-----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, C6WuUX+2KAxHb47ec6yd6aUmzDDBvT3qauu09JM+ulrZVuUIYrUkZd8BGF5k/iwx rtK0qFAm3NmPfviEzrC11A== /in/edgar/work/0000804563-00-000005/0000804563-00-000005.txt : 20001109 0000804563-00-000005.hdr.sgml : 20001109 ACCESSION NUMBER: 0000804563-00-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BENCHMARK BANKSHARES INC CENTRAL INDEX KEY: 0000804563 STANDARD INDUSTRIAL CLASSIFICATION: [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: 755412 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 0001.txt THIRD QUARTER 2000 10-Q 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 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 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 ============= ============= 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. 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. 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 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 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 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. 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. 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 ========= 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. 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. 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 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 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
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
Page 17 of 20
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
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
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
Only financial instruments that do not have daily price adjustment capabilities are herein presented. 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 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 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 EX-27 2 0002.txt FDS --
9 (Replace this text with the legend) 0000804563 Benchmark Bankshares, Inc. 1 $ 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 1 4,744,991 0 9,444,000 0 18,939,656 5,245,081 5,029,237 161,067,532 1,610,035 205,923,640 182,835,303 0 1,374,608 0 0 0 631,307 21,082,422 205,923,640 10,722,641 1,333,740 10,610 12,066,991 5,860,783 5,915,725 6,151,266 183,189 (3,308) 3,725,654 2,987,180 2,056,737 0 0 2,056,737 .68 .68 4.07 439,816 724,832 1,631,445 10,939,929 1,522,632 188,995 93,209 1,610,035 1,610,035 0 210,000
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