-----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, UBR5najWR4wZXS85mJNRa/eHXdyjA2vtb2AMKai/WaCu4QAYYyDli3W9KfotphIG 20bv6JHg4JNeFq+xNk7bGQ== 0000804563-02-000002.txt : 20020513 0000804563-02-000002.hdr.sgml : 20020513 ACCESSION NUMBER: 0000804563-02-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020513 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: 1934 Act SEC FILE NUMBER: 000-18445 FILM NUMBER: 02644086 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 sec10q1-2002.txt FIRST QUARTER ENDING 03-31-02 Page 1 of 17 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, 2002. [ ] 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: (434)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: 2,957,245.500 Page 2 of 17 Form 10-Q Benchmark Bankshares, Inc. Part I - Table of Contents March 31, 2002 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 Page 3 of 17 Form 10-Q Benchmark Bankshares, Inc. Consolidated Balance Sheet (Unaudited) (Audited) March 31, December 31, 2002 2001 Assets Cash and due from banks $ 7,998,095 $ 8,215,994 Securities Federal Agency obligations 997,200 1,501,599 State and municipal obligations 17,403,806 17,517,967 Mortgage backed securities 16,980,728 17,329,695 Other securities 195,490 195,490 Federal funds sold 4,435,000 12,740,000 Loans 184,383,884 177,852,949 Less Unearned interest income (554) (970) Allowance for loan losses (1,844,767) (1,774,632) Net Loans 182,538,563 176,077,347 Premises and equipment - net 4,193,439 4,283,656 Accrued interest receivable 1,561,100 1,425,945 Deferred income taxes 599,858 560,315 Other real estate 1,123,347 1,156,464 Other assets 828,282 808,517 Total Assets $238,854,908 $ 241,812,989 Page 4 of 17 Form 10-Q Benchmark Bankshares, Inc. Consolidated Balance Sheet (Unaudited) (Audited) March 31, December 31, 2002 2001 Liabilities and Stockholders' Equity Deposits Demand (noninterest-bearing) $ 24,731,033 $ 27,504,768 NOW accounts 18,624,808 20,304,603 Money market accounts 15,857,778 10,939,010 Savings 12,140,183 11,160,289 Time, $100,000 and over 29,265,115 31,101,575 Other time 112,566,599 115,350,866 Total Deposits 213,185,516 216,361,111 Accrued interest payable 901,796 1,002,261 Accrued income tax payable 301,382 39,405 Dividends payable - 534,600 Other liabilities 451,567 398,451 Total Liabilities 214,840,261 218,335,828 Stockholders' Equity Common stock, par value $.21 per share, authorized 4,000,000 shares; issued and outstanding 03-31-02 2,957,228.555, issued and outstanding 12-31-01 2,970,003.06 shares 621,022 623,701 Capital surplus 3,927,204 4,056,859 Retained earnings 19,649,462 18,945,412 Unrealized security losses net of tax effect (183,041) (148,811) Total Stockholders' Equity 24,014,647 23,477,161 Total Liabilities and Stockholders' Equity $238,854,908 $241,812,989 Note: The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date. See notes to consolidated financial statements. Page 5 of 17 Form 10-Q Benchmark Bankshares, Inc. Consolidated Statement of Income and Comprehensive Income (Unaudited) Three Months Ended March 31, 2002 2001 Interest Income Interest and fees on loans $3,717,586 $3,884,193 Interest on U. S. Government obligations 250,934 224,734 Interest on State and municipal obligations 197,765 113,809 Interest on other securities 6,000 - Interest on Federal funds sold 32,794 74,818 Total Interest Income 4,205,079 4,297,554 Interest Expense Interest on deposits 1,941,403 2,147,621 Net Interest Income 2,263,676 2,149,933 Provision for Loan Losses 185,666 62,778 Net Interest Income After Provision 2,078,010 2,087,155 Noninterest Income Service charges, commissions, and fees on deposits 134,318 156,024 Other operating income 60,852 81,897 Gains (Losses) on sale of securities - 2,434 Gains on sale of other real estate 13,852 - Total Noninterest Income 209,022 240,355 Noninterest Expense Salaries and wages 750,910 692,927 Employee benefits 187,160 170,245 Occupancy expenses 82,461 84,305 Furniture and equipment expense 80,967 57,971 Other operating expenses 202,012 335,737 Total Noninterest Expense 1,303,510 1,341,185 Net Income Before Taxes 983,522 986,325 Income Taxes 279,473 305,815 Net Income 704,049 680,510 Other Comprehensive Income, Net of Tax Net unrealized holding gain (loss) arising during period (34,230) 234,779 Comprehensive Income $ 669,819 $ 915,289 Net Income per Share $ 0.24 $ 0.23 See notes to consolidated financial statements. Page 6 of 17 Form 10-Q Benchmark Bankshares, Inc. Condensed Consolidated Statement of Cash Flows (Unaudited) Three Months Ended March 31, 2002 2001 Cash Provided by Operating Activities $ 964,573 $1,045,126 Cash Provided by Financing Activities Net (decrease) in demand deposits and interest-bearing transaction accounts (4,453,530) (3,027,421) Net increase in savings and money market deposits 5,898,662 591,682 Net increase (decrease) in certificates of deposit (4,620,727) 8,246,803 Decrease in dividends payable (534,600) (541,120) Sale of stock 7,749 22,140 Purchase of stock (140,083) (266,159) Total Cash Provided (Used) by Financing Activities (3,842,529) 5,025,925 Cash Used in Investing Activities Purchase of securities (509,913) (500,000) Maturity (Call) of securities 1,425,576 3,192,531 Net increase in loans (6,531,351) (5,517,036) Purchase of premises and equipment (29,255) (325,424) Total Cash (Used) by Investing Activities (5,644,943) (3,149,929) Increase (Decrease) in Cash and Cash Equivalents $(8,522,899) $2,921,122 See notes to consolidated financial statements. Page 7 of 17 Form 10-Q Benchmark Bankshares, Inc. Notes to Consolidated Financial Statements March 31, 2002 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) Consolidated Financial Statements. 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. Page 8 of 17 (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. 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 78ths 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. Page 9 of 17 (j) Earnings Per Share Earnings per share were computed by using the average shares outstanding for each period presented. The 2002 average shares have been adjusted to reflect the net sale of 1,225.495 shares through the employee stock option plan at various dates during the period and the retirement of 14,000 shares. The 2001 average shares have been adjusted to reflect the sale of 3,000 shares of the Company's common stock through the employee stock option plan at various dates during the period and the retirement of 28,504 shares. The average shares of outstanding stock for the first quarter of 2002 and 2001 were 2,959,691.181 and 2,999,844.036, respectively. (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, 2002: Deferred tax assets resulting from loan loss reserves $521,306 Deferred tax asset resulting from deferred compensation 104,720 Deferred tax liabilities resulting from depreciation (120,462) Deferred tax liability resulting from unrealized securities losses 94,294 Net Deferred Tax Asset $599,858 Selected Quarterly Data (Unaudited) 2001 2001 2001 2001 First Second Third Fourth Quarter Quarter Quarter Quarter Net Interest Income $2,149,933 $2,142,230 $2,136,736 $2,217,110 Provision for Loan Losses 62,778 33,027 34,128 67,953 Noninterest Income 240,355 271,885 296,300 234,848 Noninterest Expense 1,341,185 1,394,504 1,458,664 1,405,484 Income Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle 680,510 681,381 680,092 693,786 Net Income 680,510 681,381 680,092 693,786 Per Share $ 0.23 $ 0.23 $ 0.22 $ 0.24 Page 10 of 17 2000 2000 2000 2000 First Second Third Fourth Quarter Quarter Quarter Quarter Net Interest Income $1,959,860 $2,086,262 $2,105,102 $2,268,551 Provision for Loan Losses 35,687 91,579 55,923 17,998 Noninterest Income 219,896 263,295 261,566 261,881 Noninterest Expense 1,181,133 1,284,077 1,260,402 1,343,178 Income Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle 666,047 669,338 721,352 788,324 Net Income 666,047 669,338 721,352 788,324 Per Share $ 0.22 $ 0.22 $ 0.24 $ 0.27 Page 11 of 17 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations FIRST QUARTER 2002 Earnings Summary Net income of $704,049 for the first quarter of 2002 increased $23,539 or 3.46% as compared to net income of $680,510 earned during the first quarter of 2001. Earnings per share of $.24 as of March 31, 2002 increased by $.01 or 4.35% over the same period in 2001. The annualized return on average assets of 1.17% decreased 10.69% while the annualized return on average equity of 11.86% decreased 1.90% when comparing first quarter 2002 results with those of first quarter 2001. The Bank experienced steady growth in the first quarter of 2002 in loans while deposits declined slightly. Since year end, loans have grown by $6,530,935 for an annualized growth rate of 14.69%. Deposits declined by $3,175,595 for an annualized rate change of (1.47)%. Currently, the loan to deposit ratio is 86.49%. Interest Income and Interest Expense Total interest income of $4,205,079 for the first quarter of 2002 decreased $92,475 or 2.15% over interest income of $4,297,554 recorded during the first quarter of 2001. The major area of decrease was in interest and fees on loans, which was a direct result from declining average interest rates in the portfolio. Total interest expense in the first quarter of 2002 declined to a level of $1,941,403. This amounted to a decrease of $206,218 or 9.60% over the level reached during the first quarter of 2001. This decrease in interest expense resulted from a drop in both the levels of deposit and interest rate paid. Provision for Loan Losses While the Bank's loan loss experience ratio remains low, management continues to set aside provisions to the loan loss reserve. During the first quarter of 2002, the Bank increased the loan loss reserve by $70,135 to a level of $1,844,767 or 1.00% of the outstanding loan balance. At year end 2001, the reserve level amounted to $1,774,632 or 1.00% 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, 2002, the Bank had $976,763 in nonperforming loans or .53% of the loan portfolio. The amount of non-secured loans in this category amounted to $7,725. Noninterest Income and Noninterest Expense Noninterest income of $209,022 decreased $31,333 or 13.04% for the first quarter of 2002 as compared to the level of $240,355 reached during the first quarter of 2001. The decrease resulted from fewer fees earned on deposit accounts as the economy and financial growth slowed in the trade area. Page 12 of 17 Noninterest expense of $1,303,510 decreased $37,675 or 2.89% for the first quarter of 2002 as compared to the level of $1,341,185 reached during the first quarter of 2001. The reported increase in wages and benefits was more than offset by a reduction in operating expenses resulting from reimbursements of prior year cost. 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. As of March 31, 2002, the Bank had $926,929 outstanding letters of credit. This represents a $12,115 or 1.32% increase 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: March 31, 2003 $923,929 2004 3,000 Liquidity As of the end of the first quarter of 2002, $53,063,287 or 28.78% of gross loans will mature or are subject to repricing within one year. These loans are funded in part by $29,265,115 in certificates of deposit of $100,000 or more of which $18,506,196 mature in one year or less. Currently, the Bank has a maturity average ratio for the next twelve months of 66.46% when comparing earning asset and certificates of deposit maturities. At year end 2001, $50,344,000, or 28.31% of gross loans, were scheduled to mature or were subject to repricing within one year and $86,045,000 in certificates of deposit were scheduled to mature during 2002. Capital Adequacy Total stockholder equity was $24,014,647 or 10.05% of total assets as of March 31, 2002. This compared to $23,477,161 or 9.71% of total assets as of December 31, 2001. Primary capital (stockholders' equity plus loan loss reserves) of $25,859,414 represents 10.83% of total assets as of March 31, 2002 as compared to $25,251,793 or 10.44% of total assets as of December 31, 2001. The equity ratio remained stable as earnings more than offset repurchase of the Company's common stock. Page 13 of 17 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 March 31 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. March 31, 2002
Current Categories 2003 2004 2005 2006 2007 Thereafter Value Loans Commercial $22,219,960 $ - $ - $ - $ - $ - $ 21,280,847 Mortgage 29,458,859 25,636,329 26,190,783 19,008,985 35,973,180 9,546,675 117,434,454 Consumer 14,520,008 10,460,041 6,541,849 2,994,016 2,862,458 - 31,730,038 Investments U. S. Government Agencies 61,250 61,250 61,250 61,250 35,000 715,075 989,075 Municipals Nontaxable 898,965 1,981,789 690,480 690,480 1,830,480 12,717,294 16,395,852 Taxable 61,693 61,693 46,572 31,450 31,450 578,625 1,016,596 Mortgage Backed Securities 3,205,328 2,756,267 2,384,834 2,105,202 2,397,483 2,988,444 16,980,727 Certificates of Deposits 81,336,234 28,500,409 12,147,735 20,893,632 9,681,629 - 141,914,631
Page 14 of 17 In Table Two, the cash flows are present value discounted by predetermined factors to measure the impact on the financial products portfolio at twelve month intervals. Variable Interest Rate Disclosure Benchmark Bankshares, Inc. March 31, 2002
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 $ 21,542,573 $ 21,411,068 $ 21,280,847 $ 21,151,894 $ 21,024,192 Mortgage 124,604,716 120,932,504 117,434,454 114,099,773 110,918,484 Consumer 32,990,109 32,348,872 31,730,038 31,132,524 30,555,312 Investments U. S. Government Securities 993,535 992,472 989,075 935,575 883,595 Municipals Nontaxable 18,266,587 17,375,102 16,395,852 15,299,434 14,273,526 Taxable 1,102,068 1,057,561 1,016,596 979,029 944,711 Mortgage Backed Securities 18,425,642 17,703,187 16,980,727 16,258,267 15,535,812 Certificates of Deposit 147,237,368 144,527,460 141,914,631 139,396,920 136,966,686
Only financial instruments that do not have daily price adjustment capabilities are herein presented. Page 15 of 17 Form 10-Q Benchmark Bankshares, Inc. March 31, 2002 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 March 31, 2002. Page 16 of 17 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 March 31, 2002 and the related statements of income and cash flows for the three month period 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 March 31, 2002 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 May 8, 2002 Page 17 of 17 Form 10-Q Benchmark Bankshares, Inc. March 31, 2002 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 8, 2002 Ben L. Watson, III President and CEO Date: May 8, 2002 Janice W. Pernell Cashier and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----