-----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, CvQehzRrns3hivux9E0lRRT/ZIf7LEcj9hL1Nx/HqiydBw9o7KUU5L/PIh333SfW 9xUay+3Rd+Mi/VSAybRdjQ== 0000804563-04-000008.txt : 20041110 0000804563-04-000008.hdr.sgml : 20041110 20041110144425 ACCESSION NUMBER: 0000804563-04-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041110 DATE AS OF CHANGE: 20041110 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: 041132706 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 sec10q3-2004.txt THIRD QUARTER 2004 Page 1 of 30 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, 2004. [ ] 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 54-1380808 (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: (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 by 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: 2,974,693.002 Page 2 of 30 Form 10-Q Benchmark Bankshares, Inc. Table of Contents September 30, 2004 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 Item 4 Controls and Procedures Part II Other Information Page 3 of 30 Form 10-Q Benchmark Bankshares, Inc. Consolidated Balance Sheet (Unaudited) (Audited) September 30, December 31, 2004 2003 Assets Cash and due from banks $ 12,943,222 $ 12,897,917 Interest-bearing deposits in other banks 100,000 100,000 Securities U. S. Government agencies 2,495,411 3,000,112 Mortgage backed securities 9,954,221 14,597,092 State and municipal obligations 15,141,123 13,800,352 Other securities 260,056 259,506 Federal funds sold 10,194,000 15,466,000 Loans 223,266,288 214,703,746 Less: Allowance for loan losses (2,010,815) (1,984,101) ------------- ------------- Net Loans 221,255,473 212,719,645 Premises and equipment - net 5,383,473 4,531,321 Accrued interest receivable 1,390,119 1,267,134 Deferred income taxes 370,040 302,829 Other real estate 229,404 106,904 Cash value life insurance 3,936,195 3,806,253 Refundable taxes - 122,345 Other assets 969,787 908,951 ------------- ------------- Total Assets $284,622,524 $283,886,361 ============= ============= Page 4 of 30 Form 10-Q Benchmark Bankshares, Inc. Consolidated Balance Sheet (Unaudited) (Audited) September 30, December 31, 2004 2003 Liabilities and Stockholders' Equity Deposits Demand (noninterest-bearing) $ 36,350,330 $ 30,401,821 NOW accounts 29,279,864 29,254,509 Money market accounts 19,446,997 25,265,191 Savings 16,346,478 15,550,755 Time, $100,000 and over 34,441,593 33,331,859 Other time 116,591,934 119,396,360 ------------ ------------ Total Deposits 252,457,196 253,200,495 Accrued interest payable 648,638 667,523 Accrued income tax payable (561) - Dividends payable - 623,317 Other liabilities 1,026,805 782,126 ------------ ------------ Total Liabilities 254,132,078 255,273,461 Stockholders' Equity Common stock, par value $.21 per share, authorized 4,000,000 shares; issued and outstanding 09-30-04, 2,974,693.002, issued and outstanding 12-31-03, 2,970,373.959 624,686 623,779 Additional paid-in capital 3,825,258 3,881,671 Retained earnings 25,581,800 23,565,634 Unrealized security gains net of tax effect 458,702 541,816 ------------ ------------ Total Stockholders' Equity 30,490,446 28,612,900 ------------ ------------ Total Liabilities and Stockholders' Equity $284,622,524 $283,886,361 ============ ============ Note: The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date. See notes to consolidated financial statements. Page 5 of 30 Form 10-Q Benchmark Bankshares, Inc. Consolidated Statement of Income (Unaudited) Nine Months Ended September 30, 2004 2003 Interest Income Interest and fees on loans $11,365,965 $11,578,852 Interest on U. S. Government obligations 128,475 8,000 Interest on State and municipal obligations 436,716 496,257 Interest on mortgage backed securities 334,211 406,580 Interest on Federal funds sold 93,770 146,050 ----------- ----------- Total Interest Income 12,359,137 12,635,739 Interest Expense Interest on deposits 4,151,806 4,817,446 ----------- ----------- Total Interest Expense 4,151,806 4,817,446 Net Interest Income 8,207,331 7,818,293 Provision for Loan Losses 142,000 291,612 ----------- ----------- Net Interest Income After Provision 8,065,331 7,526,681 Noninterest Income Service charges, commissions, and fees on deposits 683,798 585,716 Other operating income 416,039 430,817 Dividends 61,532 41,660 Gains on sale of other assets 848 (20,953) Gains on sale of securities 24,462 18,475 ----------- ----------- Total Noninterest Income 1,186,679 1,055,715 Noninterest Expense Salaries and wages 2,748,526 2,582,137 Employee benefits 670,704 674,061 Occupancy expenses 274,296 299,619 Furniture and equipment expense 308,657 297,648 Other operating expenses 1,435,762 1,186,389 ----------- ----------- Total Noninterest Expense 5,437,945 5,039,854 ----------- ----------- Net Income Before Taxes 3,814,065 3,542,542 Income Taxes 1,142,240 1,055,867 ----------- ----------- Net Income $ 2,671,825 $ 2,486,675 =========== =========== Earnings per Share, Basic $ 0.90 $ 0.84 =========== =========== Earnings per Share, Diluted $ 0.89 $ 0.82 =========== =========== See notes to consolidated financial statements. Page 6 of 30 Form 10-Q Benchmark Bankshares, Inc. Consolidated Statement of Income (Unaudited) Three Months Ended September 30, 2004 2003 Interest Income Interest and fees on loans $3,823,161 $3,842,289 Interest on U. S. Government obligations 40,722 8,000 Interest on State and municipal obligations 150,301 157,873 Interest on mortgage backed securities 98,119 112,982 Interest on Federal funds sold 33,373 31,085 ---------- ---------- Total Interest Income 4,145,676 4,152,229 Interest Expense Interest on deposits 1,378,913 1,515,392 ---------- ---------- Total Interest Expense 1,378,913 1,515,392 ---------- ---------- Net Interest Income 2,766,763 2,636,837 Provision for Loan Losses 68,432 121,905 ---------- ---------- Net Interest Income After Provision 2,698,331 2,514,932 Noninterest Income Service charges, commissions, and fees on deposits 252,759 192,093 Dividends 22,710 16,250 Gains on sale of other assets (7,616) (27,862) Gains on sale of securities 24,462 16,037 Other operating income 138,409 154,828 ---------- ---------- Total Noninterest Income 430,724 351,346 Noninterest Expense Salaries and wages 849,611 922,514 Employee benefits 218,225 211,065 Occupancy expenses 96,052 100,363 Furniture and equipment expense 110,093 98,583 Other operating expenses 543,313 402,724 ---------- ---------- Total Noninterest Expense 1,817,294 1,735,249 ---------- ---------- Net Income Before Taxes 1,311,761 1,131,029 Income Taxes 373,610 337,516 ---------- ---------- Net Income $ 938,151 $ 793,513 ========== ========== Earnings per Share, Basic $ 0.32 $ 0.27 ========== ========== Earnings per Share, Diluted $ 0.31 $ 0.26 ========== ========== See notes to consolidated financial statements. Page 7 of 30 Form 10-Q Benchmark Bankshares, Inc. Condensed Consolidated Statement of Cash Flows (Unaudited) Nine Months September 30, 2004 2003 Cash Flows from Operating Activities $ 3,781,211 $ 2,567,435 Cash Flows from Financing Activities Net increase (decrease) in demand deposits and interest-bearing transaction accounts 5,973,864 4,831,863 Net increase (decrease) in savings and money market deposits (5,022,471) 8,172,905 Net increase (decrease) in certificates of deposit (1,694,692) (1,345,977) Dividends payable (1,247,526) (1,215,524) Sale of stock 146,618 134,704 Purchase of stock (209,401) (301,449) ------------ ------------ Total Cash Provided (Used) by Financing Activities (2,053,608) 10,276,522 Cash Flows from Investing Activities Purchase of securities (1,627,699) (14,849,581) Sale of securities 1,419,671 823,883 Maturity of securities 2,465,789 9,148,514 Net increase in loans (8,562,542) (14,036,861) Purchase of premises and equipment (913,659) (432,827) Proceeds from sale of other assets 134,200 162,470 Purchase of Certificates of Deposit (100,000) - Cash value life insurance 129,942 (108,759) ------------ ------------ Total Cash (Used) by Investing Activities (7,054,298) (19,293,161) ------------ ------------ Increase (Decrease) in Cash and Cash Equivalents (5,326,695) (6,449,204) Beginning Cash and Cash Equivalents 28,463,917 30,595,576 ------------ ------------ Ending Cash and Cash Equivalents $23,137,222 $24,146,372 ============ ============ Supplemental Data Interest paid $ 4,151,806 $ 4,817,446 Income taxes paid 1,142,240 1,055,867 See notes to consolidated financial statements. Page 8 of 30 Form 10-Q Benchmark Bankshares, Inc. Condensed Consolidated Statement of Cash Flows (Unaudited) Three Months Ended September 30, 2004 2003 Cash Flows from Operating Activities $ 2,864,703 $ 580,649 Cash Flows from Financing Activities Net increase in demand deposits and interest- bearing transaction accounts 3,220,688 2,522,101 Net (decrease) in savings and money market deposits 170,085 5,376,560 Net (decrease) in certificates of deposit (1,226,520) (1,868,335) Sale of stock 59,418 (132,384) Purchase of stock (59,764) 65,099 Dividends paid (624,209) (622,436) ------------ ------------ Total Cash Provided (Used) by Financing Activities 1,539,698 5,340,605 Cash Flows from Investing Activities Purchase of securities (1,022,699) (4,744,550) Sale of securities 1,419,671 823,883 Securities paydowns and maturities - 4,970,955 Net increase in loans (735,431) (3,179,152) Proceeds from sale of other assets 134,200 162,470 Purchase of premises and equipment (846,439) (127,810) Purchase of Certificates of Deposit (100,000) - Cash value life insurance 43,374 (33,753) ------------ ----------- Total Cash (Used) by Investing Activities (1,107,324) (2,127,957) ------------ ----------- Increase (Decrease) in Cash and Cash Equivalents 3,297,077 3,793,297 Beginning Cash and Cash Equivalents 19,840,145 20,353,075 ------------ ------------ Ending Cash and Cash Equivalents $23,137,222 $24,146,372 ============ ============ Supplemental Data Interest paid $ 1,378,913 $ 1,515,392 Income taxes paid 373,610 337,516 See notes to consolidated financial statements. Page 9 of 30 Form 10-Q Benchmark Bankshares, Inc. Notes to Consolidated Financial Statements September 30, 2004 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. (d) Investment Securities. Pursuant to guidelines established in FAS 115, Accounting for Certain Investments in Debt and Equity Securities, 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 the stated maturity date of the investment. Page 10 of 30 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). For loans that mature in twelve months or less, loan fees and related costs are recognized as income and expenses during the year in which the fees are charged and costs are incurred. For loans that mature after twelve months, loan fees and related costs are deferred and recognized over the term of the loan. (f) Allowance for Loan Losses. The allowance for loan losses is based on management's best estimate of probable losses within the Bank's loan portfolio as of the balance sheet date. The allowance for loan losses is increased by expenses charged to the provision for loan losses and decreased by loan losses net of recoveries. The allowance consists of (1) a component for individual loan impairment recognized and determined in accordance with FAS 114, Accounting by Creditors for Impairment of a Loan, and (2) components of collective loan impairment recognized pursuant to FAS 5, Accounting for Contingencies. Reserves established according to FAS 5 are based on the Bank's 5-year historical average of charge offs, adjusted for such factors as portfolio growth, charge-off trends, credit concentrations, and current economic conditions. Reserves established according to FAS 114 are based on the Bank's analysis of the commercial loan portfolio for individually impaired loans as of the balance sheet date. (g) Premises and Equipment. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed generally by the straight line basis over the estimated useful lives of the assets. Additions to premises and equipment and major betterments and replacements are added to the accounts at cost. Maintenance and repairs and minor replacements are expensed as incurred. Gains and losses on dispositions are reflected in current earnings. (h) Other Real Estate. As a normal course of business, the Bank periodically has to foreclose on property used as collateral on nonperforming loans. The assets are recorded at cost plus capital improvement cost. (i) Depreciation. For financial reporting, property and equipment are depreciated using the straight line method; for income tax reporting, depreciation is computed using statutory accelerated methods. Leasehold improvements are amortized on the straight line method over the estimated useful lives of the improvements. Income taxes in the accompanying financial statements reflect the depreciation method used for financial reporting and, accordingly, include a provision for the deferred income tax effect of depreciation which will be recognized in different periods for income tax reporting. (j) Earnings per Share. Earnings per share were computed by using the average shares outstanding for each period presented. Average shares have been adjusted to reflect the buy back of 12,666 shares of common stock by the Company and the sale of 11,028 shares of the Company's common stock through the employee stock option plan during the first nine months of 2004. The 2003 average shares have been adjusted to reflect Page 11 of 30 the buy back of 22,001 shares of the Company's common stock and the sale of 17,850 shares through the stock option plan. The average shares of outstanding stock for the first nine months of 2004 and 2003 were 2,969,026.803 shares and 2,962,695.579 shares, respectively. As of September 30, 2004, the Company had outstanding granted options to purchase 144,249 shares of Benchmark Bankshares, Inc. stock to employees to directors under two separate incentive stock plans. Based on current trading values of the stock, the stock options are dilutive to the structure of the Company. The following chart provides of summary of basic and diluted earnings per share as of September 30, 2004 and 2003. 3 Months Ended 9 Months Ended September 30, September 30, 2004 2003 2004 2003 Basic $0.32 $0.27 $0.90 $0.84 Diluted $0.31 $0.26 $0.89 $0.82 (k) Stock Option Disclosure. At September 30, 2004, the Company had two stock-based compensation plans, one plan for the employees and one for the Directors of the Company. Prior to 2003, the Company accounted for those plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Effective January 1, 2003, the Company adopted the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, prospectively to all employee awards granted, modified, or settled after January 1, 2003. Awards under the Company's plans vest over a period of five years and expire ten years from the grant date. Therefore, the cost related to stock-based employee compensation included in the determination of net income for both the third quarter and year-to-date 2004 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of Statement 123. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period. Quarter Ended September 30, 2004 2003 Net Income, as reported $938,151 $793,513 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 3,482 3,454 Deduct: Total stock-based employee compensation determined under fair value based method for all awards, net of related tax effects (6,934) (7,954) --------- --------- Pro forma net income $934,699 $789,013 ========= ========= Earnings per share Basic - as reported $ 0.32 $ 0.27 ========= ========= Basic - pro forma $ 0.31 $ 0.27 ========= ========= Diluted - as reported $ 0.31 $ 0.26 ========= ========= Diluted - pro forma $ 0.31 $ 0.26 ========= ========= Page 12 of 30
TABLE 1 Employee Stock Option Plan Quarter Ended Quarter Ended September 30, 2004 September 30, 2003 ----------------------------- --------------------------- Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price Shares Outstanding at July 1 103,297 $11.39 110,867 $10.40 Add: Options Granted During the Quarter 9,000 $16.69 11,000 $15.22 Less: Options Exercised During the Quarter 7,048 $8.43 4,500 $7.91 Less: Options Forfeited During the Quarter 3,000 $12.75 2,000 $12.25 Shares Outstanding at September 30 102,249 $12.02 115,367 $11.37 Exercisable at September 30 43,049 $8.61 52,167 $10.60 Exercise Fair Exercise Fair Price Value Price Value Wght. Avg. of Options Granted During the Quarter $16.69 $2.45 $15.22 $3.19 TABLE 2 Stock Option Plan for Directors Quarter Ended Quarter Ended September 30, 2004 September 30, 2003 ----------------------------- --------------------------- Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price Shares Outstanding at July 1 42,000 $8.39 58,000 $8.18 Add: Options Granted During the Quarter ---- ---- ---- ---- Less: Options Exercised During the Quarter ---- ---- 4,000 $7.38 Less: Options Forfeited During the Quarter ---- ---- ---- ---- Shares Outstanding at September 30 42,000 $8.39 54,000 $8.24 Exercisable at September 30 42,000 $8.39 54,000 $8.24 Exercise Fair Exercise Fair Price Value Price Value Wght. Avg. of Options Granted During the Quarter ---- ---- ---- ----
The fair value of each option grant is estimated as of the date the option is granted using the Black-Scholes option-pricing model with the following weighted-average assumptions. Quarter Ended September 30, 2004 2003 Dividend Yield 2.59% 2.79% Expected Stock Volatility 20.50% 20.17% Expected Life of the Stock Option 10 Years 10 Years Risk-Free Interest Rate 4.72% 4.05% Page 13 of 30 The following table illustrates the year-to-date effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards. Nine Months Ended September 30, 2004 2003 Net Income, as reported $2,671,825 $2,486,675 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 8,706 5,003 Deduct: Total stock-based employee compensation determined under fair value based method for all awards, net of related tax effects (19,530) (24,707) ----------- ----------- Pro forma net income $2,661,001 $2,466,971 =========== =========== Earnings per share Basic - as reported $ 0.90 $ 0.84 =========== =========== Basic - pro forma $ 0.90 $ 0.83 =========== =========== Diluted - as reported $ 0.89 $ 0.82 =========== =========== Diluted - pro forma $ 0.88 $ 0.82 =========== ===========
TABLE 3 Employee Stock Option Plan Nine Months Nine Months September 30, 2004 September 30, 2003 ----------------------------- --------------------------- Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price Shares Outstanding at January 1 111,977 $11.16 108,217 $9.84 Add: Options Granted Year-to-Date 14,000 $16.14 23,000 $14.17 Less: Options Exercised Year-to-Date 11,128 $8.09 13,850 $7.59 Less: Options Forfeited Year-to-Date 12,600 $12.35 2,000 $12.25 Shares Outstanding at September 30 102,249 $12.02 115,367 $10.93 Exercisable at September 30 43,049 $8.61 52,167 $10.60 Exercise Fair Exercise Fair Price Value Price Value Wght. Avg. of Options Granted Year-to-Date $16.14 $3.71 $14.17 $2.79
Page 14 of 30
TABLE 4 Stock Option Plan for Directors Quarter Ended Quarter Ended September 30, 2004 September 30, 2003 ----------------------------- --------------------------- Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price Shares Outstanding at January 1 49,000 $8.33 58,000 $8.18 Add: Options Granted Year-to-Date ---- ---- ---- ---- Less: Options Exercised Year-to-Date 7,000 $7.93 4,000 $7.38 Less: Options Forfeited Year-to-Date ---- ---- ---- ---- Shares Outstanding at September 30 42,000 $8.39 54,000 $8.24 Exercisable at September 30 42,000 $8.39 54,000 $8.24 Exercise Fair Exercise Fair Price Value Price Value Wght. Avg. of Options Granted Year-to-Date ---- ---- ---- ----
The fair value of each option grant is estimated as of the date the option is granted using the Black-Scholes option-pricing model with the following weighted-average assumptions. Nine Months Ended September 30, 2004 2003 Dividend Yield 2.69% 3.00% Expected Stock Volatility 20.38% 20.17% Expected Life of the Stock Option 10 Years 10 Years Risk-Free Interest Rate 4.46% 4.01% (l) Income Taxes. The table below reflects the components of the Net Deferred Tax Asset account as of September 30, 2004: Deferred Tax Assets Resulting from Loan loss reserves $ 532,058 Deferred compensation 152,647 BOLI Program 56,014 Stock-based compensation 9,320 Deferred Tax Liabilities Resulting from Depreciation (143,697) Unrealized securities gains (236,301) ---------- Net Deferred Tax Asset $ 370,040 ========== Page 15 of 30 (m) Comprehensive Income. Comprehensive income in the Company's operation relates to unrealized security gains and losses in the investment portfolio. The Company has elected to report this activity in the equity section of the financial statements rather than the Statement of Income. The following table is presented in lieu of a Statement of Equity to reflect the activity in Comprehensive Income: Nine Month Period Three Month Period Ending September 30, Ending September 30, 2004 2003 2004 2003 Net Income $2,671,825 $2,486,675 $ 938,151 $793,513 Other Comprehensive Income - Net Unrealized Holding Gains (Losses) Arising During Period (83,114) (257,171) 379,398 (442,171) ----------- ----------- ---------- --------- Comprehensive Income $2,588,711 $2,229,504 $1,317,549 $351,342 =========== =========== ========== ========= 3. Disclosure for Benefit Plan The Bank has adopted a non-tax qualified retirement plan for certain officers to supplement their retirement benefits. The plan is funded through split dollar insurance instruments that provide retirement as well as a death benefit. The plan was funded by a single payment premium of $3,536,000 in the second quarter of 2002. The premium payment is classified as cash value of life insurance and as such has investment risk. To ensure the safety of this investment, the insurance carriers holding the prepaid premiums are to be rated no lower than AA by Standard & Poor's. The Bank has contracted with an outside agency to administer and monitor the plan. Page 16 of 30 Selected Quarterly Data (Unaudited) 2004 2004 2004 2003 Third Second First Fourth Quarter Quarter Quarter Quarter Net Interest Income $2,698,331 $2,739,220 $2,701,348 $2,721,690 Provision for Loan Losses 68,432 59,569 13,999 - Noninterest Income 430,724 405,841 350,114 396,970 Noninterest Expense 1,817,294 1,813,393 1,807,258 1,684,339 Income Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle 938,151 876,209 857,465 1,108,852 Net Income 938,151 876,209 857,465 1,108,852 Per Share $ 0.32 $ 0.29 $ 0.29 $ 0.36 2003 2003 2003 2002 Third Second First Fourth Quarter Quarter Quarter Quarter Net Interest Income $2,636,837 $2,657,933 $2,523,523 $2,549,729 Provision for Loan Losses 121,905 139,723 29,984 116,031 Noninterest Income 351,346 392,040 312,329 402,139 Noninterest Expense 1,735,249 1,698,838 1,605,767 1,623,687 Income Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle 793,513 846,723 846,439 905,154 Net Income 793,513 846,723 846,439 905,154 Per Share $ 0.27 $ 0.29 $ 0.29 $ 0.31 Page 17 of 30 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. Forward-Looking Statements This report contains forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. The Company takes no obligation to update any forward-looking statements contained herein. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements may include, but are not limited to, significant increases in competitive pressure, changes in the interest rate environment, changes in general economic conditions, and legislative or regulatory changes. Although these statements are based upon reasonable assumptions, there is no assurance as to their accuracy. Prospective investors are cautioned not to place undue reliance on these forward-looking statements. Nine Months Ending September 30: 2004 Versus 2003 Earnings Summary Net income of $2,671,825 for the first nine months of 2004 increased by $185,150, or 7.45%, over the $2,486,675 earned during the first nine months of 2003. Earnings per share as of September 30, 2004 amounted to $0.90, an increase of $0.06 when compared to earnings per share of $0.84 one year ago. As a result of both a prolonged exposure to low interest rates and a low level of loan demand during the third quarter, interest and fees earned on loans declined by $212,887 when comparing the first nine months of 2004 to the first nine months of 2003. Overall, total interest income was down by $276,602; however, several factors combined to offset this decline in revenue, thereby contributing to increased profitability during period. Interest rates continue to remain low, despite several rate increases by the Federal Reserve Bank in recent months. These low rates, combined with a $6,007,856 increase in non-interest-bearing checking accounts and a $3,791,852 decline in certificates of deposit during the past twelve months, contributed to a $665,640, or 13.82% decline in interest expense. In addition, a $130,964 increase in non-interest income partially offset a $398,091 increase in non-interest expense. These factors, along with a $149,612 decrease in the loan loss provision for the period when compared to last year, resulted in higher net income for the Bank. Total assets as of September 30, 2004 amounted to $284,622,524; an increase of $6,865,409, or 2.47%, over total assets of $277,757,115 on September 30, 2003. This modest asset growth, along with higher net income year-to-date, increased annualized return on average assets from 1.23% to 1.25%. Increased earnings during both 2003 and 2004 have resulted in a $2,504,215 increase in shareholders' equity, which amounted to $30,490,446 as of September 30, 2004. As a result of this increased level of shareholders' equity, the Bank's annualized return on equity ratio fell from 12.20% to 12.05% when comparing the first nine months of 2004 with the first nine months of 2003. Page 18 of 30 Interest Income and Interest Expense Total interest income of $12,359,137 for the first nine months of 2004 decreased $276,602, or 2.19%, from interest income of $12,635,739 recorded during the first nine months of 2003. Interest and fees earned on loans have been negatively impacted by a prolonged exposure to declining interest rates, especially given the Bank's reliance on balloon notes to fund real estate loans. Despite a $10,900,784 increase in loans over the past twelve months, interest and fees earned on loans as of September 30, 2004 declined by $212,887, or 1.84%, when compared to the first nine months of 2003. Interest earned on U.S. Government agencies increased by $120,000, as management purchased several of these callable securities in an effort to increase yield in the investment portfolio while trying to keep portfolio duration relatively short. On the other hand, mortgage-backed securities have continued to pay down as a result of a volatile interest rate environment. Interest earned on these securities declined from $406,580 during the first nine months of 2003 to $334,211 for the first nine months of 2004. Not only do rapid prepayments in the Bank's mortgage-backed security holdings accelerate the recognition of interest expense for bonds purchased at a premium, but prepayments also reduce the total amount of interest from coupon payments. In addition, several higher-yielding bonds were called by the issuer during the year, reducing overall interest income and causing the Bank to reinvest these funds at lower interest rates. Total interest expense in the first nine months of 2004 decreased to a level of $4,151,806, reflecting a decline of $665,640, or 13.82%, from the expense incurred during the first nine months of 2003. The combination of historically low interest rates, a $6,007,856 increase in non-interest-bearing checking accounts, and a $3,791,852 decline in certificates of deposit during the past twelve months contributed to the reduction in interest paid on deposits. Allowance for Loan Losses During the first nine months of 2004, the Bank has contributed a total of $142,000 to the allowance through the provision for loan losses. With year-to-date net charge offs of $115,286, the loan loss reserve has increased by $26,714 to its current level of $2,010,815, or 0.90% of gross loans. At year end 2003, the reserve level amounted to $1,984,101, or 0.92% of outstanding loan balances. 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 September 30, 2004, the Bank had a total of $1,325,070, or 0.59% of the total loan portfolio, classified as nonperforming loans, with $387,939 of this amount accounted for on a non-accrual basis. At September 30, 2003, the Bank had $1,030,158, or 0.49% of the loan portfolio, classified as nonperforming, $273,227 of which was accounted for as non-accrual. Noninterest Income and Noninterest Expense Noninterest income of $1,186,679 increased by $130,964, or 12.41%, for the first nine months of 2004 when compared to the level of $1,055,715 reached during the first nine months of 2003. Contributing to this higher level of income were increased earnings from bank-owned life insurance (BOLI), higher ATM income, and higher service charge and fee income on deposits due to an increased level of deposits and a revised service charge schedule. Noninterest expense of $5,437,945 increased $398,091, or 7.90%, for the first nine months of 2004 as compared to the level of $5,039,854 reached during the first nine months of 2003. Additional staffing to support the Bank's continued growth increased salaries expense by $166,389, while a $249,373 increase in other operating expenses accounted for a majority of the additional expense. Page 19 of 30 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, 2003, the Bank had $635,353 in outstanding letters of credit. This represents a decrease of $647,960, or 50.49%, from the December 31, 2003 level of $1,283,313. These instruments are based on the financial strength of the customer and the existing relationship between the Company and the customer. All of these instruments are scheduled to mature as of September 30th of the following years: 2005 $606,853 2006 28,500 -------- TOTAL $635,353 ======== Liquidity As of September 30, 2004, $64,460,073, or 28.87% of the gross loan portfolio, will mature or is subject to repricing within one year. These loans are funded in part by $34,441,592 in certificates of deposit of $100,000 or more, of which $14,587,356 will mature in one year or less. At December 31, 2003, the Bank had $65,529,559, or 31.34% of the loan portfolio, scheduled to mature or subject to repricing within one year and $72,424,561 in certificates of deposit, $36,582,908 of which were $100,000 or greater, scheduled to mature during the same period. Capital Adequacy Total stockholder equity was $30,490,446, or 10.71% of total assets, as of September 30, 2004. This compared to $28,612,900, or 10.08% of total assets as of December 31, 2003. Primary capital (stockholders' equity plus loan loss reserves) of $32,501,261 represented 11.42% of total assets as of September 30, 2004 as compared to $30,597,001, or 10.78% of total assets, as of December 31, 2003. The increase in equity position is attributable primarily to increased retained earnings resulting from strong earnings during 2003 and year-to-date 2004. Page 20 of 30 Three Months Ending September 30: 2004 Versus 2003 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 $938,151 for the third quarter of 2004 increased $144,638, or 18.23%, as compared to the $793,513 earned during the third quarter of 2003. Earnings per share of $0.32 for the third quarter of 2004 increased by $0.05, or 18.52%, when compared to the corresponding period in 2003. For the third quarter of 2004, annualized return on average assets amounted to 1.33% and annualized return on average equity was 12.57%. This compares to an annualized return on average assets of 1.15% and an annualized return on average equity of 11.40% for the same period in 2003. The increase in earnings resulted from an increase in both service charges and other operating income. More specifically, collection income, ATM income, and service charge income increased as a result of a new fee structure and increased customer base. Interest Income and Interest Expense Total interest income of $4,145,676 for the third quarter of 2004 decreased by $6,553, or 0.16%, from total interest income of $4,152,229 earned during the corresponding quarter in 2003. Although interest earned on U.S. agency securities increased by $32,722 during the period, both prepayments and the sale of several mortgage-backed securities lowered interest income on these securities by $14,863, while interest and fees earned on loans declined by $19,128. Despite a year-to-date decrease of $743,299 in total deposits, the Bank's deposit base has increased by $4,253,965 since September 30, 2003. Even with this increase in deposits over the past twelve months, total interest expense for the third quarter of 2004 decreased from $1,515,392 to $1,378,913 when compared to one year ago. This decline in interest expense can be attributed to the combination of a $6,007,856 increase in noninterest-bearing checking accounts, a $3,791,852 decline in certificates of deposit, and continued low interest rates. Allowance for Loan Losses During the period, the Bank provided an additional $68,432 to the reserve for loan losses, as compared to a $121,905 contribution during the third quarter of 2003. This amounted to an increase of $26,714, net of charge-off activity, bringing the total loan loss reserve to $2,010,815, or 0.90% of gross loans, as of September 30, 2004. Loans and Deposits Gross loans increased by $735,431during the third quarter of 2004. Compared to the $3,252,130 increase during the third quarter of 2003, recent loan demand has been low; however, loans have increased by $10,900,784 since September 30, 2003. Deposits of $252,457,196 reflected an increase of $2,164,253, or 0.86%, for the three month period ending September 30, 2004. The increase in deposits was attributable to a $3,630,370 increase in noninterest-bearing checking deposits, which more than offset the $1,226,520 decrease in time deposits. Page 21 of 30 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 September 30th 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. September 30, 2004
Current Categories 2005 2006 2007 2008 2009 Thereafter Value Loans Commercial $12,203,529 ----- ----- ----- ----- ----- $ 11,458,713 Consumer 12,449,636 9,270,696 5,249,731 2,534,684 1,274,812 790,941 27,127,572 Mortgage 34,673,478 24,016,972 30,240,177 41,589,666 46,222,014 24,290,674 166,818,016 Investments U.S. Gov. Agencies 144,900 144,900 144,900 144,900 144,900 1,224,500 2,514,320 Municipals Nontaxable 648,807 644,453 1,753,348 1,349,463 2,517,640 9,917,713 15,141,125 Taxable ----- ----- ----- ----- ----- ----- ----- Mortgage Backed Securities 3,214,211 2,198,258 1,539,238 1,421,198 687,260 1,841,375 9,954,221
Page 22 of 30
Current Categories 2005 2006 2007 2008 2009 Thereafter Value Certificates of Deposit < 182 Days 1,279,289 ----- ----- ----- ----- ----- 1,273,312 182 - 364 Days 5,952,533 ----- ----- ----- ----- ----- 5,900,762 1 Year - 2 Years 33,237,277 981,019 ----- ----- ----- ----- 33,528,490 2 Years - 3 Years 7,810,729 6,318,493 352,531 ----- ----- ----- 13,891,492 3 Years - 4 Years 3,520,628 3,728,651 3,162,296 14,943 ----- ----- 9,793,548 4 Years - 5 Years 660,903 532,100 1,014,558 729,145 5,321 ----- 2,689,565 5 Years and Over 17,017,653 11,485,608 14,816,470 27,655,106 21,861,859 105,038 81,210,548
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. Table II Variable Interest Rate Disclosure Benchmark Bankshares, Inc. September 30, 2004
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 $ 11,678,018 $ 11,567,326 $ 11,458,713 $ 11,352,120 $ 11,247,492 Consumer 28,195,693 27,652,167 27,127,572 26,620,992 26,131,565 Mortgage 178,186,098 172,359,589 166,818,016 161,544,008 156,521,438 Investments U.S. Government Agencies $ 2,547,754 $ 2,538,702 $ 2,514,320 $ 2,496,294 $ 2,302,610 Municipals Nontaxable 16,796,460 15,962,773 15,141,125 14,277,407 13,392,393 Taxable ----- ----- ----- ----- ----- Mortgage Backed Securities 10,453,344 10,203,783 9,954,221 9,704,661 9,455,099 Certificates of Deposit < 182 Days $ 1,269,350 $ 1,281,290 $ 1,273,312 $ 1,265,406 $ 1,257,570 182 - 364 Days 6,004,935 5,952,533 5,900,762 5,849,615 5,799,082 1 Year - 2 Years 34,218,296 33,869,884 33,528,490 33,193,905 32,865,927 2 Years - 3 Years 14,301,022 14,093,563 13,891,492 13,694,613 13,502,739 3 Years - 4 Years 10,175,150 9,981,285 9,793,548 9,611,679 9,435,431 4 Years - 5 Years 2,829,067 2,757,937 2,689,565 2,623,814 2,560,555 5 Years and Over 86,431,323 83,759,554 81,210,548 78,777,263 76,453,129
Only financial instruments without daily price adjustment capabilities are herein presented. Page 23 of 30 Item 4 Controls and Procedures Disclosure Controls and Procedures The Company maintains disclosure controls and procedures that are designed to provide assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods required by the Securities and Exchange Commission. Within the 90 day period prior to the filing of this report, an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures was carried out under the supervision and with the participation of management, including the Company's Chief Executive Officer and Chief Financial Officer. Based on and as of the date of such evaluation, the aforementioned officers concluded that the Company's disclosure controls and procedures were effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of their last evaluation. Page 24 of 30 Form 10-Q Benchmark Bankshares, Inc. September 30, 2004 Part II Other Information Item 1 Legal Proceedings (None) Item 2 Unregistered Sales of Equity Securities and Use of Proceeds Item 3 Defaults Upon Senior Securities (None) Item 4 Other Information Independent Accountant's Review Report Item 5 Changes in the Process by Which Shareholders Can Nominate Directors (None) Item 6 Exhibits (None) Item 99 "Additional Exhibits of Item 601(b)" Exhibit 31 Section 302 Certification Exhibit 32 Section 906 Certification Page 25 of 30 INDEPENDENT ACCOUNTANT'S REVIEW REPORT Board of Directors Benchmark Bankshares, Inc. Kenbridge, Virginia We have reviewed the accompanying 10-Q filing including the balance sheet of Benchmark Bankshares, Inc. (a corporation) as of September 30, 2004 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 10-Q filing for September 30, 2004 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 November 8, 2004 Page 26 of 30 Item 2 Unregistered Sales of Equity Securities and Use of Proceeds A summary of the Company's purchases of its common stock during the third quarter ended September 30, 2004 is presented in the following table.
Total Number of Maximum Number Shares Purchased of Shares that May Total Number Average as Part of Publicly Yet Be Purchased of Shares Price Paid Announced Plans or Under the Plans or Period Purchased 1 per Share Programs Programs 2 July 1 - July 31, 2004 0.843 $16.00 0.000 239,834.000 August 1 - August 31, 2004 134.493 $16.25 100.000 239,734.000 Sept. 1 - Sept. 30, 2004 3,503.325 $16.43 3,400.000 236,334.000 --------- ------ --------- ----------- Total 3,638.661 $16.23 3,500.000 236,334.000 ========= ====== ========= ===========
1 Partial Shares shown in the above table were not redeemed as part of the Bank's stock repurchase plan. These shares were repurchased from shareholders who decided to terminate their holdings of partial shares of stock that resulted from the Bank's now discontinued Dividend Reinvestment Program. Partial shares repurchased amounted to 0.843 shares in July, 34.493 shares in August, and 103.325 shares in September. 2 The Bank announced the implementation of a Stock Repurchase Plan on November 4, 2003, whereby the Company is authorized to repurchase up to 250,000 shares of its common stock. The Stock Repurchase Plan has no expiration date. This new plan replaced an existing plan, approved in September of 1999, to repurchase up to 200,000 shares of the company's common stock. Page 27 of 30 Item 99 Exhibit 31 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: November 8, 2004 Ben L. Watson, III President and Chief Executive Officer Page 28 of 30 Item 99 Exhibit 31 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: November 8, 2004 Janice W. Pernell Senior Vice President, Treasurer, and Assistant Secretary Page 29 of 30 Item 99 Exhibit 32 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 September 30, 2004, 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 September 30, 2004 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 September 30, 2004 fairly presents, in all material respects, the financial condition and results of operations of Benchmark Bankshares, Inc. as of, and for, the periods presented in such Form 10-Q. By: Ben L. Watson, III Date: November 8, 2004 President and Chief Executive Officer By: Janice W. Pernell Date: November 8, 2004 Senior Vice President, Treasurer, and Assistant Secretary Page 30 of 30 Form 10-Q Benchmark Bankshares, Inc. September 30, 2004 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 8, 2004 Ben L. Watson, III President and Chief Executive Officer Date: November 8, 2004 Janice W. Pernell Senior Vice President, Treasurer, and Assistant Secretary -----END PRIVACY-ENHANCED MESSAGE-----