Page 1 of 20
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, 2000.
[ ] 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:
3,006,221.657
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Page 2 of 20
Form 10-Q
Benchmark Bankshares, Inc.
Table of Contents
September 30, 2000
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
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 20
Form 10-Q
Benchmark Bankshares, Inc.
Consolidated Balance Sheet
(Unaudited) (Audited)
September 30, December 31,
2000 1999
---- ----
Assets
Cash and due from banks $ 4,744,991 $ 7,533,280
Securities
Federal Agency obligations 13,503,236 13,322,152
State and municipal obligations 9,047,078 12,590,401
Mortgage backed securities 1,634,423 2,267,912
Other securities 195,490 137,000
Federal funds sold 9,444,000 -
Loans 161,067,532 152,262,727
Less
Unearned interest income (18,199) (64,643)
Allowance for loan losses (1,610,035) (1,522,632)
------------- -------------
Net Loans 159,439,298 150,675,452
Premises and equipment - net 3,767,128 3,423,779
Accrued interest receivable 1,828,482 1,390,010
Deferred income taxes 590,067 642,481
Other real estate 1,027,758 667,808
Other assets 701,689 674,670
------------- -------------
Total Assets $205,923,640 $193,324,945
============= =============
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Page 4 of 20
Form 10-Q
Benchmark Bankshares, Inc.
Consolidated Balance Sheet
(Unaudited) (Audited)
September 30, December 31,
2000 1999
---- ----
Liabilities and Stockholders' Equity
Deposits
Demand (noninterest-bearing) $ 21,481,038 $ 16,213,541
NOW accounts 20,284,520 19,905,599
Money market accounts 7,716,826 8,046,212
Savings 10,196,676 9,763,624
Time, $100,000 and over 19,806,816 16,560,926
Other time 103,349,427 94,250,638
-------------- --------------
Total Deposits 182,835,303 164,740,540
Federal funds purchased - 7,035,000
Accrued interest payable 963,810 766,964
Accrued income tax payable 20,191 23,005
Dividends payable - 482,493
Other liabilities 390,607 229,197
-------------- --------------
Total Liabilities 184,209,911 173,277,199
Stockholders' Equity
Common stock, par value $.21 per share,
authorized 4,000,000 shares; issued
and outstanding 3,006,221.657 shares
as of 9-30-00; and authorized
4,000,000 shares, issued and
outstanding 3,015,577.591 shares
as of 12-31-99 631,307 633,272
Capital surplus 4,404,068 4,501,508
Retained earnings 17,033,964 15,455,510
Unrealized security gains (losses) net of
tax effect (355,610) (542,544)
------------- -------------
Total Stockholders' Equity 21,713,729 20,047,746
------------- -------------
Total Liabilities and
Stockholders' Equity $205,923,640 $193,324,945
============= =============
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date.
See notes to consolidated financial statements.
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Page 5 of 20
Form 10-Q
Benchmark Bankshares, Inc.
Consolidated Statement of Income and Comprehensive Income
(Unaudited)
Nine Months Ended September 30,
2000 1999
---- ----
Interest Income
Interest and fees on loans $10,722,641 $ 9,787,466
Interest on U. S. Government obligations 737,686 673,369
Interest on State and municipal obligations 340,546 459,519
Interest on Federal funds sold 255,508 363,179
Interest on other securities 10,610 2,610
------------ ------------
Total Interest Income 12,066,991 11,286,143
Interest Expense
Interest on deposits 5,860,783 5,552,028
Interest of Federal funds purchased 54,283 9,000
Interest other 659 -
------------ ------------
Total Interest Expense 5,915,725 5,561,028
------------ ------------
Net Interest Income 6,151,266 5,725,115
Provision for Loan Losses 183,189 355,336
------------ ------------
Net Interest Income after
Provision 5,968,077 5,369,779
Noninterest Income
Service charges, commissions, and fees
on deposits 413,704 332,540
Other operating income 312,246 222,185
(Losses) on sale of securities (3,308) (547)
(Losses) on sale of other real estate 22,115 (1,354)
------------ ------------
Total Noninterest Income 744,757 552,824
Noninterest Expense
Salaries and wages 1,951,824 1,720,572
Employee benefits 431,714 382,193
Occupancy expense 229,272 165,802
Furniture and equipment expense 159,425 142,265
Other operating expense 953,419 781,821
------------ ------------
Total Noninterest Expense 3,725,654 3,192,653
------------ ------------
Net Income before Taxes 2,987,180 2,729,950
Income Taxes 930,443 819,041
------------ ------------
Net Income 2,056,737 1,910,909
Other Comprehensive Income, Net of Tax
Net unrealized holding gains (losses)
arising during period 186,934 (389,857)
------------ ------------
Comprehensive Income $ 2,243,671 $ 1,521,052
============ ============
Net Income per Share $ 0.68 $ 0.63
============ ============
Comprehensive Income per Share $ 0.75 $ 0.51
============ ============
See notes to consolidated financial statements.
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Page 6 of 20
Form 10-Q
Benchmark Bankshares, Inc.
Consolidated Statement of Income and Comprehensive Income
(Unaudited)
Three Months Ended September 30,
2000 1999
---- ----
Interest Income
Interest and fees on loans $3,678,336 $3,383,118
Interest on U. S. Government obligations 243,241 252,050
Interest on State and municipal obligations 108,699 156,572
Interest on Federal funds sold 149,048 28,208
Interest on other securities 4,815 -
---------- -----------
Total Interest Income 4,184,139 3,819,948
Interest Expense
Interest on deposits 2,078,780 1,821,804
Interest on Federal funds purchased - 9,000
Interest other 257 -
---------- -----------
Total Interest Expense 2,079,037 1,830,804
---------- -----------
Net Interest Income 2,105,102 1,989,144
Provision for Loan Losses 55,923 203,717
---------- -----------
Net Interest Income after
Provision 2,049,179 1,785,427
Noninterest Income
Service charges, commissions, and fees
on deposits 173,928 118,642
Other operating income 65,523 104,766
(Losses) on sale of other real estate 22,115 (1,354)
---------- -----------
Total Noninterest Income 261,566 222,054
Noninterest Expense
Salaries and wages 670,161 595,309
Employee benefits 146,230 127,791
Occupancy expense 74,501 58,074
Furniture and equipment expense 56,661 46,435
Other operating expense 312,849 252,749
---------- -----------
Total Noninterest Expense 1,260,402 1,080,358
---------- -----------
Net Income before Taxes 1,050,343 927,123
Income Taxes 328,991 278,128
---------- -----------
Net Income 721,352 648,995
Other Comprehensive Income, Net of Tax
Net unrealized holding gains (losses)
arising during period 212,943 (165,722)
---------- -----------
Comprehensive Income $ 934,295 $ 483,273
========== ===========
Net Income Per Share $ 0.24 $ 0.22
========== ===========
Comprehensive Income Per Share $ 0.31 $ 0.16
========== ===========
See notes to consolidated financial statements.
<PAGE>
Page 7 of 20
Form 10-Q
Benchmark Bankshares, Inc.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended September 30,
2000 1999
---- ----
Cash Flows from Operating Activities $ 1,815,305 $ 1,485,624
Cash Flows from Financing Activities
Decrease in Federal funds purchased (7,035,000) -
Net increase in demand deposits and
interest-bearing transaction accounts 5,646,418 2,691,495
Net increase in savings and money market
deposits 103,666 2,486,833
Net increase in certificates of deposit 12,344,679 (1,841,709)
Net increase in Federal funds purchased - 504,000
Dividends paid (963,489) (961,020)
Sale of stock 55,934 182,176
Purchase of stock (155,339) -
------------ ------------
Net Cash Provided by Financing
Activities 9,996,869 3,061,775
Cash Flows from Investing Activities
Purchase of securities (790,267) (9,593,846)
Sale of securities 260,349 346,568
Maturity of securities 4,750,389 3,370,428
Net increase in loans (8,851,249) (14,242,340)
Purchases of premises and equipment (525,685) (261,488)
Decrease (Increase) of other real estate - 191,350
------------ ------------
Net Cash (Used) by Investing
Activities (5,156,463) (20,189,328)
------------ -------------
Increase (Decrease) in Cash and Cash
Equivalents 6,655,711 (15,641,929)
Beginning Cash and Cash Equivalents 7,533,280 22,650,130
------------ -------------
Ending Cash and Cash Equivalents $14,188,991 $ 7,008,201
============ =============
Supplemental Data
Interest paid $ 5,718,879 $ 5,607,424
Income taxes paid 933,257 776,847
See notes to consolidated financial statements.
<PAGE>
Page 8 of 20
Form 10-Q
Benchmark Bankshares, Inc.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended September 30,
2000 1999
---- ----
Cash Flows from Operating Activities $ 691,021 $ 274,809
Cash Flows from Financing Activities
Net increase in demand deposits and
interest-bearing transaction accounts 1,871,393 (2,226,086)
Net increase in savings and money market
deposits 227,137 89,711
Net increase (decrease) in certificates
of deposit 2,380,300 (3,773,107)
Net increase in Federal funds purchased - 504,000
Dividends paid (480,996) (481,426)
Sale of stock - 65,475
Purchase of stock (34) -
------------ -----------
Net Cash Provided (Used) by
Financing Activities 3,997,800 (5,821,433)
Cash Flows from Investing Activities
Purchase of securities (175,000) -
Sale of securities - paydowns 166,401 199,961
Net increase in loans (2,141,166) (2,743,712)
Purchase of premises and equipment (82,130) (60,641)
(Increase) Decrease of other real estate - 191,350
------------ -----------
Net Cash (Used) by Investing
Activities (2,231,895) (2,413,042)
------------ -----------
Increase (Decrease) in Cash and Cash
Equivalents 2,456,926 (7,959,666)
Beginning Cash and Cash Equivalents 11,732,065 14,967,867
------------ -----------
Ending Cash and Cash Equivalents $14,188,991 $ 7,008,201
============ ===========
Supplemental Data
Interest paid $ 2,027,419 $ 1,843,077
Income taxes paid 340,753 492,329
See notes to consolidated financial statements.
<PAGE>
Page 9 of 20
Form 10-Q
Benchmark Bankshares, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
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 20
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 2000 average
shares have been adjusted to reflect the buy back of 16,932
shares of common stock by the Company and the sale of 7,586
shares of the Company's common stock through the employee
stock option plan during the first nine months of 1999. The
1999 average shares have been adjusted to reflect the sale of
15,947.619 shares through the dividend reinvestment program
and the stock option plan. The average shares of outstanding
stock for the first nine months of 2000 and 1999 were
3,009,283.402 shares and 3,010,698.875 shares, respectively.
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Page 11 of 20
As of September 30, 2000, the Company had outstanding
granted options to purchase 145,867 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, 2000:
Deferred Tax Assets
Resulting from
Loan loss reserves $457,329
Deferred compensation 71,857
Unrealized security losses 183,193
Deferred Tax Liabilities
Resulting from
Depreciation (122,312)
---------
Net Deferred Tax Asset $590,067
=========
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Page 12 of 20
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: 2000 Versus 1999
Earnings Summary
Net income of $2,056,737 for the first nine months of 2000
increased $145,828 as compared to net income of $1,910,909 earned
during the first nine months of 1999. Earnings per share of $.68 as of
September 30, 2000 increased $.05 over the September 30, 1999 level of
$.63. The annualized return on average assets of 1.37% increased .7%
while the annualized return on average equity of 13.13% increased .7%
when comparing first nine months 2000 results with those of first nine
months 1999.
The increase in earnings resulted from several factors. The
Bank experienced greater net interest income by $115,958. This increase
when combined with a lower expense to loan loss reserves more than
offset the increase of $171,598 in operating expenses.
Interest Income and Interest Expense
Total interest income of $12,066,991 for the first nine months
of 2000 increased $780,848 or 6.9% over interest income of $11,286,143
recorded during the first nine months of 1999. The area of increase was
from interest and fees on loans which increased $935,175. The increase
resulted from a strong loan demand which dictated a liquidation of
portfolio holdings to help fund the loans. Interest on investments
declined $154,327 as liquid investment assets were shifted to loans.
Total interest expense in the first nine months of 2000
increased to a level of $5,915,725. This amounted to an increase of
$354,697 or 6.4% over the level reached during the first nine months of
1999. 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 2000, the loan loss
reserve has increased by $87,403 to a level of $1,610,035 or 1.0% of
the outstanding loan balance. While the Bank has contributed $183,189
during the year, net charge-offs have amounted to $95,786.
At year end 1999, the reserve level amounted to $1,522,632 or
.89% 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.
As of September 30, 2000, the Bank had $439,816 or .2% of the
loan portfolio classified as non-accrual loans.
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Page 13 of 20
Noninterest Income and Noninterest Expense
Noninterest income of $744,757 increased $191,933 or 34.7% for
the first nine months of 2000 as compared to the level of $552,824
reached during the first nine months of 1999. 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 through branches and ATM activity.
Noninterest expense of $3,725,654 increased $533,000 or 16.7%
for the first nine months of 2000 as compared to the level of
$3,192,653 reached during the first nine months of 1999. Additional
staffing requirements due to the opening of two branches and a loan
production office resulted in salaries and benefits increasing by
$231,252.
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, 2000, the Bank had $1,979,289 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:
2001 $1,978,289
2002 -
2003 1,000
Liquidity
As of the end of the first nine months of 2000, $51,574,212 or
32.02% of gross loans will mature or are subject to repricing within
one year. These loans are funded in part by $19,806,816 in certificates
of deposit of $100,000 or more of which $10,920,147 mature in one year
or less.
Currently, the Bank has a maturity average ratio for the next
twelve months of 50.2% when comparing assets and deposits.
At year end 1999, $55,137,045 or 39.44% of gross loans were
scheduled to mature or were subject to repricing within one year and
$13,285,923 in certificates of deposit were scheduled to mature during
2000.
Capital Adequacy
Total stockholder equity was $21,713,729 or 10.5% of total
assets as of September 30, 2000. This compared to $20,047,746 or 10.4%
of total assets as of December 31, 1999.
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Page 14 of 20
Primary capital (stockholders' equity plus loan loss reserves)
of $23,323,764 represents 11.3% of total assets as of September 30,
2000 as compared to $21,570,378 or 11.16% of total assets as of
December 31, 1999.
The increase in the equity position resulted from the sale of
additional stock through the Stock Option Plans as well as an increase
in earnings in the first nine months of 2000 versus the first nine
months of 1999. The impact of these sales was somewhat offset by a
buy-back of Company stock amounting to 16,932 shares.
<PAGE>
Page 15 of 20
Three Months Ending September 30: 2000 Versus 1999
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 $721,352 for the third quarter of 2000 increased
$72,357 or 11.2% as compared to the $648,995 earned during the third
quarter of 1999. Earnings per share of $.24 for the third quarter of
2000 increased $.02 or 9.1% when compared to the corresponding period
in 1999. The annualized return on average assets was 1.41% and the
return on average equity was 13.58% for the third quarter of 2000. This
compares to a return on average assets of 1.35% and a return on average
equity of 13.11% for the same period in 1999.
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 $4,184,139 for the third quarter of
2000 increased $364,191 or 9.5% from the total interest income of
$3,819,948 for the corresponding quarter in 1999. The increase resulted
from growth in the loan portfolio as loan demand was strong during the
period. Interest and fees on loans amounted to $3,678,336. This
represented an increase of $295,218 or 8.7% over the corresponding
period in 1999.
Interest expense for the third quarter of 2000 increased
$248,233 or 13.6% over the same period in 1999. 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 $55,923 to the
reserve through its provision for loan loss.
Loans and Deposits
During the third quarter of 2000, net loans grew $2,141,166 or
5.4% 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 $4,478,830 or 11.3% annualized for the
three month period ending September 30, 2000. The decline in deposits
is mainly a result of local municipalities reducing their deposit
balance reserves.
<PAGE>
Page 16 of 20
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, 2000
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current
Categories 2001 2002 2003 2004 2005 Thereafter Value
---------- ---- ---- ---- ---- ---- ---------- -----
Loans
Commercial $ 14,468,896 $ - $ - $ - $ - $ - $14,468,896
Mortgage 27,630,667 20,708,452 27,630,667 23,923,487 18,786,173 6,849,743 97,894,569
Simple Interest I/L 12,900,254 9,563,532 5,403,800 3,147,272 1,322,429 66,752 27,186,151
Rule of 78ths I/L 328,089 110,856 21,592 1,924 - - 397,902
Investments
U. S. Government Agencies 863,810 863,810 1,849,748 4,761,798 1,857,085 8,848,155 13,312,370
Municipals
Nontaxable 725,213 930,623 1,591,366 273,749 273,749 5,283,204 8,074,604
Taxable 61,693 61,693 61,693 571,693 31,450 657,250 947,496
Mortgage Backed Securities 276,602 250,775 227,733 207,102 326,504 811,508 1,634,423
</TABLE>
<PAGE>
Page 17 of 20
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Current
Categories 2001 2002 2003 2004 2005 Thereafter Value
---------- ---- ---- ---- ---- ---- ---------- -----
Certificates of Deposits
< 182 days 3,096,515 - - - - - 3,096,515
182 - 364 days 5,126,129 - - - - - 5,126,129
1 year - 2 years 41,530,010 10,931,319 - - - - 49,018,969
2 years - 3 years 6,800,240 8,021,766 263,957 - - - 13,772,258
3 years - 4 years 1,357,397 1,802,801 3,803,813 355,798 - - 6,344,888
4 years - 5 years 963,241 546,674 1,005,227 991,674 - - 3,009,853
5 years 5,656,213 4,347,013 9,722,178 9,228,051 20,675,519 - 39,522,324
</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, 2000
<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 $ 14,771,733 $ 14,635,588 $14,468,896 $14,338,251 $14,241,806
Mortgage 103,259,279 100,518,920 97,894,569 95,379,889 92,968,960
Simple Interest I/L 28,208,974 27,689,004 27,186,151 26,699,637 26,228,731
Rule of 78ths I/L 407,416 402,604 397,902 395,305 388,811
Investments
U. S. Government Securities 14,493,332 13,886,137 13,312,370 12,769,843 12,256,520
Municipals
Nontaxable 8,825,890 8,438,655 8,074,604 7,732,075 7,409,551
Taxable 1,029,375 987,308 947,496 909,793 874,067
Mortgage Backed Securities 1,763,487 1,697,149 1,634,423 1,575,071 1,518,871
Certificates of Deposit
< 182 days 3,111,901 3,104,189 3,096,515 3,088,879 3,081,280
182 - 364 days 5,134,809 5,130,465 5,126,129 5,121,800 5,117,478
1 year - 2 years 50,155,246 49,580,780 49,018,969 48,469,408 47,931,707
2 years - 3 years 14,185,678 13,976,279 13,772,258 13,573,426 13,379,599
3 years - 4 years 6,640,804 6,490,243 6,344,888 6,204,507 6,068,879
4 years - 5 years 3,156,849 3,081,935 3,009,853 2,940,465 2,873,639
5 years 42,315,444 40,884,759 39,522,324 38,224,146 36,986,504
</TABLE>
Only financial instruments that do not have daily price adjustment capabilities
are herein presented.
<PAGE>
Page 18 of 20
Form 10-Q
Benchmark Bankshares, Inc.
September 30, 2000
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
Independent Accountant's Review Report
Item 6 Report on Form 8-K
No reports on Form 8-K have been filed
during the quarter ended September 30, 2000.
<PAGE>
Page 19 of 20
INDEPENDENT ACCOUNTANT'S REVIEW REPORT
Board of Directors
Benchmark Bankshares, Inc.
Kenbridge, Virginia
We have reviewed the accompanying 10Q filing including the balance
sheet of Benchmark Bankshares, Inc. (a corporation) as of September 30, 2000 and
the related statements of income and cash flows for the nine months and three
months periods then ended, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of Benchmark Bankshares, Inc.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements in order for them
to be in conformity with generally accepted accounting principles.
Our review was made for the purpose of expressing limited assurance
that there are no material modifications that should be made to the financial
statements in order for them to be in conformity with generally accepted
accounting principles. The additional required information included in the 10Q
filing for September 30, 2000 is presented only for supplementary analysis
purposes. Such information has been subjected to the inquiry and analytical
procedures applied in the review of the basic financial statements, and we are
not aware of any material modifications that should be made thereto.
Creedle, Jones, and Alga, P. C.
Certified Public Accountants
November 8, 2000
<PAGE>
Page 20 of 20
Form 10-Q
Benchmark Bankshares, Inc.
September 30, 2000
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 6, 2000 Ben L. Watson, III
------------------
President and CEO
Date: November 6, 2000 Janice W. Pernell
-----------------
Cashier and Treasurer
