Benchmark Bankshares, Inc.

What they do

Benchmark Bankshares owns all shares of Benchmark Community Bank, which offers checking, savings, NOW, money market and time deposit accounts, plus commercial, consumer, real estate construction and real estate mortgage loans. The bank serves individuals and small to medium-sized businesses through nine full-service offices in Lunenburg, Prince Edward, Nottoway, Mecklenburg and Brunswick Counties, Virginia. It does not offer trust services and operates no other businesses; at December 31, 2003 it employed 106 full-time and 10 part-time persons.

Revenue drivers

• Real estate mortgage loans — Largest loan category at $157.8 million, or 73.50% of the loan portfolio at year-end 2003.
• Consumer loans — Second-largest loan category at $30.6 million, or 14.27% of the portfolio.
• Commercial loans — Third-largest loan category at $24.6 million, or 11.44% of the portfolio.
• Noninterest income — Primarily service charges, commissions and fees on deposits, which were $683,798 for the first nine months of 2004 versus $585,716 in the same 2003 period.

Recent performance

For the nine months ended September 30, 2004, net income was $2,671,825, or $0.90 per basic share, compared with $2,486,675, or $0.84 per basic share, for the same period in 2003. Net interest income rose to $8,207,331 from $7,818,293, while the provision for loan losses fell to $142,000 from $291,612. Total deposits were $252,457,196 at September 30, 2004, down from $253,200,495 at December 31, 2003. For full-year 2003, net income was $3,595,527, or $1.21 per share, up 5.81% from $3,398,040, or $1.15 per share, in 2002.

Strategy

Management plans to expand lending efforts in South Boston/Halifax County and is constructing a new full-service branch in Blackstone, Virginia, adjacent to a current temporary facility. The bank focuses on growth by improving existing services, implementing new services, and seeking further expansion opportunities throughout Southside Virginia. In 2003, it grew loans by $16.4 million and deposits by $16.7 million while reducing interest expense by $932,550 because of record-low rates.

Risks

• Concentrated real estate exposure — Real estate mortgage loans represented 73.50% of the loan portfolio at year-end 2003, so a real estate downturn in the bank's Virginia markets could materially affect asset quality.
• Low interest rate pressure — Record-low interest rates reduced interest income by $238,718 in 2003, and a continued low-rate environment could further compress earnings.
• Geographic and competitive concentration — The bank operates only in Virginia and faces competition from seven commercial banks, including four major statewide organizations, as well as finance companies, mortgage companies, credit unions and money market mutual funds.
• Regulatory compliance — As a bank holding company, Benchmark Bankshares is subject to Federal Reserve Board reporting, examination and approval requirements for acquisitions and nonbank activities.

Outlook

Management stated that it continues to research ways to improve existing services, implement new services and look for additional expansion opportunities throughout Southside Virginia. It specifically plans to expand lending efforts in South Boston/Halifax County and to construct a new branch in Blackstone, Virginia. No specific earnings or growth targets were provided.