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 September 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:
906,297 shares of common stock, par value $5.00 per share,
outstanding as of November 10, 1997
* This Form 10-QSB also covers 276,600 Contractual Rights to Contingent
Merger Consideration, which are registered under the Securities Act of 1933, as
amended, pursuant to a registration statement declared effective on June 27,
1997.
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page No.
<S> <C>
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 8
Item 2. Management's Discussion and Analysis of Results of Operation
and Financial Condition 11
Part II. Other Information
Item 1. Legal proceedings 13
Item 2. Change in securities 13
Item 3. Defaults upon senior securities 13
Item 4. Submission of matters to a vote of security holders 13
Item 5. Other information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
</TABLE>
2
<PAGE>
Independent Community Bankshares, Inc.
Consolidated Balance Sheets
(000 omitted)
<TABLE>
<CAPTION>
(Unaudited)
September 30 December 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets:
Cash and due from banks $ 5,681 $ 6,519
Securities (fair value: September 30, 1997,
$ 65,602, December 31, 1996,
$ 52,376 ) 65,422 52,402
Federal funds sold 1,700 3,400
Loans, net 96,167 93,711
Bank premises and equipment, net 5,506 4,699
Other assets 3,417 2,235
--------- ---------
Total assets $ 177,893 $ 162,966
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Non-interest bearing $ 25,046 $ 23,242
Interest bearing 124,124 115,548
--------- ---------
Total deposits $ 149,170 $ 138,790
Securities sold under agreements to
repurchase $ 3,043 $ 1,445
Federal Home Loan Bank advances 3,900 4,000
Other liabilities 657 723
--------- ---------
Total liabilities $ 156,770 $ 144,958
Shareholders' Equity
Common stock par value $5.00 per
share, authorized 10,000,000 shares;
issued and outstanding at September 30, 1997 - 906,297
issued and outstanding at December 31, 1996 - 859,838 $ 4,531 $ 4,299
Capital surplus 2,480 1,411
Retained earnings 14,356 12,817
Unrealized gain (loss) on securities
available for sale, net (244) (519)
--------- ---------
Total shareholders' equity $ 21,123 $ 18,008
Total liabilities and shareholders' equity $ 177,893 $ 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 Nine Months For the Quarter
Ended September 30, Ended September 30,
1997 1996 1997 1996
--------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $ 6,544 $ 5,974 $ 2,211 $ 2,157
Interest on investment securities
Taxable 98 145 31 51
Exempt from federal income taxes 513 431 178 152
Interest on securities available for sale
Taxable 1,788 1,313 698 441
Exempt from federal income taxes
5 - - -
Dividends 220 198 80 66
Interest on federal funds sold 124 96 27 10
--------------- --------------- -------------- -------------
Total interest income $ 9,292 $ 8,157 $ 3,225 $ 2,877
Interest expense
Interest on deposits $ 3,646 $ 3,319 $ 1,272 $ 1,110
Interest on FHLB advances 132 131 37 56
Interest on short-term borrowings 89 - 34 -
--------------- --------------- -------------- -------------
Total interest expense $ 3,867 $ 3,450 $ 1,343 $ 1,166
Net interest income $ 5,425 $ 4,707 $ 1,882 $ 1,711
Provision for loan losses 178 - 62 -
--------------- --------------- -------------- -------------
Net interest income after provision
for loan losses $ 5,247 $ 4,707 $ 1,820 $ 1,711
Other Income
Commissions and fees from fiduciary
activities $ 172 $ 14 $ 130 $ 5
Service charges on deposit accounts 762 549 280 174
Net gains (losses) on securities
available for sale (29) 14 (22) -
Other operating income 9 9 9 4
--------------- --------------- -------------- -------------
Total other income $ 914 $ 586 $ 397 $ 183
Other Expense
Advertising $ 106 $ 117 $ 22 $ 32
Salaries and employee benefits 2,023 1,769 760 587
Net occupancy expense of premises 407 377 137 105
Other operating expenses 1,013 878 326 275
--------------- --------------- -------------- -------------
Total other expense $ 3,549 $ 3,141 $ 1,245 $ 999
Income before income taxes $ 2,612 $ 2,152 $ 972 $ 895
Income taxes 706 617 260 276
--------------- --------------- -------------- -------------
Net income $ 1,906 $ 1,535 $ 712 $ 619
=============== =============== ============== =============
Earnings per average share:
(1997 - 882,994 average shares
1996 - 859,838 average shares)
Net income per share $ 2.22 $ 1.78 $ 0.85 $ 0.72
Dividends per share $ 0.44 $ 0.62 $ 0.23 $ 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 Nine Months Ended September 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>
Balances:
January 1, 1996 $ 4,299 $ 1,411 $ 11,508 $ (265) $ 16,953
Net income 1,534 1,534
Cash dividends (520) (520)
Change in net unrealized (losses)
on securities available for sale (479) (479)
-------- -------- -------- -------- --------
Balances:
September 30, 1996 $ 4,299 $ 1,411 $ 12,522 $ (744) $ 17,488
======== ======== ======== ======== ========
Balances:
January 1, 1997 $ 4,299 $ 1,411 $ 12,817 $ (519) $ 18,008
Net income 1,906 1,906
Cash dividends (367) (367)
Acquisition of common stock (114) (522) (636)
Issuance of common stock 346 1,590 1,936
Change in net unrealized (losses)
on securities available for sale 275 275
-------- -------- -------- -------- --------
Balances:
September 30, 1997 $ 4,531 $ 2,479 $ 14,356 $ (244) $ 21,122
======== ======== ======== ======== ========
</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 Nine Months Ended
----------------------------
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,906 $ 1,535
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 134 24
Depreciation and amortization 299 220
Net (gains) losses on securities available for sale 29 (14)
Discount accretion and premium amortization
on securities, net 152 116
Net (gains) losses on sale of assets 15 -
Deferred taxes - 12
(Increase) decrease in accrued interest receivable (111) 9
Decrease in prepaid income taxes 78 -
(Increase) decrease in other assets (1,298) 21
Increase in accrued interest payable 68 45
Increase (decrease) in other liabilities (135) (121)
-------- --------
Net cash provided by operating activities $ 1,137 $ 1,847
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity, principal paydowns and
calls of investment securities $ 1,387 $ 1,805
Proceeds from maturity, principal paydowns and
calls of securities available for sale 3,381 1,617
Proceeds from sale of securities available
for sale 15,313 10,914
Proceeds from sale of assets 37 -
Purchase of investment securities (1,889) (2,082)
Purchase of securities available for sale (30,977) (15,409)
Net (increase) in loans (2,590) (11,197)
Purchases of bank premises and equipment (1,148) (1,067)
-------- --------
Net cash (used in) investing activities $(16,486) $(15,419)
CASH FLOWS FROM FINANCING ACTIVTIES
Net increase in demand deposits, NOW accounts,
and savings accounts $ 2,969 $ 7,649
Net increase in certificates of deposits 7,411 4,311
Dividends paid (367) (520)
Acquisition of common stock (636) -
Issuance of common stock for acquisition 1,936
6
<PAGE>
Payment on Federal Home Loan Bank advances (2,000) (1,000)
New borrowings on Federal Home Loan Bank line of credit 1,900 2,000
Increase in securities sold under agreement to
repurchase 1,598 -
-------- --------
Net cash provided by financing activities $ 12,811 $ 12,440
Increase in cash and cash equivalents $ (2,538) $ (1,132)
CASH AND CASH EQUIVALENTS
Beginning $ 9,919 $ 8,386
======== ========
Ending $ 7,381 $ 7,254
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash payments for:
Interest paid to depositors 3,577 3,274
Income taxes 684 592
SUPPLEMENTAL DISCLOSURES FOR NON-CASH
INVESTING AND FINANCING ACTIVITIES
Unrealized gain (loss) on securities available
for sale (416) 581
</TABLE>
See Accompanying Note to Consolidated Financial Statements
7
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
For the Nine Months Ended September 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
September 30, 1997, and the results of operations and changes in cash
flows for the nine months ended September 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 nine
month periods ended September 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 September 30, 1997 are
summarized as follows:
(000 omitted)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------- ---------- ---------- --------
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 3,827 $ 6 $ (32) $ 3,801
Obligations of states and
political subdivisions 14,005 227 (21) 14,211
-------- -------- -------- --------
$ 17,832 $ 233 $ (53) $ 18,012
======== ======== ======== ========
Securities available for sale as of September 30, 1997 are summarized
below:
8
<PAGE>
(000 omitted)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------- ---------- ---------- --------
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 1,657 $ 8 $ (6) $ 1,659
Corporate securities 2,512 19 (56) 2,475
Obligations of states and
political subdivisions 5,068 - (40) 5,028
Mortgaged backed securities 38,022 86 (388) 37,720
Other 708 - - 708
-------- -------- -------- --------
$ 47,967 113 $ (490) $ 47,590
======== ======== ======== ========
Note 3. The consolidated loan portfolio is composed of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------------- --------------------
(000 omitted)
<S> <C> <C>
Commercial, financial and agricultural $ 12,935 $ 11,648
Real estate construction 3,475 4,182
Real estate mortgage 73,033 70,739
Installment loans to individuals 7,761 8,061
--------------------- --------------------
Total loans 97,204 94,630
Less: Unearned income (19) (35)
Allowance for loan losses (1,018) (884)
--------------------- --------------------
Loans, net $ 96,167 $ 93,711
===================== ====================
</TABLE>
Note 4. The following is a summary of transactions in the reserve for loan
losses:
September 30, December 31,
1997 1996
------------- ------------
(000 omitted)
Balance at January 1 $ 884 $ 866
Provision charged to operating expense 178 65
Recoveries added to the reserve 32 78
Loan losses charged to the reserve (76) (125)
------- -------
Balance at the end of the period $ 1,018 884
======= =======
The Company had no impaired loans at September 30, 1997 and December
31, 1996.
9
<PAGE>
Nonaccrual loans excluded from impaired loan disclosure under FASB 114
amounted to $262,189 at September 30, 1997 and $ 76,227 at December 31, 1996. If
interest on these loans had been accrued, such income would have approximated $
9,216 for the first nine months 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.
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.
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Summary
Net income for the nine months ended September 30, 1997, increased
24.2% to $1,906,000 or $2.22 per share compared to $1,535,000 or $1.78
per share for the first nine months of 1996. Annualized returns on
average assets and equity for the period ended September 30, 1997, were
1.47% and 13.52%, respectively, compared to 1.39% and 11.89% for the
same period in 1996.
The total assets of the Company increased to $177,893,000 at September
30, 1997, compared to $162,966,000 at December 31, 1996, representing
an increase of $14,927,000 or 9.2%. Loan demand has been sluggish with
$96,167,000 at September 30. 1997, up slightly from $93,711,000 at
December 31, 1996. The investment portfolio has grown 24.8% to
$65,422,000 at September 30, 1997 compared to $52,402,000 at December
31, 1996.
Shareholders' equity at September 30, 1997, totaled $21,123,000,
compared to $18,008,000 at December 31, 1996. Book value per share of
common stock on September 30, 1997 was $23.21 per share compared to
$20.94 at December 31, 1996.
On August 1, 1997 the Company finalized its acquisition of The Tredegar
Trust Company (TTTC). TTTC became a wholly owned subsidiary of
Independent Community Bankshares, Inc. and was accounted for under the
purchase method. TTTC is an independent trust company located in
Richmond, Virginia. TTTC had $2.1 million in assets at September 30,
1997 of which $1.2 million was goodwill associated with the
transaction.
Net Interest Income
Net interest income is the Company's primary source of earnings and
represents the difference between interest and fees earned on earning
assets and the interest expense paid on deposits and other interest
bearing liabilities. Net interest income totaled $5,425,000 for the
first nine months of 1997 compared to $4,707,000 for the same period in
1996. The improvement in net interest income was attributable to a
higher volume of earning assets as well as management's conscientious
effort to improve the margin through asset/liability management.
Noninterest Income
Service charges on deposit accounts for the first nine months of 1997
totaled $762,000 compared $549,000 for the same period in 1996, an
increase of 38.8%. Commission and fees from fiduciary activities was
$172,000 at September 30, 1997 compared to $14,000 at September 30,
1996. The acquisition of The Tredegar Trust Company on August 1, 1997
has solely contributed to this increase. Otherwise the Company
currently derives most of its other noninterest income from fees on
deposit related products.
Noninterest Expense
In support of the Company's continued growth, total noninterest
expenses consisting of employee related costs, occupancy and other
overhead totaled $3,549,000 for the first nine months of 1997, compared
to $3,141,000 for the same period in 1996, representing an increase of
$406,000 or 12.1%. The increase in expenses are attributable to the
acquisition of The Tredegar Trust Company as well as the opening of a
new branch building in Leesburg, Virginia opened in April 1997.
11
<PAGE>
Allowance for Loan Losses
The allowance for loan losses at September 30, 1997 was $1,018,000.
This is a $134,000 increase from December 31, 1996. The current ratio
of the allowance for loan losses to gross loans is 1.05%. The provision
taken during the first nine months of 1997 has been an attempt to keep
the growth of the allowance in accordance with loan growth. Management
believes the allowance for loan losses is adequate to cover credit
losses inherent in the loan portfolio at September 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.
Capital Resources
Shareholders' equity at September 30, 1997 was $21,123,000 compared to
$18,008,000 on December 31, 1996. Factors contributing to the change in
shareholders' equity include the acquisition of The Tredegar Trust
Company on August 1, 1997 which resulted in issuance of 69,148 shares
on common stock for a total increase in capital of $1,936,144. The
retention of net income as well as the decrease in allowance for
unrealized loss on securities available for sale have also been
contributing factors to growth in shareholders' equity. During the
first quarter, the Company did purchase and retire 22,689 shares at a
cost of $635,292.
At September 30, 1997, the Company's tier 1 and total risk-based
capital ratios were 20.5% and 21.5%, respectively, compared to 19.3%
and 20.2% at December 31, 1996. The Company's leverage ratio was 12.4%
at September 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.
12
<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.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
None
13
<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: 11/14/97 /s/ Joseph L. Boling
---------------- -----------------------------------------
Joseph L. Boling,
Chairman of the Board & CEO
Date: 11/14/97 /s/ Alice P. Frazier
---------------- -----------------------------------------
Alice P. Frazier,
Senior Vice President & CFO
14
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,681
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,590
<INVESTMENTS-CARRYING> 17,832
<INVESTMENTS-MARKET> 18,012
<LOANS> 97,204
<ALLOWANCE> 1,018
<TOTAL-ASSETS> 177,893
<DEPOSITS> 149,170
<SHORT-TERM> 6,943
<LIABILITIES-OTHER> 657
<LONG-TERM> 0
0
0
<COMMON> 4,531
<OTHER-SE> 16,592
<TOTAL-LIABILITIES-AND-EQUITY> 177,893
<INTEREST-LOAN> 6,544
<INTEREST-INVEST> 2,748
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 9,292
<INTEREST-DEPOSIT> 3,646
<INTEREST-EXPENSE> 3,867
<INTEREST-INCOME-NET> 5,425
<LOAN-LOSSES> 178
<SECURITIES-GAINS> (29)
<EXPENSE-OTHER> 3,549
<INCOME-PRETAX> 2,612
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,906
<EPS-PRIMARY> 2.22
<EPS-DILUTED> 2.22
<YIELD-ACTUAL> 4.85
<LOANS-NON> 262
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 384
<ALLOWANCE-OPEN> 884
<CHARGE-OFFS> (76)
<RECOVERIES> 32
<ALLOWANCE-CLOSE> 1,018
<ALLOWANCE-DOMESTIC> 564
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 454
</TABLE>
