Page 1 of 13
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 quarterly period ended March 31, 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 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:
3,011,302.489
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Form 10-Q
Benchmark Bankshares, Inc.
Part I - Table of Contents
March 31, 1999
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-Q
Benchmark Bankshares, Inc.
Consolidated Balance Sheet
(Unaudited) (Audited)
March 31, December 31,
1999 1998
---- ----
Assets
Cash and due from banks $ 4,777,752 $ 5,235,130
Securities
Federal Agency obligations 13,372,280 11,274,613
State and municipal obligations 12,568,461 12,095,899
Other securities 137,000 137,000
Federal funds sold 16,612,000 17,415,000
Loans 139,800,654 134,818,220
Less
Unearned interest income (219,774) (226,755)
Allowance for loan losses (1,605,361) (1,558,741)
------------- -------------
Net Loans 137,975,519 133,032,724
Premises and equipment - net 3,177,590 3,200,391
Accrued interest receivable 1,392,442 1,562,214
Deferred income taxes 356,449 328,393
Refundable income taxes - 33,961
Other real estate 669,862 697,862
Other assets 732,721 367,764
------------- -------------
Total Assets $191,772,076 $185,380,951
============= =============
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Form 10-Q
Benchmark Bankshares, Inc.
Consolidated Balance Sheet
(Unaudited) (Audited)
March 31, December 31,
1999 1998
---- ----
Liabilities and Stockholders' Equity
Deposits
Demand (noninterest-bearing) $ 16,013,395 $ 16,201,313
NOW accounts 21,648,105 19,726,296
Money market accounts 7,986,661 6,850,631
Savings 10,108,501 9,663,857
Time, $100,000 and over 19,574,123 18,176,368
Other time 95,390,820 94,273,691
------------ ------------
Total Deposits 170,721,605 164,892,156
Accrued interest payable 787,849 808,284
Accrued income tax payable 239,706 -
Dividends payable - 479,594
Other liabilities 269,000 185,704
------------ ------------
Total Liabilities 172,018,160 166,365,738
Stockholders' Equity
Common stock, par value $.21 per share,
authorized 4,000,000 shares; issued
and outstanding 03-31-99 3,011,304.017,
issued and outstanding 12-31-98
2,997,465.366 shares 632,374 629,678
Capital surplus 4,471,494 4,314,339
Retained earnings 14,534,627 13,908,096
Accumulated other comprehensive income 115,421 163,100
------------ ------------
Total Stockholders' Equity 19,753,916 19,015,213
------------ ------------
Total Liabilities and
Stockholders' Equity $191,772,076 $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.
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Form 10-Q
Benchmark Bankshares, Inc.
Consolidated Statement of Income and Comprehensive Income
(Unaudited)
Three Months Ended March 31,
1999 1998
---- ----
Interest Income
Interest and fees on loans $3,139,622 $3,088,246
Interest on U. S. Government obligations 197,679 164,299
Interest on State and municipal obligations 147,476 117,161
Interest on Federal funds sold 190,151 84,326
----------- -----------
Total Interest Income 3,674,928 3,454,032
Interest Expense
Interest on deposits 1,857,038 1,647,614
----------- -----------
Net Interest Income 1,817,890 1,806,418
Provision for Loan Losses 28,897 77,458
----------- -----------
Net Interest Income after Provision 1,788,993 1,728,960
Noninterest Income
Service charges, commissions, and fees on
deposits 104,006 100,683
Other operating income 36,509 36,772
(Losses) on sale of securities (547) (214)
----------- -----------
Total Noninterest Income 139,968 137,241
Noninterest Expense
Salaries and wages 553,104 503,646
Employee benefits 130,024 121,982
Occupancy expenses 51,563 49,297
Furniture and equipment expense 46,596 31,207
Other operating expenses 250,807 202,121
----------- -----------
Total Noninterest Expense 1,032,094 908,253
----------- -----------
Net Income before Taxes 896,867 957,948
Income Taxes 270,173 303,845
----------- -----------
Net Income 626,694 654,103
Other Comprehensive Income, Net of Tax
Unrealized holding gains arising during period 115,421 148,295
----------- -----------
Comprehensive Income $ 742,115 $ 802,398
=========== ===========
Net Income per Share $ 0.21 $ 0.22
=========== ===========
See notes to consolidated financial statements.
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Form 10-Q
Benchmark Bankshares, Inc.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended March 31,
1999 1998
---- ----
Cash Provided by Operations $ 896,367 $ 907,815
Cash Provided by Financing Activities
Net increase in demand deposits
and interest-bearing transaction accounts 1,733,891 2,679,058
Net increase in savings and money market
deposits 1,580,674 1,233,404
Net increase in certificates of deposit 2,514,884 3,413,156
Decrease in dividends payable (479,594) (440,824)
Sale of stock 159,851 304,229
------------ -----------
Total Cash Provided by Financing
Activities 5,509,706 7,189,023
Cash Used in Investing Activities
Purchase of securities (4,995,750) (3,540,000)
Sale of securities 58,282 35,169
Maturity of securities 2,295,000 2,249,749
Net increase in loans (4,989,415) (1,252,095)
Purchase of premises and equipment (34,568) (113,704)
------------ -----------
Total Cash Used by Investing
Activities (7,666,451) (2,620,881)
------------ -----------
Increase (Decrease) in Cash and Cash Equivalents $(1,260,378) $5,475,957
============ ===========
See notes to consolidated financial statements.
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Form 10-Q
Benchmark Bankshares, Inc.
Notes to Consolidated Financial Statements
March 31, 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) 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.
(d) 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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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.
(e) 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.
(f) 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.
(g) 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.
(h) 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.
(i) 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.
(j) 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 13,833.651 shares of
the Company's common stock through the dividend reinvestment
plan on January 31, 1999, as well as the sale of 4,105 shares
through the employee stock option plan at various dates during
the period and the retirement of 5,100 shares on February 9,
1999. 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,
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Page 9 of 13
1998, as well as the sale of 14,600 shares through the
employee stock option plan at various dates during the period.
The average shares of outstanding stock for the first quarter
of 1999 and 1998 were 3,011,304.017 and 2,957,702.001,
respectively.
At the annual meeting of April 15, 1999, the stockholders
approved to add an additional 150,000 shares to the employee
stock option plan. The options must be granted by the plan
expiration date of March 16, 2005. The existing plan, which
included Directors as well as employees, initially had 70,000
option grants authorized. 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.
(k) Income Taxes. Deferred income taxes are reported for temporary
differences between items of income or expense reported in the
financial statements and those reported for income tax
purposes. Deferred taxes also reflect the impact of the
unrealized security losses which are reflected on the balance
sheet only, pursuant to FAS 115 guidelines. The differences
relate principally to the provision for loan losses,
depreciation, and unrealized security losses.
The table below reflects the components of the Net Deferred
Tax Asset account as of March 31, 1999:
Deferred tax assets resulting from loan
loss reserves $495,204
Deferred tax asset resulting from
deferred compensation 46,580
Deferred tax liabilities resulting from
depreciation (125,875)
Unrealized securities losses (59,460)
---------
Net Deferred Tax Asset $356,449
=========
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
FIRST QUARTER 1999
Earnings Summary
Net income of $626,694 for the first quarter of 1999
decreased $27,409 or 4.19% as compared to net income of
$654,103 earned during the first quarter of 1998. Earnings per
share of $.21 as of March 31, 1999 declined by $.01 or 4.55%
over the same period in 1998. The annualized return on average
assets of 1.33% decreased 16.88% while the annualized return
on average equity of 12.93% decreased 15.43% when comparing
first quarter 1999 results with those of first quarter 1998.
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 as
well as 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 81.89% from 86.69% in the same
quarter of the prior year.
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Page 10 of 13
Interest Income and Interest Expense
Total interest income of $3,674,928 for the first
quarter of 1999 increased $220,896 or 6.40% over interest
income of $3,454,032 recorded during the first quarter of
1998. 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 1999
increased to a level of $1,857,038. This amounted to an
increase of $209,424 or 12.71% over the level reached during
the first quarter of 1998. 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 1999,
the Bank increased the loan loss reserve by $46,620 to a level
of $1,605,361 or 1.15% of the outstanding loan balance.
At year end 1998, the reserve level amounted to
$1,448,651 or 1.13% of the outstanding loan balance net of
unearned interest.
Nonperforming Loans
Nonperforming 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,
1999, the Bank had $733,773 in nonperforming loans or 5.26% of
the loan portfolio. The amount of non-secured loans in this
category amounted to $108,153.
Noninterest Income and Noninterest Expense
Noninterest income of $139,968 increased $2,727 or
1.99% for the first quarter of 1999 as compared to the level
of $137,241 reached during the first quarter of 1998. The
increase results from an expanded customer base as the
branches continue to grow in trade area business.
Noninterest expense of $1,032,094 increased $123,841
or 13.64% for the first quarter of 1999 as compared to the
level of $908,253 reached during the first quarter of 1998, 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.
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As of March 31, 1999, the Bank had $2,184,302
outstanding letters of credit. This represents a $12,500 or
.57% 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:
1999 $ 388,013
2000 1,186,471
2001 609,818
Liquidity
As of the end of the first quarter of 1999,
$55,137,045 or 39.44% of gross loans will mature or are
subject to repricing within one year. These loans are funded
in part by $19,574,123 in certificates of deposit of $100,000
or more of which $13,285,923 mature in one year or less.
Currently, the Bank has a maturity average ratio for
the next twelve months of 107.56% when comparing earning asset
and certificates of deposit maturities.
At year end 1998, $53,183,000, or 41.43% of gross
loans, were scheduled to mature or were subject to repricing
within one year and $13,096,432 in certificates of deposit
were scheduled to mature during 1999.
Capital Adequacy
Total stockholder equity was $19,753,916 or 10.30% of
total assets as of March 31, 1999. This compared to
$19,015,213 or 10.26% of total assets as of December 31, 1998.
Primary capital (stockholders' equity plus loan loss
reserves) of $21,359,277 represents 11.14% of total assets as
of March 31, 1999 as compared to $20,573,954 or 11.10% of
total assets as of December 31, 1998.
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 the incentive stock option plans.
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Form 10-Q
Benchmark Bankshares, Inc.
March 31, 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 March 31, 1999.
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Page 13 of 13
Form 10-Q
Benchmark Bankshares, Inc.
March 31, 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: May 4, 1999 Ben L. Watson, III
President and CEO
Date: May 4, 1999 Janice C. Whitlow
Cashier and Treasurer
<TABLE> <S> <C>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 4,777,752
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 16,612,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,693,482
<INVESTMENTS-CARRYING> 5,247,259
<INVESTMENTS-MARKET> 5,220,055
<LOANS> 139,800,654
<ALLOWANCE> 1,605,361
<TOTAL-ASSETS> 191,772,076
<DEPOSITS> 170,721,605
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,296,555
<LONG-TERM> 0
0
0
<COMMON> 632,374
<OTHER-SE> 19,121,542
<TOTAL-LIABILITIES-AND-EQUITY> 191,772,076
<INTEREST-LOAN> 3,139,622
<INTEREST-INVEST> 535,306
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,674,928
<INTEREST-DEPOSIT> 1,857,038
<INTEREST-EXPENSE> 1,857,038
<INTEREST-INCOME-NET> 1,817,890
<LOAN-LOSSES> 28,897
<SECURITIES-GAINS> (547)
<EXPENSE-OTHER> 1,032,094
<INCOME-PRETAX> 896,867
<INCOME-PRE-EXTRAORDINARY> 896,867
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 626,694
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
<YIELD-ACTUAL> 4.06
<LOANS-NON> 773,773
<LOANS-PAST> 611,958
<LOANS-TROUBLED> 1,034,858
<LOANS-PROBLEM> 9,026,658
<ALLOWANCE-OPEN> 1,558,741
<CHARGE-OFFS> 38,840
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<ALLOWANCE-DOMESTIC> 1,605,361
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