-----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, BpU8FFKokN4LAfPsKyNUUdgh2PPpFOqme2B6iYHSJlaE/V2mbWonrVvn9/ZFP1x+ 0zRD2ufjxugp/N964L7Bbw== 0000804563-03-000002.txt : 20030514 0000804563-03-000002.hdr.sgml : 20030514 20030514100509 ACCESSION NUMBER: 0000804563-03-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030514 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: 03697088 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 sec10q1-2003.txt BENCHMARK FORM 10Q 1ST QUARTER 2003 Page 1 of 21 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, 2003. [ ] 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) 676-9054 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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No[X] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest applicable date: 2,959,718.057 Page 2 of 21 Form 10-Q Benchmark Bankshares, Inc. Part I - Table of Contents March 31, 2003 Part I Financial Information Item 1 Consolidated Balance Sheet Consolidated Statement of 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 Page 3 of 21 Form 10-Q Benchmark Bankshares, Inc. Consolidated Balance Sheet (Unaudited) (Audited) March 31, December 31, 2003 2002 ---- ---- Assets Cash and due from banks $ 11,668,755 $ 13,340,576 Securities Mortgage backed securities 15,396,660 11,213,510 State and municipal obligations 16,417,199 16,069,446 Other securities 195,490 195,490 Federal funds sold 24,708,000 17,255,000 Loans 198,227,873 198,255,665 Less Allowance for loan losses (1,982,281) (1,982,559) --------------- ---------------- Net Loans 196,245,592 196,273,106 Premises and equipment - net 4,423,479 4,285,102 Accrued interest receivable 1,442,946 1,292,070 Deferred income taxes 219,876 195,611 Other real estate 549,138 502,734 Cash value life insurance 3,670,258 3,632,755 Other assets 828,043 802,744 ----------------- ---------------- Total Assets $275,765,436 $265,058,144 ============== ============== Page 4 of 21 Form 10-Q Benchmark Bankshares, Inc. Consolidated Balance Sheet (Unaudited) (Audited) March 31, December 31, 2003 2002 ---- ---- Liabilities and Stockholders' Equity Deposits Demand (noninterest-bearing) $25,322,632 $26,372,882 NOW accounts 24,056,201 23,258,069 Money market accounts 20,901,301 17,394,138 Savings 14,163,395 13,347,995 Time, $100,000 and over 39,896,921 37,329,668 Other time 122,338,684 118,841,688 -------------- -------------- Total Deposits 246,679,134 236,544,440 Accrued interest payable 796,019 803,167 Accrued income tax payable 362,509 32,516 Dividends payable - 593,088 Other liabilities 695,480 539,026 -------------- --------------- Total Liabilities 248,533,142 238,512,237 Stockholders Equity Common stock, par value $.21 per share, authorized 4,000,000 shares; issued and outstanding 03-31-03 2,959,718.057, issued and outstanding 12-31-02 2,962,234.049 shares 621,541 623,164 Capital surplus 3,876,736 4,005,238 Retained earnings 22,062,299 21,215,858 Unrealized security gains net of tax effect 671,718 701,647 ---------------- -------------- Total Stockholders' Equity 27,232,294 26,545,907 ----------------- -------------- Total Liabilities and Stockholders' Equity $275,765,436 $265,058,144 ============== ============== Note: The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date. See notes to consolidated financial statements. Page 5 of 21 Form 10-Q Benchmark Bankshares, Inc. Consolidated Statement of Income (Unaudited) Three Months Ended March 31, 2003 2002 ---- ---- Interest Income Interest and fees on loans $3,830,672 $3,717,586 Interest on U. S. Government obligations 152,913 250,934 Interest on State and municipal obligations 174,401 197,765 Interest on Federal funds sold 54,543 32,794 -------------- ------------ Total Interest Income 4,212,529 4,199,079 Interest Expense Interest on deposits 1,689,006 1,941,403 Net Interest Income 2,523,523 2,257,676 Provision for Loan Losses 29,984 185,666 --------------- ------------ Net Interest Income After Provision 2,493,539 2,072,010 Noninterest Income Service charges, commissions, and fees on deposits 191,091 134,318 Other operating income 112,483 60,852 Gains on sale of other real estate 955 13,852 Dividends 7,800 6,000 --------------- ------------ Total Noninterest Income 312,329 215,022 Noninterest Expense Salaries and wages 798,200 750,910 Employee benefits 241,313 187,160 Occupancy expenses 98,383 82,461 Furniture and equipment expense 102,406 80,967 Other operating expenses 365,465 202,012 --------------- ------------ Total Noninterest Expense 1,605,767 1,303,510 --------------- ------------ Net Income Before Taxes 1,200,101 983,522 Income Taxes 353,662 279,473 --------------- ------------ Net Income $ 846,439 $ 704,049 =============== =========== Net Income per Share $ 0.29 $ 0.24 =============== =========== See notes to consolidated financial statements. Page 6 of 21 Form 10-Q Benchmark Bankshares, Inc. Condensed Consolidated Statement of Cash Flows (Unaudited) Three Months Ended March 31, 2003 2002 ---- ---- Cash Provided by Operating Activities $1,174,837 $ 964,573 Cash Provided by Financing Activities Net (decrease) in demand deposits and interest-bearing transaction accounts (252,118) (4,453,530) Net increase in savings and money market deposits 4,322,563 5,898,662 Net increase (decrease) in certificates of deposit 6,064,249 (4,620,727) Decrease in dividends payable (594,526) (534,600) Sale of stock 38,940 7,749 Purchase of stock (169,065) (140,083) --------- --------- Total Cash Provided (Used) by Financing Activities 9,410,043 (3,842,529) Cash Used in Investing Activities Purchase of securities (7,012,274) (509,913) Maturity (Call) of securities 2,436,023 1,425,576 Net (increase) decrease in loans 27,792 (6,531,351) Purchase of premises and equipment (255,242) (29,255) --------- -------- Total Cash (Used) by Investing Activities (4,803,701) (5,644,943) --------- ---------- Increase (Decrease) in Cash and Cash Equivalents $5,781,179 $(8,522,899) ============= =============== See notes to consolidated financial statements. Page 7 of 21 Form 10-Q Benchmark Bankshares, Inc. Notes to Consolidated Financial Statements March 31, 2003 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 21 (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). 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 21 (j) Earnings Per Share Earnings per share were computed by using the average shares outstanding for each period presented. The 2003 average shares have been adjusted to reflect the buy back of 13,000 shares of common stock by the company and the sale of 5,275 shares of the Company's common stock through the employee stock option plan during the first three months of 2003. The 2002 average shares have been adjusted to reflect the sale of 1,225.495 shares 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 three months of 2003 and 2002 were 2,963,917.372 shares and 2,959,691.181 shares, respectively. As of March 31, 2003, Benchmark Bankshares, Inc. offers 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. (k) Income Taxes. The table below reflects the components of the Net Deferred Tax Asset account as of March 31, 2003: Deferred Tax Assets Resulting from Loan loss reserves $567,221 Deferred compensation 127,874 BOLI 27,890 Deferred Tax Liabilities Resulting from Depreciation (157,073) Unrealized securities gains (346,036) ----------- Net Deferred Tax Asset $219,876 ========= (l) Comprehensive Income. The only component of other comprehensive income in the Company's operation relates to unrealized security gains and losses in the bond portfolio. The Company has elected to report this activity in the equity section of the financial statements rather than the Statement of Income. Due to the fact that this condensed filing does not include a Statement of Equity, the following table is presented to reflect the activity in Comprehensive Income: Three Month Period Ending March 31, 2003 2002 Net Income $846,439 $704,049 Other Comprehensive Income- Net Unrealized Holding (Losses) Arising During Period (45,347) (51,864) -------- -------- Comprehensive Income $801,092 $652,185 ========== ========= Page 10 of 21 Selected Quarterly Data (Unaudited) 2003 2002 2002 2002 First Fourth Third Second Quarter Quarter Quarter Quarter Net Interest Income $2,523,523 $2,549,729 $2,510,411 $2,528,335 Provision for Loan Losses 29,984 116,031 24,512 92,373 Noninterest Income 312,329 402,139 474,061 304,107 Noninterest Expense 1,605,767 1,623,687 1,626,874 1,530,908 Income Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle 846,439 905,154 936,699 852,138 Net Income 846,439 905,154 936,699 852,138 Per Share $ 0.29 $ 0.29 $ 0.31 $ 0.29 2002 2001 2001 2001 First Fourth Third Second Quarter Quarter Quarter Quarter Net Interest Income $2,257,676 $2,217,110 $2,136,736 $2,142,230 Provision for Loan Losses 185,666 67,953 34,128 33,027 Noninterest Income 215,022 234,848 296,300 271,885 Noninterest Expense 1,303,510 1,405,484 1,458,664 1,394,504 Income Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle 704,049 693,786 680,092 681,381 Net Income 704,049 693,786 680,092 681,381 Per Share $ 0.24 $ 0.24 $ 0.22 $ 0.23 Page 11 of 21 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations The following is management's discussion and analysis of certain factors which have affected the Company's financial position and operating results during the periods included in the accompanying condensed financial statements. FIRST QUARTER 2003 Earnings Summary Net income of $846,439 for the first quarter of 2003 increased $142,390, or 20.22% as compared to net income of $704,049 earned during the first quarter of 2002. Earnings per share of $0.29 as of March 31, 2003 also increased from the March 31, 2002 level of $0.24. The annualized return on average assets of 1.25% and annualized return on average equity of 12.59% increased from 1.17% and 11.86%, respectively, when comparing the first three months of 2003 to the first three months of 2002. The increase in earnings resulted from several factors. Although net interest income increased by only $13,450, total noninterest income increased by $97,307 when compared to one year ago. The combination of a $252,397 decrease in interest expense and a $155,682 decrease in the provision for loan losses improved overall profitability and offset a $302,257 increase in noninterest expense. Interest Income and Interest Expense Total interest income of $4,212,529 for the first quarter of 2003 increased $13,450 or 0.32% over interest income of $4,199,079 recorded during the first quarter of 2002. Although the bank earned $99,636 less on investment securities, including federal funds sold, a $113,086 increase in interest and fees on loans served to offset this decline. Total interest expense in the first quarter of 2003 amounted to $1,689,006, reflecting a decrease of $252,397, or 13.00%, from the level reached during the first quarter of 2002. This decrease is a result of low interest rates, which remained at record-low levels during the quarter. Provision for Loan Losses During the first quarter of 2003, the loan loss reserve decreased by $278 to a level of $1,982,281, or 1.00%, of the outstanding loan balance. The decrease was a result of a slight decline in total loans during the quarter. At year end 2002, the reserve level amounted to $1,982,559, or 1.00%, of the outstanding loan balance net of unearned interest. Nonperforming Loans Nonperforming loans consist of loans that are either 90 days or more past due or accounted for on a non-accrual basis. Loans classified as non-accrual no longer earn interest and payment in full of principal or interest is not expected. As of March 31, 2003, the Bank had a total of $970,372, or 0.49%, of the total loan portfolio, classified as nonperforming loans, with $208,268 of this amount accounted for on a non-accrual basis. Noninterest Income and Noninterest Expense Noninterest income of $312,329 increased $97,307, or 45.25%, for the first quarter of 2003 as compared to $215,022 earned during the first quarter of 2002. The increase primarily resulted from an increase in both service charges and other operating income that resulted from the Bank's strong deposit growth and the opening of a new branch location in Blackstone. Page 12 of 21 Noninterest expense of $1,605,767 increased $302,257, or 23.19%, for the first quarter of 2003 as compared to the level of $1,303,510 reached during the first quarter of 2002. Salaries and benefits expenses accounted for $101,443 of the difference, while other operating expenses, primarily resulting from the opening of a new branch location, accounted for the balance of the increase. 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 it 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, 2003, the Bank had $1,083,607 in outstanding letters of credit. This represents a $68,449, or 5.94%, decrease from the December 31, 2002 level. 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: March 31, 2004 $ 883,363 2005 200,244 Liquidity As of March 31, 2003, $62,808,592, or 31.69%, of gross loans will mature or are subject to repricing within one year. These loans are funded in part by $39,896,921 in certificates of deposit of $100,000 or more of which $21,647,663 mature in one year or less. With a total of $85,011,258 in certificates of deposit and $1,265,134 in investment securities maturing within the next year, the Bank has a maturity average ratio for the next twelve months of 104.44% when comparing earning asset and certificate of deposit maturities. At year end 2002, $59,441,000, or 29.99%, of gross loans were scheduled to mature or were subject to repricing within one year and $86,594,000 in certificates of deposit were scheduled to mature during the same period. Capital Adequacy Total stockholder equity was $27,232,294, or 9.88%, of total assets as of March 31, 2003. This compared to $26,545,907, or 10.02%, of total assets as of December 31, 2002. Primary capital (stockholders'equity plus loan loss reserves) of $29,214, 575 represents 10.59% of total assets as of March 31, 2003. As of December 31, 2002, primary capital was $28,528,466, or 10.76%, of total assets. Page 13 of 21 A strong growth in deposits resulted in increased assets; however, loan demand did not keep pace with deposit growth. This imbalance resulted in a declining loan to deposit ratio over the first quarter. The decline resulted in additional funds being placed in lower earning investment accounts versus higher yielding loans. This decreasing rate of earnings from the current asset portfolio mix resulted in the lower earnings and less earnings retention. Consequently the equity ratios declined. Although the Bank experienced a slight decrease in the ratios, the overall equity position remained stable. Page 14 of 21 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. Table I Fair Value of Financial Assets Benchmark Bankshares, Inc. March 31, 2003
Current Categories 2004 2005 2006 2007 2008 Thereafter Value ---------- ---- ---- ---- ---- ---- ---------- ----- Loans Commercial $ 8,830,127 $ - $ - $ - $ - $ - $ 8,369,789 Consumer 13,710,099 9,428,942 5,742,617 3,992,440 1,551,388 321,350 30,526,847 Mortgage 33,038,325 26,587,219 22,828,765 32,617,784 29,795,017 27,834,451 140,371,391 Investments Municipals Nontaxable 1,888,360 601,005 601,005 1,241,005 1,649,178 11,048,606 14,906,016 Taxable 61,693 556,572 31,450 31,450 31,450 578,625 1,058,279 Mortgage Backed Securities 3,672,859 2,769,951 2,158,340 1,856,809 3,415,909 3,989,294 15,865,162
Page 15 of 21
Certificates of Deposit < 182 days 3,173,166 - - - - - 3,161,306 182 - 364 days 10,864,988 - - - - - 10,790,700 1 year - 2 years 50,149,233 668,900 - - - - 49,932,805 2 years - 3 years 6,223,609 11,332,028 889,559 - - - 17,757,572 3 years - 4 years 5,348,427 2,817,545 4,503,591 2,583 - - 12,084,129 4 years - 5 years 743,878 819,714 699,499 786,599 - - 2,833,894 5 years and over 10,394,213 8,254,964 19,271,987 8,874,710 28,670,404 341,563 66,838,391
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. Table II Variable Interest Rate Disclosure Benchmark Bankshares, Inc. March 31, 2003
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 $ 8,531,524 $ 8,449,882 $ 8,369,789 $ 8,291,199 $ 8,214,072 Consumer 31,771,259 31,137,702 30,526,847 29,937,564 29,368,794 Mortgage 151,024,364 145,522,113 140,371,391 135,541,579 131,005,295 Investments Municipals Nontaxable 16,345,182 15,627,106 14,906,016 14,168,705 13,331,267 Taxable 1,132,937 1,094,156 1,058,279 1,025,201 994,814 Mortgage Backed Securities 16,942,540 16,403,853 15,865,162 15,326,472 14,787,786 Certificates of Deposit < 182 days 3,185,105 3,173,166 3,161,306 3,149,525 3,137,822 182 - 364 days 10,940,098 10,858,201 10,790,700 10,723,869 10,657,698 1 year - 2 years 50,947,177 50,434,892 49,932,805 49,440,614 48,958,030 2 years - 3 years 18,366,589 18,057,744 17,757,572 17,465,741 17,181,935 3 years - 4 years 12,550,636 12,313,564 12,084,129 11,862,003 11,646,870 4 years - 5 years 2,974,908 2,903,025 2,833,894 2,767,379 2,703,350 5 years and over 71,481,044 69,102,557 66,838,391 64,681,739 62,626,268
Only financial instruments that do not have daily price adjustment capabilities are herein presented. Page 16 of 21 Form 10-Q Benchmark Bankshares, Inc. March 31, 2003 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, 2003. Item 99 "Additional Exhibits of Item 601(b)" Exhibit 1 Section 906 Certification Exhibit 2 Section 302 Certification Page 17 of 21 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, 2003 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 10-Q filing for March 31, 2003 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 South Hill, Virginia May 7, 2003 Page 18 of 21 Exhibit 1 STATEMENT OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the Form 10-Q of Benchmark Bankshares, Inc. for the quarter ended March 31, 2003, we, Ben L. Watson, III, President and Chief Executive Officer of Benchmark Bankshares, Inc., and Janice W. Pernell, Senior Vice President, Treasurer, and Assistant Secretary of Benchmark Bankshares, Inc., hereby certify pursuant to 18 U.S.C.ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge: (a) such Form 10-Q for the quarter ended March 31, 2003 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and (b) the information contained in such Form 10-Q for the quarter ended March 31, 2003 fairly presents, in all material respects, the financial condition and results of operations of Benchmark Bankshares, Inc. as of, and for, the period presented in such Form 10-Q. By: Ben L. Watson, III Date: May 7, 2003 President and Chief Executive Officer By: Janice W. Pernell Date: May 7, 2003 Senior Vice President, Treasurer, and Assistant Secretary Page 19 of 21 Exhibit 2 Section 302 Certification I, Ben L. Watson, III, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Benchmark Bankshares, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's Board of Directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 7, 2003 Ben L. Watson, III President and Chief Executive Officer Page 20 of 21 Exhibit 2 Section 302 Certification I, Janice W. Pernell, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Benchmark Bankshares, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's Board of Directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 7, 2003 Janice W. Pernell Senior Vice President, Treasurer, and Assistant Secretary Page 21 of 21 Form 10-Q Benchmark Bankshares, Inc. March 31, 2003 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 7, 2003 Ben L. Watson, III ------------------ President and CEO Date: May 7, 2003 Janice W. Pernell ----------------- Senior Vice President, Treasurer, and Assistant Secretary -----END PRIVACY-ENHANCED MESSAGE-----