-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NGDpVI81vTWVCRz50cCEDowZRcMuLJNzxZ900FPh8z6g/YonRrUHyOFbodSq5LCu FyUeMHiM42LLOx/Vy58OyA== 0000804563-99-000002.txt : 19990510 0000804563-99-000002.hdr.sgml : 19990510 ACCESSION NUMBER: 0000804563-99-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BENCHMARK BANKSHARES INC CENTRAL INDEX KEY: 0000804563 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 541460991 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18445 FILM NUMBER: 99613378 BUSINESS ADDRESS: STREET 1: 100 S BROAD ST CITY: KENBRIDGE STATE: VA ZIP: 23944 BUSINESS PHONE: 8046768444 MAIL ADDRESS: STREET 1: 100 S BROAD ST CITY: KENBRIDGE STATE: VA ZIP: 23944 10-Q 1 FIRST QUARTER 1999 10-Q 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 Page 2 of 13 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 Page 3 of 13 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 ============= ============= Page 4 of 13 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. Page 5 of 13 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. Page 6 of 13 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. Page 7 of 13 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. Page 8 of 13 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, 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. 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. Page 11 of 13 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. Page 12 of 13 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. 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 EX-27 2 FDS --
9 (Replace this text with the legend) 1 $ 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1 4,777,752 0 16,612,000 0 20,693,482 5,247,259 5,220,055 139,800,654 1,605,361 191,772,076 170,721,605 0 1,296,555 0 0 0 632,374 19,121,542 191,772,076 3,139,622 535,306 0 3,674,928 1,857,038 1,857,038 1,817,890 28,897 (547) 1,032,094 896,867 896,867 0 0 626,694 .21 .21 4.06 773,773 611,958 1,034,858 9,026,658 1,558,741 38,840 56,563 1,605,361 1,605,361 0 636,250
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