U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1997
[ ] Transition Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ____________ to _____________
Commission file number: 333-24523
INDEPENDENT COMMUNITY BANKSHARES, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Virginia 54-1696103
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
111 West Washington Street
Middleburg, Virginia 22117
(Address of Principle Executive Offices)
(540) 687-6377
(Issuer's Telephone Number, Including Area Code)
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.
Yes __X__ No _____
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
837,149 shares of common stock, par value $5.00 per share,
outstanding as of June 30, 1997
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
INDEX
Part I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Changes
in Shareholder's Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Results of Operation and Financial Condition 10
Part II. Other Information 12
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature 13
-2-
<PAGE>
Independent Community Bankshares, Inc.
Consolidated Balance Sheets
(000 omitted)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1997 1996
<S> <C> <C>
Cash and due from banks $ 7,561 $ 6,519
Securities (fair value: June 30, 1997,
$ 65,120, December 31, 1996,
$ 52,376 ) 65,100 52,402
Federal funds sold - 3,400
Loans, net 95,972 93,711
Bank premises and equipment, net 5,522 4,699
Other assets 2,332 2,235
------------------------ -----------------------
Total assets $ 176,487 $ 162,966
======================== =======================
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Non-interest bearing $ 24,674 $ 23,242
Interest bearing 127,024 115,548
------------------------ -----------------------
Total deposits $ 151,698 $ 138,790
Securities sold under agreements to
repurchase $ 2,759 $ 1,445
Federal Home Loan Bank advances 3,000 4,000
Other liabilities 567 723
------------------------ -----------------------
Total liabilities $ 158,024 $ 144,958
Shareholders' Equity
Common stock par value $5.00 per
share, authorized 10,000,000 shares;
issued and outstanding at June 30, 1997 - 837,149
issued and outstanding at December 31, 1996 - 859,838 $ 4,185 $ 4,299
Capital surplus 889 1,411
Retained earnings 13,832 12,817
Unrealized gain (loss) on securities
available for sale, net (443) (519)
------------------------ -----------------------
Total shareholders' equity $ 18,463 $ 18,008
Total liabilities and shareholders' equity $ 176,487 $ 162,966
======================== =======================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
-3-
<PAGE>
Independent Community Bankshares, Inc.
Consolidated Statements of Income
(000 omitted)
<TABLE>
<CAPTION>
Unaudited Unaudited
---------------------------------------------------------------
For the Six Months For the Quarter
Ended June 30, Ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest and fees on loans $ 4,333 $ 3,817 $ 2,195 $ 1,960
Interest on investment securities
Taxable 67 94 31 43
Exempt from federal income taxes 335 279 174 143
Interest on securities available for sale
Taxable 1,090 872 592 444
Dividends 140 132 71 77
Interest on federal funds sold 97 86 40 50
---------------- --------------- -------------- ---------------
Total interest income $ 6,062 $ 5,280 $ 3,103 $ 2,717
Interest expense
Interest on deposits $ 2,374 $ 2,209 $ 1,221 $ 1,118
Interest on FHLB advances 95 75 45 30
Interest on short-term borrowings 55 - 31 -
---------------- --------------- -------------- ---------------
Total interest expense $ 2,524 $ 2,284 $ 1,297 $ 1,148
Net interest income $ 3,538 $ 2,996 $ 1,806 $ 1,569
Provision for loan losses 116 - 61 -
---------------- --------------- -------------- ---------------
Net interest income after provision
for loan losses $ 3,422 $ 2,996 $ 1,745 $ 1,569
Other Income
Commissions and fees from fiduciary
activities $ 42 $ 9 $ 19 $ 5
Service charges on deposit accounts 482 375 277 200
Net gains (losses) on securities
available for sale (7) 14 (10) -
Other operating income - 5 - 5
---------------- --------------- -------------- ---------------
Other Expense
Advertising $ 84 $ 85 $ 55 $ 31
Salaries and employee benefits 1,263 1,182 620 572
Net occupancy expense of premises 270 272 138 154
Other operating expenses 687 604 414 335
---------------- --------------- -------------- ---------------
Total other expense $ 2,304 $ 2,143 $ 1,227 $ 1,092
Income before income taxes $ 1,635 $ 1,256 $ 804 $ 687
Income taxes 446 341 223 201
Net income $ 1,189 $ 915 $ 581 $ 486
================ =============== ============== ===============
Earnings per average share:
(1997 - 847,014 shares
1996 - 859,838 shares)
Net income per share $ 1.40 $ 1.06 $ 0.69 $ 0.56
Dividends per share $ 0.21 $ 0.40 $ 0.21 $ 0.22
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
-4-
<PAGE>
Independent Community Bankshares, Inc.
Consolidated Statement of Changes in Shareholders' Equity
For the Six Months Ended June 30, 1997 and 1996
(000 omitted)
(unaudited)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on Securities
Common Capital Retained Available for
Stock Surplus Earnings Sale, Net Total
<S> <C> <C> <C> <C> <C>
January 1, 1996 $ 4,299 $ 1,411 $ 11,508 $ (265) $ 16,953
Net income 915 915
Cash dividends (334) (334)
Change in net unrealized (losses)
on securities available for sale (610) (610)
------------ ------------- ------------ --------------- -------------
Balances:
June 30, 1996 $ 4,299 $ 1,411 $ 12,089 $ (875) $ 16,924
============ ============= ============ =============== =============
Balances:
January 1, 1997 $ 4,299 $ 1,411 $ 12,817 $ (519) $ 18,008
Net income 1,189 1,189
Cash dividends (174) (174)
Acquisition of common stock (114) (522) (636)
Change in net unrealized (losses)
on securities available for sale 76 76
------------ ------------- ------------ --------------- -------------
Balances:
June 30, 1997 $ 4,185 $ 889 $ 13,832 $ (443) $ 18,463
============ ============= ============ =============== =============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
-5-
<PAGE>
Independent Community Bankshares, Inc.
Consolidated Statement of Cash Flows
(000 omitted)
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
--------------------------------
June 30, June 30,
1997 1996
------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,189 $ 915
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 116 -
Depreciation and amortization 187 139
Net (gains) losses on securities available for sale 7 (14)
Discount accretion and premium amortization
on securities, net 97 90
Net (gains) losses on sale of assets 15 -
Deferred taxes - 25
(Increase) decrease in accrued interest receivable (74) 1
Decrease in prepaid income taxes 78 -
(Increase) in other assets (175) (27)
Increase in accrued interest payable 64 11
Increase in other liabilities (220) (120)
------------- ---------------
Net cash provided by operating activities $ 1,284 $ 1,020
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity, principal paydowns and
calls of investment securities $ 698 $ 1,563
Proceeds from maturity, principal paydowns and
calls of securities available for sale 2,279 1,244
Proceeds from sale of securities available
for sale 2,075 10,219
Proceeds from sale of assets 37 -
Purchase of investment securities (1,889) (1,967)
Purchase of securities available for sale (15,815) (12,284)
Net (increase) in loans (2,377) (6,724)
Purchases of bank premises and equipment (1,062) (627)
------------- ---------------
Net cash (used in) investing activities $(16,054) $ (8,576)
CASH FLOWS FROM FINANCING ACTIVTIES
Net increase in demand deposits, NOW accounts,
and savings accounts $ 4,421 $ 3,660
Net increase in certificates of deposits 8,487 2,997
Dividends paid (174) (334)
Acquisition of common stock (636) -
Payment on Federal Home Loan Bank advances (1,000) (1,000)
Increase in securities sold under agreement to
repurchase 1,314 -
------------- ---------------
Net cash provided by financing activities $ 12,412 $ 5,323
Decrease in cash and cash equivalents $ (2,358) $ (2,233)
CASH AND CASH EQUIVALENTS
Beginning $ 9,919 $ 8,386
============= ===============
Ending $ 7,561 $ 6,153
============= ===============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash payments for:
Interest paid to depositors 2,460 2,273
Income taxes 414 434
SUPPLEMENTAL DISCLOSURES FOR NON-CASH
INVESTING AND FINANCING ACTIVITIES
Unrealized gain (loss) on securities available
for sale (672) (1,330)
</TABLE>
See Accompanying Note to Consolidated Financial Statements
-6-
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
For the Six Months Ended June 30, 1997 and 1996
Note 1. In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of June
30, 1997, and the results of operations and changes in cash flows for
the six months ended June 30, 1997 and 1996. The statements should be
read in conjunction with the Notes to Consolidated Financial Statements
included in the Company's Annual Report for the year ended December 31,
1996. The results of operations for the six month periods ended June
30, 1997 and 1996, are not necessarily indicative of the results to be
expected for the full year.
Note 2. Securities
Securities being held to maturity as of June 30, 1997 are summarized as
follows:
(000 omitted)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 3,265 $ 9 $ (48) $ 3,226
Obligations of states and
political subdivisions 14,626 116 (57) 14,685
------------------- ---------------- --------------- --------------
$ 17,891 $ 125 $ (105) $ 17,911
=================== ================ =============== ==============
</TABLE>
Securities available for sale as of June 30, 1997 are summarized below:
(000 omitted)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 5,411 $ 4 $ (87) $ 5,328
Corporate securities 3,039 14 (83) 2,970
Mortgaged backed securities 38,723 54 (574) 38,203
Other 708 - - 708
------------------- ---------------- ---------------- ---------------
$ 47,881 $ 72 $ (744) $ 47,209
=================== ================ ================ ===============
</TABLE>
-7-
<PAGE>
Note 3. The consolidated loan portfolio is composed of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------------- ---------------
(000 omitted)
<S> <C> <C>
Commercial, financial and agricultural $ 13,698 $ 11,648
Real estate construction 4,498 4,182
Real estate mortgage 70,881 70,739
Installment loans to individuals 7,882 8,061
----------------- ---------------
Total loans 96,959 94,630
Less: Unearned income (22) (35)
Allowance for loan losses (965) (884)
----------------- ---------------
Loans, net $ 95,972 $ 93,711
================= ===============
</TABLE>
Note 4. The following is a summary of transactions in the reserve for loan
losses:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------------ ----------------
(000 omitted)
<S> <C> <C>
Balance at January 1 $ 884 $ 866
Provision charged to operating expense 116 65
Recoveries added to the reserve 26 78
Loan losses charged to the reserve (61) (125)
------------------ ----------------
Balance at the end of the period $ 965 $ 884
================== ================
</TABLE>
The Company had no impaired loans at June 30, 1997 and December 31,
1996.
Nonaccrual loans excluded from impaired loan disclosure under FASB 114
amounted to $43,531 at June 30, 1997 and $ 76,227 at December 31, 1996. If
interest on these loans had been accrued, such income would have approximated
$379 for the first half of 1997 and $1,993 in 1996.
Note 5. New Accounting Pronouncements
FASB Statement No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", was issued in
June 1996 and establishes, among other things, new criteria for
determining whether a transfer of financial assets in exchange for cash
or other consideration should be accounted for as a sale or as a pledge
of collateral in a secured borrowing. Statement 125 also establishes
new accounting requirements for pledged collateral. As issued,
Statement 125 is effective for all transfers and servicing of financial
assets and extinguishments of liabilities occurring after December
1996.
FASB Statement No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125", defers for one year the
effective date (a) of paragraph 15 of Statement 125 and (b) for
repurchase agreement, dollar-roll, securities lending, or similar
transactions, of paragraph 9-12 and 237(b) of Statement 125.
-8-
<PAGE>
FASB Statement No. 128, "Earnings per Share", was issued in February
1997 and establishes standards for computing and presenting earnings
per share (EPS) and applies to entities with publicly held common stock
or potential common stock. This Statement simplifies the standards for
computing earnings per share previously found in APB Opinion No. 15,
"Earnings Per Share", and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic
and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. This Statement is
effective for financial statements issued for periods ending after
December 15, 1997, including interim periods.
FASB Statement No. 129, "Disclosure of Information About Capital
Structure", was issued in February 1997 and establishes standards for
disclosing information about an entity's capital structure. It applies
to all entities. This Statement continues the previous requirements to
disclose certain information about an entity's capital structure found
in APB Opinion No. 10, "Omnibus Opinion - 1966, and No. 15, Earnings
per Share", and FASB Statement No. 47, "Disclosure of Long-Term
Obligations", for entities that were subject to the requirements of
those standards. This Statement is effective for financial statements
for periods ending after December 15, 1997.
FASB Statement No. 130, "Reporting Comprehensive Income", was issued in
June 1997 and establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. This
Statement requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements.
This Statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. This Statement is
effective for fiscal years beginning after December 15, 1997.
The effects of these Statements on the Company's financial statements
are not expected to be material.
-9-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Summary
Net income for the six months ended June 30, 1997, increased 29.9% to
$1,189,000 or $1.40 per share compared to $915,000 or $1.06 for the
first six months of 1996. Annualized returns on average assets and
average equity for the period ended June 30, 1997, were 1.42% and
13.12% , respectively, compared to 1.27% and 10.73% for the same period
in 1996.
The total assets of the Bank increased to $176,487,000 at June 30,
1997, compared to $162,966,000 at December 31, 1996, representing an
increase of $13,521,000 or 8.3%. Loan demand improved slightly to
$95,972,000 at June 30, 1997, from 93,711,000 at December 31, 1996. The
largest percentage increase in assets was in investments which includes
$10 million in new purchases related to a CD promotion held late in the
second quarter.
Shareholders' equity at June 30, 1997, totaled $18,463,000 compared to
$18,008,000 at December 31, 1996. Book value per share of common stock
on June 30, 1997, was $22.05 per share compared to $20.94 at December
31, 1996.
Net Interest Income
Net interest income is the Bank's primary source of earnings and
represents the difference between interest and fees earned on earnings
assets and the interest expense paid on deposits and other interest
bearing liabilities. Net interest income totaled $3,538,000 for the
first six months of 1997 compared to $2,996,000 for the same period in
1996. The improvement in net interest income was attributable to a
higher volume of earning assets and an improving net interest margin.
Noninterest Income
Service charges on deposit accounts for the six months of 1997 totaled
$482,000 compared to $375,000 for the same period in 1996, an increase
of 28.5%. The Bank currently derives most of its other noninterest
income from fees on deposit related products.
Noninterest Expenses
In support of the Bank's continued growth, total noninterest expenses
consisting of employee related costs, occupancy and other overhead
totaled $2,304,000 for the first six months of 1997, compared to
$2,143,000 for the same period in 1996, representing an increase of
$161,000 or 7.5%. The increase in expense is attributable to the
increase in salary and occupancy expense associated with a new branch
building in Leesburg.
Allowance for Loan Losses
The allowance for loan losses as of June 30, 1997 was $965,000. This is
a $81,000 increase from December 31, 1996. The current ratio of the
allowance for loan losses to gross loans is 1.0%. The provision taken
during the first six months of 1997 has been an attempt to keep the
growth of the allowance in accordance with loan growth. Management
believes that the allowance for loan losses is adequate to cover credit
losses inherent in the loan portfolio at June 30, 1997. Loans
classified as loss, doubtful, substandard or special mention are
adequately reserved for and are not expected to have a material impact
beyond what has been reserved.
-10-
<PAGE>
Capital Resources
Shareholders' equity on June 30, 1997, was $18,463,000 compared to
$18,008,000 on December 31, 1996. Factors contributing to the change in
shareholders' equity were the retention of net income as well as the
increase in the unrealized loss on securities available for sale.
During the first quarter, the company did purchase and retire 22,689
shares at a cost of $635,292.
At June 30, 1997, the Company's tier 1 and total risk-based capital
ratios were 18.63% and 19.58%, respectively, compared to 19.3% and
20.2% at December 31, 1996. The Bank's leverage ratio was 11.63% at
June 30, 1997, compared to a ratio of 11.7% at December 31, 1996. The
Company's capital structure places it above the regulatory guidelines,
as the Company maintains a strong capital base to take advantage of
business opportunities while ensuring that it has the resources to
protect against the risks inherent in its business.
-11-
<PAGE>
Part II. Other information
Item 1. Legal proceedings
None
Item 2. Change in securities.
None
Item 3. Defaults upon senior securities
None
Item 4. Submission of matters to a vote of security holders.
Independent Community Bankshares, Inc. Annual Meeting of
Shareholders was held Wednesday, April 9, 1997 in Middleburg, Virginia. The
election of the directors of the company was the only item voted upon.
The votes cast for, against or withheld for the election were
as follows:
Name For Against Abstentions
---- --- ------- -----------
Howard M. Armfield 606,740 0 0
Joseph L. Boling 606,740 0 0
J. Lynn Cornwell, Jr. 606,740 0 0
William F.Curtis 606,740 0 0
Gordon Grayson 606,740 0 0
George A. Horkan, Jr. 606,740 0 0
C. Oliver Iselin, III 606,740 0 0
William S. Leach 606,740 0 0
John C. Palmer 606,740 0 0
Millicent W. West 606,740 0 0
Edward T. Wright 606,740 0 0
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
None
-12-
<PAGE>
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.
Independent Community Bankshares, Inc.
(Registrant)
Date: August 14, 1997 /s/ Joseph L. Boling
------------------------------------
Joseph L. Boling,
Chairman of the Board & CEO
Date: August 14, 1997 /s/ Alice P. Frazier
------------------------------------
Alice P. Frazier,
Senior Vice President & CFO
-13-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,561
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 38,203
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 96,937
<ALLOWANCE> 965
<TOTAL-ASSETS> 176,487
<DEPOSITS> 151,698
<SHORT-TERM> 5,759
<LIABILITIES-OTHER> 567
<LONG-TERM> 0
0
0
<COMMON> 4,185
<OTHER-SE> 14,278
<TOTAL-LIABILITIES-AND-EQUITY> 18,463
<INTEREST-LOAN> 4,333
<INTEREST-INVEST> 1,632
<INTEREST-OTHER> 97
<INTEREST-TOTAL> 6,062
<INTEREST-DEPOSIT> 2,374
<INTEREST-EXPENSE> 2,524
<INTEREST-INCOME-NET> 3,538
<LOAN-LOSSES> 116
<SECURITIES-GAINS> (7)
<EXPENSE-OTHER> 2,304
<INCOME-PRETAX> 1,635
<INCOME-PRE-EXTRAORDINARY> 1,635
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,189
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.40
<YIELD-ACTUAL> 4.79
<LOANS-NON> 43
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 932
<ALLOWANCE-OPEN> 884
<CHARGE-OFFS> 61
<RECOVERIES> 26
<ALLOWANCE-CLOSE> 965
<ALLOWANCE-DOMESTIC> 572
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 393
</TABLE>
