-----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, V8nJxpVApFu/CObXKiYkkGo/csXY0S2WIh+p+UoYZe89b71LzGYoOOUSd6KF0X6z t8DutoxZ20sbBYk/m3nPRA== 0000804563-98-000003.txt : 19980723 0000804563-98-000003.hdr.sgml : 19980723 ACCESSION NUMBER: 0000804563-98-000003 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980722 SROS: NASD 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: 10QSB SEC ACT: SEC FILE NUMBER: 000-18445 FILM NUMBER: 98669691 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 10QSB 1 SECOND QUARTER 1998 10QSB Page 1 of 16 Form 10-QSB 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 6-month period ended June 30, 1998. [ ] 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 (IRS Employer ID No.) Incorporation or Organization) 100 South Broad Street Kenbridge, Virginia 23944 (Address of Principal Executive Offices) Issuer's Telephone Number: (804)676-8444 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes [X] No [ ] (2) Yes [X] No [ ] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest applicable date: 2,972,902.537 Page 2 of 16 Form 10-QSB Benchmark Bankshares, Inc. Part I - Table of Contents June 30, 1998 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 Part II Other Information Page 3 of 16 Form 10-QSB Benchmark Bankshares, Inc. Consolidated Balance Sheet (Unaudited) (Audited) June 30, December 31, 1998 1997 ---- ---- Assets Cash and due from banks $ 5,119,971 $ 4,595,094 Securities Federal Agency obligations 10,720,147 9,007,268 State and municipal obligations 9,272,541 8,915,548 Other securities 137,000 137,000 Federal funds sold 14,374,000 5,353,000 Loans 128,920,812 127,110,962 Less Unearned interest and fees (285,201) (297,097) Loan loss reserve (1,494,341) (1,391,424) ------------- ------------- Net Loans 127,141,270 125,422,441 Premises and equipment - net 3,164,195 2,997,866 Accrued interest receivable 1,398,803 1,236,384 Deferred income taxes 314,026 266,401 Other real estate 531,234 533,234 Other assets 701,452 270,659 ------------- ------------- Total Assets $172,874,639 $158,734,895 ============= ============= Page 4 of 16 Form 10-QSB Benchmark Bankshares, Inc. Consolidated Balance Sheet (Unaudited) (Audited) June 30, December 31, 1998 1997 ---- ---- Liabilities and Stockholders' Equity Deposits Demand (noninterest-bearing) $ 16,073,354 $ 13,859,115 NOW accounts 18,814,975 15,707,189 Money market accounts 6,909,693 6,564,365 Savings 9,370,741 8,320,696 Time, $100,000 and over 14,052,703 12,370,092 Other time 88,346,350 83,920,648 ------------- ------------- Total Deposits 153,567,816 140,742,105 Accrued interest payable 730,706 708,315 Accrued income tax payable - 49,867 Dividends payable 447,630 440,824 Other liabilities 183,155 141,512 ------------- ------------- Total Liabilities 154,929,307 142,082,623 Stockholders' Equity Common stock, par value $.21 per share, authorized 4,000,000 shares; issued and outstanding 06-30-98, 2,972,902.537, issued and outstanding 12-31-97, 2,942,811.048 626,682 617,990 Capital surplus 4,099,190 3,667,557 Retained earnings 13,057,131 12,189,180 Accumulated other comprehensive income, net of tax 162,329 177,545 ------------- ------------- Total Stockholders' Equity 17,945,332 16,652,272 ------------- ------------- Total Liabilities and Stockholders' Equity $172,874,639 $158,734,895 ============= ============ Note: The balance sheet at December 31, 1997 has been derived from the audited financial statements at that date. See notes to consolidated financial statements. Page 5 of 16 Form 10-QSB Benchmark Bankshares, Inc. Consolidated Statement of Income (Unaudited) Six Months Ended June 30, 1998 1997 ---- ---- Interest Income Interest and fees on loans $6,179,302 $6,009,540 Interest on U. S. Government obligations 337,173 262,275 Interest on State and municipal obligations 231,809 258,041 Interest on Federal funds sold 240,092 169,021 Interest on other securities 2,610 2,610 ----------- ----------- Total Interest Income 6,990,986 6,701,487 Interest Expense Interest on deposits 3,357,053 3,207,044 ----------- ----------- Net Interest Income 3,633,933 3,494,443 Provision for Loan Losses 147,950 146,195 ----------- ----------- Net Interest Income after Provision 3,485,983 3,348,248 Noninterest Income Service charges, commissions, and fees on deposits 209,338 192,894 Other operating income 67,481 85,903 (Losses) on sale of securities (436) (1,234) ----------- ----------- Total Noninterest Income 276,383 277,563 Noninterest Expense Salaries and wages 993,618 948,228 Employee benefits 221,379 178,426 Occupancy expenses 99,947 103,606 Furniture and equipment expense 74,019 72,633 Other operating expenses 447,557 441,139 ----------- ------------ Total Noninterest Expense 1,836,520 1,744,032 ----------- ------------ Net Income before Taxes 1,925,846 1,881,779 Income Taxes 609,386 579,836 ----------- ----------- Net Income 1,316,460 1,301,943 Other Comprehensive Income, Net of Tax Unrealized holding gains arising during period 162,329 62,172 ----------- ----------- Comprehensive Income $1,478,789 $1,364,115 =========== =========== Net Income per Share $ 0.44 $ 0.45 (1) =========== =========== (1) Adjusted for a 2 for 1 stock split on October 2, 1997. See notes to consolidated financial statements. Page 6 of 16 Form 10-QSB Benchmark Bankshares, Inc. Consolidated Statement of Income (Unaudited) Three Months Ended June 30, 1998 1997 ---- ---- Interest Income Interest and fees on loans $3,091,056 $3,031,502 Interest on U. S. Government obligations 172,874 130,896 Interest on State and municipal obligations 114,648 122,757 Interest on Federal funds sold 155,766 109,952 Interest on other securities 2,610 2,610 ----------- ----------- Total Interest Income 3,536,954 3,397,717 Interest Expense Interest on deposits 1,709,439 1,628,074 ----------- ----------- Net Interest Income 1,827,515 1,769,643 Provision for Loan Losses 70,492 87,389 ----------- ----------- Net Interest Income after Provision 1,757,023 1,682,254 Noninterest Income Service charges, commissions, and fees on Deposits 108,655 98,172 Other operating income 30,709 37,082 (Losses) on sale of securities (222) (662) ----------- ----------- Total Noninterest Income 139,142 134,592 Noninterest Expense Salaries and wages 489,972 480,135 Employee benefits 99,397 69,862 Occupancy expenses 50,650 49,157 Furniture and equipment expense 42,812 37,312 Other operating expenses 245,436 235,875 ----------- ----------- Total Noninterest Expense 928,267 872,341 ----------- ----------- Net Income before Taxes 967,898 944,505 Income Taxes 305,541 292,529 ----------- ----------- Net Income 662,357 651,976 Other Comprehensive Income, Net of Tax Unrealized holding gains arising during period 14,034 101,512 ----------- ----------- Comprehensive Income $ 676,391 $ 753,488 =========== =========== Net Income per Share $ 0.22 $ 0.23 (1) =========== =========== (1) Adjusted for a 2 for 1 stock split on October 2, 1997. See notes to consolidated financial statements. Page 7 of 16 Form 10-QSB Benchmark Bankshares, Inc. Condensed Consolidated Statement of Cash Flows (Unaudited) Six Months Ended June 30, 1998 1997 ---- ---- Cash Provided by Operations $ 944,958 $1,255,472 Cash Provided by Financing Activities Net increase in demand deposits and interest- bearing transaction accounts 5,322,025 2,040,780 Net increase in savings and money market deposits 1,395,373 850,359 Net increase in certificates of deposit 6,108,313 2,307,388 Net sale of stock 440,325 180,433 Dividends paid (440,824) (391,510) ------------ ----------- Total Cash Provided by Financing Activities 12,825,212 4,987,450 Cash Used in Investing Activities Purchase of securities (7,184,085) (161,860) Sale of securities 91,368 823,870 Maturity of securities 5,000,000 1,415,903 Increase in loans net of collections (1,866,779) (4,291,568) Purchase of premises and equipment (264,797) (54,328) ------------ ----------- Total Cash (Used) by Investing Activities (4,224,293) (2,267,983) ------------ ----------- Increase in Cash and Cash Equivalents $ 9,545,877 $3,974,939 ============ =========== See notes to consolidated financial statements. Page 8 of 16 Form 10-QSB Benchmark Bankshares, Inc. Condensed Consolidated Statement of Cash Flows (Unaudited) Three Months Ended June 30, 1998 1997 ---- ---- Cash Provided by Operations $ 37,143 $ 192,928 Cash Provided by Financing Activities Net increase in demand deposits and interest- bearing transaction accounts 2,642,967 887,315 Net increase (decrease) in savings and money market deposits 161,969 (365,509) Net increase in certificates of deposit 2,695,157 251,726 Net sale of stock 136,096 (347) ------------ ----------- Total Cash Provided by Financing Activities 5,636,189 773,185 Cash Used in Investing Activities Purchase of securities (3,644,085) (161,860) Sale of securities 56,199 - Maturity of securities 2,750,251 1,003,323 Increase in loans net of collections (614,684) (2,059,073) Purchase of premises and equipment (151,093) (4,488) ------------ ----------- Total Cash (Used) by Investing Activities (1,603,412) (1,222,098) ------------ ----------- Increase (Decrease) in Cash and Cash Equivalents $ 4,069,920 $ (255,985) ============ =========== See notes to consolidated financial statements. Page 9 of 16 Form 10-QSB Benchmark Bankshares, Inc. Notes to Consolidated Financial Statements June 30, 1998 1. Basis of Presentation The accompanying consolidated financial statements and related notes of Benchmark Bankshares, Inc. and its subsidiary, Benchmark Community Bank, were prepared by management, which has the primary responsibility for the integrity of the financial information. The statements have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances and include amounts that are based on management's best estimates and judgments. In meeting its responsibilities for the accuracy of its financial statements, management relies on the Company's internal accounting controls. The system provides reasonable assurances that assets are safeguarded and transactions are recorded to permit the preparation of appropriate financial information. The interim period financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary to a fair presentation of financial position, results of operation, and changes in financial position for the interim periods herein reported. 2. Significant Accounting Policies and Practices The accounting policies and practices of Benchmark Bankshares, Inc. conform to generally accepted accounting principles and general practice within the banking industry. Certain of the more significant policies and practices follow: (a) The consolidated financial statements of Benchmark Bankshares, Inc. and its wholly owned subsidiary, Benchmark Community Bank, include the accounts of both companies. All material inter-company balances and transactions have been eliminated in consolidation. (b) 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 shareholders' equity until realized. Securities classified as held-to-maturity are recorded at cost. The resulting book value ignores the impact of current market trends. Page 10 of 16 (c) Loans. Interest on loans is computed by methods which generally result in level rates of return on principal amounts outstanding (simple interest). Unearned interest on certain installment loans is recognized as income using the rule of 78's method, which materially approximates the effective interest method. Loan fees and related costs are recognized as income and expense in the year the fees are charged and costs incurred. (d) 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. (e) 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. (f) 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. (g) Earnings Per Share Earnings per share were computed by using the average shares outstanding for each period presented. The average shares of outstanding stock for the first six months of 1998 and 1997 were 2,962,420.814 and 2,920,148.508 shares, respectively. The Company has a stock option plan for its directors, officers, and employees. As of June 30, 1998, there were 128,716 share options that had been granted but were unexercised. 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. Page 11 of 16 (h) The table below reflects the components of the Net Deferred Tax Asset account as of June 30, 1998: Deferred tax assets resulting from loan loss reserves $456,092 Deferred tax liabilities resulting from Depreciation (93,658) Unrealized securities losses (83,624) Deferred compensation 35,216 --------- Net Deferred Tax Asset $314,026 ========= Page 12 of 16 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Six Months Ending June 30: 1998 Versus 1997 Earnings Summary Net income of $1,316,460 for the first six months of 1998 increased $14,517 or 1.12% as compared to net income of $1,301,943 earned during the first six months of 1997. Earnings per share of $.44 as of June 30, 1998 decreased $.01 over the June 30, 1997 level of $.45. The annualized return on average assets of 1.59% decreased 5.92% while the annualized return on average equity of 15.22% decreased 12.83% when comparing first six months 1998 results with those of first six months 1997. The increase in earnings resulted from continued growth in loans; however, the rate of return declined as deposit growth out paced loan growth resulting in the Bank holding more highly liquid investments which earn a lesser rate of income than loans. Interest Income and Interest Expense Total interest income of $6,990,986 for the first six months of 1998 increased $289,499 or 4.32% over interest income of $6,701,487 recorded during the first six months of 1997. The major area of increase was in interest and fees on loans, which was a direct result from the growth of the loan portfolio. In addition, interest from investments was up as deposit growth exceeded loan growth. Total interest expense in the first six months of 1998 increased to a level of $3,357,053. This amounted to an increase of $150,009 or 4.68% over the level reached during the first six months of 1997. This increase in interest expense resulted from deposit growth, as well as the payment of higher interest rates to meet market competition. Provision for Loan Losses While the Bank's loan loss experience ratio remains low, management continues to set aside increasing provisions to the loan loss reserve. During the first six months of 1998, the Bank increased the loan loss reserve by $102,917 to a level of $1,494,341 or 1.16% of the outstanding loan balance. At year end 1997, the reserve level amounted to $1,391,424 or 1.10% of the outstanding loan balance net of unearned interest. Non-Performing Loans Non-performing loans consist of loans accounted for on a non-accrual basis and loans which are contractually past due 90 days or more as to interest and/or principal payments regardless of the amount of collateral held. As of June 30, 1998, the Bank had $649,221 in non-performing loans or .5% of the loan portfolio. The amount of non-secured loans in this category amounted to $9,678. Page 13 of 16 Noninterest Income and Noninterest Expense Noninterest income of $276,383 decreased $1,180 or .43% for the first six months of 1998 as compared to the level of $277,563 reached during the first six months of 1997. The decrease resulted from a decrease in other operating income as premiums collected on life insurance for loans declined 38.78%. Noninterest expense of $1,836,520 increased $92,488 or 5.30% for the first six months of 1998 as compared to the level of $1,744,032 reached during the first six months of 1997. The change resulted from increases in salaries and benefits due to the expanding staff needs. 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 Bank does not require collateral or other security to support these financial instruments. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to facilitate the transaction of business between these parties where the exact financial amount of the transaction is unknown, but a limit can be projected. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. There is a fee charged for this service. As of June 30, 1998, the Bank had $2,307,102 outstanding letters of credit. These instruments are based on the financial strength of the customer and the existing relationship between the Bank and the customer. Following are the maturities of these instruments as of June 30: 1999 $ 524,313 2001 1,782,789 Liquidity As of the end of the first six months of 1998, $50,073,775 or 38.85% of gross loans will mature or are subject to repricing within one year. These loans are funded in part by $14,052,703 in certificates of deposit of $100,000 or more of which $6,242,437 mature in one year or less. Currently, the Bank has a maturity average ratio for the next twelve months of 78.04% when comparing current assets and current liabilities. At year end 1997, $49,319,432 or 39.58% of gross loans were scheduled to mature or were subject to repricing within one year and $12,505,238 in certificates of deposit were scheduled to mature during 1998. Capital Adequacy Total shareholder equity was $17,945,332 or 10.38% of total assets as of June 30, 1998. This compared to $16,652,272 or 10.49% of total assets as of December 31, 1997. Primary capital (shareholders' equity plus loan loss reserves) of $19,439,673 represents 11.24% of total assets as of June 30, 1998 as compared to $18,043,696 or 11.37% of total assets as of December 31, 1997. Page 14 of 16 The increase in the equity position resulted from an increase in earnings in the first six months of 1998 versus the first six months of 1997 and an increase in capital through the sale of common stock from the dividend reinvestment program and exercised employee stock options. Three Months Ending June 30: 1998 Versus 1997 The same operating policies and philosophies discussed in the six month discussion were prevalent throughout the second quarter and the operating results were predictably similar. Earnings Summary Net income of $662,357 for the second quarter of 1998 increased $10,381 or 1.59% as compared to the $651,976 earned during the second quarter of 1997. Earnings per share of $.22 for the second quarter of 1998 decreased $.01 or 4.35% when compared to the corresponding period in 1997. The annualized return on average assets was 1.56% and the return on average equity was 14.92% for the second quarter of 1998. This compares to a return on average assets of 1.70% and a return on average equity of 17.70% for the same period in 1997. The increased earnings is an indication of the growth experienced during the second quarter. The decline in the return on average equity reflects the growth in equity through the dividend reinvestment plan and the exercising of stock option grants at a faster rate than the increase in income. Interest Income and Interest Expense Total interest income of $3,536,954 for the second quarter of 1998 increased $139,237 or 4.10% from the total interest income of $3,397,717 for the corresponding quarter in 1997. The increase resulted primarily from growth in the investment portfolio. Interest on investments amounted to $79,683. This represented an increase of $445,898 or 21.76% over the corresponding period in 1997. Interest expense for the second quarter of 1998 increased $81,365 or 5.00% over the same period in 1997. The increase in interest expense reflected the current economic trend of increased interest rates as well as steady deposit growth. Provision for Loan Losses During the second quarter, the demand for loans was strong and the level of quality loans continued to increase. During the period, the Bank provided an additional $45,690 to the reserve through its provision for loan losses. Loans and Deposits During the second quarter of 1998, net loans grew $523,961. This growth is at a somewhat slower growth rate than previously experienced. The reduction in growth has resulted from aggressive competition from lenders in the trade area. Deposits increased by $5,500,093 for the three month period ending June 30, 1998. Management feels that the growth in deposits has resulted from an increase in the size of the trade area as well as further penetration into existing market areas through the community bank operating concept. Page 15 of 16 Form 10-QSB Benchmark Bankshares, Inc. June 30, 1998 Part II Other Information Item 1 Legal Proceedings None Item 2 Changes in Securities None Item 3 Defaults Upon Senior Securities None Item 4 Submission of Matters to a Vote of Security Holders None Item 5 Other Information None Item 6 Report on Form 8-K No reports on Form 8-K have been filed during the quarter ended June 30, 1998. Page 16 of 16 Form 10-QSB Benchmark Bankshares, Inc. June 30, 1998 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: July 22, 1998 Ben L. Watson, III ------------------ President and CEO Date: July 22, 1998 Janice C. Whitlow ----------------- Cashier and Treasurer EX-27 2 FDS --
9 (Replace this text with the legend) 1 $ 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 1 5,119,971 0 14,374,000 0 15,763,002 4,229,686 4,233,364 128,920,812 1,494,341 172,874,639 153,567,816 0 1,361,491 0 0 0 626,682 17,318,650 172,874,639 6,179,302 811,681 0 811,681 3,357,053 3,357,053 3,633,933 147,950 (436) 1,836,520 1,925,846 1,925,846 0 0 1,316,460 .44 .44 4.22 273,399 375,822 1,053,592 9,187,985 1,391,424 117,362 72,329 1,494,341 1,494,341 0 1,404,341
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