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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