GAINS> (547)
<EXPENSE-OTHER> 3,192,653
<INCOME-PRETAX> 2,729,950
<INCOME-PRE-EXTRAORDINARY> 2,729,950
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,910,909
<EPS-BASIC> .63
<EPS-DILUTED> .63
<YIELD-ACTUAL> 6.39
<LOANS-NON> 875,724
<LOANS-PAST> 669,712
<LOANS-TROUBLED> 542,487
<LOANS-PROBLEM> 8,817,668
<ALLOWANCE-OPEN> 1,558,741
<CHARGE-OFFS> 667,224
<RECOVERIES> 88,415
<ALLOWANCE-CLOSE> 1,335,313
<ALLOWANCE-DOMESTIC> 1,335,313
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 699,489
</TABLE>
