As filed with the Securities and Exchange Commission on June 17, 1997.
Registration No. 333-24523
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
INDEPENDENT COMMUNITY BANKSHARES, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Virginia 6120 54-1696103
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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111 West Washington Street
Middleburg, Virginia 22117
(540) 687-6377
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Joseph L. Boling, President
Independent Community Bankshares, Inc.
111 West Washington Street
Middleburg, Virginia 22117
(540) 687-6377
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies of Communications to:
R. Brian Ball, Esquire
Wayne A. Whitham, Jr., Esquire
Williams, Mullen, Christian & Dobbins
1021 East Cary Street, 16th Floor
Richmond, Virginia 23219
(804) 643-1991
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a bank holding company and there is compliance
with General Instruction G, check the following box. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Proposed Maximum Proposed Maximum Amount of
Securities to Amount to be Offering Price Aggregate Registration
be Registered Registered (1) Per Share (2) Offering Price Fee (4)
======================================= ==================== ==================== ================== ===============
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Common Stock, $5.00 par value 79,029 shares N/A N/A $404.01
Contractual Rights to Contingent 276,600 N/A N/A N/A
Merger Consideration (3) contractual rights
======================================= ==================== ==================== ================== ===============
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(1) Based upon the maximum number of shares and certain contractual rights
that may be issued in the Reorganization described in this Registration
Statement. The amounts are based upon the maximum number of shares of
common stock of The Tredegar Trust Company that may be outstanding
immediately prior to the Reorganization.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f), based on $4.82, the book value of the common
stock of The Tredegar Trust Company, on December 31, 1996.
(3) The Contractual Rights to Contingent Merger Consideration are rights to
receive shares of ICBI Common Stock registered herein that may be
payable by the Registrant in the future to those holders of common
stock of The Tredegar Trust Company as of the Effective Date of the
Reorganization if the net earnings of The Tredegar Trust Company exceed
a certain level. Such Rights arise from the Reorganization Agreement
described herein and will not be represented by any form of certificate
or instrument, will not have voting or dividend rights and will not be
assignable or transferable by the holders of common stock, except by
operation of law. No additional registration fee is required.
(4) Registration fee was paid with the initial filing of the Registration
Statement on April 4, 1997.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
CROSS REFERENCE SHEET
Showing Heading or Location in Prospectus of Information
Required by Items in Part I of Form S-4
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Item Number and Caption Heading or Location in Prospectus
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A. Information About the Transaction
1. Forepart of Registration Statement and Outside Front Facing Page of Registration Statement; Cross
Cover of Page of Prospectus Reference Sheet; Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus Available Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges, and Summary; Selected Financial Information; Pro
Other Information Forma Financial Information; The Shareholder
Meeting; The Reorganization; The Tredegar
Trust Company
4. Terms of the Transaction Summary; The Reorganization; Description of
ICBI Capital Stock
5. Pro Forma Financial Information Pro Forma Financial Information
6. Material Contacts With the Company Being Acquired Not Applicable
7. Additional Information Required for Reoffering by Not Applicable
Persons and Parties Deemed to be Underwriters
8. Interests of Named Experts and Counsel Experts; Legal Opinion
9. Disclosure of Commission Position on Indemnification for Not Applicable
Securities Act Liabilities
B. Information About the Registrant
10. Information With Respect to S-3 Registrants Not Applicable
11. Incorporation of Certain Information by Reference Not Applicable
12. Information With Respect to S-2 or S-3 Registrants Not Applicable
13. Incorporation of Certain Information by Reference Not Applicable
14. Information With Respect to Registrants Other Than S-3 Independent Community Bankshares, Inc.;
or S-2 Registrants Selected Financial Information; Independent
Community Bankshares, Inc. Management's
Discussion and Analysis of Financial
Condition and Results of Operations
C. Information About the Company Being Acquired
15. Information With Respect to S-3 Companies Not Applicable
16. Information With Respect to S-2 or S-3 Companies Not Applicable
17. Information With Respect to Companies Other Than S-2 or The Tredegar Trust Company; Selected
S-3 Companies Financial Information; The Tredegar Trust
Company Management's Discussion and Analysis
of Financial Condition and Results of
Operations
D. Voting and Management Information
18. Information if Proxies, Consents or Authorizations Are The Shareholder Meeting; The Reorganization;
to be Solicited Independent Community Bankshares, Inc.; The
Tredegar Trust Company
19. Information if Proxies, Consents or Authorizations Are Not Applicable
Not to be Solicited, or in an Exchange Offer
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<PAGE>
[LOGO]
The Tredegar Trust Company
June __, 1997
Dear Fellow Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
(the "Meeting") of The Tredegar Trust Company ("TTC") to be held at the offices
of TTC, 901 East Byrd Street, Richmond, Virginia on July __, 1997 at 9:30 a.m.
At the Meeting, shareholders will consider and vote on the Agreement
and Plan of Reorganization, dated as of March 28, 1997 (the "Agreement"),
between TTC, Independent Community Bankshares, Inc. ("ICBI") and TTC Acquisition
Subsidiary, Inc., a wholly-owned subsidiary of ICBI ("Acquisition") pursuant to
which, among other things, Acquisition will merge with TTC (the
"Reorganization"). Under the terms of the Agreement, each share of TTC Common
Stock outstanding immediately prior to consummation of the Reorganization will
be exchanged for shares of ICBI Common Stock, with cash being paid in lieu of
issuing fractional shares, as described in the accompanying Proxy
Statement/Prospectus. Following the Reorganization, TTC will continue to carry
on its trust business as a wholly-owned subsidiary of ICBI in substantially the
same manner as before the Reorganization.
Details of the proposed Reorganization, are set forth in the
accompanying Proxy Statement/Prospectus, which you are urged to read carefully
in its entirety. Approval of the Reorganization requires the affirmative vote of
a majority of the outstanding shares of TTC Common Stock.
Your Board of Directors has approved the Reorganization and believes
that it is in the best interests of TTC and its shareholders. Accordingly, the
Board recommends that you VOTE FOR the Reorganization.
At the Meeting, you also will vote on the election of nine (9)
Directors for a term of one year each. Your Board of Directors unanimously
supports these individuals and recommends that you VOTE FOR them as directors.
We hope you can attend the Meeting. Whether or not you plan to attend,
please complete, sign and date the enclosed proxy card and return it promptly in
the enclosed envelope. Your vote is important regardless of the number of shares
you own. We look forward to seeing you at the Meeting.
Sincerely,
F. E. Deacon, III
President and Chief Executive Officer
901 East Byrd Street
Richmond, Virginia 23219
<PAGE>
THE TREDEGAR TRUST COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on July __, 1997 at 9:30 a.m.
The Annual Meeting of Shareholders (the "Meeting") of The Tredegar
Trust Company ("TTC") will be held on July __, 1997 at 9:30 a.m. at the offices
of TTC, 901 East Byrd Street, Richmond, Virginia for the following purposes:
1. To approve the Agreement and Plan of Reorganization, dated
as of March 28, 1997, between TTC, Independent Community
Bankshares, Inc. ("ICBI") and TTC Acquisition Subsidiary,
Inc. ("Acquisition") and a related Plan of Merger
(collectively, the "Reorganization Agreement"), providing
for a Merger of TTC and Acquisition (the "Reorganization")
upon the terms and conditions therein, including among other
things that each issued and outstanding share of TTC Common
Stock will be exchanged for shares of ICBI Common Stock,
with cash being paid in lieu of issuing fractional shares.
The Reorganization Agreement is enclosed with the
accompanying Proxy Statement/Prospectus as Appendix A.
2. To elect nine (9) directors to serve for a one year term and
until their successors are elected and qualified.
3. To transact such other business as may properly come before
the Meeting or any adjournments or postponements thereof.
Proxies voting against the proposal to approve the
Reorganization Agreement will not be used by management to
vote for adjournment to permit further solicitation of
proxies.
The Board of Directors has fixed May __, 1997 as the record date for
the Meeting, and only holders of record of TTC Common Stock at the close of
business on that date are entitled to receive notice of and to vote at the
Meeting or any adjournments or postponements thereof.
By Order of the Board of Directors
F. E. Deacon, III
President and Chief Executive Officer
June __, 1997
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY
PROMPTLY, WHETHER OR NOT YOU PLAN TO ATTEND THE
ANNUAL MEETING.
THE BOARD OF DIRECTORS OF THE TREDEGAR TRUST COMPANY
RECOMMENDS THE SHAREHOLDERS VOTE TO APPROVE
THE REORGANIZATION AGREEMENT.
<PAGE>
THE TREDEGAR TRUST COMPANY
PROXY STATEMENT
PROSPECTUS
OF
INDEPENDENT COMMUNITY BANKSHARES, INC.
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to shareholders of
The Tredegar Trust Company ("TTC") in connection with the solicitation of
proxies by the Board of Directors of TTC for use at the Annual Meeting of
Shareholders (the "TTC Meeting"), and any postponements or adjournments of the
meeting.
At the TTC Meeting, shareholders of record of TTC Common Stock as of
the close of business on May __, 1997, will consider and vote on a proposal to
approve the Agreement and Plan of Reorganization, dated as of March 28, 1997,
and the related Plan of Merger (together, the "Reorganization Agreement") by and
among Independent Community Bankshares, Inc., a Virginia corporation ("ICBI"),
TTC Acquisition Subsidiary, Inc., an interim Virginia trust company wholly-owned
by ICBI ("Acquisition"), and TTC, pursuant to which, among other things,
Acquisition will merge into TTC (the "Reorganization"). Upon consummation of the
Reorganization, which is expected to occur on or about July __, 1997 (the
"Effective Date"), each outstanding share of TTC Common Stock (other than shares
held by dissenting shareholders) shall be converted into and represent the right
to receive a maximum of 0.25 shares of ICBI Common Stock (the "Initial Merger
Consideration"), promptly after the Effective Date, and additional shares of
ICBI Common Stock, payable approximately three years after the consummation of
the Reorganization if TTC's net earnings in the three years that follow the
Reorganization equal or exceed $638,946, subject to adjustment as described
herein (the "Contingent Merger Consideration"). Cash will be paid in lieu of
fractional shares.
See "The Reorganization" for a more complete description of the
Reorganization. A copy of the Reorganization Agreement is enclosed as Appendix
A.
At the TTC Meeting shareholders also will vote to elect nine (9)
Directors of TTC for a one year term. See "The Tredegar Trust Company Election
of Directors; Management" for additional information.
This Proxy Statement/Prospectus also serves as the Prospectus of ICBI
relating to approximately 79,029 shares of ICBI Common Stock and 276,600
contractual rights to receive the Contingent Merger Consideration issuable to
the shareholders of TTC in connection with the Reorganization.
This Proxy Statement/Prospectus is first being mailed to shareholders
of TTC on or about June __, 1997.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF ICBI COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
The date of this Proxy Statement/Prospectus is June __, 1997.
<PAGE>
AVAILABLE INFORMATION
Independent Community Bankshares, Inc. ("ICBI") is not subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and, accordingly, does not file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). ICBI has filed
with the Commission a Registration Statement on Form S-4, as amended, under the
Securities Act of 1933, as amended, with respect to the shares of ICBI Common
Stock issuable in the Reorganization. This Proxy Statement/Prospectus does not
contain all of the information set forth in the Registration Statement, certain
items of which have been omitted in accordance with the rules and regulations of
the Commission.
For further information pertaining to ICBI and the shares of ICBI
Common Stock issuable in the Reorganization, reference is made to the
Registration Statement and amendments and exhibits thereto, which may be
inspected and copied at the offices of the Commission, at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and at regional offices of the
Commission at the following locations: Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and World Trade Center,
New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. In addition, the Commission
maintains a Web site (address: http://www.sec.gov) that contains the
Registration Statement of ICBI.
-------------------------
No person is authorized to give any information or to make any
representation not contained or incorporated by reference in this Proxy
Statement/Prospectus, and, if given or made, such information or representation
should not be relied upon as having been authorized. This Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
an offer to purchase, the securities offered by this Proxy Statement/Prospectus
in any jurisdiction to or from any person to whom it is unlawful to make such an
offer or solicitation in such jurisdiction. Neither the delivery of this Proxy
Statement/Prospectus nor any distribution of the securities being offered
pursuant to this Proxy Statement/Prospectus shall, under any circumstances,
create an implication that there has been no change in the affairs of ICBI or
TTC or the information set forth herein since the date of this Proxy
Statement/Prospectus.
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<PAGE>
TABLE OF CONTENTS
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Introduction....................................................................................................1
Available Information...........................................................................................2
Summary.........................................................................................................4
The Companies..............................................................................................4
The Shareholder Meeting....................................................................................4
Glossary of Terms..........................................................................................4
The Reorganization.........................................................................................7
Comparative Per Share Information..............................................................................13
Selected Financial Information.................................................................................15
ICBI Selected Historical Financial Information............................................................16
TTC Selected Historical Financial Information.............................................................17
ICBI and TTC Selected Pro Forma Combined Financial Information............................................18
The Shareholder Meeting........................................................................................19
The Reorganization.............................................................................................21
Financial Advisor's Opinion....................................................................................36
The Tredegar Trust Company.....................................................................................39
The Tredegar Trust Company Election of Directors; Management...................................................39
The Tredegar Trust Company Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................................................46
Independent Accountants........................................................................................49
Other Business.................................................................................................49
Independent Community Bankshares, Inc..........................................................................50
Independent Community Bankshares, Inc. Management..............................................................51
Independent Community Bankshares, Inc. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................................................57
Description of ICBI Capital Stock..............................................................................77
Comparative Rights of Security Holders.........................................................................77
Supervision and Regulation.....................................................................................84
Experts ......................................................................................................89
Legal Opinion..................................................................................................89
Pro Forma Financial Information (Unaudited)....................................................................90
Pro Forma Combined Condensed Balance Sheet (Unaudited)....................................................91
Pro Forma Combined Condensed Income Statements (Unaudited)................................................92
Notes to Pro Forma Condensed Financial Information (Unaudited)............................................94
Appendices
General
A Agreement and Plan of Reorganization.....................................................................A-1
The Tredegar Trust Company
B The Tredegar Trust Company Financial Statements (including the
audited December 31, 1996 Financial Statements)......................................................B-1
C Opinion of Scott & Stringfellow, Inc.....................................................................C-1
D Excerpts from the Virginia Stock Corporation Act Relating
to Dissenting Shareholders...........................................................................D-1
Independent Community Bankshares, Inc.
E Independent Community Bankshares, Inc. Financial Statements (including the
audited December 31, 1996 Financial Statements)......................................................E-1
F Tax Opinion of Williams, Mullen, Christian & Dobbins, P.C................................................F-1
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<PAGE>
SUMMARY
The following summary is not intended to be complete and is qualified
in its entirety by the more detailed information and financial statements
contained elsewhere in this Proxy Statement/Prospectus, including the Appendices
hereto and the documents incorporated herein by reference.
THE COMPANIES
ICBI. ICBI is a bank holding company headquartered in Middleburg,
Virginia. ICBI has one subsidiary, The Middleburg Bank, a Virginia-chartered
bank that operates three banking offices and offers a full range of banking
services principally to individuals and to small and medium sized businesses in
Loudoun County, Virginia. ICBI was formed in 1993 to serve as the parent bank
holding company for The Middleburg Bank. The Middleburg Bank began business in
1924. At December 31, 1996, ICBI had total assets of $163 million, deposits of
$139 million, and total stockholders' equity of $18 million. ICBI's principal
executive offices are located at 111 West Washington Street, Middleburg,
Virginia 20117 and its telephone number is (540) 687-6377. See "Independent
Community Bankshares, Inc.," "Pro Forma Financial Information" and the documents
relating to ICBI accompanying this Proxy Statement/Prospectus.
TTC. TTC is a Virginia-chartered independent trust company and provides
trust and investment services, primarily to customers in Virginia, through its
office in Richmond, Virginia. At December 31, 1996, TTC had total assets of
$1.36 million and stockholders' equity of $1.33 million. The principal executive
offices of TTC are located at 901 East Byrd Street, Richmond, Virginia 23219 and
its telephone number is (804) 644-2848. In 1995 TTC and The Middleburg Bank
entered into a contract under which TTC provides various services to the trust
department of The Middleburg Bank. TTC also provides investment advisory
services to ICBI. See "The Tredegar Trust Company" and "The Tredegar Trust
Company Management's Discussion and Analysis of Financial Condition and Results
of Operation."
THE SHAREHOLDER MEETING
The TTC Meeting will be held at the offices of TTC, 901 East Byrd
Street, Richmond, Virginia on July __, 1997 at 9:30 a.m. Only holders of record
of TTC Common Stock at the close of business on May __, 1997, will be entitled
to vote at the TTC Meeting. See "The Shareholder Meeting."
GLOSSARY OF TERMS
Depending on the operations of TTC prior to and after the Effective
Date of the Reorganization, the amount of consideration receivable by TTC
shareholders may be variable and involves complex calculations. This Glossary is
intended to help TTC shareholders understand the discussion that follows. All
terms explained below also are defined in Section 1.4 of the Reorganization
Agreement, which is Appendix A to this Proxy Statement/Prospectus. Other
capitalized terms in this section that are not defined here shall have the
respective meanings ascribed to them in the Reorganization Agreement.
Merger Consideration
This term refers to the consideration that TTC shareholders will
receive from ICBI if the Reorganization is consummated. It consists of the
Initial Merger Consideration and the Contingent Merger Consideration.
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<PAGE>
Initial Merger Consideration
This term refers to the ICBI Common Stock that will be distributed to
TTC shareholders as soon as practicable after the consummation of the
Reorganization. It will be a maximum of 0.25 shares of ICBI Common Stock for
each share of TTC Common Stock. The Initial Merger Consideration will be less if
TTC Operating Losses (from January 1, 1997 to the Effective Date) exceed
$30,000. For the four months ended April 30, 1997, TTC Operating Losses were
$14,935. If TTC Operating Losses exceed $30,000, the Initial Merger
Consideration will be the fraction of a share of ICBI Common Stock, the
denominator of which will be 276,600 and the numerator of which will be the
difference between $1,936,200 and the amount by which TTC Operating Losses
exceed $30,000, such difference then to be divided by $28.00.
Unless the performance of TTC from May 1, 1997 to the Effective Date is
materially worse than TTC's performance in the four months ended April 30, 1997,
there would not be any adjustment to the Initial Merger Consideration. The
management of TTC does not anticipate that TTC Operating Losses will exceed
$30,000 or that there will be any adjustment to the Initial Merger
Consideration. The following table, however, illustrates the amount of the
potential adjustment to the Initial Merger Consideration, based on various
levels of TTC Operating Losses.
Hypothetical
TTC Operating Initial Merger
Losses (1) Consideration (2)
---------- -----------------
$ 30,000 0.25
50,000 0.2474
75,000 0.2442
100,000 0.2410
(1) For the four months ended April 30, 1997, TTC Operating Losses
were $14,935.
(2) Shares of ICBI Common Stock per share of TTC Common Stock.
There is no minimum number of shares of ICBI Common Stock that TTC
shareholders will receive on a per share basis. TTC will not resolicit
shareholders if the actual per share amount is less than 0.25 shares of ICBI
Common Stock for each share of TTC Common Stock. Cash will be paid in lieu of
fractional shares at the rate of $28.00 per share of ICBI Common Stock.
Contingent Merger Consideration
This term refers to additional consideration that TTC shareholders will
receive if TTC's cumulative net earnings in the three years following the
consummation of the Reorganization exceed the Required Net Earnings. The
Contingent Merger Consideration will be significantly less than the Initial
Merger Consideration. If the Contingent Merger Consideration is earned, its
value will depend on the value of ICBI Common Stock at the time the Contingent
Merger Consideration is paid. The following table illustrates the value of the
Contingent Merger Consideration to a holder of 1,000 shares of TTC Common Stock,
assuming various per share values of ICBI Common Stock at the time of payment:
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<PAGE>
Value of Contingent Payment
Value Per Share of ICBI on 1,000 shares of TTC
Common Stock Common Stock
$20 $ 859
25 1002
30 1036
35 1125
40 1214
Required Net Earnings
This term is the cumulative amount of net earnings that TTC must
generate in the three years following the Effective Date in order for TTC
shareholders to receive the Contingent Merger Consideration. The Reorganization
Agreement provides that the Required Net Earnings will be $638,946 unless the
sum of the severance benefits paid to TTC officers (a total of $106,128) and TTC
Transaction Costs exceed $150,000. If that occurs, the Required Net Earnings
will be increased by the difference between the amount by which such expenses
exceed $150,000 and the amount, if any, by which TTC Operating Losses are less
$30,000. As of March 31, 1997, TTC Transaction Costs (including the $38,724 fee
that will be payable to Scott & Stringfellow, Inc.) totaled approximately
$176,043. Because the sum of TTC Transaction Costs and severance benefits
exceeded $150,000 at March 31, 1997 and because TTC will have additional
transaction costs after March 31, 1997 and before the Effective Date, the amount
of Required Net Earnings is likely to exceed $638,946. In no event will the
Required Net Earnings be less than $638,946.
After the Effective Date, the trust business of The Middleburg Bank
will be transferred to TTC and The Middleburg Bank will cease to operate a
separate trust department. As a result, after the Effective Date, TTC will have
all of the revenue and expense of The Middleburg Bank's trust department. See
"The Reorganization Transfer of Trust Business of The Middleburg Bank" and "The
Tredegar Trust Company."
TTC Operating Losses
This term refers to the excess, if any, of TTC expenses over TTC
revenues from January 1, 1997 to the Effective Date. The parties agreed,
however, that certain expenses related to the Reorganization will be excluded
from the computation of TTC Operating Losses. The excluded expenses are
severance benefits paid to TTC officers, TTC Transaction Costs, the amortization
or write-off of TTC start-up costs and any fees payable by TTC to The Middleburg
Bank after June 30, 1997. If TTC Operating Losses exceed $30,000, the Initial
Merger Consideration will be reduced. For the four months ended April 30, 1997,
the TTC Operating Losses were $14,935.
TTC Transaction Costs
This term refers to expenses of TTC accrued after December 31, 1996 in
connection with the Reorganization. Such costs include fees and expenses of
consultants, investment bankers, accountants, counsel and printers.
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<PAGE>
THE REORGANIZATION
The Reorganization Agreement provides for the conversion of each
outstanding share of TTC Common Stock into the Merger Consideration. ICBI will
then serve as the parent holding company for TTC, which will continue to carry
on its business in substantially the same manner as before the Reorganization
and with no material change in its management, except that the President of ICBI
will become the Chairman of the Board of Directors of TTC.
The Initial Merger Consideration will be paid as promptly as
practicable after the consummation of the Reorganization, and the Contingent
Merger Consideration, if payable, will be paid approximately three years after
the consummation of the Reorganization.
Recommendation of the Board of Directors
The Board of Directors of TTC has approved the Reorganization,
including the Reorganization Agreement. Several factors influenced the TTC
Board's decision. First, the business relationship between TTC and ICBI's
subsidiary, The Middleburg Bank, had demonstrated the compatibility of the
management of ICBI and TTC and their similar cultures and shared philosophies of
direct customer contact and service. In addition, the Reorganization would add a
presence for TTC in Loudoun County and, considering the area's relative
affluence and the profile of ICBI's customer base, would enhance TTC's prospects
for continued growth. Moreover the post-Reorganization TTC would operate under
the same name as before the Reorganization and would retain its management with
headquarters in Richmond, Virginia. Other important factors included the
dividend paid on ICBI Common Stock, the undertaking of ICBI to seek to have its
stock quoted on the Nasdaq SmallCap Market or OTC Bulletin Board and the opinion
of TTC's financial advisor that ICBI's operating performance and financial
condition compare favorably with selected other banks and that the market value
of ICBI Common Stock is reasonable in comparison to those other banks. Because
no steps will be taken in furtherance of ICBI's undertaking to have the ICBI
Common Stock quoted on the Nasdaq SmallCap Market or OTC Bulletin Board until
after the Effective Date, the benefits of enhanced liquidity that might result
are uncertain. See "Comparative Per Share Information," "The Reorganization -
Background and Reasons for the Reorganization" and "Financial Advisor's
Opinion." The Board of Directors believes that the Reorganization is fair to and
in the best interests of shareholders of TTC and recommends a VOTE FOR the
Reorganization.
Interests of Certain Persons in the Reorganization
Holders of voting stock of TTC should be aware that members of TTC's
Board of Directors and senior management have certain interests in the
Reorganization that are in addition to the interests of shareholders of TTC
generally. The potential shares of ICBI Common Stock which the TTC directors may
receive in aggregate pursuant to the Reorganization are 13,625 shares, which
would have had a value of approximately $381,500 as of March 31, 1997. It is
expected that all directors of TTC will continue to serve as directors of TTC
after the Effective Date. In the past, TTC has not paid directors' fees. See
"The Reorganization - Interest of Certain Persons in the Reorganization."
On March 27, 1997 TTC and F. E. Deacon, III, its President and Chief
Executive Officer, entered into an Employment Agreement. Previously, ICBI had
indicated to TTC that ICBI would be unwilling to enter into the Reorganization
Agreement unless Mr. Deacon and TTC entered into an Employment Agreement in form
and substance satisfactory to ICBI. The Employment Agreement will terminate if
the Reorganization Agreement terminates. If the Reorganization is consummated,
the term of the Agreement will end on the third anniversary of the Effective
Date. Under the Employment Agreement, Mr. Deacon's
-7-
<PAGE>
annual base salary is $119,000 and he will be entitled to bonuses if TTC's
cumulative net earnings equal or exceed 27%, 60% and 100%, respectively, of the
Required Net Earnings in the three years following the Effective Date. The
maximum amount of such bonus in any year will be $27,000. Mr. Deacon's base
salary represents a reduction in his salary in 1995 and 1996. The bonus
arrangement was structured in order that any bonus to which Mr. Deacon is
entitled will be related to the amount of net earnings that TTC must achieve in
order for its shareholders to receive the Contingent Merger Consideration. The
Employment Agreement does not provide for any additional compensation in the
event of a change in control of ICBI and does prohibit Mr. Deacon from competing
with TTC for a period of one year following a termination of his employment by
TTC for any reason.
Opinion of Financial Advisor
Scott & Stringfellow, Inc. ("Scott & Stringfellow") has served as
financial advisor to TTC in connection with the Reorganization and has rendered
its opinion to the Board of Directors of TTC that, as of the date of this Proxy
Statement/Prospectus and on the basis of the matters referred to herein, the
consideration to be received pursuant to the Reorganization Agreement is fair,
from a financial point of view, to the TTC shareholders. A copy of the opinion
of Scott & Stringfellow is attached as Appendix C to this Proxy
Statement/Prospectus and should be read in its entirety for information with
respect to the assumptions made and other matters considered by Scott &
Stringfellow in rendering its opinion. See "Financial Advisor's Opinion."
Vote Required
Approval of the Reorganization requires the affirmative vote of the
holders of a majority of the outstanding shares of TTC Common Stock. As of the
record date for the TTC Meeting, directors of TTC and their affiliates owned
beneficially an aggregate of 54,500 shares of TTC Common Stock, or approximately
19.7% of the shares of TTC Common Stock outstanding on such date. The directors
of TTC have indicated their intention to vote their shares of TTC Common Stock
in favor of the Reorganization. See "The Shareholder Meeting." In addition,
Joseph L. Boling, President and Chief Executive Officer of ICBI, owned
beneficially an aggregate of 2,000 shares of TTC Common Stock on the record
date. Mr. Boling intends to vote his shares in favor of the Reorganization.
Effective Date
If the Reorganization is approved by the requisite vote of the
shareholders of TTC, and if the applications of ICBI to acquire TTC pursuant to
the Reorganization are approved by the Federal Reserve and the Virginia State
Corporation Commission (the "SCC"), and if other conditions to the
Reorganization are satisfied (or waived to the extent permitted by applicable
law), the Reorganization will be consummated and effected upon the issuance of a
Certificate of Merger by the SCC pursuant to the Virginia Stock Corporation Act
(the "Effective Date"). If the Reorganization is approved by the shareholders,
the Federal Reserve and the SCC, it is anticipated that the Effective Date will
be on or about July __, 1997, or as soon thereafter as practicable.
Under the Reorganization Agreement, either party may terminate the
Reorganization Agreement if the transaction is not consummated by September 30,
1997.
-8-
<PAGE>
Post-Closing Audit
The Initial Merger Consideration will be 0.25 shares of ICBI Common
Stock for each share of TTC Common Stock unless TTC Operating Losses exceed
$30,000. Under the Agreement, if the parties do not agree on the size of any TTC
Operating Loss, an audit of TTC from January 1, 1997 through the Effective Date
will be performed by Yount, Hyde and Barbour, P.C., the independent certified
public accountants for ICBI. If either party objects to the post-closing audit,
the dispute will be resolved by arbitration. A similar process will be employed
if the parties do not agree on whether or not the Contingent Merger
Consideration is payable.
Distribution of Stock Certificates and Payment for Fractional Shares
If no post-closing audit is necessary, as soon as practicable after the
Effective Date, The Middleburg Bank, as the exchange agent, will mail to each
TTC shareholder (other than dissenting shareholders) a letter of transmittal and
instructions for use in order to surrender the certificates, which immediately
prior to the Effective Date represented shares of TTC Common Stock, in exchange
for certificates for shares of ICBI Common Stock representing the Initial Merger
Consideration. Cash (without interest) will be paid to TTC shareholders in lieu
of the issuance of any fractional shares in an amount equal to the fraction of a
share of ICBI Common Stock to which such shareholder would otherwise be
entitled, multiplied by $28.00.
If a post-closing audit is necessary, the exchange of shares of TTC
Common Stock for the Initial Merger Consideration will be delayed. Such a delay
would likely be for at least 90 days and, if the parties resort to arbitration,
significantly longer.
The right to receive the Contingent Merger Consideration will not be
represented by any form of certificate or instrument, will not have voting or
dividend rights, will not be assignable or transferable, except by operation of
law, and will not have a separate trading market.
Certain Federal Income Tax Consequences
Williams, Mullen, Christian & Dobbins, counsel for ICBI, has delivered
an opinion (the "Tax Opinion"), that addresses the federal income tax
consequences of the Reorganization. The Tax Opinion is Exhibit F to this Proxy
Statement/Prospectus. Although the Tax Opinion concludes that the Reorganization
qualifies as a reorganization under the Internal Revenue Code of 1986, as
amended (the "Code"), and that TTC shareholders will not recognize gain or loss
upon receiving the Initial Merger Consideration, the Tax Opinion points out that
there is uncertainty about the proper federal income tax treatment of the
Contingent Merger Consideration. The issue is whether or not the Contingent
Merger Consideration should be treated as shares of ICBI Common Stock or,
instead, as separate property, independent of the underlying shares of ICBI
Common Stock, the receipt of which may be taxable.
The Tax Opinion describes both possible tax treatments of the
Contingent Merger Consideration. ICBI does not intend to treat the Contingent
Merger Consideration as a separate property right and would contest any effort
of the Internal Revenue Service to do so.
The Tax Opinion concludes that even if the Contingent Merger
Consideration is properly treated as separate property, the Reorganization
qualifies as a reorganization under the Code and that TTC shareholders will not
recognize gain or loss upon receipt of the Initial Merger Consideration.
-9-
<PAGE>
The following discussion describes the tax treatment of the
Reorganization, first under the assumption that the Contingent Merger
Consideration is not separate property, and second, describes the treatment of
the Reorganization if the Internal Revenue Service were to assert that the
Contingent Merger Consideration is separate property and were to prevail in such
assertion.
The Tax Opinion provides, among other things, (i) the Reorganization
will constitute a "reorganization" under the Code, (ii) no gain or loss will be
recognized for federal income tax purposes by TTC shareholders as a result of
their receipt of solely ICBI Common Stock as Initial Merger Consideration in
exchange for their shares of TTC Common Stock, (iii) no gain or loss will be
recognized for federal income tax purposes by TTC shareholders as a result of
their receipt of solely ICBI Common Stock as Contingent Merger Consideration
unless the Contingent Merger Consideration is determined to be separate
property, (iv) any TTC shareholder who receives cash in lieu of a fractional
share interest will be treated as receiving a payment in redemption of such
fractional interest, with gain or loss recognized to such shareholder, measured
by the difference between the redemption price and the portion of the
shareholder's basis in TTC Common Stock allocable to such fractional share
interest, (v) the aggregate tax basis of the shares of ICBI Common Stock
received by each TTC shareholder will equal the aggregate tax basis of such
shareholder's shares of TTC Common Stock surrendered therefor in the
Reorganization, (vi) the holding period for shares of ICBI Common Stock received
by each shareholder of TTC will include the holding period for the shares of TTC
Common Stock of such shareholder surrendered therefor in the Reorganization,
provided that the TTC shareholder held such stock as a capital asset on the
Effective Date, (vii) any dissenting shareholder of TTC who receives solely cash
in exchange for shares of TTC Common Stock will be treated as receiving a
distribution in redemption of such stock, and (viii) no gain, other income or
loss will be recognized by ICBI, Acquisition or TTC as a result of the
Reorganization.
If the Internal Revenue Service were to assert that any portion of the
Contingent Merger Consideration is a separate property right and prevail in such
assertion, except as set forth in clause (iv) below, there would be no change in
the tax treatment of the shares of ICBI Common Stock received as Initial Merger
Consideration and (i) gain, if any, will be recognized by the TTC shareholders
upon the receipt of the Contingent Merger Consideration in an amount not in
excess of the value of the ICBI Common Stock, or portion thereof, treated as
received pursuant to the separate property right, (ii) if the receipt of the
Contingent Merger Consideration has the effect of the distribution of a
dividend, the amount of any gain recognized that is not in excess of the ratable
share of the undistributed earnings and profits of TTC will be treated as a
dividend, (iii) the remainder, if any, of gain recognized will be treated as a
gain from the exchange of property and will be recognized as capital gain,
provided the TTC Common Stock was a capital asset in the hands of the TTC
shareholder on the Effective Date, (iv) the determination of whether or not the
exchange has the effect of a distribution of a dividend will be made on a
shareholder by shareholder basis in accordance with the principles of Section
302 of the Code, (v) no loss may be recognized on the receipt of the Contingent
Merger Consideration and (vi) the aggregate tax basis of shares of ICBI Common
Stock received as Contingent Merger Consideration will be equal to the value of
such shares when received and the aggregate basis of shares received by each TTC
shareholder as Initial Merger Consideration will be decreased by the value of
any shares of ICBI Common Stock received as Contingent Merger Consideration and
increased by any gain recognized upon receipt of the Contingent Merger
Consideration.
The Tax Opinion states that in situations where contingent rights to
acquire stock, in addition to the stock itself, are issued in connection with a
reorganization, the question arises as to whether the contingent right is a
separate property right independent of the stock itself. In situations where the
contingent right could only give rise to the receipt of additional shares of
stock and there is a valid business
-10-
<PAGE>
reason for granting the contingent right rather than the stock itself, the
courts and Internal Revenue Service have generally held that the contingent
right is not separate property. However, in order to obtain an advance ruling
from the Internal Revenue Service regarding a reorganization that includes
contingent stock, the terms of the contingency must meet certain guidelines set
forth in Revenue Procedure 84-42, 1984-1 C.B. 521. These guidelines include the
requirements that (i) the maximum number of shares that may be issued must be
set forth in the agreement and (ii) at least fifty percent (50%) of the maximum
number of shares that may eventually be issued, must be issued in the initial
distribution. Because there is no maximum number of shares that may be received
by the shareholders of TTC as Contingent Merger Consideration, two of the
requirements set forth in the advance ruling guidelines are not met.
Accordingly, the Service would not issue an advance ruling that the
Reorganization qualifies as a reorganization under Section 368(a) of the Code if
such a ruling was requested.
The guidelines contained in Revenue Procedure 84-42 do not purport to
constitute a statement of existing substantive law, but rather are only
conditions to the issuance of an advance ruling. Nevertheless, the advance
ruling guidelines create an uncertainty as to whether or not it is the Internal
Revenue Service's position that there must be a limit on the number of shares
that may be issued to avoid treating the contingent right as separate property.
In light of this uncertainty and because Williams, Mullen, Christian & Dobbins
has not identified any authority, either favorable or unfavorable, that
specifically addresses whether such a limit is necessary, it has not expressed
an opinion on whether or not the Contingent Merger Consideration will be treated
as separate property or as stock. See "The Reorganization - Federal Income Tax
Matters." Due to the individual nature of the tax consequences of the
Reorganization, it is recommended that each TTC shareholder consult his or her
tax advisor concerning the tax consequences of the Reorganization.
Conditions to Consummation of the Reorganization
Consummation of the Reorganization is subject to various conditions,
including among other matters: (i) receipt of the approval of the shareholders
of TTC solicited hereby; (ii) approval of the SCC; (iii) approval of the Federal
Reserve under the Bank Holding Company Act of 1956, as amended ("BHC Act"); and
(iv) receipt of an opinion of counsel as to the tax-free nature of the
Reorganization for shareholders (except for cash received in lieu of fractional
shares or upon the exercise of dissenters' rights). TTC has advised ICBI that
the tax opinion attached hereto as Appendix F is satisfactory to TTC . It is a
condition of ICBI's obligation to consummate the Reorganization that the sum of
TTC Transaction Costs, severance benefits payable to TTC officers and TTC
Operating Losses not exceed $200,000 without the consent of ICBI. At March 31,
1997, the total of such items was $184,772. Substantially all of the conditions
to consummation of the Reorganization may be waived, in whole or in part, to the
extent permissible under applicable law by the party for whose benefit the
condition has been imposed, without the approval of the shareholders of that
party. Shareholder and regulatory approvals, however, may not be waived. See
"The Reorganization - Representations and Warranties; Conditions to the
Reorganization" and "The Reorganization - Regulatory Approvals."
The Reorganization Agreement may be terminated and the Reorganization
abandoned notwithstanding shareholder approval (i) by mutual agreement of the
Boards of Directors of ICBI and TTC or (ii) by either ICBI or TTC if the
Effective Date has not occurred by September 30, 1997, or (iii) if certain
specified events occur. See "The Reorganization - Waiver, Amendment and
Termination."
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<PAGE>
Effects of the Reorganization on the Rights of TTC Shareholders
Upon consummation of the Reorganization, TTC shareholders shall become
shareholders of ICBI. The rights of the former shareholders of TTC, now governed
by the Virginia Stock Corporation Act (the "Virginia SCA"), will continue to be
governed by the Virginia SCA after the Effective Date and the rights of TTC
shareholders will also be as provided for under the Articles of Incorporation
and Bylaws of ICBI. The provisions of the Articles of Incorporation and Bylaws
of ICBI differ in certain material respects from the Articles of Incorporation
and Bylaws of TTC. See "Comparative Rights of Security Holders."
Accounting Treatment
It is intended that the Reorganization will be treated as a purchase
for accounting and financial reporting purposes.
Rights of Dissent and Appraisal
Each holder of TTC shares may dissent from the Reorganization and is
entitled to the rights and remedies of dissenting shareholders provided in
Article 15 of the Virginia SCA, subject to compliance with the procedures set
forth therein, including the right to appraisal of his or her stock. A copy of
Article 15 is attached as Appendix D to this Proxy Statement/Prospectus and a
summary thereof is included under "The Reorganization - Rights of Dissenting
Shareholders."
Markets and Market Prices
ICBI Common Stock is neither listed on any stock exchange nor quoted on
the Nasdaq Stock Market and trades infrequently. ICBI Common Stock has
periodically been sold in a limited number of privately negotiated transactions.
Based on information available to it, ICBI believes that the per share selling
price of ICBI Common Stock ranged from $28.00 to $29.00 in 1996 and in the first
two quarters of 1997. There may, however, have been other transactions at other
prices not known to ICBI. TTC Common Stock is neither listed on any stock
exchange nor quoted on the Nasdaq Stock Market and trades sporadically.
The information below provides the price per share of ICBI Common Stock
and TTC Common Stock prior to the public announcement of the Reorganization on
February 10, 1997 and as of a recent date. The historical price of ICBI Common
Stock, $28.00, is based on the last known sale of ICBI Common Stock prior to the
public announcement of the Reorganization, a trade involving 30 shares on
December 20, 1996. The historical price of TCC Common Stock, $12.50, is based on
the last known sale of TCC Common Stock prior to the public announcement of the
Reorganization, a trade involving 2,500 shares on June 30, 1996.
-12-
<PAGE>
ICBI Common Stock TTC Common Stock
----------------- ----------------
Equivalent
Historical Price Historical Price Per Share Price*
---------------- ---------------- ----------------
February 10, 1997 $28.00 $12.50 $7.00
June 5, 1997 $28.00 $12.50 $7.00
- ---------------------
* TTC shareholders will receive a maximum of 0.25 shares of ICBI Common
Stock for each share of TTC Common Stock outstanding as the Initial
Merger Consideration. The Contingent Merger Consideration is not shown
because its receipt is dependent on future events, the occurrence of
which is uncertain. This table merely reflects the historical value of
the Initial Merger Consideration (i) on the last date before the
Reorganization Agreement was announced that ICBI Common Stock was
traded and (ii) on a recent date for ICBI Common Stock.
No assurance can be given as to the market price or trading value of
ICBI Common Stock at or after the Effective Date.
COMPARATIVE PER SHARE INFORMATION
The following unaudited consolidated financial information reflects
certain comparative per share data relating to the Reorganization. The
information shown below should be read in conjunction with the historical
financial statements of ICBI and TTC, including the respective notes thereto,
which are included elsewhere in this Proxy Statement/Prospectus or in documents
delivered herewith, and in conjunction with the unaudited pro forma consolidated
financial information appearing elsewhere in this Proxy Statement/Prospectus.
See "Pro Forma Financial Information."
The following information is not necessarily indicative of the results
of operations or combined financial position that would have resulted had the
Reorganization been consummated at the beginning of the periods indicated, nor
is it necessarily indicative of the results of operations in future periods.
The following table presents selected comparative consolidated
unaudited per share information (i) for ICBI on a historical basis and on a pro
forma combined basis assuming the Reorganization had been effective during the
periods presented and accounted for as a purchase and (ii) for TTC on a
historical basis and on a pro forma equivalent basis.
-13-
<PAGE>
ICBI AND TTC
<TABLE>
<CAPTION>
For the Three
Months Ended For the Year Ended December 31,
------------ ----------------------------------------------------------
March 31, 1997 1996 1995 1994
-------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Per Common Share:
Net Income:
ICBI historical (1) $ 0.71 $ 2.36 $ 1.92 $ 2.06
TTC historical (4)(5) (0.67) (1.40) (2.28) (3.38)
Pro forma combined 0.44 1.69 1.19 1.32
TTC pro forma equivalent (2) 0.11 0.42 0.30 0.33
Cash Dividends Declared:
ICBI historical (1) $ - $ 0.84 $ 0.80 $ 0.80
TTC historical (4) - - - -
Pro forma combined (3) - 0.84 0.80 0.80
TTC pro forma equivalent (2)(3) - 0.21 0.20 0.20
Book Value:
ICBI historical(1) $ 21.30 $ 20.94 $ 19.72 $ 17.52
TTC historical 4.15 4.82 6.21 7.37
Pro forma combined 22.11 21.94 20.33 18.16
TTC pro forma equivalent (2) 5.53 5.49 5.08 4.54
</TABLE>
(1) All information for ICBI has been adjusted to reflect a 100% stock
dividend paid in February 1994.
(2) TTC pro forma equivalent amounts represent pro forma combined
information multiplied by the maximum Initial Merger Consideration of
0.25 shares of ICBI Common Stock for each share of TTC Common Stock.
(3) Pro forma combined dividends per share represent historical dividends
per share paid by ICBI. See "The Reorganization - ICBI and TTC Market
Prices and Dividends" for additional information.
(4) TTC commenced business on January 12, 1994.
(5) The per share loss of ($.67) for the three months ended March 31, 1997
includes all costs related to the Reorganization. The per share loss
exclusive of these items was ($.03).
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<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables set forth certain selected historical financial
information for ICBI and TTC and certain consolidated pro forma financial
information giving effect to the Reorganization using the purchase method of
accounting. See "The Reorganization - Accounting Treatment." The selected
historical financial information is based on, derived from and should be read in
conjunction with the historical consolidated financial statements of ICBI and
the historical financial statements of TTC and the respective notes thereto
included elsewhere in this Proxy Statement/Prospectus. See "Available
Information." All of the following selected financial information should be read
in conjunction with the unaudited pro forma consolidated financial information,
including the notes thereto, appearing elsewhere in this Proxy
Statement/Prospectus. See "Pro Forma Financial Information." The pro forma
financial information is not necessarily indicative of the results that actually
would have occurred had the Reorganization been consummated on the dates
indicated or that may be obtained in the future.
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<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
Selected Historical Financial Information
<TABLE>
<CAPTION>
Three Months
Ended March 31, Years Ended December 31,
---------------------- ------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(In thousands, except ratios and per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income $2,958 $2,563 $11,111 $9,855 $8,931 $8,285 $9,546
Interest expense 1,227 1136 4,647 4,096 3,198 3,151 4,183
---------- ---------- ----------- ----------- ---------- ----------- -----------
Net interest income 1,731 1,427 6,464 5,759 5,733 5,134 5,363
Provision for loan losses 55 - 65 55 0 228 163
---------- ---------- ----------- ----------- ---------- ----------- -----------
Net interest income after
provision for loan losses 1,676 1,427 6,399 5,704 5,733 4,906 5,200
Noninterest income 228 179 721 817 650 569 511
Securities gains 3 14 21 (123) (125) 111 5
Noninterest expense 1,077 1,050 4,383 4,067 3,672 3,228 2,869
---------- ---------- ----------- ----------- ---------- ----------- -----------
Income before income taxes 830 570 2,758 2,331 2,586 2,358 2,847
Income taxes 223 139 728 625 748 609 827
---------- ---------- ----------- ----------- ---------- ----------- -----------
Net income $607 $431 $2,030 $1,706 $1,838 $1,749 $2,020
========== ========== =========== =========== ========== =========== ===========
Per Share Data (1):
Net Income $0.71 $0.50 $2.36 $1.92 $2.06 $1.95 $2.25
Cash Dividends - 0.18 0.84 0.80 0.80 0.80 0.80
Book value at period end 21.30 19.68 20.94 19.72 17.52 17.98 16.91
Balance Sheet Data:
Assets $166,142 $141,817 $162,966 $142,013 $134,045 $120,662 $121,714
Loans, net of unearned income 93,627 81,468 93,711 80,048 78,767 70,339 66,203
Securities 52,058 47,422 52,402 48,291 41,411 35,160 30,011
Deposits 142,028 120,965 138,790 121,522 118,084 104,097 106,171
Shareholders' equity 17,848 16,929 18,008 16,953 15,660 16,106 15,149
Average shares outstanding (1) 855 860 860 889 892 896 896
Performance Ratios:
Return on Average Assets (3) 1.49% 1.22% 1.35% 1.26% 1.45% 1.46% 1.71%
Return on Average Equity (3) 13.36% 10.17% 11.83% 9.72% 11.03% 11.23% 13.73%
Capital to Assets 11.15% 11.94% 11.63% 12.41% 12.26% 12.93% 11.97%
Dividend payout - 35.94% 35.57% 41.44% 38.90% 40.99% 35.50%
Efficiency (2) 52.20% 62.00% 59.5% 59.0% 55.0% 53.8% 47.0%
Capital and Liquidity Ratios:
Risk-based capital ratios:
Tier 1 capital 18.9% 21.1% 19.3% 20.9% 18.9% 23.1% 23.6%
Total capital 19.8% 22.2% 20.2% 21.9% 20.0% 24.4% 24.9%
Leverage 11.3% 12.4% 12.4% 12.9% 11.8% 13.6% 13.0%
</TABLE>
(1) Restated giving retroactive effect to 100% stock dividend declared in 1994.
(2) Computed by dividing noninterest expense by the sum of net interest income
on a tax equivalent basis and noninterest income, net of securities gains
or losses.
(3) Annualized for three months ended March 31, 1997 and 1996.
-16-
<PAGE>
THE TREDEGAR TRUST COMPANY
Selected Historical Financial Information (1)
<TABLE>
<CAPTION>
Three months
Ended March 31, Years Ended December 31,
------------------------------------------------------------------
1997 1996 1995 1994
---- ---- ---- ----
(In thousands, except ratios and per share amounts)
<S> <C> <C> <C> <C>
Income Statement Data:
Interest income $14 $69 $68 $55
Interest expense - - - -
------------------- ------------- ------------- -------------
Net interest income 14 69 68 55
Provision for loan losses 0 - - -
------------------- ------------- ------------- -------------
Net interest income after
provision for loan losses 14 69 68 55
Noninterest income 184 562 314 69
Securities gains - - - -
Noninterest expense 383 1,017 939 730
------------------- ------------- ------------- -------------
Loss before income taxes (185) (386) (557) (606)
Income taxes - - - -
------------------- ------------- ------------- -------------
Net loss ($185) ($386) ($557) ($606)
=================== ============= ============= =============
Per Share Data:
Net Loss ($0.67) ($1.40) ($2.28) ($3.38)
Cash Dividends - - - -
Book value at period end 4.15 4.82 6.21 7.37
Balance Sheet Data:
Assets $1,154 $1,362 $1,726 $1,732
Loans, net - - - -
Securities 879 1,067 1,330 1,358
Deposits 0 - - -
Long Term Debt - - 2 4
Shareholders' equity 1,147 1,332 1,719 1,699
Average shares outstanding 277 277 244 179
Performance Ratios:
Return on Average Assets -14.70% -25.91% -36.47% -33.51%
Return on Average Equity -14.76% -26.13% -36.64% -33.72%
Dividend payout - - - -
Efficiency (2) 198.48% 161.2% 245.8% 588.7%
Capital and Liquidity Ratios:
Risk-based capital ratios:
Tier 1 capital n/a n/a n/a
Total capital n/a n/a n/a
Leverage n/a n/a n/a
</TABLE>
(1) TTC began operations on January 12, 1994.
(2) Computed by dividing noninterest expense by the sum of net interest income
on a tax equivalent basis and noninterest income, net of securities gains or
losses.
-17-
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
AND THE TREDEGAR TRUST COMPANY
Selected Pro Forma Combined Financial Information
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
------------------------------------- -----------------
1997 1996 1996
---- ---- ----
(In thousands, except ratios and per share amounts)
<S> <C> <C> <C>
Income Statement Data:
Interest income $2,972 $2,581 $11,180
Interest expense 1,227 1,136 4,647
------------------ ----------------- ------------------
Net interest income 1,745 1,445 6,533
Provision for loan losses 55 - 65
------------------ ----------------- ------------------
Net interest income after
provision for loan losses 1,690 1,445 6,468
Noninterest income 384 296 1,236
Securities gains 3 14 20
Noninterest expense 1,449 1,291 5,422
------------------ ----------------- ------------------
Income before income taxes 628 464 2,302
Income taxes 223 140 728
------------------ ----------------- ------------------
Net income $405 $324 $1,574
================== ================= ==================
Per Share Data :
Net Income $0.44 $0.35 $1.69
Cash Dividends - 0.18 0.84
Book value at period end 22.11 21.10 21.94
Balance Sheet Data:
Assets $168,338 $144,509 $165,352
Loans, net 93,627 81,468 93,711
Securities 52,937 48,750 53,469
Deposits 142,029 120,965 138,790
Shareholders' equity 20,036 19,599 20,364
Average shares outstanding 924 929 929
Performance Ratios:
Return on Average Assets (2) 0.99% 0.95% 1.04%
Return on Average Equity (2) 8.34% 7.33% 8.37%
Capital to Assets 11.90% 13.56% 12.32%
Dividend payout - 51.61% 49.58%
Efficiency (1) 58.72% 69.90% 66.7%
Capital and Liquidity Ratios:
Risk-based capital ratios:
Tier 1 capital 19.35% 22.30% 20.6%
Total capital 20.28% 23.39% 21.5%
Leverage 12.12% 13.60% 12.5%
</TABLE>
(1) Computed by dividing noninterest expense by the sum of net interest
income on a tax equivalent basis and noninterest income, net of
securities gains or losses.
(2) Annualized for the three months ended 1997 and 1996.
-18-
<PAGE>
THE SHAREHOLDER MEETING
Date, Place and Time. The TTC Meeting will be held at the offices of
TTC, 901 East Byrd Street, Richmond, Virginia on July __, 1997 at 9:30 a.m.
Record Date. The Board of Directors of TTC has fixed the close of
business on May __, 1997 as the record date (the "TTC Record Date") for the
determination of the holders of TTC Common Stock entitled to receive notice of
and to vote at the TTC Meeting. At the close of business on the TTC Record Date,
there were 276,600 shares of TTC Common Stock outstanding held by 72
shareholders of record.
Vote Required. Each share of TTC Common Stock outstanding on the TTC
Record Date entitles the holder to cast one vote upon each matter properly
submitted at the TTC Meeting. The affirmative vote of the holders of a majority
of the shares of TTC Common Stock outstanding, as of the TTC Record Date, in
person or by proxy, is required to approve the Reorganization Agreement. In the
election of directors, those receiving the greatest number of votes will be
elected even if they do not receive a majority. Abstentions and broker non-votes
will not be considered a vote for, or a vote against, a director.
As of the TTC Record Date, directors and executive officers of TTC and
their affiliates, persons and entities as a group, owned of record and
beneficially a total of 54,500 shares of TTC Common Stock, or approximately
19.7% of the shares of TTC Common Stock outstanding on such date. The Directors
and the executive officer of TTC have indicated an intention to vote their
shares of TTC Common Stock FOR the Reorganization and FOR the election of the
nominees set forth on the enclosed proxy. In addition to these votes, Preston S.
Smith and A.G. Goodykoontz, former officers of TTC, have agreed to vote their
shares for the Reorganization. They owned of record and beneficially a total of
8,300 shares of TTC Common Stock, or 3.0% of the shares of TTC Common Stock
outstanding. Together, these individuals collectively owned of record and
beneficially a total of 60,000 shares or 21.7% of the shares of TTC Common Stock
outstanding on the Record Date.
A failure to vote, either by not returning the enclosed proxy or by
checking the "abstain" box thereon, will have the same effect as a vote against
approval of the Reorganization Agreement.
A shareholder may abstain or (only with respect to the election of TTC
directors) withhold his vote (collectively, "abstentions") with respect to each
item submitted for shareholder approval. Abstentions will be counted for
purposes of determining the existence of a quorum. Abstentions will be counted
as not voting in favor of the relevant item. Since the election of TTC directors
is determined by a plurality vote, abstentions will not affect such election.
Since approval of the Reorganization Agreement requires an affirmative vote of a
specified number of shares outstanding, abstentions will have the effect of a
negative vote with respect thereto.
Brokers who hold shares in street name have the authority to vote on
certain items if they have not received instructions from the beneficial owners.
Except for certain items for which brokers are prohibited from exercising their
discretion, a broker is entitled to vote on matters put to shareholders without
instructions from the beneficial owner. Where brokers do not have or do not
exercise such discretion, the inability or failure to vote is referred to as a
broker non-vote. Under the circumstances where the broker is not permitted to or
does not exercise its discretion, assuming proper disclosure to TTC of such
inability to vote, broker non-votes will be counted for purposes of determining
the existence of a quorum, but also will be counted as not voting in favor of
the particular matter. Because the TTC election of directors is determined by a
plurality vote, broker non-votes, if any, will not have any effect on the
outcome of any
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matter submitted for shareholder approval. Because the approval of the
Reorganization Agreement requires an affirmative vote of a specified number of
shares outstanding, broker non-votes, if any, and abstentions will have the
effect of a negative vote with respect thereto.
Voting and Revocation of Proxies. Shareholders of TTC are requested to
complete, date and sign the accompanying form of proxy and return it promptly to
TTC in the enclosed envelope. If a proxy is properly executed and returned in
time for voting, it will be voted as indicated thereon. If no voting
instructions are given, proxies received by TTC will be voted for approval of
the Reorganization Agreement and for approval of the directors slated for
election on the proxy. With respect to the election of directors, each
shareholder entitled to vote at the TTC Meeting has one vote per share owned at
the TTC Record Date. TTC shareholders have no cumulative voting rights. The
directors will be elected by plurality of the votes cast assuming that at least
a majority of the total number of outstanding shares of TTC Common Stock is
present in person or by proxy at the TTC Meeting to constitute a quorum.
A proxy may be revoked at any time before it is voted by giving written
notice of revocation to TTC by executing and delivering a substitute proxy to
TTC or by attending the TTC Meeting and voting in person. If a TTC shareholder
desires to revoke a proxy by written notice, such notice should be mailed or
delivered on or prior to the meeting date to Delman H. Eure, Secretary, The
Tredegar Trust Company, 901 East Byrd Street, Richmond, Virginia 23219. If a
proxy is signed and returned without indicating any voting instructions, shares
of TTC Common Stock represented by the proxy will be voted FOR the
Reorganization Agreement and FOR those nominated by the Board of Directors.
If a sufficient number of signed proxies enabling the persons named as
proxies to vote in favor of the Reorganization are not received by TTC by the
time scheduled for the TTC Meeting, the persons named as proxies may propose one
or more adjournments of the meeting to permit continued solicitation of proxies
with respect to such approval. If an adjournment is proposed, the persons named
as proxies will vote in favor of such adjournment those proxies which are
entitled to be voted in favor of the Reorganization Agreement and against such
adjournment those proxies containing instructions to vote against approval of
the Reorganization Agreement, unless the shareholder clearly writes on the face
of that proxy specific instructions stating how that proxy should be voted in
the case of an adjournment proposed prior to a vote on the Reorganization.
Adjournment of the TTC Meeting will be proposed only if the Board of Directors
of TTC believes that additional time to solicit proxies might permit the receipt
of sufficient votes to approve the Reorganization Agreement, or at the request
of ICBI. It is anticipated that any such adjournment would be for a relatively
short period of time, but in no event for more than 120 days. Any shareholder
may revoke such shareholder's proxy during any period of adjournment in the
manner described above.
Solicitation of Proxies. TTC will bear the cost of the solicitation of
proxies. Solicitations may be made by mail, facsimile, telephone, telegraph or
personally by directors, officers and employees at TTC, none of whom will
receive additional compensation for performing such services. TTC shall pay all
of the expenses of printing and mailing the Proxy Statement/Prospectus.
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THE REORGANIZATION
The following is a summary description of the material terms of the
Reorganization Agreement, and is qualified in its entirety by reference to the
Reorganization Agreement which is attached as Appendix A hereto. All holders of
TTC Common Stock are urged to read the Reorganization Agreement in its entirety.
Background and Reasons for the Reorganization
In early December 1996, ICBI informed TTC of ICBI's interest in
acquiring TTC. TTC convened a meeting of its Long Range Planning Committee and
Chief Executive Officer on December 12, 1996 to meet with ICBI representatives.
At the meeting, Joseph L. Boling, President and Chief Executive Officer of ICBI
and The Middleburg Bank, presented the Committee with an unsolicited proposal
which the Committee decided to present to TTC's full Board of Directors later
that same day.
Following a discussion of the proposal, the Board appointed a Special
Committee to explore and make various recommendations to the full Board with
respect to an acquisition of, or business combination involving, TTC or TTC's
remaining independent, and authorized the Special Committee to retain the
necessary professionals required to help the Special Committee carry out its
responsibilities. The members of the Special Committee were James W. Harkness,
Jr. (Chairman), formerly a director of TTC, and Messrs. Siegel and Wheat.
The Special Committee met on December 13, 1996. At the meeting,
representatives of Scott & Stringfellow, Inc. ("Scott & Stringfellow"),
financial advisor to TTC, were invited to provide the Committee with a
preliminary assessment of the ICBI proposal. Scott & Stringfellow was selected
by the TTC Board of Directors based upon its expertise and reputation in
providing valuation, merger and acquisition, and advisory services to financial
institutions. See "Financial Advisor's Opinion." The Special Committee directed
Scott & Stringfellow not only to evaluate the ICBI proposal, but also to
identify and contact other potential buyers. The Special Committee wanted to let
the market determine the fair market value of TTC through a modified auction
process. The Special Committee placed no instructions or limits on Scott &
Stringfellow with respect to the investigation to be made or the procedures to
be followed in pursuing potential buyers. There are no material relationships
between Scott & Stringfellow and TTC, ICBI, or such outside parties.
On December 19, 1996, the Board met to receive a report from the
Special Committee, including a report about the efforts by Scott & Stringfellow
to determine the interest of others in a transaction with TTC. In addition to
exploring options involving third parties, the Board also considered the merits
of remaining independent, based on analyses submitted by certain officers of
TTC.
During the last three weeks of December 1996, Scott & Stringfellow
identified and contacted ten potential buyers. These potentials buyers included
regional banks with material trust operations, another local independent trust
company, a regional broker-dealer with a large money management and trust
subsidiary, and several national trust companies. Scott & Stringfellow provided
each of these parties with a preliminary due diligence package that described
TTC's business, financial condition, and results of operations since its
inception, as well as material contracts and resumes of key personnel.
Only one of the contacted parties expressed interest in acquiring TTC,
for an amount, either in cash or in that party's stock, less than that offered
by ICBI. This offer would have given TTC shareholders an interest in a company
with very small capitalization, few shareholders and no liquid market
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for its stock. On January 3, 1997, the Special Committee met again to review the
status of various contacts made by Scott & Stringfellow on behalf of TTC.
In mid-January, the Special Committee and the Board of Directors met
again to review various options available to TTC, and set a deadline of January
21, 1997 for receipt of all final proposals. The Board also received Scott &
Stringfellow's report concerning other possible merger or acquisition prospects
and two proposals for reorganizing the Company and remaining independent. After
considering the options, the Board authorized Scott & Stringfellow to contact
ICBI and determine if it would raise its bid to $7.00 per share plus a potential
$1.00 per share in Contingent Merger Consideration. Although ICBI initially
stated the amount of consideration to be paid, extensive negotiations resulted
in the final transaction amounts. Scott & Stringfellow expressed the opinion
that the ICBI offer of $7.00 of ICBI stock up-front with the potential for
approximately an additional $1.00 in Contingent Merger Consideration, to be paid
one-half in stock and one-half in cash, was more favorable to shareholders than
the other proposed offer.
On January 23, 1997, the Board of Directors met to consider the final
ICBI proposal. After an extensive review of the alternatives, including
consideration of remaining independent or a sale to or affiliation with another
party, the Board approved the ICBI proposal.
In deciding to enter into the Reorganization Agreement, the TTC Board
of Directors considered a number of factors. While the Board did not assign any
relative or specific weights to the factors considered, several principal
factors led to the approval of the proposal of ICBI by the TTC Board. First, the
business relationship between TTC and ICBI's subsidiary, The Middleburg Bank,
had demonstrated the compatibility of the management of ICBI and TTC and their
similar cultures and shared philosophies. Both companies emphasize direct
customer contact and personal service. The Reorganization also would not require
any systems or operational conversions, as ICBI is currently using TTC's system
for the management of its trust assets, and would provide operational benefits
of a combination, including the management and economic resources available to
TTC from ICBI. In addition, the Reorganization would add a presence for TTC in
Loudoun County and, considering the area's relative affluence and the profile of
ICBI's customer base, would enhance TTC's prospects for continued growth.
Following consummation of the Reorganization, TTC, as a subsidiary of ICBI,
would also retain a certain amount of autonomy. After the Reorganization, TTC
would operate under the same name as before the Reorganization and would retain
its management and Board of Directors, with headquarters in Richmond, Virginia.
Other material factors considered were the belief of TTC's financial
advisor, Scott & Stringfellow, Inc., that the ICBI proposal presented TTC
shareholders with a reasonable opportunity for appreciation, compared to their
investment in TTC; the ability of TTC to compete more effectively for larger
trust accounts and estates with ICBI's larger capital base; the Merger
Consideration offered for TTC Common Stock; the agreement by ICBI to list its
stock on the Nasdaq SmallCap Market or OTC Bulletin Board and the resulting
increased marketability of ICBI Common Stock; the historical dividend paid on
ICBI Common Stock; the financial condition and history of performance of ICBI;
and diversification of risk associated with ownership of an institution with a
broader geographic market area; and the well capitalized position and historical
earnings of ICBI.
The TTC Board has concluded that the terms of the Reorganization
Agreement, which were determined on the basis of arms-length negotiations, are
fair to TTC shareholders. As explained below, this conclusion is supported by
the opinion of an independent financial advisor. In determining that the Merger
Consideration and the exchange ratio of .25 were fair to TTC, the Board of TTC
and its financial advisor considered the estimated value per share of ICBI
Common Stock at the close of business on January 23, 1997 ($28.00) and the
dollar value of the Initial Merger Consolidation which would have been
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received by TTC shareholders on that day ($7.00 per share); information
concerning the financial condition, results of operations and prospects of TTC
and ICBI; and, the tax-free nature of the Reorganization to the shareholders of
TTC to the extent they receive ICBI Common Stock in exchange for their shares of
TTC Common Stock. In establishing the Merger Consideration, the representatives
of TTC also considered the Merger Consideration in relation to the market value
and earnings per share of TTC Common Stock and ICBI Common Stock, and
information concerning the financial condition, results of operations and the
prospects of TTC and ICBI.
For example, the Board gave considerable weight to the belief that the
price of ICBI Common Stock is low as compared to the other community banks in
Virginia with assets under $2.5 billion. The Board also noted the impressive
historical growth of capital by ICBI. The Board felt that such growth was likely
to continue and offered the potential for increased value for the TTC
shareholders. The Board noted that ICBI's book value is approximately $21.00 per
share.
The Board also reviewed market valuations for similar institutions. The
Board believed that, if ICBI's net capital (after dividends) grows by 10% over
each of the next four years, then the book value would grow to $30.66 per share.
If at that time ICBI Common Stock traded at its current valuation multiple of
1.3 times book value (a number that is low compared to ICBI's peer group and the
industry average), it would trade at $40.00 per share (equivalent to $10.00 per
share of TTC Common Stock). If at that time ICBI Common Stock traded at the
industry comparable average of 1.7 times book value, then it would trade at
$52.00 per share (equivalent to $13.00 per share of TTC Common Stock). In
addition, the Board realized the potential impact of the Contingent Merger
Consideration. The potential earn out represented by the Contingent Merger
Consideration may add approximately $1.00 per share to the purchase price of
$7.00 per share.
The historical market price for TTC share has been set by two different
private offerings. The price determined for the first offering was $10.00 per
share, and the price determined for the second offering was $12.50 per share.
While the Board of Directors recognized that the ICBI offer is below such
offering prices, the Board believes that the transaction offers many benefits
for TTC shareholders that make up for the difference in ICBI's offering price
and the most recent price stated for shares offered by TTC. These reasons
include: (1) the valuation of ICBI Common Stock relative to its peer group, (2)
the economies of scale and scope of resources generated by the combined entity,
(3) the liquidity provided by the Nasdaq SmallCap Market or the OTC Bulletin
Board, (4) the ICBI stock dividend, (5) the quality of ICBI management, (6) the
excellent working relationship that management and staff of both companies have
enjoyed during the past two years, (7) the reputation of The Middleburg Bank,
(8) the historical performance of The Middleburg Bank, and (9) the
recommendation of Scott & Stringfellow. Based upon these and other factors,
TTC's Board of Directors believes that the exchange ratio is fair and
potentially affords TTC shareholders substantially greater appreciation than
that of TTC's remaining independent or accepting the other offer. TTC
shareholders should note that because ICBI will not take any steps to have ICBI
Common Stock quoted on the Nasdaq SmallCap Market or the OTC Bulletin Board
until after the Effective Date, the enhanced liquidity that might result
therefrom is an uncertain benefit of the Reorganziation. See also "Financial
Advisor's Opinion."
Pursuant to the Reorganization Agreement, the directors, officers and
employees of TTC will not change as a result of the Reorganization, except that
ICBI is expected to designate Joseph L. Boling, the President and Chief
Executive Officer of ICBI, to serve as Chairman of TTC's Board of Directors from
and after the Effective Date. The Reorganization Agreement notwithstanding, ICBI
will have the power after the Effective Date to elect the entire Board of
Directors of TTC.
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The Board of Directors of TTC believes that the Reorganization is in
the best interests of TTC and its shareholders. The TTC directors have all
committed to vote shares under their control in favor of the Reorganization to
the extent of their fiduciary ability. The TTC Board of Directors recommends
that TTC shareholders vote FOR the approval of the Reorganization Agreement. All
TTC directors voted for the Reorganization Agreement with the exception of one,
who abstained.
Terms of the Reorganization
The Reorganization Agreement provides for the conversion of each
outstanding share of TTC Common Stock into the Merger Consideration. The Merger
Consideration consists of the Initial Merger Consideration, which will be paid
as promptly as practicable after the consummation of the Reorganization and the
Contingent Merger Consideration, which, if payable, will be paid approximately
three years after the consummation of the Reorganization. The Initial Merger
Consideration will consist of a maximum of 0.25 shares of ICBI Common Stock for
each share of TTC Common Stock. The Contingent Merger Consideration will consist
of additional shares of ICBI Common Stock for each share of TTC Common Stock.
See "Summary - Glossary of Terms."
Shareholders of TTC are entitled to exercise their dissenters' rights
with respect to the Reorganization. See "The Reorganization - Rights of
Dissenting Shareholders."
Transfer of Trust Business of The Middleburg Bank
The Reorganization Agreement provides that, as soon as practicable
after the Effective Date, ICBI shall cause the trust business of The Middleburg
Bank to be transferred to TTC. It is anticipated that such transfer will occur
within sixty days of the Effective Date. The Reorganization Agreement, however,
provides that for purposes of computing the Required Net Earnings of TTC, the
revenue and expense of TTC shall be deemed to include the revenue and expense of
the trust department of The Middleburg Bank from and after the Effective Date.
Lock-Up Option
In addition to the Reorganization Agreement, ICBI and TTC each entered
into an agreement on February 5, 1997 providing for ICBI to have an option to
purchase TTC Common Stock under certain conditions (the "Lock-Up Option").
Specifically, the Lock-Up Option provides that ICBI shall have an option to
purchase 68,800 shares of TTC Common Stock at a price no greater than $7.00 per
share. The TTC Board agreed to this $7.00 price because it is consistent with
the value of the ICBI Common Stock to be offered to TTC shareholders in the
Reorganization. Both the number of options available and the price will be
proportionately adjusted automatically in the event TTC increases (or decreases)
the number of shares of TTC Common Stock outstanding. The option is exercisable
only under limited circumstances.
The Lock-Up Option provides that ICBI has an option to purchase stock
in TTC only upon the occurrence of the following events: (i) TTC authorizes,
recommends or publicly proposes (or publicly announces an intention to
authorize, recommend or propose) or enters into an agreement with a third person
to engage in a merger, consolidation, sale of substantially all the assets of
TTC, or sale of securities representing more than 9.9% of the voting power of
TTC or (ii) a third person acquires 9.9% or more of the outstanding TTC Common
Stock.
The exercise price represents the estimate of fair value per share of
TTC Common Stock at the time the Lock-Up Option was executed.
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Effective Date
If the Reorganization Agreement is approved by the requisite vote of
the shareholders of TTC and ICBI and by the Federal Reserve and the SCC (see
"The Reorganization - Regulatory Approvals") and other conditions to the
Reorganization are satisfied (or waived to the extent permitted by the
Reorganization Agreement and applicable law), the Reorganization will be
consummated and effected at the time a Certificate of Merger is issued by the
SCC pursuant to the Virginia SCA. See "The Reorganization - Representations and
Warranties; Conditions to the Reorganization."
It is anticipated that the Effective Date will be on or about July __,
1997, but there can be no assurance as to whether or when the Reorganization
will occur.
Post-Closing Audit
The Initial Merger Consideration will be 0.25 shares of ICBI Common
Stock for each share of TTC Common Stock unless TTC Operating Losses exceed
$30,000. Under the Agreement, if ICBI and F. E. Deacon, III (representing the
TTC shareholders) do not agree on the size of any TTC Operating Losses, an audit
of TTC from January 1, 1997 through the Effective Date will be performed by
Yount, Hyde & Barbour, P.C., the independent certified public accountants for
ICBI. If either party objects to the post-closing audit, the dispute will be
resolved by arbitration. A similar process (with Mr. Deacon acting as the
representative of the TTC shareholders) will be employed if the parties do not
agree on whether or not the Contingent Merger Consideration is payable. For the
three months ended March 31, 1997, the TTC Operating Losses were $8,729.
Distribution of Stock Certificates and Payment for Fractional Shares
If no post-closing audit is necessary, as soon as practicable after the
Effective Date, The Middleburg Bank, as the exchange agent, will mail to each
TTC shareholder (other than dissenting shareholders) a letter of transmittal and
instructions for use in order to surrender the certificates which immediately
prior to the Effective Date represented the shares of TTC Common Stock in
exchange for certificates for shares of ICBI Common Stock representing the
Initial Merger Consideration. Cash (without interest) will be paid to TTC
shareholders in lieu of the issuance of any fractional shares in an amount equal
to the fraction of a share of ICBI Common Stock to which such shareholder would
otherwise be multiplied by $28.00.
If a post-closing audit is necessary, the exchange of shares of TTC
Common Stock for the Initial Merger Consideration will be delayed. Such a delay
would likely be for at least 90 days and, if the parties resort to arbitration,
significantly longer.
TTC SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE SUCH INSTRUCTIONS.
Promptly after surrender of one or more certificates for TTC Common
Stock, together with a properly completed letter of transmittal, the holder of
such certificates will receive a certificate or certificates representing the
number of shares of ICBI Common Stock to which he or she is entitled and, where
applicable, a check for the amount payable in cash in lieu of issuing a
fractional share. Lost, stolen, mutilated or destroyed certificates will be
treated in accordance with the existing procedures of ICBI.
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The shares of ICBI Common Stock representing the Initial Merger
Consideration will be deemed issued as of the Effective Date. After the
Effective Date, TTC shareholders will be entitled to vote the number of shares
of ICBI Common Stock constituting the Initial Merger Consideration for which
their TTC Common Stock has been exchanged, regardless of whether they have
surrendered their TTC certificates. The Reorganization Agreement provides,
however, that no dividend or distribution payable to the holders of record of
ICBI Common Stock at or as of any time after the Effective Date will be paid to
the holder of any TTC certificate until such holder physically surrenders such
certificate, promptly after which time all such dividends or distributions will
be paid (without interest). With respect to the dividend for the three months
ending June 30, 1997, ICBI will not declare or establish a record date for such
dividend prior to July 9, 1997.
Three years after the Effective Date, TTC's net earnings for such three
year period will be calculated and if such earnings exceed the Required Net
Earnings, each person who was a holder of TTC Common Stock at the Effective Date
will receive a ratable share of the Contingent Merger Consideration. After the
Effective Date, TTC will operate as a subsidiary of ICBI and separate financial
records of TTC will be maintained. Financial statements of TTC after the
Effective Date will be audited by ICBI's independent certified public
accountants. The initial determination of whether or not the Contingent Merger
Consideration is due will be made by ICBI, together with F. E. Deacon, III, who
will act as the representative of the TTC shareholders. If ICBI and Mr. Deacon
do not agree, the dispute will be resolved by arbitration.
Shares of ICBI Common Stock representing the Contingent Merger
Consideration will not be considered issued or outstanding for any purpose until
such shares are issued. In addition, the right to receive the Contingent Merger
Consideration will not be represented by any form of certificate or instrument,
will not have voting or dividend rights, will not be assignable or transferable,
except by operation of law, and will not have a separate trading market.
Representations and Warranties; Conditions to the Reorganization
The Reorganization Agreement contains representations and warranties by
ICBI and TTC regarding, among other things, their respective organizations,
authorizations to enter into the Reorganization Agreement, capitalization,
financial statements and pending and threatened litigation. These
representations and warranties (except as otherwise provided in the
Reorganization Agreement) will not survive the Effective Date.
The obligations of ICBI and TTC to consummate the Reorganization are
subject to the following conditions, among others: approval and adoption of the
Reorganization Agreement by the requisite TTC shareholder votes; receipt of all
regulatory approvals necessary to consummate the Reorganization, not conditioned
or restricted in a manner that, in the judgment of the Boards of Directors of
ICBI and TTC, materially adversely affects the economic or business benefits of
the Reorganization so as to render inadvisable consummation thereof; the absence
of certain actual or threatened proceedings before a court or other governmental
body relating to the Reorganization; receipt of a current fairness opinion from
the financial advisor for TTC; and the receipt of an opinion of counsel as to
certain Federal income tax consequences of the Reorganization. TTC has advised
ICBI that the tax opinion attached hereto as Appendix F is satisfactory to TTC.
Also, under the terms of the Reorganization Agreement, ICBI agreed that,
following the Effective Date, it will indemnify those persons associated with
TTC and its subsidiaries who are entitled to indemnification as of the Effective
Date of the Reorganization. It is a condition of ICBI's obligation to consummate
the Reorganization that the sum of TTC's Transaction Costs, severance
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benefits payable to TTC officers and TTC's Operating Losses after December 31,
1996 not exceed $200,000 without the consent of ICBI. As of April 30, 1997, the
sum of such items was $184,772.
In addition, each party's obligation to effect the Reorganization,
unless waived, is subject to performance by the other party of its obligations
under the Reorganization Agreement, the accuracy, in all material respects, of
the representations and warranties of the other party contained therein, and the
receipt of certain opinions and certificates from the other party.
Regulatory Approvals
ICBI's acquisition of TTC pursuant to the Reorganization is subject to
approval by the Federal Reserve under the BHC Act, which requires that the
Federal Reserve take into consideration the financial and managerial resources
of ICBI, the future prospects of the existing and proposed institutions and the
effect of the transaction on competition. The BHC Act prohibits the Federal
Reserve from approving the Reorganization if it would result in a monopoly or if
it would be in furtherance of any combination or conspiracy to monopolize or to
attempt to monopolize the business of banking in any part of the United States,
or if its effect may be substantially to lessen competition or to tend to create
a monopoly, or if it would be in any other manner a restraint of trade, unless
the Federal Reserve finds that the anti-competitive effects of the
Reorganization are clearly outweighed in the public interest by the probable
effect of the transaction in meeting the convenience and needs of the
communities to be served.
The BHC Act provides for the publication of notice and the opportunity
for administrative hearings relating to the applications, and it authorizes the
regulatory agency to permit interested parties to intervene in the proceedings.
If an interested party is permitted to intervene, such intervention could
substantially delay the regulatory approvals required for consummation of the
Reorganization.
The Reorganization is further subject to the approval of the SCC. To
obtain such approval, the SCC must conclude that after the Reorganization, TTC
will be operated efficiently and fairly, in the public interest and in
accordance with law.
Applications for approval of the Reorganization have been filed with
the Federal Reserve and the SCC. None of the agencies has yet approved the
applications. ICBI and TTC are not aware of any other governmental approvals or
actions that are required for consummation of the Reorganization, except as
described above. Should any such approval or action be required, it is currently
contemplated that such approval or action would be sought. There can be no
assurance that any such approval or action, if needed, could be obtained.
Business Pending the Reorganization
Until consummation of the Reorganization (or termination of the
Reorganization Agreement), TTC is obligated to operate its businesses only in
the ordinary and usual course, consistent with past practice, and to use its
best efforts to maintain its business organization, employees and business
relationships and to retain the services of its officers and key employees.
Until consummation of the Reorganization (or termination of the Reorganization
Agreement) TTC may not, without the consent of ICBI, among other things: (a)
declare or pay dividends on its capital stock; (b) enter into any merger,
consolidation or business combination (other than the Reorganization) or any
acquisition or disposition of a material amount of assets or securities or
solicit proposals in respect thereof; (c) amend its charter or bylaws (except as
may be required by the Reorganization Agreement); (d) incur any obligation in
excess of $5,000 without the prior consent of ICBI; (e) issue any capital stock;
or (f) purchase or redeem any of its capital stock. No options
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or warrants to purchase TTC Common Stock will be exercised before the Effective
Date and all such options and warrants will be terminated on or prior to the
Effective Date.
Waiver, Amendment and Termination
At any time on or prior to the Effective Date, any term or condition of
the Reorganization may be waived by the party which is entitled to the benefits
thereof, without shareholder approval, to the extent permitted under applicable
law. The Reorganization Agreement may be amended at any time prior to the
Effective Date by agreement of the parties whether before or after the TTC
Meeting (except that the Merger Consideration shall not be changed after
approval of the Reorganization Agreement by TTC shareholders). Any material
change in a material term of the Reorganization Agreement after this Proxy
Statement/Prospectus is mailed to shareholders of TTC would require a
resolicitation of TTC shareholders. Such a material change would include, but
not be limited to, a change in the tax consequences to TTC shareholders.
The Reorganization Agreement may be terminated by ICBI or TTC, whether
before or after the approval of the Reorganization Agreement by the
shareholders: (a) if the other party materially breaches any representation,
warranty or agreement which is not properly cured by such breaching party; (b)
if the Reorganization is not consummated by September 30, 1997; (c) by mutual
consent of the Boards of Directors of ICBI and TTC; or (d) if the Federal
Reserve or the SCC have denied approval of the Reorganization. The
Reorganization Agreement also may be terminated at any time by the mutual
consent of ICBI and TTC. In the event of termination, the Reorganization
Agreement shall become null and void, except that certain provisions thereof
relating to expenses and confidentiality of information exchanged between the
parties shall survive any such termination.
Resales of ICBI Common Stock
All shares of ICBI Common Stock received by TTC shareholders in
connection with the Reorganization will be transferable without restriction,
except that ICBI Common Stock received by persons who are deemed to be
"affiliates" (as such term is defined in Rule 144 under the Securities Act of
1933, as amended (the "1933 Act")) of TTC may be resold by them only in
transactions permitted by the resale provisions of Rule 145 under the 1933 Act.
For purposes of Rule 144 as applied to TTC, the directors of TTC are the only
affiliates who will be subject to the resale limitations.
Interest of Certain Persons in the Reorganization
In considering the recommendations of the Board of Directors of TTC
with respect to the Reorganization, holders of voting stock should be aware that
certain members of TTC's Board of Directors and senior management have certain
interests in the Reorganization that are in addition to the interest of
shareholders of TTC generally. The Board of Directors of TTC was aware of these
interests and considered them, among other factors, in approving the
Reorganization. These interests are as follows:
Employment Agreements. Before executing the Reorganization Agreement,
ICBI required that TTC enter into a three year employment agreement with F. E.
Deacon, III. For additional information regarding the terms of this employment
agreement, see "The Tredegar Trust Company Election of Directors; Management -
Employment Agreement."
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Projected ICBI Common Stock Ownership. The table below sets forth (i)
the projected holdings of ICBI Common Stock by all TTC Directors and executive
officers, both individually and in the aggregate, upon the consummation of the
Reorganization, as a result of their receipt of the Initial Merger Consideration
and (ii) the estimated value of such shares. No director or executive officer of
TTC is projected to receive shares of ICBI Common Stock representing as much as
one percent of the issued and outstanding shares of ICBI Common Stock.
No. of
ICBI Shares Value($)(1)
Heriot Clarkson 1,250 35,000
F. E. Deacon, III 2,625 73,500
Delman H. Eure 625 17,500
Gary D. LeClair 1,250 35,000
Ivor Massey, Jr. 3,000 84,000
John D. Perrin 375 10,500
Richard L. Ramsey 625 17,500
Stuart C. Siegel 1,500 42,000
James C. Wheat, III 2,375 66,500
All present executive officers
and directors as a group
(9 persons) 13,625 381,500
(1) Based on the last known sale of ICBI Common Stock, which was a trade
involving 100 shares at $28.00 per share on June 5, 1997.
Accounting Treatment
The Reorganization will be treated as a purchase for accounting and
financial reporting purposes.
Federal Income Tax Matters
Set forth below is a discussion of federal income tax consequences
under the Internal Revenue Code of 1986, as amended (the "Code") to TTC
shareholders who receive ICBI Common Stock solely in exchange for TTC Common
Stock as a result of the Reorganization and TTC shareholders who receive cash in
lieu of fractional shares or who receive cash for their shares upon exercise of
dissenters' rights. The discussion does not deal with all aspects of federal
taxation that may be relevant to particular TTC shareholders. In view of the
individual nature of tax consequences, TTC shareholders are urged to consult
their own tax advisors as to the specific tax consequences to them of the
Reorganization, including the applicability of federal, state, local and foreign
tax laws.
To meet a condition to consummation of the Reorganization, ICBI and
TTC will receive from Williams, Mullen, Christian & Dobbins, counsel to ICBI,
the Tax Opinion included as Appendix F to this Proxy Statement/Prospectus as to
certain of the federal income tax consequences of the Reorganization (the "Tax
Opinion"). The Tax Opinion is neither binding on the IRS nor precludes it from
adopting a contrary
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position. Neither ICBI nor TTC has requested a ruling from the Internal Revenue
Service ("IRS") in connection with the Reorganization.
Although the Tax Opinion concludes that the Reorganization qualifies as
a reorganization under the Internal Revenue Code of 1986, as amended (the
"Code"), and that TTC shareholders will not recognize gain or loss upon
receiving the Initial Merger Consideration, the Tax Opinion points out that
there is uncertainty about the proper federal income tax treatment of the
Contingent Merger Consideration. The issue is whether or not the Contingent
Merger Consideration should be treated as shares of ICBI Common Stock or,
instead, as separate property, independent of the underlying shares of ICBI
Common Stock, the receipt of which may be taxable.
The Tax Opinion describes both possible tax treatments of the
Contingent Merger Consideration. ICBI does not intend to treat the Contingent
Merger Consideration as a separate property right and would contest any effort
of the Internal Revenue Service to do so.
The Tax Opinion concludes that even if the Contingent Merger
Consideration is properly treated as separate property, the Reorganization
qualifies as a reorganization under the Code and that TTC shareholders will not
recognize gain or loss upon receipt of the Initial Merger Consideration.
The following discussion describes the tax treatment of the
Reorganization, first under the assumption that the Contingent Merger
Consideration is not separate property, and second, describes the treatment of
the Reorganization if the Internal Revenue Service were to assert that the
Contingent Merger Consideration is separate property and were to prevail in such
assertion.
The Tax Opinion provides, among other things, (i) the Reorganization
will constitute a "reorganization" under the Code, (ii) no gain or loss will be
recognized for federal income tax purposes by TTC shareholders as a result of
their receipt of solely ICBI Common Stock as Initial Merger Consideration in
exchange for their shares of TTC Common Stock, (iii) no gain or loss will be
recognized for federal income tax purposes by TTC shareholders as a result of
their receipt of solely ICBI Common Stock as Contingent Merger Consideration
unless the Contingent Merger Consideration is determined to be separate
property, (iv) any TTC shareholder who receives cash in lieu of a fractional
share interest will be treated as receiving a payment in redemption of such
fractional interest, with gain or loss recognized to such shareholder, measured
by the difference between the redemption price and the portion of the
shareholder's basis in TTC Common Stock allocable to such fractional share
interest, (v) the aggregate tax basis of the shares of ICBI Common Stock
received by each TTC shareholder will equal the aggregate tax basis of such
shareholder's shares of TTC Common Stock surrendered therefor in the
Reorganization, (vi) the holding period for shares of ICBI Common Stock received
by each shareholder of TTC will include the holding period for the shares of TTC
Common Stock of such shareholder surrendered therefor in the Reorganization,
provided that the TTC shareholder held such stock as a capital asset on the
Effective Date, (vii) any dissenting shareholder of TTC who receives solely cash
in exchange for shares of TTC Common Stock will be treated as receiving a
distribution in redemption of such stock, and (viii) no gain, other income or
loss will be recognized by ICBI, Acquisition or TTC as a result of the
Reorganization.
If the Internal Revenue Service were to assert that any portion of the
Contingent Merger Consideration is a separate property right and prevail in such
assertion, except as set forth in clause (iv) below, there would be no change in
the tax treatment of the shares of ICBI Common Stock received as Initial Merger
Consideration and (i) gain, if any, will be recognized by the TTC shareholders
upon the receipt of the Contingent Merger Consideration in an amount not in
excess of the value of the ICBI
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Common Stock, or portion thereof, treated as received pursuant to the separate
property right, (ii) if the receipt of the Contingent Merger Consideration has
the effect of the distribution of a dividend, the amount of any gain recognized
that is not in excess of the ratable share of the undistributed earnings and
profits of TTC will be treated as a dividend, (iii) the remainder, if any, of
gain recognized will be treated as a gain from the exchange of property and will
be recognized as capital gain, provided the TTC Common Stock was a capital asset
in the hands of the TTC shareholder on the Effective Date, (iv) the
determination of whether or not the exchange has the effect of a distribution of
a dividend will be made on a shareholder by shareholder basis in accordance with
the principles of Section 302 of the Code, (v) no loss may be recognized on the
receipt of the Contingent Merger Consideration and (vi) the aggregate tax basis
of shares of ICBI Common Stock received as Contingent Merger Consideration will
be equal to the value of such shares when received and the aggregate basis of
shares received by each TTC shareholder as Initial Merger Consideration will be
decreased by the value of any shares of ICBI Common Stock received as Contingent
Merger Consideration and increased by any gain recognized upon receipt of the
Contingent Merger Consideration.
The Tax Opinion states that in situations where contingent rights to
acquire stock, in addition to the stock itself, are issued in connection with a
reorganization, the question arises as to whether the contingent right is a
separate property right independent of the stock itself. In situations where the
contingent right could only give rise to the receipt of additional shares of
stock and there is a valid business reason for granting the contingent right
rather than the stock itself, the courts and Internal Revenue Service have
generally held that the contingent right is not separate property. However, in
order to obtain an advance ruling from the Internal Revenue Service regarding a
reorganization that includes contingent stock, the terms of the contingency must
meet certain guidelines set forth in Revenue Procedure 84-42, 1984-1 C.B. 521.
These guidelines include the requirements that (i) the maximum number of shares
that may be issued must be set forth in the agreement and (ii) at least fifty
percent (50%) of the maximum number of shares that may eventually be issued,
must be issued in the initial distribution. Because there is no maximum number
of shares that may be received by the shareholders of TTC as Contingent Merger
Consideration, two of the requirements set forth in the advance ruling
guidelines are not met. Accordingly, the Service would not issue an advance
ruling that the Reorganization qualifies as a reorganization under Section
368(a) of the Code if such a ruling was requested.
The guidelines contained in Revenue Procedure 84-42 do not purport to
constitute a statement of existing substantive law, but rather are only
conditions to the issuance of an advance ruling. Nevertheless, the advance
ruling guidelines create an uncertainty as to whether or not it is the Internal
Revenue Service's position that there must be a limit on the number of shares
that may be issued to avoid treating the contingent right as separate property.
In light of this uncertainty and because Williams, Mullen, Christian & Dobbins
has not identified any authority, either favorable or unfavorable, that
specifically addresses whether such a limit is necessary, it has not expressed
an opinion on whether or not the Contingent Merger Consideration will be treated
as separate property or as stock. See "The Reorganization - Federal Income Tax
Matters." Due to the individual nature of the tax consequences of the
Reorganization, it is recommended that each TTC shareholder consult his or her
tax advisor concerning the tax consequences of the Reorganization.
Any cash received by shareholders, whether as a result of an exercise
of their dissenters' rights or in lieu of the issuance of fractional shares,
could result in taxable income to the shareholders. The receipt of such cash
generally will be treated as a sale or exchange of the stock resulting in
capital gain or loss measured by the difference between the cash received and an
allocable portion of the basis of the stock relinquished. The receipt of such
cash may be treated as a dividend and taxed as ordinary income in certain
limited situations. In the case of cash payments in lieu of fractional shares,
however, such payments will
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be small in amount and not a material concern to TTC shareholders. Shareholders
should consult their own tax advisors concerning proper treatment of such cash
amounts.
Rights of Dissenting Shareholders
A shareholder of TTC Common Stock who objects to the Reorganization (a
"Dissenting Shareholder") and who complies with provisions of Article 15 of
Title 13.1 of the Virginia SCA ("Article 15") may demand the right to receive a
cash payment, if the Reorganization is consummated, for the fair value of his or
her stock immediately before the Effective Date, exclusive of any appreciation
or depreciation in anticipation of the Reorganization unless such exclusion
would be inequitable. In order to receive payment, a Dissenting Shareholder must
deliver to TTC prior to the TTC Meeting a written notice of intent to demand
payment for his or her shares if the Reorganization is consummated (an "Intent
to Demand Payment") and must not vote his or her shares in favor of the
Reorganization. The Intent to Demand Payment should be addressed to Delman H.
Eure, Secretary, The Tredegar Trust Company, 901 East Byrd Street, Richmond,
Virginia 23219. A VOTE AGAINST THE REORGANIZATION WILL NOT ITSELF CONSTITUTE
SUCH WRITTEN NOTICE AND A FAILURE TO VOTE WILL NOT CONSTITUTE A TIMELY WRITTEN
NOTICE OF INTENT TO DEMAND PAYMENT.
A shareholder of record of TTC Common Stock may assert dissenters'
rights as to fewer than all the shares registered in his or her name only if the
shareholder dissents with respect to all shares beneficially owned by any one
person and notifies TTC in writing of the name and address of each person on
whose behalf he asserts dissenters' rights. The rights of such a partial
dissenter are determined as if the shares to which he dissents and his other
shares were registered in the names of different shareholders. A beneficial
shareholder of TTC Common Stock may assert dissenters' rights as to shares held
on his behalf by a shareholder of record only if (i) he submits to TTC the
record shareholder's written consent to the dissent not later than the time when
the beneficial shareholder asserts dissenters' rights, and (ii) he dissents with
respect to all shares of which he is the beneficial shareholder or over which he
has power to direct the vote.
Within 10 days after the Effective Date, TTC is required to deliver a
notice in writing (a "Dissenter's Notice") to each Dissenting Shareholder who
has filed an Intent to Demand Payment and who has not voted such shares in favor
of the Reorganization. The Dissenter's Notice shall (i) state where the demand
for payment (the "Payment Demand") shall be sent and where and when stock
certificates shall be deposited; (ii) inform holders of uncertificated shares of
the extent to which transfer of the shares will be restricted after the payment
demand is received; (iii) supply a form for demanding payment; (iv) set a date
by which TTC must receive the Payment Demand; and (v) be accompanied by a copy
of Article 15. A Dissenting Shareholder who is sent a Dissenter's Notice must
submit the Payment Demand and deposit his or her stock certificates in
accordance with the terms of, and within the time frames set forth in, the
Dissenter's Notice. As a part of the Payment Demand, the Dissenting Shareholder
must certify whether he or she acquired beneficial ownership of the shares
before or after the date of the first public announcement of the terms of the
proposed Reorganization (the "Announcement Date"), which was February 10, 1997.
TTC will specify the Announcement Date in the Dissenter's Notice.
Except with respect to shares acquired after the Announcement Date, TTC
shall pay a Dissenting Shareholder the amount TTC estimates to be the fair value
of his or her shares, plus accrued interest. Such payment shall be made within
30 days of receipt of the Dissenting Shareholder's Payment Demand. As to shares
acquired after the Announcement Date, TTC is only obligated to estimate the fair
value of the shares, plus accrued interest, and to offer to pay this amount to
the Dissenting Shareholder conditioned upon the Dissenting Shareholder's
agreement to accept it in full satisfaction of his or her claim.
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If a Dissenting Shareholder believes that the amount paid or offered by
TTC is less than the fair value of his or her shares, or that the interest due
is incorrectly calculated, that Dissenting Shareholder may notify TTC of his or
her own estimate of the fair value of his shares and amount of interest due and
demand payment of such estimate (less any amount already received by the
Dissenting Shareholder) (the "Estimate and Demand"). The Dissenting Shareholder
must notify TTC of the Estimate and Demand within 30 days after the date TTC
makes or offers to make payment to the Dissenting Shareholder.
Within 60 days after receiving the Estimate and Demand, TTC must either
commence a proceeding in the appropriate circuit court to determine the fair
value of the Dissenting Shareholder's shares and accrued interest, or TTC must
pay each Dissenting Shareholder whose demand remains unsettled the amount
demanded. If a proceeding is commenced, the court must determine all costs of
the proceeding and must assess those costs against TTC, except that the court
may assess costs against all or some of the Dissenting Shareholders to the
extent the court finds that the Dissenting Shareholders did not act in good
faith in demanding payment of the Dissenting Shareholder's Estimates.
The foregoing discussion is a summary of the material provisions of
Article 15. Shareholders are strongly encouraged to review carefully the full
text of Article 15, which is included as Appendix D to this Proxy
Statement/Prospectus. The provisions of Article 15 are technical and complex,
and a shareholder failing to comply strictly with them may forfeit his
Dissenting Shareholder's rights. Any shareholder who intends to dissent from the
Reorganization should review the text of those provisions carefully and also
should consult with his attorney. No further notice of the events giving rise to
dissenters' rights or any steps associated therewith will be furnished to TTC
shareholders, except as indicated above or otherwise required by law.
Any Dissenting Shareholder who perfects his or her right to be paid the
fair value of his or her shares will recognize gain or loss, if any, for federal
income tax purposes upon the receipt of cash for his or her shares. The amount
of gain or loss and its character as ordinary or capital gain or loss will be
determined in accordance with applicable provisions of the Internal Revenue
Code. See "The Reorganization - Federal Income Tax Matters."
Certain Differences in Rights of Security Holders
ICBI is a corporation subject to the provisions of the Virginia SCA,
and TTC also is a corporation subject to the provisions of the Virginia SCA.
Shareholders of TTC, whose rights are governed by TTC's Articles of
Incorporation and Bylaws, will, upon consummation of the Reorganization, become
shareholders of ICBI. The rights of the former TTC shareholders will then be
governed by the Articles of Incorporation and Bylaws of ICBI and the Virginia
SCA.
There are no material differences between the rights of a TTC
shareholder under TTC's Articles of Incorporation and Bylaws and the Virginia
SCA, on the one hand, and the rights of a ICBI shareholder under the Articles of
Incorporation and Bylaws of ICBI and the Virginia SCA, on the other hand, except
as disclosed in the section "Comparative Rights of Security Holders."
Expenses of the Reorganization
Whether or not the Reorganization is consummated, TTC and ICBI will pay
their own expenses incident to preparing, entering into and carrying out the
Reorganization Agreement, preparing and filing the Registration Statement of
which this Proxy Statement/Prospectus is a part, except under circumstances
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involving willful breaches of certain provisions of the Reorganization
Agreement. In general, the Reorganization Agreement provides for each party to
pay its own expenses in this regard. If, however, either party materially
breaches the Reorganization Agreement, that party must pay the costs associated
with this transaction incurred by the non-breaching party.
TTC and ICBI have incurred and will continue to incur expenses related
to the Reorganization, which expenses include, among other things, legal fees,
filing fees, accounting fees, investment banking fees, printing charges and
costs of mailing.
ICBI and TTC Market Prices and Dividends
TTC. TTC Common Stock is not listed on any stock exchange and is traded
infrequently. Trades occur on a local basis. The last sale of TCC Common Stock,
which was made on an arms-length basis on June 30, 1996, involved 2,500 shares
at $12.50 per share.
TTC has never paid a cash dividend. The future payment of dividends is
solely in the discretion of the Board of Directors of TTC and is dependent upon
certain legal and regulatory considerations and upon the earnings and financial
condition of TTC and such other factors as TTC's Board of Directors may, from
time to time, deem relevant.
As of March 31, 1997, TTC had 72 shareholders of record.
ICBI. ICBI Common Stock is neither listed on any stock exchange nor
quoted on the Nasdaq Stock Market and trades infrequently. ICBI Common Stock has
periodically been sold in a limited number of privately negotiated transactions.
The prices set forth below do not necessarily reflect the price that would be
paid in an active and liquid market.
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<PAGE>
ICBI Market Price and Dividends
<TABLE>
<CAPTION>
Sales Price Dividends
----------- ---------
High Low
---- ---
<S> <C> <C> <C>
1995:
1st quarter................................... 32.00 29.00 .18
2nd quarter................................... 30.00 30.00 .18
3rd quarter................................... 30.00 29.50 .18
4th quarter................................... 28.00 28.00 .26
1996:
1st quarter................................... 28.00 28.00 .18
2nd quarter................................... 28.00 28.00 .22
3rd quarter................................... 29.00 28.00 .22
4th quarter................................... 28.00 28.00 .22
1997:
1st quarter................................... 28.00 28.00 (1)
2nd quarter................................... 29.00 28.00 .21
(through June 11, 1997)
</TABLE>
(1) Beginning with the first quarter of 1997, ICBI began paying dividends
for the respective quarter immediately following the end of that
quarter.
ICBI historically has paid cash dividends on a quarterly basis. The
final determination of the timing, amount and payment of dividends on ICBI
Common Stock is at the discretion of ICBI's Board of Directors and will depend
upon the earnings of ICBI and its subsidiaries, principally, its subsidiary
bank, the financial condition of ICBI and other factors, including general
economic conditions and applicable governmental regulations and policies. ICBI
or The Middleburg Bank has paid regular cash dividends for over 200 consecutive
quarters.
As of March 31, 1997, ICBI had 455 shareholders of record.
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FINANCIAL ADVISOR'S OPINION
TTC management relied upon the advice of a qualified financial advisor
in analyzing the Reorganization and recommending it to TTC shareholders. The TTC
Board of Directors retained the investment banking firm of Scott & Stringfellow
to evaluate the terms of the Reorganization Agreement, and Scott & Stringfellow
has rendered its opinion to the TTC Board of Directors that the terms of the
Reorganization Agreement are fair from a financial point of view to the TTC
shareholders. A more detailed analysis of the Reorganization, from the point of
view of TTC's financial advisor, follows.
Scott & Stringfellow has rendered its opinion to the Board of Directors
of TTC that the terms of the Reorganization Agreement are fair from a financial
point of view. In developing its opinion, Scott & Stringfellow reviewed and
analyzed: (1) the Reorganization Agreement; (2) the Form S-4 Registration
Statement filed with the Securities and Exchange Commission in connection with
the Reorganization; (3) TTC's audited financial statements for the three years
ended December 31, 1996; (4) TTC's unaudited financial statements for the three
months ended March 31, 1996 and 1997 and other financial and non-financial
internal information relating to TTC prepared by TTC's management; (5)
information regarding the trading markets for TTC Common Stock and ICBI Common
Stock and the price ranges within which the respective stocks have traded; (6)
ICBI's annual reports to shareholders and its financial statements for the three
years ended December 31, 1996; and (7) ICBI's unaudited financial statements for
the three months ended March 31, 1996 and 1997 and other financial and
non-financial internal information relating to ICBI prepared by ICBI's
management including but not limited to asset quality, reserve adequacy, margin
analysis, interest rate sensitivity, internal controls, loan policies, budgets,
regulatory matters and legal matters. Scott & Stringfellow has discussed with
members of TTC's and ICBI's management the background of the Reorganization, the
reasons and basis for the Reorganization, and the business and future prospects
of TTC and ICBI individually and as a combined entity. No instructions or
limitations were given or imposed in connection with the scope of or the
examination or investigations made by Scott & Stringfellow in arriving at its
findings. Finally, Scott & Stringfellow has conducted such other studies,
analysis and investigations particularly of the trust and banking industries,
and considered such other information as it deemed appropriate, the material
portion of which is described below. A copy of Scott & Stringfellow's opinion,
which sets forth the assumptions made, matters considered and qualifications
made on the review undertaken, is attached as Appendix C hereto and should be
read in its entirety.
Scott & Stringfellow used the information gathered to evaluate the
financial terms of the Reorganization using standard valuation methods,
including market comparable analysis, and dilution analysis.
Market Comparable Analysis. Scott & Stringfellow analyzed the
performance and financial condition of ICBI relative to the Bank Group, which
includes the following financial institutions: Central Virginia Bankshares,
Inc., F&M National Corp., George Mason Bankshares, Inc., James River Bankshares,
Inc., Jefferson Bankshares, Inc., MainStreet BankGroup, Inc., Resource Bank,
Southern Financial Bancorp, Inc., Tysons Financial Corporation, and Union
Bankshares Corporation. Among the financial information compared was information
relating to tangible equity to assets, loans to deposits, net interest margin,
non-performing assets, total assets, non-accrual loans, and efficiency ratio.
Additional information compared for the trailing twelve-month period ended March
31, 1997, was (i) price to book value ratio which was 1.31x for ICBI, compared
to an average of 1.91x for the Bank Group (ii) price to trailing earnings ratio
which was 10.9x for ICBI, compared to an average of 16.4x for the Bank Group,
(iii) return on assets which was 1.49% for ICBI, compared to an average of 1.19%
for the Bank Group,
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(iv) return on equity which was 13.36% for ICBI, compared to an average of
12.27% for the Bank Group, and (v) a dividend yield of 3.0% for ICBI, compared
to an average of 2.17% for the Bank Group. Overall, in the opinion of Scott &
Stringfellow, ICBI's operating performance and financial condition were slightly
better than the Bank Group average and ICBI's market value was reasonable when
compared to the Bank Group. Accordingly, TTC shareholders shall receive ICBI
Common Stock that, in the opinion of Scott & Stringfellow, is reasonably valued
when compared to the Bank Group.
Dilution Analysis. Based upon publicly available financial information
and assumptions on 1997 performance of TTC and ICBI, Scott & Stringfellow
considered the effect of the transaction on the book value, earnings, and market
value of TTC and ICBI. The immediate effect on ICBI was to decrease estimated
1997 earnings by $0.18 per share or 6.04%, to increase fiscal year end 1996 book
value by $0.51 per share or 2.39% and, as a result of the generation of an
estimated $1,042,000 of goodwill, to decrease tangible book value by $0.64 per
share or 3.06%. The effect on TTC under the same assumptions is to increase
estimated earnings $0.37 per share or 115.6%, to increase book value by $1.31
per share or 31.6%, to increase tangible book value $1.52 per share or 41.6%,
and to receive dividends of $0.21 per share where historically no dividends have
ever been paid by TTC. Scott & Stringfellow concluded from this analysis that
the transaction would have a significant positive effect on TTC and the TTC
shareholders in that net income per share, book value per share, tangible book
value per share, and dividends per share to be received by the TTC shareholders,
after giving effect to the Merger Consideration, would represent a substantial
increase in each of these factors, although there can be no assurance that pro
forma amounts are indicative of actual future results. Additionally, the TTC
stock was not listed on any exchange prior to the Reorganization and ICBI has
represented it will list its stock on the Nasdaq SmallCap Market or OTC Bulletin
Board, which should have the effect of increasing the liquidity of the ICBI
stock compared to the TTC stock prior to the Effective Date.
The summary set forth above includes the material factors considered,
but does not purport to be a complete description of the presentation by Scott &
Stringfellow to TTC or of the analyses performed by Scott & Stringfellow. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to partial analysis or summary description. Accordingly,
notwithstanding the separate factors summarized above, Scott & Stringfellow
believes that its analysis must be considered as a whole and that selecting
portions of its analyses and the factors considered by it, without considering
all analyses and factors, would create an incomplete view of the process
underlying the preparation of its opinion. As a whole, these various analyses,
contributed to Scott & Stringfellow's opinion that the terms of the
Reorganization Agreement are fair from a financial point of view to TTC
shareholders.
While Scott & Stringfellow recognized the potential value of the
Contingent Merger Consideration to TTC's shareholders, it gave no value to the
Contingent Merger Consideration in determining the fairness of the transaction
to the TTC shareholders. Scott & Stringfellow recommended the Reorganization
based upon the Initial Merger Consideration, and the Board of Directors of TTC
accepted the consideration, without regard to the Contingent Merger
Consideration. Both the Board of Directors and Scott & Stringfellow realized the
potential for the additional consideration; however, they considered such
additional payments only as a potential source of additional consideration.
The Board of Directors of TTC and Scott & Stringfellow examined company
projections to determine if TTC could meet the limits on TTC expenses and TTC
Operating Losses. Projections were contained in other proposals that were
provided to the Board, but, once the decision was made to go
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<PAGE>
forward with the proposal from ICBI, the projections in those proposals were not
relied upon. No projections were used to estimate the Contingent Merger
Consideration.
Scott & Stringfellow is a full service investment banking and brokerage
firm headquartered in Richmond, Virginia, that provides a broad array of
services to financial institutions, corporations, and state and local
governments. The Financial Institutions Group of Scott & Stringfellow actively
works with financial institutions in Virginia, Maryland, North Carolina, the
District of Columbia, and West Virginia on these and other matters. As part of
its investment banking practice, it is continually engaged in the valuation of
financial institutions and their securities in connection with mergers and
acquisitions, negotiated underwritings, and secondary distribution of listed and
unlisted securities. Scott & Stringfellow was selected by the TTC Board of
Directors based upon its expertise and reputation in providing valuation, merger
and acquisition, and advisory services to financial institutions.
In exchange for its services, Scott & Stringfellow, Inc. will receive
from TTC prior to the Effective Date a fee of $38,724.
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THE TREDEGAR TRUST COMPANY
TTC was incorporated under the laws of the Commonwealth of Virginia on
August 3, 1993, and commenced business as an independent trust company on
January 12, 1994.
TTC provides a full range of investment, trust, estate settlement and
custodial services to individuals and organizations, primarily in the Richmond,
Virginia metropolitan area. TTC presently has one office located at 901 East
Byrd Street, Riverfront Plaza - West Tower in Richmond, Virginia.
As of March 1, 1997, TTC employed six full-time employees.
On February 17, 1995, TTC and The Middleburg Bank entered into an
agreement for TTC to provide certain services, including investment,
recordkeeping and reporting services to the trust department of The Middleburg
Bank, which was in organization at the time. The Middleburg Bank's trust
department began business on November 1, 1995 and at December 31, 1996 had
assets of $13.4 million. The investment and custody of those funds is handled by
TTC and such funds represented 8.4% of TTC's assets under accountability and
administration at December 31, 1996. The contract between TTC and The Middleburg
Bank provides for the compensation of TTC, based on the gross fees charged by
The Middleburg Bank to its trust department customers. TTC also advises ICBI on
equity investments by ICBI. In 1996, the gross revenue of TTC from its
relationships with The Middleburg Bank and ICBI was $95,888, or 15.2% of TTC's
gross income.
THE TREDEGAR TRUST COMPANY ELECTION
OF DIRECTORS; MANAGEMENT
The Nominating Committee has recommended the hereinafter listed
nominees to serve as directors of TTC.
It is the intention of the persons named in the accompanying form of
Proxy, unless shareholders specify otherwise by their Proxies, to vote for the
election of the nominees named below for a term of one (1) year. Although the
Board of Directors does not expect that any of the persons named will be unable
to serve as a director, should any of them be unable to accept nomination or
election, it is intended that shares represented by the accompanying form of
Proxy will be voted by the Proxy holders for such other persons or persons as
may be designated by the present Board of Directors.
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<PAGE>
<TABLE>
<CAPTION>
NOMINEES
Principal Occupation or Employment
Name (Age) During the Last Five Years Director Since
- ---------- -------------------------- --------------
<S> <C> <C>
Heriot Clarkson (59) Consultant; former President, Virginia Precast 1995
Corporation, a consultant to numerous businesses
on marketing and sales issues
F. E. Deacon, III (41) President and Chief Executive Officer 1993
The Tredegar Trust Company
Delman H. Eure (68) Partner, Eure, Kizer & Bell, P.C., a law firm; former 1995
Partner, Taylor, Hazen & Kauffman, L.C., a law firm
Gary D. LeClair (42) Chairman, LeClair Ryan, A Professional 1993
Corporation, a law firm
Ivor Massey, Jr. (49) Attorney 1993
John D. Perrin (43) Vice President-Northern Region, Dillard Paper 1993
Company, a paper distribution company
Richard L. Ramsey (44) Chairman, LocusOne Communications, Inc., a 1993
provider of national wireless electronic mail
services
Stuart C. Siegel (54) Chairman, S & K Famous Brands, Inc., a retail 1993
clothing company
James C. Wheat, III (44) Partner, Riverfront Partners, a general partner of 1993
the Commonwealth Investors LP, a private
investment fund; Partner, Collonade Capital, LLC,
a general partner of the Commonwealth Investors II
LP, a private investment fund focusing on
leveraged acquisitions
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE NOMINEES BE ELECTED AS DIRECTORS.
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Security Ownership of Management
The following table sets forth information as of May 15, 1997 regarding
the number of shares of TTC Common Stock beneficially owned by all directors and
nominees, by the executive officer named in the Summary Compensation Table
herein and by all directors and executive officers as a group. For the purposes
of this table, beneficial ownership has been determined in accordance with the
provisions of Rule 13d-3 under the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), under which, in general, a person is deemed to be
a beneficial owner of a security if he has or shares the power to vote or direct
the voting of the security or the power to dispose or direct disposition of the
security, or if he has the right to acquire beneficial ownership of the security
within 60 days.
Common Stock
Name Beneficially Owned Percent of Class
---- ------------------ ----------------
Directors
---------
Heriot Clarkson 5,000 1.8%
F. E. Deacon, III 10,500 3.8%
Delman H. Eure 2,500 *
Gary D. LeClair 5,000 1.8%
Ivor Massey, Jr. 12,000 4.3%
John D. Perrin 1,500 *
Richard L. Ramsey 2,500 *
Stuart C. Siegel 6,000 2.2%
James C. Wheat, III 9,500 3.6%
All present executive officers 54,500 19.7%
and directors as a group (9
persons)
-----------------------
* Indicates that holdings amount to less than 1% of the issued
and outstanding TTC Common Stock.
Committees and Meetings of the Board of Directors
The Board of Directors of TTC, as required by the Bureau of Financial
Institutions ("BFI"), held regular monthly meetings until February 1996. On
March 13, 1996, the BFI approved bimonthly meetings, which commenced in May
1996. The meetings were regularly attended by at least a majority of the
directors, constituting a quorum. The meetings followed an agenda included in a
booklet with reports and other information to be considered, which was
distributed at each meeting. Comprehensive minutes were kept of the meetings and
are on file in the corporate records. For the year ended December 31, 1996, none
of TTC's directors attended fewer than 75% of the aggregate number of Board
meetings and meetings of committees of which the respective directors were
members during their term.
There are five standing committees of the Board of Directors:
Executive, Audit, Trust, Compensation, and Marketing and Business Development.
In addition, there are three ad hoc committees -- Capital, Nominating and Long
Range Planning -- and the Board appointed the Special Committee to
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consider the Reorganization and other alternatives. All members of the Board
serve on one or more of the Committees.
The Executive Committee consists of Messrs. Deacon, Massey, Ramsey
and Wheat. Mr. Deacon is the Chairman. The Committee meets on the call of the
Chairman. Due to the frequency of the full Board meetings, during the year ended
1996, there were no meetings of the Executive Committee.
TTC has an Audit Committee consisting of Messrs. Massey, LeClair, and
Perrin. The Audit Committee ensures that appropriate financial and fiduciary
controls and procedures are in effect for the operation of TTC, which reviews
the audits of TTC and the examination reports received from the bank regulatory
agencies and coordinates with the management and the Board of Directors, TTC's
response to examinations. The Audit Committee reports to the Board of Directors.
Mr. Massey serves as the Chairman. The Committee meets on the call of the
Chairman. During the year ended December 31, 1996, there were three meetings of
the Audit Committee.
The Compensation Committee consists of Messrs. Ramsey, Eure, LeClair,
Massey, and Perrin. Mr. Ramsey serves as the Chairman. The Compensation
Committee reviews the performance of TTC officers and employees and recommends
compensation of those individuals to the Board of Directors. The Committee meets
on the call of the Chairman.
The Trust Committee is responsible for review of all fiduciary accounts
maintained by the Company to assure that the accounts, and the management of TTC
in general, conform to the policies and procedures adopted by the Board. The
Trust Committee consists of Messrs. Wheat, Deacon and Eure. Mr. Wheat is the
Chairman. Mr. Eure is Trust Counsel for TTC. The Trust Committee holds regular
meetings normally each month, as required by the BFI. The Trust Committee
annually reviews all accounts and regularly reviews the Corporation's investment
strategy, philosophy and implementation of investment programs. The Trust
Committee reviews all new accounts and TTC's administration of fiduciary
accounts. During the year ended 1996, there were seven meetings of the Trust
Committee.
The Marketing and Business Development Committee consists of Messrs.
Perrin, the Chairman, Clarkson, Deacon, Massey and Siegel. The Committee meets
on the call of the chairman and reports to the Board of Directors. During the
year ended 1996, there were three meetings of the Marketing and Business
Development Committee.
The Nominating Committee consists of Messrs. LeClair and Deacon. Mr.
LeClair is the Chairman. The Nominating Committees meets on the call of the
chair and reports to the Board of Directors. It is the practice of the Board for
the Board's ad hoc Nominating Committee to recommend individuals for the Board
to nominate directors for the shareholders' consideration. During the year ended
1996, there was one meeting of the Nominating Committee.
The Capital Committee consists of Messrs. Deacon, LeClair, and Wheat.
Mr. Deacon serves as the Chairman. The Capital Committee meets on the call of
the chair and reports to the Board of Directors. During the year ended 1996, the
Capital Committee did not meet.
The Board of Directors appointed a Long Range Planning Committee on
September 16, 1996 to review the structure and operations of TTC. The Long Range
Planning Committee consists of Messrs. Eure, LeClair, Massey and Wheat. Mr.
Massey serves as its chair. The Committee meets on the call of the Chair and
reports to the Board of Directors. During the year ended 1996, there were three
meetings of the Long Range Planning Committee.
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<PAGE>
Remuneration
Summary of Cash and Certain Other Compensation
The following table shows, for the fiscal years ended December 31,
1996, 1995 and 1994, the cash compensation paid by TTC, as well as certain other
compensation paid or accrued for those years, to the named Executive Officers in
all capacities in which they served:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation (a) Compensation
Securities All Other
Name and Underlying Compensation
Principal Position Year Salary ($) Options (#) ($)(b)
------------------ ---- ---------- ----------- ------
<S> <C> <C> <C> <C>
F. E. Deacon, III 1996 129,000 -0- 3,870
President and Chief 1995 129,000 -0- 3,870
Executive Officer 1994 117,616 42,750 -0-
Preston S. Smith 1996 129,000 -0- 3,870
Executive Vice 1995 129,000 -0- 3,870
President and Chief 1994 117,616 42,750 -0-
Financial Officer
A. G. Goodykoontz 1996 108,000 -0- 3,240
Executive Vice 1995 102,000 19,950 3,060
President and Chief 1994 80,320 -0- -0-
Investment Officer
</TABLE>
- --------------------
(a) The value of perquisites and other personal benefits did not exceed the
greater of $50,000 or ten percent of total annual salary and bonus.
(b) "All Other Compensation" represents amounts contributed by TTC to the
TTC Section 401(k) Plan on behalf of the respective executive officer.
Officer Resignations; Separation Agreements.
Effective February 15, 1997, Preston S. Smith and, effective
March 1, 1997, A. Gordon Goodykoontz resigned as officers and Directors of TTC
and entered into Separation Agreements with TTC. Mr. Smith served as the Chief
Financial Officer of TTC, and Mr. Goodykoontz served as its Chief Investment
Officer.
At the time ICBI initiated discussions with TTC in December 1996,
Messrs. Smith and Goodykoontz indicated that they desired that TTC remain
independent. After ICBI and TTC executed a letter of intent on February 5, 1997,
TTC proceeded to negotiate Separation Agreements with each of Messrs. Smith and
Goodykoontz. Such Separation Agreements were executed on March 3, 1997. Under
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<PAGE>
those Agreements, Mr. Smith and Mr. Goodykoontz each received $50,000 in the
nature of severance pay. Messrs. Smith and Goodykoontz each resigned as a
Director, officer and employee of TTC and agreed to vote all of his shares of
TTC Common Stock in favor of the Reorganization and not to take any action to
challenge, hinder or delay the Reorganization. Mr. Smith and Mr. Goodykoontz
each surrendered all options to purchase TTC Common Stock and agreed not to
compete with TTC or solicit or attempt to solicit any customer of TTC or any
other person prior to June 30, 1997.
Options Grants in Last Fiscal Year
TTC did not grant any stock options in 1996.
Option Exercises and Holdings
No options were exercised by any of the named Executive Officers in the
year ended December 31, 1996.
Prior to entering into the Reorganization Agreement, ICBI required that
all options to purchase TTC Common Stock be terminated. The severance agreements
of Messrs. Smith and Goodykoontz provided for the termination of all stock
options held by them. Mr. Deacon holds an option to purchase up to 42,750 shares
at $10.00 per share and has agreed to surrender such stock option, contingent on
the consummation of the Reorganization. Mr. Deacon will not be compensated for
surrendering this stock option.
Employment Agreement
On March 27, 1997 TTC and F. E. Deacon, III, its President and Chief
Executive Officer, entered into an Employment Agreement. Previously, ICBI had
indicated to TTC that ICBI would be unwilling to enter into the Reorganization
Agreement unless Mr. Deacon and TTC entered into an Employment Agreement in form
and substance satisfactory to ICBI. The Employment Agreement will terminate if
the Reorganization Agreement terminates. If the Reorganization is consummated,
the term of the Agreement will end on the third anniversary of the Effective
Date. Under the Employment Agreement, Mr. Deacon's annual base salary is
$119,000 and he will be entitled to bonuses if TTC's cumulative net earnings
equal or exceed 27%, 50% and 100%, respectively, of the Required Net Earnings in
the three years following the Effective Date. The maximum amount of such bonus
in any year will be $27,000. Mr. Deacon's base salary represents a reduction in
his salary in 1995 and 1996. The bonus arrangement was structured in order that
any bonus to which Mr. Deacon is entitled will be related to the amount of net
earnings that TTC must achieve in order for its shareholders to receive the
Contingent Merger Consideration. The Employment Agreement does not provide for
any additional compensation in the event of a change in control of ICBI and does
prohibit Mr. Deacon from competing with TTC for a period of one year following a
termination of his employment by TTC for any reason.
Compensation of Directors
TTC's directors are not compensated for attending Board of Directors
meetings.
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<PAGE>
Transactions with Directors and Officers
During the past year, some directors and officers of TTC, as well as
certain business organizations and individuals associated with them, have been
customers and had normal transactions with TTC in the normal course of business
and are expected to continue to do so.
TTC has and expects to have in the future, transactions in the ordinary
course of its business with its directors, officers, principal shareholders and
their associates on substantially the same terms as those prevailing at the same
time for comparable transactions with others.
TTC has from time to time retained the firms of LeClair Ryan, A
Professional Corporation, and Taylor Hazen & Kauffman, L.C., in connection with
certain legal representation and expects to continue to do so in the future.
Gary D. LeClair, a director of TTC, is a shareholder, director and officer of
LeClair Ryan, and Delman H. Eure, a director and Secretary of TTC, was formerly
a partner in Taylor, Hazen & Kauffman.
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THE TREDEGAR TRUST COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information about the major
components of the results of operations, financial condition and capital
position of TTC. This discussion and analysis should be read in conjunction with
the accompanying "Selected Financial Information -- TTC Selected Historical
Financial Information" and the TTC Financial Statements and Notes to Financial
Statements appearing elsewhere in this Proxy Statement/Prospectus.
Overview
TTC was incorporated in 1993 as an independent trust company, under the
Trust Company Act adopted by the Virginia legislature that year. It commenced
operations on January 12, 1994. Summary data set forth below for 1994 are for
the period from January 12, 1994 through December 31, 1994. Information for 1995
and 1996 reflects the full twelve-month periods ended December 31, 1995 and
December 31, 1996, respectively.
The business of an independent trust company consists of serving as
agent, trustee, executor, custodian and investment counselor for its trust
customers and their beneficiaries. The confidential and fiduciary nature of the
trust business requires considerable lead time to identify potential customers,
establish a performance record, and persuade customers to establish
relationships with TTC, in many instances requiring them to sever established
relationships with other institutions.
TTC was founded because its management believed that a market for high
quality trust services existed in certain areas of Virginia. The acquisition of
several larger Virginia banks by out of state banking organizations had resulted
in fewer trust departments and a decrease in the personal attention to customers
by the large out of state trust departments. TTC believed that these changes
have had an adverse impact on certain bank trust departments' ability to
properly serve certain Virginia communities and that customers could be
attracted by personal service, high quality, comprehensive fiduciary expertise,
tailored, flexible investment management and a commitment to the local
communities throughout Virginia. TTC's marketing efforts are directed to those
individuals and institutions with readily investible assets and those
individuals with high net worth and relies primarily on referral relationships
with law firms, accountants, community banks and existing clients, one-on-one
sales presentations, and the reputation of TTC's Board and management.
TTC competes for customers and accounts with banks and other financial
institutions. Even though many of these institutions have been engaged in the
trust or investment management business for a considerably longer period of time
than TTC and have significantly greater resources than TTC, TTC has grown
through its commitment to quality trust services and a local community approach
to business.
During the past three years, TTC has developed a number of substantial
relationships that have led to the generation of business. The most notable of
these relationships has been the one with The Middleburg Bank. The management of
The Middleburg Bank and TTC have a shared philosophy about the need for
community-based trust services, and, as a result, the relationship has
strengthened both TTC and The Middleburg Bank.
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<PAGE>
Trust Assets Under Administration
Fees earned on trust accounts administered by TTC or for which it is
accountable reflect the principal source of income of TTC and are reported as
"Assets Under Administration and Accountability." The following table sets forth
the total amount of trust and related assets that TTC administered or for which
it was accountable to customers, under trust agreements and similar
arrangements, at the end of 1996, 1995 and 1994, respectively.
(Dollars in millions)
1996 1995 1994
---- ---- ----
Customer assets and accounts $159.8 $101.2 $54.0
Results of Operations
As one of Virginia's first independent trust companies, TTC expected
and faced challenges in starting its operations, such as the time required to
establish customer relationships and accounts as a start-up enterprise. TTC's
results for its first three years were consistent with management's expectation
that a period of time would be required to grow the business to a size
sufficient to cover the relatively large investment in personnel and systems.
Operating revenues (principally fees from trust accounts under administration or
management, and excluding interest and other investment income) increased to
$557,498 (or approximately 78%) in 1996, compared with operating revenues of
$313,633 in 1995. In 1994, TTC's first year of operations, operating revenues
were $69,322.
The following table reflects the principal categories of revenues from
which the foregoing operating results were derived.
Revenue
Year Ended December 31
(Dollars in Thousands)
1996 1995 1994
---- ---- ----
Agency, Trust and IRA Fees $ 478 $ 248 $ 33
Investment Advisory 40 28 21
Custody Services 36 37 15
Estate Fees 3 - -
---- ---- ----
Operating Revenue 557 313 69
Interest Income/Other 74 69 55
---- ---- ----
Total Revenue $ 631 $ 382 $ 124
===== ===== =====
Expenses
The increase in expenses in 1996 over 1995 was primarily due to costs
associated with referral fees paid to The Middleburg Bank, rising costs with the
employees' medical insurance, and the hiring of an additional account officer
with business development responsibilities. The 1996 results reflect referral
fees
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of $29,316 paid to The Middleburg Bank, which represents a significant increase
in the $411 in referral fees paid to The Middleburg Bank in 1995. In addition,
TTC must maintain a certain level of expense for employees and systems in order
to operate in its industry. TTC believes that it can support significant
additional growth in Assets under Administration and Accountability without a
correspondingly significant increase in operating expenses.
The 1995 expense increase over 1994 was primarily attributable to
servicing the asset growth in 1995 over 1994 with personnel and payroll tax
expenses in the operations area, combined with safekeeping and custody expenses
as a result of the asset growth from the previous year. TTC's Board implemented
a 401(k) plan requiring a matching contribution from TTC.
The following table reflects the principal categories of expenses for
the periods indicated.
Expenses
Year Ended December 31
(Dollars in Thousands)
1996 1995 1994
---- ---- ----
Salaries and Employees' Benefits $587 $523 $413
Net Occupancy and Equipment Expenses 64 61 52
Advertising 11 12 33
Other Operating Expense 355 343 232
--- --- ---
Total Expense $1,017 $939 $730
====== ---- ====
On a weighted average per share basis, reported losses from operations
of ($3.38) per share in 1994, declined to ($2.28) per share in 1995, and further
declined to ($1.40) per share in 1996. For the three-month period ended March
31, 1997, losses from operations were ($.03), prior to TTC Transaction Costs.
Liquidity and Capital Resources
Management of TTC seeks to maintain a capital structure that is
adequate to support anticipated growth of its trust asset under administration
and to absorb projected or unexpected losses. The capital position of TTC is
also subject to periodic examination by the Bureau of Financial Institutions of
the Virginia State Corporation Commission. TTC believes that its capital is
adequate for regulatory purposes.
Generally, TTC funds its operations with cash flow generated by fees
primarily from trust and agency accounts administered by TTC and or for which
TTC is accountable. TTC reached monthly profitability in February 1997 and March
1997 (prior to transaction costs related to the Reorganization). As of March 31,
1997, TTC's capital position was $1,147,361. Management believes that TTC
remains adequately capitalize and is well-positioned in terms of technology,
markets, and products to serve its clients. As of March 31, 1997, TTC had
approximately $879,900 of marketable investments that could be converted to cash
if needed. In the unusual event that TTC needs to encroach its capital position
for future operations, the capital position is readily available and is
substantially above the $500,000 minimum statutory requirement under the Code of
Virginia.
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INDEPENDENT ACCOUNTANTS
The Board of Directors of TTC selected the accounting firm of Harris,
Hardy & Johnstone, P.C., independent accountants, to be TTC's independent
accountants for the year ended December 31, 1996. A representative of Harris,
Hardy & Johnstone, P.C. is expected to be present at the TTC Meeting, will have
the opportunity to make a statement at the TTC Meeting if he or she desires to
do so, and will be available to respond to appropriate questions. The Board of
Directors has not yet made a determination regarding the selection of
independent accountants for the year ending December 31, 1997. Under TTC's
Articles of Incorporation and Bylaws, shareholders are not required to ratify or
confirm the selection of independent accountants made by the Board of Directors.
OTHER BUSINESS
If any other matters come before the TTC Meeting, not referred to in
the enclosed Proxy, including matters incident to the conduct of the TTC
Meeting, the Proxies will vote the shares represented by the proxies in
accordance with their best judgment. Management is not aware of any other
business to come before the TTC Meeting as of the date of the preparation of
this Proxy Statement/Prospectus.
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<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
General
Independent Community Bankshares, Inc. is a Virginia corporation
that was organized in 1993 for the purpose of becoming the holding company for
The Middleburg Bank.
Currently ICBI does not transact any material business other than
through its sole subsidiary, The Middleburg Bank.
The Middleburg Bank currently conducts its business from its corporate
headquarters in Middleburg, Virginia, and through two branch offices located in
Purcellville and Leesburg, Virginia. The Middleburg Bank's deposits are insured
up to the maximum allowable amount by the Federal Deposit Insurance Corporation
(the "FDIC"). The Middleburg Bank is regulated by the Federal Reserve, the SCC
and the FDIC.
At December 31, 1996, ICBI had total deposits of $139 million, total
assets of $163 million and total stockholders' equity of $18 million. ICBI's
corporate headquarters is located at 111 West Washington Street, Middleburg,
Virginia. The telephone number is (540) 687-6377.
Market Area
ICBI has three offices located in Western Loudoun County. Loudoun
County is in Northwestern Virginia and is included in the Washington-Baltimore
Metropolitan Statistical Area, the fourth largest market in the United States.
Loudoun County is becoming a center for the technology business with such
businesses as American OnLine located just east of Leesburg. The county seat is
Leesburg and is one of the county's largest employers. United Airlines'
headquarters is also a significant employer that is located in the county.
Loudoun County's population is approximately 110,000 with slightly over
one-third of the population located in the markets served by ICBI's offices. The
local economy is driven by service industries requiring a higher skill level,
self-employed individuals, the equine industry and the independently wealthy.
Loudoun County is becoming a bedroom community to surrounding counties whose
economies are driven by government contracting, technology and other service
industries.
Competition
ICBI faces significant competition both in making loans and in
attracting deposits. Competition for loans comes from commercial banks, savings
and loan associations and savings banks, mortgage banking subsidiaries of
regional commercial banks, subsidiaries of national mortgage bankers, insurance
companies, and other institutional lenders. Its most direct competition for
deposits has historically come from savings and loan associations and savings
banks, commercial banks, credit unions and other financial institutions. Based
upon total assets at June 30, 1996, ICBI is the second largest banking
organization operating in Loudoun County, Virginia. ICBI may face an increase in
competition as a result of the continuing reduction in the restrictions on the
interstate operations of financial institutions. ICBI also faces competition for
deposits from short-term money market mutual funds and other corporate and
government securities funds.
Personnel. At December 31, 1996, ICBI had 53 full-time equivalent
employees. ICBI's employees are not represented by a collective bargaining unit,
and ICBI considers its relationship with its employees to be excellent.
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Properties. The headquarters building of the Bank was completed in 1981
and is a 2-story building of brick construction, with approximately 18,000
square feet of floor space located at 111 West Washington Street, Middleburg,
Virginia 22117. The office operates 9 teller windows, including 3 drive-up
facilities and one stand alone automatic teller machine. The Bank owns its
headquarters building.
The Purcellville branch was purchased in 1994 and is a one-story
building with a basement of brick construction, with approximately 3,000 square
feet of floor space located at 431 East Main Street, Purcellville, Virginia
22132. The office operates 4 teller windows, including one drive-up facility and
one stand-alone automatic teller machine. The Bank owns this branch building.
The Leesburg branch will be complete in April 1997 and is a two-story
building of brick construction with approximately 6,000 square feet of floor
space located at 102 Catoctin Circle, SE, Leesburg, Virginia 20175. The office
will operate 5 teller windows, including 3 drive-up facilities and one drive-up
automatic teller machine. The Bank also owns this branch building.
Principal Shareholders
Management of ICBI is aware that the following individual beneficially
owns 5% or more of the outstanding ICBI Common Stock:
Millicent W. West, P. O. Box 236, Upperville, Virginia 22176
beneficially owns 131,252 shares of ICBI Common Stock, or 15.26% of
the shares issued and outstanding.
INDEPENDENT COMMUNITY BANKSHARES, INC.
MANAGEMENT
Management
The following biographical information discloses each director's age,
business experience in the past five years and the year each individual was
first elected to the Board of Directors of ICBI or its predecessor.
Howard M. Armfield, 54, has been a director since 1984.
Mr. Armfield is Executive Vice President and owner of Armfield,
Harrison & Thomas, Inc. in Leesburg, Virginia, an independent insurance
agency.
Joseph L. Boling, 52, has been a director since 1993.
Mr. Boling has been the President and CEO of ICBI and The Middleburg
Bank since February 1993. Prior to employment by ICBI and The
Middleburg Bank, he was a Senior Vice President of Crestar Bank in
Richmond, Virginia.
J. Lynn Cornwell, Jr., 72, has been a director since 1984.
Mr. Cornwell is President and owner of J. Lynn Cornwell, Inc. whose
principal business is real estate development in Loudoun County.
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William F. Curtis, 68, has been a director since 1962.
Mr. Curtis is currently retired. Until February 1993, he had served as
President and CEO of the Bank for 25 years.
J. Gordon Grayson, 79, has been a director since 1968.
Mr. Grayson is owner of Blue Ridge Farm, specializing in farming and
thoroughbred horse breeding.
George A. Horkan, Jr., 74, has been a director since 1961.
Mr. Horkan is President of George A. Horkan, Jr., P.C. which is a
law office located in Upperville, Virginia.
C. Oliver Iselin, III, 67, has been a director since 1975.
Mr. Iselin is owner and operator of the Wolver Hill Farm.
William S. Leach, 68, has been a director since 1970.
Mr. Leach is a retired businessman with over 30 years experience. Most
recently he served a three year term as Town Administrator for the
Town of Middleburg.
John C. Palmer, 61, has been a director since 1974.
Mr. Palmer retired as Senior Vice President of the Bank in 1995 after
27 years of service.
Millicent W. West, 75, has been a director since 1975.
Ms. West served in many volunteer positions in the Garden Club of
America and Garden Club of Virginia.
Edward T. Wright, 60, has been a director since 1972.
Mr. Wright is Senior Vice President of the Bank and his principal
duties include administration of the loan portfolio, marketing and
branch management.
The following table sets forth, as of March 12, 1997 certain
information with respect to beneficial ownership of ICBI Common Stock, par value
$5.00 per share, by the members of the Board of Directors and by all Directors
and Executive Officers as a group. Beneficial ownership includes shares, if any,
held in the name of the spouse, minor children or other relatives of a Director
living in such person's home, as well as shares, if any, held in the name of
another person under an arrangement whereby the Director or Executive Officer
can vest title in himself at once or at some future time.
-52-
<PAGE>
<TABLE>
<CAPTION>
Name Amount and Nature of Beneficial Ownership Percent of Class (%)
---- ----------------------------------------- --------------------
<S> <C> <C>
Howard M. Armfield 9,052 1.05
Joseph L. Boling 2,564 .30
J. Lynn Cornwell, Jr. 1,972 .22
William F. Curtis 35,252 4.10
J. Gordon Grayson 19,508 2.27
George A. Horkan, Jr. 36,000 4.19
C. Oliver Iselin, III 21,200 2.47
William S. Leach 15,796 1.84
John C. Palmer 12,293 1.43
Millicent W. West 131,252 15.26
Edward T. Wright 29,210 3.40
Directors and executive officers 314,604 36.59
as a group (14 persons)
</TABLE>
ICBI is unaware of any arrangement that may operate at a subsequent
date to effect a change in control of ICBI.
Committees. The same individuals are Directors of ICBI and The
Middleburg Bank. ICBI has no Board committees. The following discussion
describes the Board Committees of The Middleburg Bank.
The Executive Committee, which acts for the Board of Directors when
the Board is not in session, consists of Mrs. West and Messrs. Horkan, Leach,
Boling, Armfield and Curtis. The Executive Committee met six times during the
year ended December 31, 1996.
The Bank has an Examining and Compliance Committee, which consists of
Mrs. West and Messrs. Armfield, Grayson, Cornwell, Iselin and Leach. The
Examining and Compliance Committee is responsible for examining the affairs of
the Bank at least annually, reporting the results of examinations and
recommending changes in the manner of doing business. The Examining and
Compliance Committee held three meetings during the year ended December 31,
1996.
The Nominating Committee consists of Mrs. West and Messrs. Horkan,
Iselin, Curtis and Boling and nominates the individuals proposed for election as
directors. The Nominating Committee met two times during the year ended December
31, 1996.
The Loan Committee, which examines and approves loans and other
extensions of credit, consists of Messrs. Boling, Curtis, Cornwell, Leach,
Palmer and Wright. The Investment Committee, which sets the Bank's policy for
investment in marketable securities, consists of Messrs. Grayson, Palmer,
Boling, Iselin and Wright. The Asset/Liability Committee, which monitors and
implements Board policies on interest rates, product pricing and operating
ratios, consists of Messrs. Boling and Wright. In 1996, the Loan Committee met
17 times; the Investment Committee met five times; and the Asset/Liability
Committee met once.
The Trust Committee consists of Messrs. Horkan, Boling, Cornwell and
Palmer. The Trust Committee met three times in 1996.
-53-
<PAGE>
There were 12 meetings of the Board of Directors in 1996. Each Director
attended greater than 75% of the aggregate number of meetings of the Board of
Directors and its committees of which he was a member in 1996.
There are no family relationships among any of the Directors or among
any Directors and any officer.
As compensation for their services, each member of the Board of
Directors receives a fee of $300 for each meeting of the Board and $250 for each
Committee meeting attended. Board members who are also officers do not receive
any additional compensation above their regular salary for attending committee
meetings. In 1996, Directors received $89,350 in the aggregate as compensation
for their services as directors.
Executive Officers Who Are Not Directors
Alice P. Frazier (Age 32) has served as Chief Financial Officer since
April 1993. From May 1991 until April 1993, she served as the Bank's Loan Review
Officer. From December 1988 until May 1991 she was employed by Yount, Hyde &
Barbour, P.C., certified public accountants.
Arch A. Moore (Age 45) has served as Senior Vice President and Senior
Lender since February 1995. From March 1983 to February 1995, he served in
various positions, the last of which was Manager of the Northern Virginia
Business Banking Group, with First American/First Union.
Thomas E. Sebrell, IV (Age 54) has served as Vice President since
January 1994. From April 1978 until January 1994, he served in various
capacities, including Executive Vice President, at Farmers & Merchants National
Bank of Hamilton and its successor, F&M Bank-Winchester.
Executive Compensation
The following table shows, for the fiscal years ended December 31,
1996, 1995 and 1994, the cash compensation paid by ICBI, as well as certain
other compensation paid or accrued for those years, to each of the named
Executive Officers in all capacities in which they served:
-54-
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
All Other
Name and Other Annual Compensation ($)(2)
Principal Position Year Salary ($) Bonus ($) Compensation ($)
- ---------------------------- ------------- -------------- -------------- --------------------- ----------------------
<S> <C> <C> <C> <C> <C>
Joseph L. Boling 1996 186,980 20,000 (1) 21,433
President and CEO 1995 178,820 15,000 (1) 21,363
1994 167,500 27,000 (1) 21,299
Edward T. Wright 1996 119,294 8,350 (1) 7,821
Senior Vice President 1995 107,150 8,929 (1) 7,748
1994 104,030 8,669 (1) 7,673
Arch A. Moore, III 1996 101,375 7,096 (1) 8,967
Senior Vice President 1995 91,711 7,500 21,712 (3) 8,943
</TABLE>
(1) All benefits which might be considered of a personal nature did not
exceed the lesser of $50,000 or 10% of total annual salary and bonus
for all the officers named in the table.
(2) Amounts presented represent gross value of payments made by the Bank
during such fiscal year pursuant to split-dollar life insurance
agreements between ICBI and the named executive officers.
(3) Amount presented includes $12,500 paid by the Bank for Mr. Moore's
initiation fees for the Middleburg Tennis Club and the Loudoun Golf
and Country Club and $7,883 paid by the Bank for the increase in Mr.
Moore's income tax associated with such benefits.
ICBI has no stock option plans and has not granted stock options or
stock appreciation rights to any of its officers or employees.
Employment Agreements
There are no commission agreements or any employment contracts between
the Bank and its directors or officers, except for that with Joseph L. Boling,
President of the Bank.
Effective January 1, 1997, The Middleburg Bank and Joseph L. Boling,
its President and Chief Executive Officer, entered into an employment contract.
Mr. Boling's employment contract is for five years at a base annual salary of
$194,086 and he is eligible for bonuses as determined by the executive
committee, in the discretion of the Board of Directors. Mr. Boling's employment
may be terminated by The Middleburg Bank, with or without cause; but if
terminated without cause, he is entitled to payment for the greater of the
remainder of his contract or three years. If there is a change in control of The
Middleburg Bank and Mr. Boling's employment terminates, he is entitled to
severance pay equal to his salary and benefits for the longer of the remainder
of his contract or three years, unless he is offered and accepts a position with
the acquiror. Mr. Boling's contract contains a covenant not to compete if, for
any reason, his employment terminates.
-55-
<PAGE>
A deferred compensation plan was adopted for the President and Chief
Executive Officer. Benefits are to be paid in monthly installments for 15 years
following retirement or death. The agreement provides that if employment is
terminated for reasons other than death or disability prior to age 65, the
amount of benefits would be reduced. The deferred compensation expense for 1996
and 1995, based on the present value of the retirement benefits, was $15,539 and
$14,522. The plan is unfunded. However, life insurance has been acquired on the
life of the employee in an amount sufficient to discharge the obligation.
Transactions with Management
Some of the directors and officers of ICBI are at present, as in the
past, customers of ICBI and ICBI has had, and expects to have in the future,
banking transactions in the ordinary course of its business with directors,
officers, principal shareholders and their associates, on substantially the same
terms, including interest rates and collateral on loans, as those prevailing at
the same time for comparable transactions with others. These transactions do not
involve more than the normal risk of collectibility or present other unfavorable
features. The largest aggregate outstanding balance of loans to directors,
executive officers and their associates, as a group, in 1996 was approximately
$1,759,000. Such balances totaled $845,656 at December 31, 1996, or 4.7% of
ICBI's equity capital at that date.
ICBI had, and expects to have in the future, banking transactions in
the ordinary course of its business with directors, officers, principal
shareholders, and their associates, on the same terms, including interest rates
and collateral on loans as those prevailing at the same time for comparable
transactions with others, and which do not involve more than the normal risk of
collectibility or present other unfavorable features.
There were no transactions during 1996 between ICBI's directors or
officers and ICBI's retirement or profit sharing plans, nor are there any
proposed transactions. Additionally, there are no legal proceedings to which any
director, officer, principal shareholder or associate is a party that would be
material and adverse to ICBI.
-56-
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion provides information about the major
components of the results of operations and financial condition, liquidity and
capital resources of ICBI. This discussion and analysis should be read in
conjunction with the "ICBI Selected Historical Financial Information" and the
Consolidated Financial Statements and Notes to Consolidated Financial
Statements.
Overview
ICBI's performance for the first quarter of 1997 evidenced improvement
over the same quarter a year ago. Net income increased 40.84% in the first
quarter of 1997 to $607,000, compared to $431,000 during the same quarter of
1996. The increase in earnings was primarily due to an increase in the net
interest margin. Return on average assets on an annualized basis was 1.49% for
March 31, 1997, compared to 1.22% at March 31, 1996. Return on average equity
showed an increase of 319 basis points to 13.36% at March 31, 1997 from 10.17%
at March 31, 1996.
ICBI's performance for 1996 showed improvement over the previous year,
even after opening a new branch and trust department. Continued high asset
quality, an excellent interest margin and improved management efficiencies
contributed to net income of $2,030,946 for 1996, compared with $1,706,494 in
1995 and $1,837,740 in 1994. Return on average assets increased during 1996 to
1.36% compared to 1.27% for 1995. Return on average assets decreased in 1995 to
1.27% from 1.46% in 1994. Return on average equity increased during 1996 to
11.70%, up from 10.26% for 1995 and down from 11.93% in 1994. The decrease in
both return on average assets and return on average equity during 1995 compared
to 1994 was directly related to the start-up cost of both a trust department and
a third branch in the fourth quarter of 1995. Also in January 1995, ICBI hired a
senior loan officer to replace another senior loan officer who retired in
December 1995. As both the trust department and branch grew during 1996, the
additional revenues increased the returns.
The net interest margin for March 31, 1997 was 4.84%, a 29 basis point
increase from 4.55% at March 31, 1996 and a 6 basis point decrease from 4.90% at
December 31, 1996. Net interest margin increased slightly during 1996 to 4.90%
on a tax-equivalent basis. Net interest margin for 1995 and 1994 was 4.84% and
5.08%, respectively. Net interest margin and net interest income are influenced
by fluctuations in market rates and changes in both the volume and mix of
average earning assets and the liabilities that fund those assets. Loan demand
remained relatively strong during each of the three years (1994 - 1996). The
average cost of funds has decreased 23 basis points from 4.27% at March 31, 1996
to 4.04% at March 31, 1997, while the average yield on earning assets increased
9 basis points from 7.98% to 8.07% at March 31, 1996 and 1997 respectively.
Overall, the average cost of funds increased 75 basis points from 3.36% in 1994
to 4.06% in 1995 then to 4.16% in 1996, and was not matched by the increase in
the average yield on earning assets which only increased 45 basis points from
7.78% in 1994 to 8.11% in 1995 then to 8.23% in 1996.
Loans, net of unearned income, were $94.5 million and $94.6 million at
March 31, 1997 and December 31, 1996, respectively. This represents a growth of
17% over the December 31, 1995 balance of $80.9 million. Loans, net of unearned
income increased only 1.5% in 1995 to $80.9 million from $79.7 million in 1994.
ICBI's investment portfolio continues to grow as excess deposits over loans are
placed in high-quality securities. At March 31, 1997, ICBI's securities
portfolio was 34% of average earning assets
-57-
<PAGE>
and had decreased slightly since December 31, 1996 to $52.1 million. At December
31, 1996, ICBI's securities portfolio represented 35.6% of average earning
assets and had increased by 14.7% over the level at December 31, 1995. Total
securities were $52.4 million at December 31, 1996, $48.2 million at December
31, 1995 and $41.4 million at December 31, 1994.
ICBI's efficiency ratio, a measure of its performance based upon the
relationship between non-interest expense and income less securities gains,
compares favorably to other Virginia financial institutions. ICBI's efficiency
ratio for March 31, 1997 was 52.2% compared to 62.01% at March 31, 1996. ICBI's
efficiency ratio for 1996, 1995, and 1994 was 57.9%, 59.0%, and 55.0%,
respectively. A lower percentage of the efficiency ratio represents greater
control of non-interest related costs. A fluctuation in the efficiency ratio can
be attributed to relative changes in both noninterest income and net interest
income.
ICBI is not aware of any current recommendations by any regulatory
authorities which, if they were implemented, would have a material effect on its
liquidity, capital resources, or results of operations.
Net Interest Income
Net interest income represents the principal source of earnings for
ICBI. Net interest income equals the amount by which interest income exceeds
interest expense. Changes in the volume and mix of interest-earning assets and
interest-bearing liabilities, as well as their respective yields and rates, have
a significant impact on the level of net interest income.
Net interest income was $1.7 million for the first quarter of 1997,
compared to $1.4 million for the same period in 1996. This represents an
increase of 21% affected primarily by the growth in earning assets during the
remainder of 1996 and the increase in the net interest margin. Loan growth
provided $281,000 in additional income for the first quarter of 1997. Interest
bearing deposits grew 12% from $104 million at March 31, 1996 to $118 million.
During the growth, ICBI was able to decrease the average cost of funds by 23
basis points. Net interest income was $6.5 million in 1996, up 12.25% over the
$5.8 million reported for the same period in 1995 and up .44% in 1995 over the
$5.7 million reported for 1994. Net interest income in 1996 was affected
primarily by growth in the both the securities and loan portfolios. Loans grew
$13.7 million to $94.6 million in 1996, providing $872,000 in additional
interest income. Investment securities grew $4.1 million to $52.4 at December
31, 1996. The growth in securities from 1995 to 1996 provided $391,000 of
additional interest income. In 1996, interest bearing deposits provided a
majority of the sources of funds by increasing to $115.5 million, up $11.9
million, or 11.5%, from $103.6 million in 1995. Interest bearing deposits
increased $4.2 million in 1995 from $99.4 million in 1994. The growth was a
result of opening two new branches as well as offering attractive market rates,
coupled with customers' desires to place investments in a strong, highly
capitalized financial institution. Management anticipates growth in net interest
income, loans and deposits to remain equally strong in 1997.
Net interest income for 1995 was $5.8 million, compared to $5.7 million
for 1994. Net interest income was affected by low loan demand as well as loan
run-off early in 1995. To gain market share, and anticipating rising interest
rates, management increased deposit rates early in the year. This resulted in a
70 basis point increase in the average cost of funds and contributed to the
decrease in net interest margin from 5.08% in 1994 to 4.84% in 1995. Loan growth
was minimal at 1.6%, ending 1995 with a balance of $80 million. Deposit growth
was slightly higher at 3.8%, ending with balances at $121.5 million at December
31, 1995. Noninterest bearing deposits decreased 4.2%, to $17.9 million at year
end 1995, which also added to the rising cost of funds.
-58-
<PAGE>
The following table depicts interest income on earning assets and
related average yields as well as interest expense on interest-bearing
liabilities and related average rates paid for the periods indicated. Loans
placed on a nonaccrual status are included in the balances and were included in
the computation of yields, upon which they had no material effect. The average
balances used for the purpose of this table and other statistical calculation
disclosures were calculated by using daily average balances.
-59-
<PAGE>
Average Balances, Income and Expenses, Yields and Rates
<TABLE>
<CAPTION>
Three months Ended, March 31
-------------------------------------------------------------------------
1997 1996
-----------------------------------------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate (3) Balance Expense Rate
------- ------- -------- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Assets :
Securities:
Taxable $ 36,268 $ 540 5.96% $ 34,550 $ 2,023 5.86%
Tax-exempt (1) (2) 16,400 324 7.91% 15,238 1,200 7.87%
------------------------- -------------------------
Total Securities 52,668 864 6.56% 49,788 3,223 6.47%
Loans
Taxable 94,094 2,134 9.07% 87,358 8,137 9.31%
Tax-exempt 271 6 8.86% - -
------------------------- -------------------------
Total Loans 94,365 2,140 9.07% 87,358 8,137 9.31%
Federal Funds Sold 4,609 57 4.95% 2,431 130 5.35%
Interest Bearing Deposits in
other financial institutions 177 3 6.78% 140 6 4.29%
------------------------- -------------------------
Total earning assets 151,819 3,064 8.07% 139,717 11,496 8.23%
Less: allowances for credit
losses (892) (894)
Total nonearning assets 12,108 10,340
------------- -------------
Total assets $ 163,035 $ 149,163
============= =============
Liabilities (1):
Interest-bearing deposits:
Checking $ 18,779 88 1.87% $ 18,348 $ 390 2.13%
Regular savings 15,159 142 3.75% 14,562 561 3.85%
Money market savings 28,944 210 2.90% 28,735 869 3.02%
Time deposits:
$100,000 and over 15,502 184 4.75% 12,013 738 6.14%
Under $100,000 37,242 529 5.68% 34,760 1,898 5.46%
------------------------- -------------------------
Total interest-bearing
deposits 115,626 1,153 3.99% 108,418 4,456 4.11%
Federal Home Loan Bank
advances 3,656 50 5.47% 3,188 187 5.87%
Securities sold under agreements
to repurchase 2,225 24 4.31% 8
Federal Funds Purchased - - 73 4 5.48%
----------------------------------- -------------------------
Total interest-bearing
liabilities 121,507 1,227 4.04% 111,687 4,647 4.16%
Non-interest bearing liabilities
Demand Deposits 22,298 19,211
Other liabilities 1,056 923
Total liabilities 144,861 131,821
Shareholders' equity 18,174 17,342
Total liabilities and shareholders'
equity $ 163,035 $ 149,163
============= =============
Net interest income $ 1,837 $ 6,849
============ ============
Interest rate spread 4.03% 4.07%
Interest expense as a percent of
average earning assets 3.23% 3.33%
Net interest margin 4.84% 4.90%
</TABLE>
Average Balances, Income and Expenses, Yields and Rates
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------
1995 1994
----------------------------------------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
(Dollars in
<S> <C> <C> <C> <C> <C> <C>
Assets :
Securities:
Taxable $ 30,953 $ 1,832 5.92% $ 28,583 $ 1,596 5.58%
Tax-exempt (1) (2) 12,452 939 7.54% 11,166 876 7.84%
------------------------- -------------------------
Total Securities 43,405 2,771 6.38% 39,749 2,472 6.22%
Loans
Taxable 79,639 7,265 9.12% 73,483 6,542 8.90%
Tax-exempt - - - -
------------------------- -------------------------
Total Loans 79,639 7,265 9.12% 73,483 6,542 8.90%
Federal Funds Sold 2,470 138 5.59% 5,390 215 3.99%
Interest Bearing Deposits in
other financial institutions - - - - - -
------------------------- -------------------------
Total earning assets 125,514 10,174 8.11% 118,622 9,229 7.78%
Less: allowances for credit
losses (931) (931)
Total nonearning assets 9,345 8,033
------------- -------------
Total assets $ 133,928 125,724
============= =============
Liabilities (1):
Interest-bearing deposits:
Checking $ 17,919 $ 436 2.43% $ 17,057 $ 414 2.43%
Regular savings 14,003 534 3.81% 13,356 454 3.40%
Money market savings 26,980 834 3.09% 29,817 803 2.69%
Time deposits:
$100,000 and over 12,523 689 5.50% 11,424 524 4.59%
Under $100,000 28,775 1,563 5.43% 23,530 1,003 4.26%
------------------------- -------------------------
Total interest-bearing
deposits 100,200 4,056 4.05% 95,184 3,198 3.36%
Federal Home Loan Bank
advances 514 31 6.03% - - -
Securities sold under agreements
to repurchase - - - - -
Federal Funds Purchased 145 9 6.21% - - -
------------------------- -------------------------
Total interest-bearing
liabilities 100,859 4,096 4.06% 95,184 3,198 3.36%
Non-interest bearing liabilities
Demand Deposits 15,691 14,467
Other liabilities 751 665
Total liabilities 117,301 110,316
Shareholders' equity 16,627 15,408
Total liabilities and shareholders'
equity $ 133,928 $ 125,724
============= =============
Net interest income $ 6,078 $ 6,031
============ ============
Interest rate spread 4.05% 4.42%
Interest expense as a percent of
average earning assets 3.26% 2.70%
Net interest margin 4.84% 5.08%
</TABLE>
(1) Income and yields are reported on tax equivalent basis assuming a federal
tax rate of 34%
(2) Income and yields include dividends on preferred bonds which are 70%
excludable for tax purposes.
(3) Yield/Rate has been annualized for the quarter ended March 31, 1997.
-60-
<PAGE>
The following table analyzes changes in net interest income
attributable to changes in the volume of interest-bearing assets and liabilities
compared to changes in interest rates. The change in interest due to both volume
and rate has been allocated to volume and rate changes in proportion to the
relationship of the absolute dollar amounts of the change in each. Nonaccruing
loans are included in average loans outstanding.
Volume and Rate Analysis
(Tax equivalent basis)
<TABLE>
<CAPTION>
Period Ended March 31, Year Ended December 31,
-----------------------------------------------------------------------------------
1997 vs 1996 1996 vs 1995
Increase (Decrease) Due Increase (Decrease) Due
to Changes in: to Changes in:
----------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Securities:
Taxable $ 29 $ 25 $ 54 $ 209 $ (18) $ 191
Tax-exempt 39 16 55 218 43 261
Loans:
Taxable 287 (10) 277 718 154 872
Tax-exempt 6 - 6 -
Federal funds sold 25 (4) 21 (2) (6) (8)
Interest bearing deposits in other
financial institutions 1 1 2 6 - 6
------------- ----------- --------------- ------------ ----------- -----------
Total earning assets $ 387 $ 28 $ 415 $ 1,149 $ 173 $ 1,322
Interest-Bearing Liabilities:
Interest checking $ - $ (22) (22) $ 11 (57) (46)
Regular savings deposits 12 (6) 6 21 6 27
Money market deposits 32 (33) (1) 54 (19) 35
Time deposits
$100,000 and over 26 (16) 10 (26) 75 49
Under $100,000 68 - 68 326 9 335
------------- ----------- --------------- ------------ ----------- -----------
Total interest bearing deposits $ 138 $ (77) $ 61 $ 386 $ 14 $ 400
Federal Home Loan Bank
Advances 8 (3) 5 157 (1) 156
Securities sold under agree-
ment to repurchase 24 - 24 - - -
Federal Funds Purchased - - - (4) (1) (5)
------------- ----------- --------------- ------------ ----------- -----------
Total interest bearing
liabilities $ 170 $ (80) $ 90 $ 539 $ 12 $ 551
Change in net interest income $ 217 $ 108 $ 325 $ 610 $ 161 $ 771
============= =========== =============== ============ =========== ===========
</TABLE>
Volume and Rate Analysis
(Tax equivalent basis)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1995 vs 1994
Increase (Decrease) Due
to Changes in:
--------------------------------------
Volume Rate Total
------ ---- -----
<S> <C> <C> <C>
Earning Assets:
Securities:
Taxable $ 136 $ 100 $ 236
Tax-exempt 94 (31) 63
Loans:
Taxable 558 165 723
Tax-exempt
Federal funds sold (296) 219 (77)
Interest bearing deposits in other
financial institutions - -
------------ ----------- ------------
Total earning assets $ 492 $ 453 $ 945
Interest-Bearing Liabilities:
Interest checking $ 22 $ - $ 22
Regular savings deposits 23 57 80
Money market deposits (55) 86 31
Time deposits
$100,000 and over 54 111 165
Under $100,000 251 309 560
------------ ----------- ------------
Total interest bearing deposits $ 295 $ 563 $ 858
Federal Home Loan Bank
Advances 31 - 31
Securities sold under agree-
ment to repurchase - - -
Federal Funds Purchased 9 - 9
------------ ----------- ------------
Total interest bearing
liabilities $ 335 $ 563 $ 898
Change in net interest income $ 157 $ (110) $ 47
============ =========== ============
</TABLE>
Interest Sensitivity
The primary goals of interest rate risk management are to minimize
fluctuations in net interest margin as a percentage of earning assets and to
increase the dollars of net interest margin at a growth rate consistent with the
growth rate of total assets. An important element of interest rate risk
management is monitoring the interest sensitivity gap. The interest sensitivity
gap is the difference between the interest-sensitive assets and
interest-sensitive liabilities in a specific time interval. The gap can be
managed by repricing assets or liabilities, by selling investments available for
sale, by replacing an asset or liability at
-61-
<PAGE>
maturity, or by adjusting the interest rate during the life of an asset or
liability. Matching the amounts of assets and liabilities repricing in the same
time interval helps to hedge the risk and minimize the impact on net interest
income in periods of rising or falling interest rates.
ICBI evaluates interest sensitivity risk and then formulates guidelines
regarding asset generation and pricing, funding sources and pricing, and
off-balance sheet commitments in order to decrease sensitivity risk. These
guidelines are based upon management's forecasts of future interest rate
movements, the state of the regional and national economy, and other financial
and business risk factors.
Interest rate gaps are managed through investments, loan pricing and
deposit pricing. When an unacceptable positive gap within a one-year time frame
occurs, maturities can be extended by selling shorter term investments and
buying longer term investments. The same effect can also be accomplished by
reducing emphasis on variable rate loans. When an unacceptable negative gap
occurs, variable rate loans can be increased and more investment in shorter term
investments can be made. Pricing policies on either or both loans and deposits
can be changed to accomplish such goals. ICBI reviews the interest sensitivity
position of its subsidiary quarterly.
At March 31, 1997, ICBI had $9 million more interest sensitive
liabilities than interest sensitive assets subject to repricing within one year
and was, therefore, in an liability sensitive position. A liability sensitive
institution's net interest margin and net interest income generally will be
impacted favorably by declining interest rates, while that of a asset sensitive
institution generally will be impacted favorably by rising interest rates.
-62-
<PAGE>
The following table analyzes ICBI's rate interest sensitivity at March
31, 1997. This is a one-day position which is continually changing and is not
necessarily indicative of ICBI's position at any other time.
Rate Sensitivity Analysis
<TABLE>
<CAPTION>
March 31, 1997
Repricing Time Frame
-------------------------------------------------------------------------------
Beyond
1 - 90 Day 91 - 365 Day 1 to 5 Years 5 Years or
Sensitivity Sensitivity Sensitivity Insensitive Total
-------------- ---------------- --------------- ------------- --------------
Earning Assets: (Dollars in thousands)
Loans, net unearned (1)
<S> <C> <C> <C> <C> <C>
Fixed rate $ 7,787 $ 13,948 $ 57,915 $ 2,812 $ 82,462
Variable rate 11,566 13 507 - 12,086
-------------- ---------------- --------------- ------------- --------------
Total loans 19,353 13,961 58,422 2,812 94,548
Securities (2) (3)
Fixed rate 250 1,219 8,417 30,539 40,425
Variable rate 5,220 1,502 3,540 640 10,902
Federal Funds sold and other 7,300 7,300
-------------- ---------------- --------------- ------------- --------------
Total rate sensitive assets $ 32,123 $ 16,682 $ 70,379 $ 33,991 $ 153,175
Interest Bearing Liabilities:
Interest checking (4) $ - $ - $ - $ 19,095 $ 19,095
Regular savings (4) - - - 15,224 15,224
Money market savings 30,392 - - - 30,392
Time deposits
$100,000 and over 1,371 2,574 11,623 - 15,568
Under $100,000 7,671 10,763 19,710 - 38,144
Short-term borrowings 5,116 - - - 5,116
-------------- ---------------- --------------- ------------- --------------
Total interest bearing liabilities $ 44,550 $ 13,337 $ 31,333 $ 34,319 $ 123,539
Period gap (12,427) 3,345 39,046 (328) 29,636
Cumulative gap (12,427) (9,082) 29,964 29,636
Ratio of cumulative gap to total -8.11% -5.93% 19.56% 19.35%
rate sensitive assets
</TABLE>
(1) Does not include non accrual loans of $118,000.
(2) Does not include Federal Reserve Stock of $134,400 and Federal Home Loan
Bank Stock of $450,600
(3) Variable rate securities are categorized by repricing date rather than
maturity date.
(4) ICBI has determined that interest checking and savings accounts are not
sensitive to changes in market rates as a result of minimal fluctuation in
the balances during periods of wide fluctuations in interest rates thus
considering these as core deposits.
-63-
<PAGE>
Noninterest Income
Noninterest income for the three months ended March 31, 1997 increased
$37,000 over the same period in 1996. Noninterest income for 1996 increased
$48,000, or 6.9%, over the same period in 1995. Service charges on deposit
accounts, the largest single item of noninterest income, were $204,000 for the
first quarter of 1997, an increase of 16.57% from the prior year's first quarter
balance. Service charges were $677,000 for 1996, up 3.9% over the comparable
period a year ago. Other operating income decreased $150,000 in 1996 from
$166,000 to $16,000. In 1995, ICBI recorded a $150,000 gain on other real estate
sold. Trust fee income for 1996 was $29,000, which arises from a new service
that ICBI anticipates will provide additional fee income in future years.
Securities gains were $22,000 in 1996, compared to a loss of $123,000 in 1995.
Securities gains are realized when market conditions exist that are favorable
for ICBI and/or conditions dictate additional liquidity is desirable.
Noninterest income increased $170,000, or 32% from $524,000 in 1994 to
$694,000 in 1995. Service charges on deposit accounts, were $651,000, compared
to $614,000 in 1994. Other income was $166,000 in 1995 compared to $35,000 in
1994. Securities losses remained relatively the same at $123,000 and $125,000
for 1995 and 1994, respectively. The losses incurred in 1994 and 1995 relate
directly to the approximate $18 million of securities purchased in 1993. Because
the securities purchased at that time were yielding lower returns than those
currently available, management decided to take the losses to reposition the
portfolio to strengthen the yield and liquidity position. The effects of the
actions taken resulted in an increase of 16 basis points in the yield of the
portfolio from 1994 to 1995. The yield of the portfolio increased nine basis
points from 1995 to 1996.
Noninterest Income
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
-------------------------- -----------------------------------------
1997 1996 1996 1995 1994
------------- ------------ ------------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Services, commissions and fees $ 204 $ 175 $ 677 $ 651 $ 614
Trust fee income 23 4 29 - -
Other operating income 1 1 16 166 35
------------- ------------ ------------- ------------ ------------
Noninterest income $ 228 $ 180 $ 722 $ 817 $ 649
Profits (losses) on securities available for 3 14 22 (123) (125)
sale, net
Securities gains (losses), net - - (2) - -
------------- ------------ ------------- ------------ ------------
Total noninterest income $ 231 $ 194 $ 742 $ 694 $ 524
============= ============ ============= ============ ============
</TABLE>
NonInterest Expense
Total noninterest expense increased $27,000, or 2.57% from the March
31, 1996 balance to $1,077,000 at March 31, 1997. Total noninterest expense
increased $316,000, or 7.7% from $4.1 million in 1995 to $4.4 million in 1996.
Salaries and employee benefits increased $33,000 from March 31, 1996 to $643,000
at March 31, 1997. These same expenses increased $370,000 or 17.1% in 1996. The
net occupancy expenses, including furniture and fixture expense increased
$14,000 from March 31, 1996 to $132,000 at March 31, 1997. These expenses also
increased $129,000 or 29.7% during 1996. The advertising expenses decreased
$25,000 from March 31, 1996 to the three months ending 1997. During 1996, the
advertising expenses increased $58,000 or 54.7%. At March 31, 1997, ICBI's FDIC
insurance increased $7,000 from the March 31, 1996 balance of $1,000. This
expense had decreased $133,000 or
-64-
<PAGE>
98.5% during 1996. Other operating expenses decreased $2,000 during the first
quarter of 1997 compared to the prior year's same period. These expenses had
also decreased $108,000 or 8.7% during 1996. The primary reason for the increase
in noninterest expense was the opening of both a new branch and trust department
in 1996, partially offset by the reduction in FDIC insurance expense. The FDIC
deposit insurance fund achieved a level deemed adequate by regulatory
authorities to protect deposits, therefore, the premiums were adjusted in the
third quarter of 1995 to reflect this achievement.
For 1995, noninterest expense increased $395,000, or 10%, over 1994.
This increase was primarily due to a $283,000 or 15% increase in salaries and
employee benefits which is the result of hiring additional staffing for the new
branch (opened January 1996) and trust officer late in the year for training.
Net occupancy expenses increased $107,000 or 32.8% over 1994, a full year of the
first branch opened in 1994 and renovations of the main office contributed to
this increase. The increase of $103,000 or 9.1% in other operating expenses is
the result of one additional branch and start up costs of a new branch and trust
department. FDIC insurance decreased $99,000 or 42.3% as a result of the
adjustment in premiums in late 1995.
<TABLE>
<CAPTION>
Noninterest Expense
Three Months
Ended March 31, Year Ended December 31,
-------------------------------------------------------------------
1997 1996 1996 1995 1994
------------ -------------------------- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 643 $ 610 $ 2,533 $ 2,163 $ 1,880
Net occupancy expense of premises 132 118 562 433 326
Advertising 29 54 164 106 105
FDIC insurance 8 1 2 135 234
Other operating expenses 265 267 1,122 1,230 1,127
------------ -------------------------- ------------ -------------
Total $ 1,077 $ 1,050 $ 4,383 $ 4,067 $ 3,672
============ ========================== ============ =============
</TABLE>
Income Taxes
Income tax expense increased $84,000 from $139,000 for the three months
ended March 31, 1996 to $223,000 for the three months ended March 31, 1997 due
to increase in income.
Reported income tax expense for the year ended December 31, 1996 was
$728,000, up from $625,000 and decreased from $748,000 in 1994. The increase in
income taxes is attributable to increased taxable earnings at the federal
statutory tax rate of 34%. Note 10 to the Consolidate Financial Statements
provides a reconciliation between the amount of income tax expense computed
using the federal statutory tax rate and ICBI's actual income tax expense. Also
included in Note 10 to the Consolidated Financial Statements is information
regarding the principal items giving rise to deferred taxes for the three years
ended December 31, 1996.
Loan Portfolio
Loans, net of unearned income, were $94.5 million at March 31, 1997, up
from $82.4 million at March 31, 1996. Loans, net of unearned income $94.6
million at December 31, 1996, up 16.9% from the $80.9 million at December 31,
1995. ICBI has experienced continued loan growth from 1992. Loans
-65-
<PAGE>
increased $1.2 million from 1994 to 1995, $8.5 million from 1993 to 1994, and
$4.1 million from 1992 to 1993, increases of 1.5%, 11.9% and 6.2%, respectively.
The real estate secured portfolio is comprised mostly of one to four
family residential secured loans. At December 31, 1996, these loans constituted
43.6% of the total loan portfolio. Non-farm, non-residential loans provided
26.2% of total loans at December 31, 1996. Construction real estate loans
comprised 4.4% of the total portfolio at that same date. Home equity lines and
agricultural loans made up 2.8% and 3.2% of total loans, respectively, at
December 31, 1996.
ICBI's commercial, financial and agricultural loan portfolio, the
second largest segment of the total portfolio, consists mostly of secured and
unsecured loans extended to small businesses. The consumer loan portfolio is
comprised of mostly unsecured installment credit.
Consistent with its focus on providing community-based financial
services, ICBI generally does not extend loans outside its principal market
area, which encompasses Fauquier and Loudoun Counties, Virginia.
ICBI's unfunded loan commitments (excluding unused home equity lines of
credit) totaled $6.8 million at March 31, 1997, $6.6 million at December 31,
1996 and $3.3 million at December 31, 1995. This increase is attributed to both
an increase in customer demand and the addition of the Purcellville and Leesburg
branches.
At both March 31, 1997 and December 31, 1996, ICBI had no concentration
of loans in any one industry in excess of 10 percent of its total loan
portfolio. However, because of the nature of ICBI's market, loan collateral is
predominantly real estate related.
Loan Portfolio
<TABLE>
<CAPTION>
Three months
ended March 31, December 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $12,183 $11,648 $10,215 $ 9,064 $10,928 $ 6,677
Real estate construction 3,702 4,182 1,791 2,432 1,488 1,949
Real estate mortgage:
Residential (1-4 family) 40,300 41,246 34,490 38,029 33,138 33,753
Home equity lines 2,803 2,614 2,188 1,512 1,271 2,019
Multifamily -- -- -- 3 6 9
Non-farm, non-residential (1) 25,643 24,774 21,697 18,271 17,093 14,786
Agricultural 2,093 2,105 1,549 1,040 1,098 1,163
Consumer installment 7,852 8,061 9,170 9,837 6,773 7,371
------- ------- ------- ------- ------- -------
Total loans 94,576 94,630 81,100 80,188 71,795 67,727
Less unearned income 28 35 186 481 597 665
------- ------- ------- ------- ------- -------
Loans-net of unearned income $94,548 $94,595 $80,914 $79,707 $71,198 $67,062
======= ======= ======= ======= ======= =======
</TABLE>
(1) This category generally consists of commercial and industrial loans where
real estate constitutes a source of collateral.
-66-
<PAGE>
<TABLE>
<CAPTION>
Remaining Maturities of Selected Loans
March 31, 1997 December 31, 1996
------------------------------ -------------------------------
Commercial, Real Commercial, Real
Financial and Estate Financial and Estate
Agricultural Construction Agricultural Construction
(Dollars in thousands)
<S> <C> <C> <C> <C>
Within 1 year $ 6,691 $ 3,007 $ 6,463 $ 3,435
-------------- -------------- --------------- ---------------
Variable Rate:
1to 5 years 316 - 259 -
After 5 years - - - -
-------------- -------------- --------------- ---------------
Total $ 316 $ - $ 259 $ -
-------------- -------------- --------------- ---------------
Fixed Rate:
1to 5 years 4864 695 4,641 747
After 5 years 312 - 285 -
-------------- -------------- --------------- ---------------
Total $ 5,176 $ 695 $ 4,926 $ 747
-------------- -------------- --------------- ---------------
Total Maturities $ 12,183 $ 3,702 $ 11,648 $ 4,182
============== ============== =============== ===============
</TABLE>
Asset Quality
The allowance for loan losses is an estimate of the amount that will be
adequate to provide for potential losses in ICBI's loan portfolio. The level of
loan losses is affected by general economic trends as well as any conditions
affecting individual borrowers. The allowance is subject to regulatory
examinations and determinations as to its adequacy, which may take into account
such factors as the methodology used to calculate the allowance and the size of
the allowance in comparison to peer financial institutions identified by the
regulatory agencies.
ICBI's loans are subject to independent review by ICBI's in-house Loan
Review Officer and by its external auditors. ICBI's Loan Committee and Board of
Directors take an active role in the monthly review of the ICBI's problem
credits and their effect on the allowance for loan losses.
-67-
<PAGE>
Allowance for Loan Losses
<TABLE>
<CAPTION>
Three months
ended March 31, December 31,
----------------------- -----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, beginning of period $ 884 $ 866 $ 866 $ 940 $ 859 $ 853 $
1,053
Loans charged off:
Commercial, financial, and 11 - 6 13 38 119 185
agricultural
Real estate construction - - - - - - -
Real estate mortgage - - 79 115 36 99 -
Consumer installment 16 5 40 83 142 77 228
---------- ---------- ----------- ---------- ----------- ----------- ----------
Total loans charged off $ 27 $ 5 $ 125 $ 211 $ 216 $ 295 $ 413
---------- ---------- ----------- ---------- ----------- ----------- ----------
Recoveries:
Commercial, financial, and $ 2 $ - $ 5 $ 43 $ 210 $ 25 $ 7
agricultural
Real estate construction - - - - - - -
Real estate mortgage 1 21 26 4 - - 8
Consumer installment 6 21 47 35 87 48 35
---------- ---------- ----------- ---------- ----------- ----------- ----------
Total recoveries $ 9 $ 42 $ 78 $ 82 $ 297 $ 73 $ 50
---------- ---------- ----------- ---------- ----------- ----------- ----------
Net charge offs (recoveries) 18 (37) 47 129 (81) 222 363
Provision for loan losses 55 - 65 55 - 228 163
---------- ---------- ----------- ---------- ----------- ----------- ----------
37
Balance, end of period $ 921 $ 903 $ 884 $ 866 $ 940 $ 859 $ 853
========== ========== =========== ========== =========== =========== ==========
Ratio of allowance for loan losses
to loans outstanding at end of 0.97% 1.10% 0.93% 1.07% 1.18% 1.21% 1.27%
period
Ratio of net charge offs (recoveries)to
average loans outstanding during 0.02% -0.05% 0.05% 0.16% -0.11% 0.32% 0.53%
period
</TABLE>
Loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention, do not represent or result from trends or
uncertainties which management reasonably expects will materially impact future
operating results, liquidity, or capital resources or represent material credits
about which management is aware of any information which causes management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment terms.
In 1996, ICBI's net charge offs declined $82,000 from the previous
year's $129,000 in net charge offs. The improved charge off experience resulted
from both the strengthened economy and an improved loan policy. Net charge offs
to average loans were 0.05% and 0.16% for 1996 and 1995, respectively.
At March 31, 1997, the provisions to the allowance for loan losses
totaled $55,000. The provision to the allowance for loan losses was $65,000 for
1996. A provision of $55,000 was made in 1995, while no provision was deemed
necessary for 1994. The ratio of the allowance for loan losses to total loans,
net of unearned income has decreased over the past five years. More recently the
decrease was attributed to
-68-
<PAGE>
the significant loan growth experienced by the ICBI. However, the increase in
the reserve was not necessarily due to a decline in nonperforming assets and
charge offs.
The allowance for loan losses was $921,000 at March 31, 1997, an
increase of $18,000 from the March 31, 1996 balance. The allowance was $883,536
at December 31, 1996, an increase of $17,363 from the $866,173 balance at
December 31, 1995. The allowance was $940,081 at December 31, 1994.
The ratio of allowance for loan losses to nonperforming assets totaled
658% at March 31, 1997; 1163% at December 31, 1996; 52% at December 31, 1995,
and 36 % at December 31, 1994. Management evaluates nonperforming loans relative
to their collateral value and makes appropriate reductions in the carrying value
of those loans based on that review. Management believes, based on its review,
that ICBI has adequate reserves to absorb any necessary future write-down on
these loans.
The following table shows the balance and percentage of ICBI's
allowance for loan losses allocated to each major category of loans:
<TABLE>
<CAPTION>
Allocation of Allowance for Loan Losses
Commercial, Real Estate Real Estate
Financial,
and Agricultural Construction Mortgage Consumer
------------------------- ------------------------------------------------ -----------------------
Reserve Percent of Reserve Percent of Reserve Percent of Reserve Percent of
for Loan in for Loan in for Loan in for Loan in
Credit Category to Credit Category to Credit Category to Credit Category to
Losses Total Loans Losses Total Loans Losses Total Loans Losses Total Loans
------ ----------- ------ ----------- ------ ----------- ------ -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31,
1997 224 12.88% 198 3.91% 146 74.94% 353 8.27%
1996 179 10.55% 177 1.91% 310 77.52% 237 10.02%
December 31,
1996 244 12.31% 101 4.42% 182 74.79% 357 8.48%
1995 246 12.62% 23 2.21% 346 74.07% 251 11.10%
1994 363 11.37% 17 3.05% 342 73.84% 218 11.74%
</TABLE>
ICBI has allocated the allowance according to the amount deemed to be
reasonably necessary to provide for the possibility of losses being incurred
within each of the above categories of loans. The allocation of the allowance as
shown in the table above should not be interpreted as an indication that loan
losses in future years will occur in the same proportions or that the allocation
indicates future loan loss trends. Additionally, the portion allocated to each
loan category is not the total amount that may be available for the future
losses that could occur within such categories since the total allowance is a
general allowance applicable to the entire portfolio.
Nonperforming Assets
Total nonperforming assets, which consist of nonaccrual and
restructured loans and foreclosed property, were $140,000 at March 31, 1997, an
increase of $64,000 from the December 31, 1996 balance. Total nonperforming
assets were $76,000 at December 31, 1996, a decrease of $1,578,000 from the
December 31, 1995 balance. Nonperforming assets at December 31, 1994, decreased
$481,000 from the $3,098,000 December 31, 1993 balance. The majority of the
$1,578,000 1996 decrease reflects the return
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<PAGE>
of several loans to accrual status. Because the loans were current with
repayment and adequately secured, regulators, during their 1996 examination,
recommended returning the loans to accrual status.
Nonperforming Assets
<TABLE>
<CAPTION>
Three months
ended March 31, December 31,
--------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans $ 140 $ 76 $ 1,654 $ 1,700 $ 2,138 $ 2,194
Restructured loans - - - - - -
Foreclosed property - - - 917 960 1,325
------------ ---------- ---------- ---------- ----------- ------------
Total nonperforming assets $ 140 $ 76 $ 1,654 $ 2,617 $ 3,098 $ 3,519
============ ========== ========== ========== =========== ============
Allowance for loan losses
to period end loans 0.97% 0.93% 1.07% 1.18% 1.21% 1.27%
Allowance for loan losses
to nonperforming assets 658% 1163% 52% 36% 28% 24%
Nonperforming assets to
period end loans 0.15% 0.08% 2.04% 3.28% 4.35% 5.25%
Net charge offs to
average loans 0.02% 0.05% 0.16% -0.11% 0.32% 0.53%
</TABLE>
Loans are placed on nonaccrual status when loans become 90 days past
due unless they are well-secured and collection of principal and interest will
occur. There are three negative implications for earnings when a loan is placed
on nonaccrual status. All interest accrued but unpaid at the date the loan is
placed on nonaccrual status is either deducted from interest income or written
off as a loss. Second, accrual of interest is discontinued until it becomes
certain that both principal and interest can be repaid or payments of both
interest and principal have been made consistently. Third, there may be actual
losses which necessitate additional provisions for loan losses charged against
earnings.
During 1996, approximately $1,993 in additional interest income would
have been recorded if ICBI's nonaccrual loans had been current and in accordance
with their original terms. During 1995, approximately $21,708 of additional
interest income would have been recorded if ICBI's nonaccrual loans had been
current and in accordance with their original terms.
At March 31, 1997, potential problem loans totaled $282,092. At
December 31, 1996, potential problem loans were approximately $170,180. These
loans are subject to regular management attention and their status is reviewed
on a regular basis. Several of the potential problem loans identified at
December 31, 1996 are unsecured consumer loans. However, the majority of the
balance of the total problem loans is secured by real estate and automobiles.
ICBI expects loan growth to continue at similar rates to those
experienced during 1996.
-70-
<PAGE>
Securities
The carrying value of the securities portfolio was $52.0 million at
March 31, 1997. The carrying value at December 31, 1996 was $52.4 million,
compared to $48.3 million at December 31, 1995. The $4.1 million change
represents an increase of 8.5% in securities, compared to the $6.9 million, or
16.6%, increase experienced in 1995 over 1994 total carrying value. The increase
in 1996 over 1995 is primarily due to the $2.3 million increased investment in
mortgaged-backed securities. At March 31, 1997, ICBI held bonds issued from the
Commonwealth of Virginia and its political subdivisions having an aggregate book
value of $3,847,536 and an aggregate market value of $3,801,347. These aggregate
holdings exceeded 10% of ICBI's stockholder's equity at March 31, 1997. At
December 31, 1996, ICBI held bonds issued from the Commonwealth of Virginia and
its political subdivisions which had an aggregate book value of $4,923,597 and
an aggregate market value of $4,107,144. These aggregate holdings exceeded 10%
of ICBI's stockholder's equity at December 31, 1996.
The securities portfolio consists of two components, securities held to
maturity and securities available for sale. Securities are classified as held to
maturity when management has the intent and ICBI has the ability at the time of
purchase to hold the securities to maturity. Securities held to maturity are
carried at cost adjusted for amortization of premiums and accretion of
discounts. Securities to be held for indefinite periods of time are classified
as available for sale and accounted for at fair market value. Securities
available for sale include securities that may be sold in response to changes in
market interest rates, changes in the security's prepayment risk, increases in
loan demand, general liquidity needs and other similar factors.
Financial Accounting Standards Board Pronouncement No. 115, effective
January 1, 1994, required ICBI to show the effect of market changes in the value
of securities available for sale (AFS). The market value of AFS securities at
March 31, 1997 and December 31, 1996 was $35 million. The unrealized loss on the
AFS securities amounted to $651,176 at March 31, 1997 and $519,279 at December
31, 1996. This loss is reflected, net of income taxes, as a separate line item
in shareholders' equity.
It is ICBI's policy not to engage in activities considered to be
derivative in nature, such as futures, options contracts, swaps, caps, floors,
collars, or forward commitments. ICBI does hold in its loan and securities
portfolio investments that adjust or float according to changes in the "prime"
lending rate or other indexes that are not considered speculative, but are
necessary for good asset/liability management.
-71-
<PAGE>
Investment Portfolio and Securities Available for Sale
The carrying value of investment securities at the dates indicated was:
March 31, December 31,
--------- ------------------------------
(Dollars in thousands)
1997 1996 1995 1994
---- ---- ---- ----
U.S. Government securities $ 2,510 $ 3,012 $ 4,367 $ 5,630
States and political subdivisions 13,241 13,396 11,396 11,523
Mortgaged-backed securities 854 958 1,248 1,646
------- ------- ------- -------
Total $16,605 $17,366 $17,011 $18,799
======= ======= ======= =======
The carrying value of securities available for sale at the dates indicated was:
March 31, December 31,
--------- ------------------------------
(Dollars in thousands)
1997 1996 1995 1994
---- ---- ---- ----
U.S. Government securities $ 4,820 $ 4,950 $ 3,874 $ 566
Mortgaged-backed securities 27,892 26,521 23,886 21,911
Other securities 2,741 3,565 3,519 135
------- ------- ------- -------
Total $35,453 $35,036 $31,279 $22,612
======= ======= ======= =======
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<PAGE>
The amortized cost and fair value of securities by contractual maturity
are shown below.
Maturity Distribution and Yields of Securities
March 31, 1997
Taxable-Equivalent Basis
<TABLE>
<CAPTION>
Due in 1 year Due after 1 through Due after 5 through
or less 5 years 10 years
-------------------------------------------------------------------------------
(Dollars in thousands) Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Securities held for investment:
U.S. Government securities $ 502 4.83% $ 2,008 4.04% $ - -
Mortgage backed securities - - 87 7.72% 55 7.72%
Other taxable securities - - - - - -
------- --------- -------
Total taxable 502 4.83% 2,095 4.19% 55 7.72%
Tax-exempt securities (1) 967 6.09% 4,659 6.86% 6,235 7.22%
------- --------- -------
Total $ 1,469 5.66% $ 6,754 6.03% $ 6,290 7.23%
------- --------- -------
Securitites available for sale:
U.S. Government securitites $ - - $ 835 6.13% $ 3,859 7.42%
Mortgage backed securities - - 2,353 5.24% 8,891 5.88%
Corporate preferred - - - - - -
------- --------- -------
Total $ - - $ 3,188 5.48% $12,750 6.35%
------- --------- -------
Total securities $ 1,469 5.39% $ 9,942 5.86% $19,040 6.64%
======= ========= =======
</TABLE>
<TABLE>
<CAPTION>
Due after 10 years
and Equity Securities Total
-------------------------------------------------------------------
(Dollars in thousands) Amount Yield Amount Yield
------ ----- ------ -----
<S> <C> <C> <C> <C>
Securities held for investment:
U.S. Government securities $ - - $ 2,510 4.20%
Mortgage backed securities 712 7.05% 854 7.16%
Other taxable securities - - - -
------ --------
Total taxable 712 7.05% 3,364 4.95%
Tax-exempt securities (1) 1,380 7.79% 13,241 7.07%
------ --------
Total $ 2,092 7.53% $ 16,605 6.64%
------ --------
Securitites available for sale:
U.S. Government securitites $ - - $ 4,694 7.14%
Mortgage backed securities 15,811 6.46% 27,055 6.17%
Corporate preferred 2,996 12.26% 2,996 11.86%
------ --------
Total $18,807 7.38% $ 34,745 6.79%
------ --------
Total securities $20,899 7.39% $ 51,350 6.74%
======= ========
</TABLE>
(1) Yields on tax- exempt securitites have been computed on a tax - equivalent
basis
(2) Excludes Federal Reserve Stock of $134,400 and Federal Home Loan Bank Stock
of $573,600.
Deposits
ICBI has made an effort in recent years to increase core deposits and
control the cost of funds. Deposits provide funding for investments in loans and
securities. The interest paid for deposits must be managed carefully to control
the level of interest expense.
As shown below, average total deposits grew by 8.1% from December 31,
1996 to March 31, 1997, and 10.1% in 1996 and 5.7% in 1995. Growth experienced
in the certificates of deposits less than $100,000 category was the greatest
contributor to the 1996 increase in deposits. The average aggregate interest
rate paid on interest-bearing deposits was 3.99% at March 31, 1997 and 4.11% in
1996, compared to 4.05% for 1995 and 3.36% for 1994.
Recent deposit growth is the result of ICBI's branching efforts. After
70 years of a main office in Middleburg, Virginia with no branches, in 1994,
ICBI opened its first branch in a neighboring community. In early 1996, ICBI
established its second branch, in Leesburg, Virginia. Although still operating
from a temporary facility, the second branch has substantially contributed to
deposit growth.
ICBI will continue funding assets with deposit liability accounts and
focus upon core deposit growth as the primary source for liquidity and
stability. ICBI offers individuals and small to medium sized businesses a
variety of deposit accounts, including demand deposit, interest checking, money
market, savings and time deposit accounts.
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The following table is summary of average deposits and average rates
paid:
Deposits and Rates Paid
<TABLE>
<CAPTION>
Three months
ended March 31, December 31,
--------------------- ---------------------------------------------------------------------
1997 1996 1995 1994
--------------------- ----------------------------------------------- ---------------------
Amount Rate Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
deposits $ 22,298 - $ 19,211 - $ 15,691 - $ 14,467 -
Interest-bearing accounts:
Interest checking 18,779 1.87% 18,348 2.13% 17,919 2.43% 17,057 2.43%
Regular savings 15,159 3.75% 14,562 3.85% 14,003 3.81% 13,356 3.40%
Money market accounts 28,944 2.90% 28,735 3.02% 26,980 3.09% 29,817 2.69%
Time deposits:
Less than $ 100,000 37,242 5.68% 34,760 5.46% 28,775 5.43% 23,530 4.26%
$ 100,000 and more 15,502 4.75% 12,013 6.14% 12,523 5.50% 11,424 4.59%
-------- -------- -------- -------
Total interest-bearing deposits 115,626 3.99% 108,418 4.11% 100,200 4.05% 95,184 3.3%
-------- -------- -------- -------
Total $ 137,924 $ 127,629 $ 115,891 $ 109,651
========== ========== ========== ==========
</TABLE>
ICBI neither purchases brokered deposits nor solicits deposits from
sources outside its primary market area. In 1997, deposit levels are expected to
continue to increase over those at the end of December 31, 1996 with the
completion of the Leesburg Branch facility.
The following is a summary of the maturity distribution of certificates
of deposit equal to and greater than $100,000 as of March 31, 1997 and December
31, 1996:
Maturities of CD's of $100,000 and Over
<TABLE>
<CAPTION>
Within Three to Six to Over Percent
Three Six Twelve One of Total
Months Months Months Year Total Deposits
------------ ------------ ------------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
At March 31, 1997 $ 1,017 $ 889 $ 1,147 $ 12,515 $ 15,568 11.00%
At December 31, 1996 $ 2,023 $ 1,456 $ 2,323 $ 8,211 $ 14,013 10.00%
</TABLE>
Capital Resources
The adequacy of the ICBI's capital is reviewed by management on an
ongoing basis with reference to the size, composition and quality of the ICBI's
asset and liability levels and consistent with regulatory requirements and
industry standards. Management seeks to maintain a capital structure that will
assure an adequate level of capital to support anticipated asset growth and
absorb potential losses.
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The Federal Reserve, along with the Federal Deposit Insurance
Corporation, have adopted capital guidelines to supplement the definitions of
capital for regulatory purposes and to establish minimum capital standards.
Specifically, the guidelines categorize assets and off-balance sheet items into
four risk-weighted categories. The minimum ratio of qualifying total capital to
risk-weighted assets is 8.0%, of which at least 4.0% must be Tier I capital,
composed of common equity and retained earnings. ICBI had a ratio of
risk-weighted assets to total capital of 19.8% at March 31, 1997 and 20.2% at
December 31, 1996. The ratio of risk-weighted assets to Tier I capital was 18.9%
at March 31, 1997 and 19.3% at December 31, 1996. Both of these exceed the
capital requirements adopted by the federal bank regulatory agencies.
Analysis of Capital
<TABLE>
<CAPTION>
Three months
ended
March 31, December 31,
---------------- ---------------------------------
1997 1996 1995
---------------- --------------- ----------------
<S> <C> <C> <C>
Tier 1 Capital:
Common stock $ 4,185 $ 4,299 $ 4,299
Capital surplus 889 1,411 1,411
Retained earnings 13,424 12,817 11,508
Unrealized net loss on
equity securities (25) (35) -
--------- --------- ---------
Total Tier 1 capital 18,473 18,492 17,218
Tier 2 Capital:
Allowance for loan losses 921 844 866
--------- --------- ---------
Total tier 2 capital 921 844 866
Total risk-based capital $ 19,394 $ 19,336 $ 18,084
================ =============== ================
Risk weighted assets $ 97,790 $ 95,921 $ 82,580
CAPITAL RATIOS:
Tier 1 risk-based capital ratio 18.9% 19.3% 20.9%
Total risk-based capital ratio 19.8% 20.2% 21.9%
Tier 1 capital to average total assets 11.3% 11.7% 12.4%
</TABLE>
Liquidity
Liquidity represents an institution's ability to meet present and
future financial obligations through either the sale or maturity of existing
assets or the acquisition of additional funds through liability management.
Liquid assets include cash, interest-bearing deposits with banks, federal funds
sold, securities classified for available for sale and loans and investments
maturing within one year. As a result of ICBI's management of liquid assets and
the ability to generate liquidity through liability funding, management
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believes the ICBI maintains overall liquidity sufficient to satisfy its
depositors' requirements and meet its customers' credit needs.
ICBI also maintains additional sources of liquidity through a variety
of borrowing arrangements. The Bank maintains federal funds lines with a large
regional and a money-center banking institutions totaling in excess of $8
million, of which none was borrowed at March 31, 1997. ICBI has not borrowed
Federal Funds during the first quarter of 1997. Federal funds borrowed during
1996 averaged $73,000. At March 31, 1997, the Bank had $2.1 million of
outstanding borrowings pursuant to securities repurchase agreement transactions,
with maturities of one day. The Bank has a credit line totaling $16 million from
the Federal Home Loan Bank that can be utilized for short and/or long-term
borrowing.
At December 31, 1996, cash, interest-bearing deposits with financial
institutions, federal funds sold, securities available for sale, investments and
loans maturing within one year were 50.96% of total deposits and other
liabilities. ICBI joined the Federal Home Loan Bank system in 1995 in order to
enter a program of long-term and short-term borrowing which is restricted to be
invested in Residential Housing Finance Assets (RHFA). RHFA are defined as (1)
Loans secured by residential real property; (2) Mortgage-backed securities; (3)
Participations in loans secured by residential real property; (4) Loans financed
by Community Investment Program advances; (5) Loans secured by manufactured
housing, regardless of whether such housing qualifies as residential real
property; or (6) Any loans or investments which the Federal Housing Finance
Board and ICBI, in their discretion, otherwise determine to be residential
housing finance assets. In 1996, short-term borrowings from the Federal Home
Loan Bank system for RHFA investments were $4 million maturing in 1997.
Accounting Rule Changes
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) 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.
The effects of these Statements on the Company's consolidated financial
statements are not expected to be material.
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DESCRIPTION OF ICBI CAPITAL STOCK
ICBI is authorized to issue up to 10,000,000 shares of common stock,
par value $5.00 per share. ICBI had 837,149 shares of common stock outstanding
at March 31, 1997, held by 455 shareholders of record. The following summary
description of the capital stock of ICBI is qualified in its entirety by
reference to the Articles of Incorporation of ICBI (the "ICBI Articles") and
ICBI's Bylaws, copies of which are available for inspection as exhibits to the
registration statement filed with the Securities and Exchange Commission (the
"SEC") in connection with this Proxy Statement/Prospectus.
The holders of ICBI Common Stock are entitled to one vote per share on
all matters submitted to a vote of shareholders. Holders of ICBI Common Stock
are entitled to receive dividends when and as declared by the ICBI Board of
Directors from funds legally available therefor.
All outstanding shares of ICBI Common Stock are fully paid and
non-assessable. Holders of ICBI Common Stock are not entitled to cumulative
voting rights. Therefore, the holders of a majority of the shares voted in the
election of directors can elect all of the directors then standing for election
subject to the rights of preferred stock, if and when issued. Holders of ICBI
Common Stock have no preemptive or other subscription rights, and there are no
conversion rights or redemption or sinking fund provisions with respect to ICBI
Common Stock.
COMPARATIVE RIGHTS OF SECURITY HOLDERS
General
ICBI is a Virginia corporation subject to the provisions of the
Virginia SCA. TTC is a Virginia corporation and also is subject to the
provisions of the Virginia SCA. Shareholders of TTC, whose rights are governed
by TTC's Articles of Incorporation and Bylaws and by the Virginia SCA, will
become shareholders of ICBI upon consummation of the Reorganization. The rights
of such shareholders as shareholders of ICBI will then be governed by the
Articles of Incorporation and Bylaws of ICBI and by the Virginia SCA.
Except as set forth below, there are no material differences between
the rights of a TTC shareholder under its Articles and Bylaws and under the
Virginia SCA, on the one hand, and the rights of an ICBI shareholder under the
Articles of Incorporation and Bylaws of ICBI and under the Virginia SCA, on the
other hand. This summary is qualified in its entirety by reference to the
Articles of Incorporation and Bylaws of TTC and to the Virginia SCA and the
Articles of Incorporation and Bylaws of ICBI and the Virginia SCA.
Amendment of Articles of Incorporation or Bylaws
The Virginia SCA provides that an amendment to a corporation's articles
of incorporation must be approved by each voting group entitled to vote on the
proposed amendment. Under Virginia law, an amendment to the corporation's
articles of incorporation must be approved by more than two-thirds of all votes
entitled to be cast by that voting group. However, the corporation's articles of
incorporation may require a greater vote or a lesser vote, which may not be not
less than a majority, by each voting group entitled to vote on the transaction.
A corporation's board of directors may require a greater vote.
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TTC. The TTC Articles do not address amendments, so TTC is governed by
the provisions of the Virginia SCA. Accordingly, amendments to TTC's Articles of
Incorporation must be approved by two-thirds of all votes entitled to be cast by
each voting group.
TTC's Bylaws provide that the power to amend the Bylaws is vested in
the Board of Directors. Thus, TTC's Bylaws may be amended by a majority of the
directors present at a meeting which was properly called and at which a quorum
is present. Also, under Virginia law, the Bylaws may be amended by action of the
majority of the shareholders.
ICBI. The Articles of Incorporation of ICBI provide that amendments
must be approved by a majority of the votes entitled to be cast by each voting
group entitled to vote and, unless such action is approved by at least
two-thirds of the Continuing Directors, by holders of more than two-thirds of
the issued and outstanding shares of ICBI Common Stock (the vote generally
required under Virginia law). The term "Continuing Director" is defined in the
Articles of Incorporation of ICBI to mean (i) any individual who was an initial
director of ICBI or (ii) who has been elected to the Board of Directors of ICBI
at an annual meeting of the shareholders of ICBI more than one time or (iii) who
has been elected to fill a vacancy on the Board of Directors of ICBI and
received the affirmative vote of a majority of the Continuing Directors then on
the Board of Directors and thereafter elected to the Board of Directors at an
annual meeting of shareholders at least one time.
ICBI's Bylaws may be amended by a majority vote of the directors in
office or by the shareholders.
Mergers, Consolidations and Sales of Assets.
ICBI. The Articles of Incorporation of ICBI provide that a plan of
merger or share exchange or a direct or indirect sale, lease, exchange or other
disposition of all or substantially all of the property of ICBI not in the
ordinary course of business may be approved by the same vote that is required in
order to amend the Articles of Incorporation. Additionally, consistent with
Virginia law, the Board of Directors of ICBI may condition its submission of
such plan of merger or share exchange or such a sale or disposition of assets to
the shareholders on any basis, including the requirement of a greater vote than
the required vote described above.
A proposed merger, share exchange or sale of substantially all assets
of ICBI that is favored by two-thirds of the Continuing Directors could be
adopted as long as a majority (rather than two-thirds) of the outstanding shares
entitled to vote in each voting group entitled to vote are voted in favor of the
proposed action. In addition to requiring the affirmative vote of a majority of
the shares entitled to vote in each voting group entitled to vote, the Articles
of Incorporation of ICBI would require that, unless a proposed action is
approved by at least two-thirds of the Continuing Directors, more than
two-thirds of the issued and outstanding shares vote in favor of the proposed
action. The purpose of such additional requirements is to ensure that if a
proposed major corporate action does not have the support of a board of
directors who can provide continuity to and an in-depth knowledge of the
business of ICBI, the action must be supported by more than two-thirds of the
issued and outstanding shares of ICBI Common Stock.
TTC. The Articles of Incorporation of TTC provide that a plan of merger
or share exchange or sale, lease or exchange or other disposition of all or
substantially all of the property of TTC not in the ordinary course of business
may be approved by a majority of the shareholders of entitled to vote on such
matter.
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Authorized Capital
TTC. TTC's Articles of Incorporation (the "TTC Articles") authorize the
issuance of up to 500,000 shares of common stock, par value $2.50 per share, of
which 276,600 shares were issued and outstanding as of March 31, 1997. TTC is
not authorized to issue shares of preferred stock.
ICBI. ICBI is authorized to issue 10,000,000 shares of common stock,
par value $5.00 per share, of which 837,149 shares were issued and outstanding
as of March 31, 1997. See "Description of ICBI Capital Stock" for additional
information.
Size and Classification of Board of Directors
TTC. TTC's Bylaws provide that its Board of Directors shall consist of
no less than five and no more than 12 individuals. Under Virginia law a majority
of the directors must be residents of Virginia and each director must own TTC
stock having a par value of not less than $2,000. The entire Board of Directors
is elected at each annual meeting of shareholders.
ICBI. ICBI's Bylaws provide for a board of directors consisting of 11
individuals. Directors are elected annually to serve until their successors are
elected and qualified.
Vacancies and Removal of Directors
TTC. TTC's Bylaws provide that any vacancy on the board of directors
may be filled by an election by the active board members. TTC's Articles of
Incorporation contain no provision relating to removal of directors. Therefore,
under the Virginia SCA, shareholders may remove directors with or without cause
at a special meeting of shareholders.
ICBI. Under the Articles of Incorporation of ICBI, vacancies occurring
in the Board of Directors, including vacancies created by newly created
directorships resulting from an increase in the number of directors, may be
filled by the affirmative vote of a majority of the remaining directors, even if
less than a quorum, until the next election of directors by shareholders. The
Articles of Incorporation of ICBI allow removal of directors from office, with
or without cause, if at least 75% of the votes cast are cast in favor of
removal. Shareholders of ICBI may not call a special meeting for the purpose of
removing a director.
Director Liability and Indemnification
The Virginia SCA provides that in any proceeding brought by or in the
right of a corporation or brought by or on behalf of shareholders of the
corporation, the damages assessed against an officer or director arising out of
a single transaction, occurrence or course of conduct may not exceed the lesser
of (1) the monetary amount, including the elimination of liability, specified in
the articles of incorporation or, if approved by the shareholders, in the bylaws
as a limitation on or elimination of the liability of the officer or director;
or (2) the greater of (a) $100,000 or (b) the amount of cash compensation
received by the officer or director from the corporation during the twelve
months immediately preceding the act or omission for which liability was
imposed. The liability of an officer or director is not limited under the
Virginia SCA or a corporation's articles of incorporation and bylaws if the
officer or director engaged in willful misconduct or a knowing violation of the
criminal law or of any federal or state securities law.
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TTC. TTC's Articles of Incorporation provide that each director and
officer shall be indemnified by TTC against liability (including amounts paid in
settlement) by reason of having been such a director or officer, whether or not
then continuing so to be, and against all expenses (including counsel fees)
reasonably incurred by him in connection therewith, except in relation to
matters as to which he shall have been finally adjudged to be liable by reason
of having been guilty of willful misconduct or a knowing violation of the
criminal law. The Articles also provide that the indemnification rights set
forth therein shall also extend to every person who may have served at TTC's
request as a director, officer or trustee of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. The Articles of
Incorporation do not limit the liability of TTC Directors.
ICBI. The Articles of Incorporation of ICBI provide that to the full
extent that Virginia law permits the limitation or elimination of the liability
of directors and officers, they will not be liable to ICBI or its shareholders
for any money damages in excess of one dollar. At this time, Virginia law does
not permit any limitation of liability if a director engages in willful
misconduct or a knowing violation of the criminal law or any federal or state
securities law.
To the fullest extent permitted by Virginia law, ICBI's Articles of
Incorporation require it to indemnify any director or officer of ICBI who is
made a party to any proceeding because he was or is a director or officer of
ICBI against any liability, including reasonable expenses and legal fees,
incurred in the proceeding. Under ICBI's Articles of Incorporation, "proceeding"
is broadly defined to include pending, threatened or completed actions of all
types, including actions by or in the right of ICBI. Similarly, "liability" is
defined to include, not only judgments, but also settlements, penalties, fines
and certain excise taxes. ICBI's Articles of Incorporation also provide that
ICBI may, but is not obligated to, indemnify its other employees or agents. ICBI
must indemnify any person who or is or was serving at the written request of
ICBI as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, the full extent provided
by Virginia law. The indemnification provisions also require ICBI to pay
reasonable expenses incurred by a director or officer of ICBI in a proceeding in
advance of the final disposition of any such proceeding, provided that the
indemnified person undertakes to repay ICBI if it is ultimately determined that
such person was not entitled to indemnification. Virginia law does not permit
indemnification against willful misconduct or a knowing violation of the
criminal law.
The rights of indemnification provided in ICBI's Articles of
Incorporation are not exclusive of any other rights which may be available under
any insurance or other agreement, by vote of shareholders or disinterested
directors or otherwise. In addition, the Articles of Incorporation authorize
ICBI to maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of ICBI, whether or not ICBI would have the power to
provide indemnification to such person.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Holding Company pursuant to the foregoing provisions, the Holding Company has
been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
Special Meetings of Shareholders
TTC. TTC's Bylaws provide that special meetings of shareholders may be
held on the call of the Chairman or Vice Chairman of the Board, the President, a
majority of the Board or by holders of at least 20% of the TTC Common Stock.
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ICBI. The Bylaws of ICBI provide that special meetings of shareholders
may be held whenever called by the President, Chairman of the Board of Directors
or by the Board of Directors, itself, which means that the shareholders of ICBI
do not have the right to call special meetings.
Director Nominations
TTC. TTC's Bylaws do not prescribe procedures for directors'
nominations. It is the practice of TTC for the board to nominate directors for
shareholders' consideration.
ICBI. ICBI's Bylaws set forth certain advance notice or information
requirements and time limitations on any director nomination or any new business
which a shareholder wishes to propose for consideration at an annual or special
meeting of shareholders. Any director nomination must be stated in writing and
filed with the Secretary of ICBI at least 60 days prior to the date of the
shareholder meeting. The notice must contain certain information relating to the
nominee for director. The presiding officer of the meeting must reject any
nomination proposal not timely made or supported by insufficient information.
The Bylaws of ICBI require that the shareholder's notice set forth as
to each nominee (i) the name, age, business address and residence address of
such nominee, (ii) the principal occupation or employment of such nominee, (iii)
the class and number of shares of ICBI which are beneficially owned by each
nominee, and (iv) any other information relating to such nominee that is
required under federal securities laws to be disclosed in solicitations of
proxies for the election of directors, or is otherwise required (including,
without limitation, such nominee's written consent to being named in a proxy
statement as nominee and to serving as a director if elected). The Bylaws of
ICBI further require that the shareholder's notice set forth as to the
shareholder giving the notice (i) the name and address of such shareholder and
the names and addresses of any other person or entity who owns, beneficially or
of record, any shares of ICBI and who, to the knowledge of the shareholders
giving notice, supports the nominee and (ii) the class and amount of such
shareholder's (or other supporting entity's) beneficial ownership of ICBI
capital stock. If the information supplied by shareholder is deficient in any
material aspect or if the foregoing procedure is not followed, the chairman of
the annual meeting may determine that such shareholder's nomination should not
be brought before the annual meeting and that such nominee shall not be eligible
for election as a director of ICBI.
Shareholder Proposals
TTC. The Articles of Incorporation and Bylaws of TTC do not contain any
requirements relating to the timing or content of shareholder proposals for
shareholder vote.
ICBI. Under ICBI's Bylaws, notice of a proposed nomination or a
shareholder proposal meeting certain specified requirements must be received by
ICBI not less than 60 nor more than 90 days prior to any meeting of shareholders
called for the election of directors, provided in each case that if fewer than
70 days' notice of the meeting is given to shareholders, such written notice
shall be received not later than the close of business of the tenth day
following the day on which notice of the meeting was mailed to shareholders.
Shareholder Voting Rights in General
The Virginia SCA generally provides that shareholders do not have
cumulative voting rights unless those rights are provided in the corporation's
articles. The Virginia SCA requires the approval of a majority of a
corporation's board of directors and the holders of more than two-thirds of all
the votes
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entitled to be cast by each voting group entitled to vote on any plan of merger
or consolidation, plan of share exchange or sale of substantially all of the
assets of a corporation not in the ordinary course of business. The Virginia SCA
also specifies additional voting requirements for Affiliated Transactions which
are discussed below under "State Anti-Takeover Statutes."
TTC. TTC's Articles of Incorporation do not provide shareholders
cumulative voting rights for the election of directors. Therefore, the holders
of a majority of the shares voted in the election of directors can elect all of
the directors then standing for election. The holders of TTC Common Stock are
entitled to one vote per share on all matters submitted to a vote of
shareholders. Holders of TTC Common Stock have no preemptive or other
subscription rights, and there are no conversion rights or redemption or sinking
fund provisions with respect to the TTC Common Stock.
ICBI. See "Description of ICBI Capital Stock."
State Anti-Takeover Statutes
The Virginia SCA restricts transactions between a corporation and its
affiliates and potential acquirors. The summary below is necessarily general and
is not intended to be a complete description of all the features and
consequences of those provisions, and is qualified in its entirety by reference
to the statutory provisions contained in the Virginia SCA.
Affiliated Transactions. The Virginia SCA contains provisions governing
"Affiliated Transactions" found at Sections 13.1-725 - 727.1 of the Virginia
SCA. Affiliated Transactions include certain mergers and share exchanges,
certain material dispositions of corporate assets not in the ordinary course of
business, any dissolution of a corporation proposed by or on behalf of an
Interested Shareholder (as defined below), and reclassifications, including
reverse stock splits, recapitalizations or mergers of a corporation with its
subsidiaries, or distributions or other transactions which have the effect of
increasing the percentage of voting shares beneficially owned by an Interested
Shareholder by more than 5%. For purposes of the Virginia SCA, an Interested
Shareholder is defined as any beneficial owner of more than 10% of any class of
the voting securities of a Virginia corporation.
Subject to certain exceptions discussed below, the provisions governing
Affiliated Transactions require that, for three years following the date upon
which any shareholder becomes an Interested Shareholder, any Affiliated
Transaction must be approved by the affirmative vote of holders of two-thirds of
the outstanding shares of the corporation entitled to vote, other than the
shares beneficially owned by the Interested Shareholder, and by a majority (but
not less than two) of the Disinterested Directors (as defined below). A
Disinterested Director is defined in the Virginia SCA as a member of a
corporation's board of directors who (i) was a member before the later of
January 1, 1988 or the date on which an Interested Shareholder became an
Interested Shareholder and (ii) was recommended for election by, or was elected
to fill a vacancy and received the affirmative vote of, a majority of the
Disinterested Directors then on the corporation's board of directors. At the
expiration of the three year period after a shareholder becomes an Interested
Shareholder, these provisions require approval of the Affiliated Transaction by
the affirmative vote of the holders of two-thirds of the outstanding shares of
the corporation entitled to vote, other than those beneficially owned by the
Interested Shareholder.
The principal exceptions to the special voting requirement apply to
Affiliated Transactions occurring after the three year period has expired and
require either that the transaction be approved by a majority of the
corporation's Disinterested Directors or that the transaction satisfy certain
fair price requirements of the statute. In general, the fair price requirements
provide that the shareholders must
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receive the higher of: the highest per share price for their shares as was paid
by the Interested Shareholder for his or its shares, or the fair market value of
the shares. The fair price requirements also require that, during the three
years preceding the announcement of the proposed Affiliated Transaction, all
required dividends have been paid and no special financial accommodations have
been accorded the interested Shareholder, unless approved by a majority of the
Disinterested Directors.
None of the foregoing limitations and special voting requirements
applies to a transaction with an Interested Shareholder who has been an
Interested Shareholder continuously since the effective date of the statute
(January 26, 1988) or who became an Interested Shareholder by gift or
inheritance from such a person or whose acquisition of shares making such person
an Interested Shareholder was approved by a majority of the Disinterested
Directors of the corporation.
These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the Virginia SCA provides that by affirmative vote of
a majority of the voting shares other than shares owned by any Interested
Shareholder, a corporation may adopt by meeting certain voting requirements, an
amendment to its articles of incorporation or bylaws providing that the
Affiliated Transactions provisions shall not apply to the corporation. Neither
ICBI nor TTC has adopted such an amendment. Currently, no shareholder of TTC
owns or controls 10% or more of TTC Common Stock, and there are no Interested
Shareholders of TTC or ICBI as defined by the Virginia SCA.
Control Share Acquisitions. The Virginia Control Share Acquisitions
statute, found at Sections 13.1-728 - 728.8 of the Virginia SCA, also is
designed to afford shareholders of a public company incorporated in Virginia
protection against certain types of non-negotiated acquisitions in which a
person, entity or group ("Acquiring Person") seeks to gain voting control of
that corporation. With certain enumerated exceptions, the statute applies to
acquisitions of shares of a corporation which would result in an Acquiring
Persons ownership of the corporation's shares entitled to vote in the election
of directors falling within any one of the following ranges: 20% to 33-1/3%,
33-1/3% to 50% or 50% or more (a "Control Share Acquisition"). Shares that are
the subject of a Control Share Acquisition ("Control Shares") will not be
entitled to voting rights unless the holders of a majority of the "Disinterested
Shares" vote at an annual or special meeting of shareholders of the corporation
to accord the Control Shares with voting rights. Disinterested Shares do not
include shares owned by the Acquiring Person or by officers and inside directors
of the TTC company. Under certain circumstances, the statute permits an
Acquiring Person to call a special shareholders' meeting for the purpose of
considering granting voting rights to the holders of the Control Shares. As a
condition to having this matter considered at either an annual or special
meeting, the Acquiring Person must provide shareholders with detailed
disclosures about his identity, the method and financing of the Control Share
Acquisition and any plans to engage in certain transactions with, or to make
fundamental changes to, the corporation, its management or business. Under
certain circumstances, the statute grants dissenters' rights to shareholders who
vote against granting voting rights to the Control Shares. The Virginia Control
Share Acquisitions Statute also enables a corporation to make provisions for
redemption of Control Shares with no voting rights. A corporation may opt-out of
the statute, which ICBI has done, by so providing in its articles of
incorporation or bylaws. Among the acquisitions specifically excluded from the
statute are acquisitions which are a part of certain negotiated transactions to
which the corporation is a party and which, in the case of mergers or share
exchanges, have been approved by the corporation's shareholders under other
provisions of the Virginia SCA.
Dissenters' Rights
The provisions of Article 15 of the Virginia SCA provide shareholders
of Virginia corporations certain rights of appraisal or dissent, for payment of
the fair value of their shares in the event of mergers,
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consolidations and certain other corporate transactions. The Virginia SCA
provides dissenters' rights in a share exchange only to the acquired
corporation, and not the acquiring corporation. Therefore, the shareholders of
TTC have dissenters' rights and may exercise that right and obtain payment of
the fair value of their shares upon compliance and in accordance with the
provisions of Article 15 of the Virginia SCA.
SUPERVISION AND REGULATION
Banks and their holding companies are extensively regulated. ICBI is a
bank holding company subject to supervision and regulation by the Federal
Reserve and the SCC. ICBI's sole subsidiary is The Middleburg Bank, a Virginia
chartered bank which is subject to supervision and regulation by the Federal
Reserve and the SCC. TTC is a Virginia chartered independent trust company
regulated by the SCC. The regulatory oversight of TTC and ICBI will not change
as a result of the Reorganization, except that after the Reorganization TTC will
be regulated as a trust subsidiary of ICBI and not as an independent trust
company.
The regulatory discussion is divided into two major subject areas, each
of which have three subsections. First, the discussion addresses the general
regulatory considerations governing holding companies. This focuses on the
primary regulatory considerations applicable to ICBI as a bank holding company.
Second, the discussion addresses the general regulatory provisions governing
financial institutions. This focuses on the regulatory considerations of The
Middleburg Bank and TTC.
The discussion below is only a summary of the principal laws and
regulations that comprise the regulatory framework before and after the
Reorganization. The descriptions of these laws and regulations, as well as
descriptions of laws and regulations contained elsewhere herein, do not purport
to be complete and are qualified in their entirety by reference to applicable
laws and regulations.
Bank Holding Companies
As a result of the Reorganization, TTC will become a subsidiary of
ICBI. The Federal Reserve has jurisdiction under the BHC Act to approve any bank
or nonbank acquisition, merger or consolidation proposed by a bank holding
company. The BHC Act generally limits the activities of a bank holding company
and its subsidiaries to that of banking, managing or controlling banks, or any
other activity which is so closely related to banking or to managing or
controlling banks as to be a proper incident thereto.
Formerly the BHC Act prohibited the Federal Reserve from approving an
application from a bank holding company to acquire shares of a bank located
outside the state in which the operations of the holding company's banking
subsidiaries are principally conducted, unless such an acquisition was
authorized by statute of the state where the bank whose shares were to be
acquired was located. However, under federal legislation enacted in 1994, the
restriction on interstate acquisitions was abolished, effective September 1995.
A bank holding company from any state now may acquire banks and bank holding
companies located in any other state, subject to certain conditions, including
nationwide and state imposed concentration limits. Banks also will be able to
branch across state lines by acquisition, merger or de novo, effective June 1,
1997 (unless state law would permit such interstate branching at an earlier
date), provided certain conditions are met, including that applicable state law
must expressly permit such interstate branching.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries that are
designed to reduce potential loss exposure to the depositors of
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the depository institutions and to the FDIC insurance fund. For example, under a
policy of the Federal Reserve with respect to bank holding company operations, a
bank holding company is required to serve as a source of financial strength to
its subsidiary depository institutions and to commit resources to support such
institutions in circumstances where it might not do so absent such policy. In
addition, the "cross-guarantee" provisions of federal law require insured
depository institutions under common control to reimburse the FDIC for any loss
suffered or reasonably anticipated by the FDIC as a result of the default of a
commonly controlled insured depository institution or for any assistance
provided by the FDIC to a commonly controlled insured depository institution in
danger of default. The FDIC may decline to enforce the cross-guarantee
provisions if it determines that a waiver is in the best interest of the BIF.
The FDIC's claim for damages is superior to claims of shareholders of the
insured depository institution or its holding company but is subordinate to
claims of depositors, secured creditors and holders of subordinated debt (other
than affiliates) of the commonly controlled insured depository institutions.
Banking laws also provide that amounts received from the liquidation or
other resolution of any insured depository institution by any receiver must be
distributed (after payment of secured claims) to pay the deposit liabilities of
the institution prior to payment of any other general or unsecured senior
liability, subordinated liability, general creditor or shareholder. This
provision would give depositors a preference over general and subordinated
creditors and shareholders in the event a receiver is appointed to distribute
the assets of any bank subsidiaries.
Certain Regulatory Considerations of ICBI Following the Reorganization
Regulatory Capital Requirements
All financial institutions are required to maintain minimum levels of
regulatory capital. The federal bank regulatory agencies have established
substantially similar risked based and leverage capital standards for financial
institutions they regulate. These regulatory agencies also may impose capital
requirements in excess of these standards on a case-by-case basis for various
reasons, including financial condition or actual or anticipated growth. Under
the risk-based capital requirements of these regulatory agencies, ICBI is
required to maintain a minimum ratio of total capital to risk-weighted assets of
at least 8%. At least half of the total capital is required to be "Tier 1
capital" which consists principally of common and certain qualifying preferred
stockholders' equity, less certain intangibles and other adjustments. The
remainder ("Tier 2 capital") consists of a limited amount of subordinated and
other qualifying debt (including certain hybrid capital instruments) and a
limited amount of the general loan loss allowance. Based upon the applicable
Federal Reserve regulations, at December 31, 1996, ICBI would be considered
"well capitalized."
In addition, the federal regulatory agencies have established a minimum
leverage capital ratio (Tier 1 capital to tangible assets). These guidelines
provide for a minimum leverage capital ratio of 3% for banks and their
respective holding companies that meet certain specified criteria, including
that they have the highest regulatory examination rating and are not
contemplating significant growth or expansion. All other institutions are
expected to maintain a leverage ratio of at least 100 to 200 basis points above
that minimum. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets. The Reorganization will not
materially affect the capital ratios of ICBI.
Each federal regulatory agency is required to revise its risk-based
capital standards to ensure that those standards take adequate account of
interest rate risk, concentration of credit risk and the risks of
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nontraditional activities, as well as reflect the actual performance and
expected risk of loss on multifamily mortgages. The Federal Reserve and the FDIC
have jointly solicited comments on a proposed framework for implementing the
interest rate risk component of the risk-based capital guidelines. Under the
proposal, an institution's assets, liabilities, and off-balance sheet positions
would be weighed by risk factors that approximate the instruments' price
sensitivity to a 100 basis point change in interest rates. Institutions with
interest rate risk exposure in excess of a threshold level would be required to
hold additional capital proportional to that risk. In 1994, the federal bank
regulatory agencies solicited comments on a proposed revision to the risk-based
capital guidelines to take account of concentration of credit risk and the risk
of nontraditional activities. The revision proposed to amend each agency's
risk-based capital standards by explicitly identifying concentration of credit
risk and the risk arising from nontraditional activities, as well as an
institution's ability to manage those risks, as important factors to be taken
into account by the agency in assessing an institution's overall capital
adequacy. The proposal was adopted as a final rule by the federal bank
regulatory agencies and subsequently became effective on January 17, 1995. ICBI
does not expect the final rule to have a material impact on its capital
requirements; however, the Federal regulatory agencies may, as an integral part
of their examination process, require ICBI to provide additional capital based
on such agency's judgments of information available at the time of examination.
Limits on Dividends and Other Payments
Certain state law restrictions are imposed on distributions of
dividends to shareholders of ICBI. ICBI shareholders are entitled to receive
dividends as declared by the ICBI Board of Directors. However, no such
distribution may be made if, after giving effect to the distribution, it would
not be able to pay its debts as they became due in the usual course of business
or its total assets would be less than its total liabilities. There are similar
restrictions with respect to stock repurchases and redemptions.
The Middleburg Bank is subject to legal limitations on capital
distributions including the payment of dividends, if, after making such
distribution, the institution would become "undercapitalized" (as such term is
used in the statute). For all state member banks of the Federal Reserve seeking
to pay dividends, the prior approval of the applicable Federal Reserve Bank is
required if the total of all dividends declared in any calendar year will exceed
the sum of the bank's net profits for that year and its retained net profits for
the preceding two calendar years. With the consent of the Federal Reserve, The
Middleburg Bank paid dividends to ICBI totaling $4.6 million in 1995, $704,000
in 1996 and $635,292 for the first quarter of 1997. Dividends received by ICBI
from The Middleburg Bank have been employed to fund dividends on ICBI Common
Stock, repurchases of ICBI Common Stock totaling $1,647,828 from January 1, 1995
to March 31, 1997 and to purchase equity securities held by ICBI. Because of the
level of dividends paid to ICBI by The Middleburg Bank, ICBI anticipates that
Federal Reserve approval of dividend payments by The Middleburg Bank is likely
to be necessary through 1999. It is possible that the Federal Reserve would not
approve the payment of dividends from The Middleburg Bank to ICBI. However,
because The Middleburg Bank is well-capitalized and profitable, ICBI does not
believe that the Federal Reserve will refuse to permit future dividends to ICBI
in amounts sufficient to fund the dividend payments on ICBI Common Stock.
Although there can be no assurance of Federal Reserve approval, ICBI itself had
approximately $3 million in securities available for sale and other liquid
assets that might be used to fund dividend payments on ICBI Common Stock.
Federal law also generally prohibits a depository institution from
making any capital distribution (including payment of a dividend or payment of a
management fee to its holding company) if the depository institution would
thereafter fail to maintain capital above regulatory minimums. Federal Reserve
Banks are also authorized to limit the payment of dividends by any state member
bank if such payment may be deemed to constitute an unsafe or unsound practice.
In addition, under Virginia law no dividend may be
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declared or paid that would impair a Virginia chartered bank's paid-in capital.
The Virginia SCC has general authority to prohibit payment of dividends by a
Virginia chartered bank if it determines that the limitation is in the public
interest and is necessary to ensure the bank's financial soundness.
Following the consummation of the Reorganization, ICBI's ability to pay
dividends to its shareholders will depend on its liquid assets (approximately
$3,128,809 at December 31, 1996) and on dividends paid to it by The Middleburg
Bank and TTC. Based on the current condition of ICBI and The Middleburg Bank,
ICBI expects that the above-described provisions will have no impact on ICBI's
ability to pay dividends to its shareholders.
The Middleburg Bank
In addition to the regulatory provisions regarding holding companies
addressed above, The Middleburg Bank is subject to extensive regulation as well.
The following discussion addresses certain primary regulatory considerations
affecting The Middleburg Bank.
The Middleburg Bank is regulated extensively under both federal and
state law. The Middleburg Bank each is organized as a Virginia chartered banking
corporation and is regulated and supervised by the Bureau of Financial
Institutions of the Virginia SCC. As a member of the Federal Reserve System as
well, The Middleburg Bank is regulated and supervised by the Federal Reserve
Bank of Richmond. The Virginia SCC and the Federal Reserve Bank of Richmond
conduct regular examinations of The Middleburg Bank, reviewing such matters as
the adequacy of loan loss reserves, quality of loans and investments, management
practices, compliance with laws, and other aspects of their operations. In
addition to these regular examinations, The Middleburg Bank must furnish the
Virginia SCC and the Federal Reserve with periodic reports containing a full and
accurate statement of its affairs. Supervision, regulation and examination of
banks by these agencies are intended primarily for the protection of depositors
rather than shareholders.
Insurance of Accounts, Assessments and Regulation by the FDIC
The Middleburg Bank's deposits are insured up to $100,000 per insured
depositor (as defined by law and regulation) through the Bank Insurance Fund
("BIF"). The BIF is administered and managed by the FDIC. As insurer, the FDIC
is authorized to conduct examinations of and to require reporting by BIF-insured
institutions. The actual assessment to be paid by each BIF member is based on
the institution's assessment risk classification and whether the institution is
considered by its supervisory agency to be financially sound or to have
supervisory concerns.
The FDIC is authorized to prohibit any BIF-insured institution from
engaging in any activity that the FDIC determines by regulation or order to pose
a serious threat to the respective insurance fund. Also, the FDIC may initiate
enforcement actions against banks, after first giving the institution's primary
regulatory authority an opportunity to take such action. The FDIC may terminate
the deposit insurance of any depository institution, including The Middleburg
Bank, if it determines, after a hearing, that the institution has engaged or is
engaging in unsafe or unsound practices, is in an unsafe or unsound condition to
continue operations, or has violated any applicable law, regulation, order or
any condition imposed in writing by the FDIC. It also may suspend deposit
insurance temporarily during the hearing process for the permanent termination
of insurance, if the institution has no tangible capital. If deposit insurance
is terminated, the deposits at the institution at the time of termination, less
subsequent withdrawals, shall continue to be insured for a period from six
months to two years, as determined by the FDIC. Management
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<PAGE>
is aware of no existing circumstances that could result in termination of The
Middleburg Bank's deposit insurance.
Other Safety and Soundness Regulations
The federal banking agencies have broad powers under current federal
law to take prompt corrective action to resolve problems of insured depository
institutions. The extent of these powers depends upon whether the institutions
in question are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized," as such terms are defined under uniform regulations defining
such capital levels issued by each of the federal banking agencies.
In addition, FDIC regulations require that management report on the
institution's responsibility to prepare financial statements, and to establish
and to maintain an internal control structure and procedures for financial
reporting and compliance with designated laws and regulations concerning safety
and soundness; and that independent auditors attest to and report separately on
assertions in management's reports concerning compliance with such laws and
regulations, using FDIC-approved audit procedures.
Each of the federal banking agencies also must develop regulations
addressing certain safety and soundness standards for insured depository
institutions and depository institution holding companies, including
compensation standards, operational and managerial standards, asset quality,
earnings and stock valuation. The federal banking agencies have issued a joint
notice of proposed rulemaking, which requested comment on the implementation of
these standards. The proposed rule sets forth general operational and managerial
standards in the areas of internal controls, information systems and internal
audit systems, loan documentation, credit underwriting, interest rate exposure,
asset growth and compensation, fees and benefits. The proposal contemplates that
each federal agency would determine compliance with these standards through the
examination process, and if necessary to correct weaknesses, require an
institution to file a written safety and soundness compliance plan. ICBI has not
yet determined the effect that the proposed rule would have on its operations
and the operations of its depository institution subsidiary if it is enacted
substantially as proposed.
Community Reinvestment.
The requirements of the Community Reinvestment Act ("CRA") affect The
Middleburg Bank. The CRA imposes on financial institutions an affirmative and
ongoing obligation to meet the credit needs of their local communities,
including low and moderate income neighborhoods, consistent with the safe and
sound operation of those institutions. Each financial institution's efforts in
meeting community credit needs currently are evaluated as part of the
examination process pursuant to twelve assessment factors. These factors also
are considered in evaluating mergers, acquisitions and applications to open a
branch or facility. The Middleburg Bank is meeting its obligations under the
CRA.
TTC. TTC operates as an independent trust company pursuant to the
Virginia Trust Company Act ("VTCA"). As such, it is subject to supervision and
regulation by the SCC and its Bureau of Financial Institutions which have
authority over Virginia banks and savings institutions and other financial
institutions, including independent trust companies.
As a regulated independent trust company, TTC is required, among other
things, periodically to file reports of its financial condition and other
reports or statements the SCC may specify. It also is subject to
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periodic investigations and examinations (at least twice each three-year period)
by the SCC and is required to pay fees in connection with such examinations and
investigations set forth in the VTCA.
Under the VTCA, the SCC has substantial discretion and latitude in the
exercise of its supervisory and regulatory authority over TTC, including the
statutory authority to promulgate regulations affecting the conduct of business
and the operations of TTC. The SCC also has the ability to exercise substantial
remedial powers with respect to TTC in the event it determines that TTC is not
in compliance with applicable laws, orders or regulations governing its
operations, is operating in an unsafe or unsound manner, or is engaging in any
irregular practices.
If the shareholders of TTC approve the Reorganization and it becomes
effective, the business of TTC will be operated as a subsidiary of ICBI and will
continue to be subject to substantially the same supervision and regulation by
the SCC under the Virginia Trust Subsidiary Act. It also will be subject to
supervision and regulation by the Federal Reserve under the Bank Holding Company
Act.
EXPERTS
The financial statements of TTC included in this Proxy
Statement/Prospectus have been so included in reliance on the report of Harris,
Hardy & Johnstone, P.C., independent accountants, given upon their authority as
experts in accounting and auditing.
The consolidated financial statements of ICBI included in this Proxy
Statement/Prospectus have been so included in reliance on the report of Yount,
Hyde & Barbour, P.C., independent accountants, given upon their authority as
experts in accounting and auditing.
LEGAL OPINION
The validity of ICBI Common Stock to be issued in connection with the
Reorganization will be passed upon by Williams, Mullen, Christian & Dobbins.
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PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial
statements give effect to the proposed Reorganization using the purchase method
of accounting. Accordingly, the assets and liabilities of TTC have been recorded
on ICBI's books at their fair market value and TTC's capital accounts have been
eliminated. The amount by which the sum of (1) the cash paid by ICBI and (2) the
market value of the ICBI Common Stock issued in the Reorganization exceeds the
net fair market value of TTC's assets and liabilities has been allocated to
goodwill.
The pro forma balance sheet combines the balance sheet of ICBI and TTC
as of March 31, 1997 and December 31, 1996. The pro forma income statements for
the three months ended March 31, 1997 and for the year ended December 31, 1996
combine the results of operations of ICBI and TTC the for the respective
periods. The pro forma balance sheet and income statements for three months
ended March 31, 1997 and for the year ended December 31, 1996 have been derived
from audited financial statements included elsewhere herein.
The information shown is not necessarily indicative of the results of
future operations of the combined entity or the actual results that would have
occurred had the Reorganization been in effect during the periods presented.
These statements and the related notes should be read in conjunction with the
related consolidated financial statements of ICBI and TTC and the notes thereto
appearing elsewhere herein.
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ICBI and TTC PRO FORMA COMBINED CONDENSED BALANCE SHEET
As of March 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
ICBI TTC Adjustments Combined
-------------- ------------- -------------- --------------
Assets
<S> <C> <C> <C>
Cash and due from banks $ 5,164 $ 22 $ 5,186
Securities 52,058 924 C 52,982
Federal funds sold 7,300 7,300
Loans, net 93,627 93,627
Property and equipment 5,179 51 5,230
Accrued interest receivable $ 1,936 B
and other assets 2,814 157 (894) A 4,013
------------- ------------- ------------- -------------
Total Assets $ 166,142 $ 1,154 $ 1,042 D $ 168,338
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Noninterest bearing $ 23,605 $ - $ - $ 23,605
Interest bearing 118,424 - - 118,424
------------- ------------- ------------- -------------
Total deposits $ 142,029 $ - $ - $ 142,029
Securities sold under agreements to
repurchase 2,115 - 2,115
Federal Home Loan Bank advances 3,000 - 3,000
Accrued interest and other liabilities 1,151 7 1,158
------------- ------------- ------------- -------------
Total liabilities $ 148,295 $ 7 $ - $ 148,302
Shareholders' Equity
Common Stock, par value $5 per share $ 4,185 $ - 346 B 4,531
Common Stock, par value $2.50 per share 691 (691) A
Capital Surplus 889 2,190 1,590 B 2,479
(2,190) A
Retained Earnings 13,424 (1,734) 1,987 A 13,677
Unrealized gain(loss) on securities
available for sale, net (651) - (651)
------------- ------------- ------------- -------------
Total shareholders' equity $ 17,847 $ 1,147 $ 1,042 D $ 20,036
Total liabilities and shareholders/ equity $ 166,142 $ 1,154 $ 1,042 D $ 168,338
============= ============== ============== =============
</TABLE>
- -----------------------------------------------------------
A: Elimination of acquired company's equity under purchase accounting rules,
which includes additional expenses of $253,000 anticipated to occur before
closing.
B: Market value of newly issued shares
C: Securities are carried at both amortized cost for investments held to
maturity and fair value for investments available for sale. The fair
value for the entire portfolio as of March 31, 1997 was $52,786,900
D: Goodwill acquired in the transaction as of March 31, 1997. ICBI has
reasonably estimated and included the remaining transaction costs,
severance costs and operating losses prior to consummation of the merger.
See notes to Pro Forma Condensed Financial Information
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ICBI and TTC PRO FORMA COMBINED CONDENSED INCOME STATEMENT
For the Three Months Ended March 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
ICBI TTC Adjustments Combined
---------------- ----------- ------------------ ----------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $ 2,138 $ - $ - $ 2,138
Interest and fees on investment securities:
Taxable interest income 36 14 50
Interest exempt from federal income taxes 160 160
Interest and dividends on securities
available for sale:
Taxable interest income 498 498
Dividends 69 69
Interest income on federal funds sold 57 57
-------------- ----------- ------------- -------------
Total interest income $ 2,958 $ 14 $ - $ 2,972
Interest Expense
Interest expense on deposits $ 1,153 $ - $ - $ 1,153
Interest on short-term borrowings 24 24
Interest on Federal Home Loan Bank advances 50 50
-------------- ----------- ------------- -------------
Total interest expense $ 1,227 $ - $ - $ 1,227
Net interest income $ 1,731 $ 14 $ - $ 1,745
Provision for loan losses 55 - - 55
-------------- ----------- ------------- -------------
Net interest income after provision for loan losses $ 1,676 $ 14 $ - $ 1,690
Other Income
Service charges, commissions and fees 205 $ - $ - $ 205
Trust fee income 23 184 (23) A 179
(5) A
Investment securities (loss) - -
Profits on securities available for sale 3 3
Other - - - -
-------------- ----------- ------------- -------------
Total other income $ 231 $ 184 $ (28) $ 387
Other Expenses
Salaries and employees' benefits $ 643 $ 110 $ - $ 753
Net occupancy and equipment expense 132 19 151
Advertising 29 - 29
FDIC insurance 8 - 8
Other operating expenses 265 254 (5) A 508
(23) A
17 B
-------------- ----------- ------------- -------------
Total other expenses $ 1,077 $ 383 $ (11) $ 1,449
Income before taxes $ 830 $ (185) $ (17) $ 628
Income tax expense 223 - - 223
-------------- ----------- ------------- -------------
Net income $ 607 $ (185) $ (17) $ 405
EARNINGS PER SHARE $ 0.71 (0.67) C $ 0.44
AVERAGE SHARES OUTSTANDING 854,796 276,600 923,946
</TABLE>
- -----------------------------------------------------------
A: Elimination of intercompany transactions
B: Amortization of goodwill
C: The per share loss of ($.67) for TTC for the three months ended March 31,
1997 includes all costs related to the Reorganization. The per share
loss exclusive of these items was ($.03).
See Notes to Pro Forma Condensed Financial Information
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ICBI and TTC PRO FORMA COMBINED CONDENSED INCOME STATEMENT
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
(in thousands)
Pro Forma
ICBI TTC Adjustments Combined
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $ 8,137 $ - $ - $ 8,137
Interest and fees on investment securities:
Taxable interest income 195 69 264
Interest exempt from federal income taxes 588 588
Interest and dividends on securities available for sale:
Taxable interest income 1,793 1,793
Dividends 268 268
Interest income on federal funds sold 130 130
---------------- ---------------- ---------------- ---------------
Total interest income $ 11,111 $ 69 $ - $ 11,180
Interest Expense
Interest expense on deposits $ 4,456 $ - $ - $ 4,456
Interest on short-term borrowings 5 5
Interest on Federal Home Loan Bank 186 186
---------------- ---------------- ---------------- ---------------
Total interest expense $ 4,647 $ - $ - $ 4,647
Net interest income $ 6,464 $ 69 $ - $ 6,533
Provision for loan losses 65 - - 65
---------------- ---------------- ---------------- ---------------
Net interest income after provision for $ 6,399 $ 69 $ - $ 6,468
loan losses
Other Income
Service charges, commissions and fees $ 677 $ - $ - $ 677
Trust fee income 29 557 (29) A 538
(19) A
Investment securities (loss) (2) (2)
Profits on securities available for sale 22 22
Other 16 5 - 21
---------------- ---------------- ---------------- ---------------
Total other income $ 742 $ 562 $ (48) $ 1,256
Other Expenses
Salaries and employees' benefits $ 2,533 $ 587 $ - $ 3,120
Net occupancy and equipment expense 562 64 626
Advertising 164 11 175
FDIC insurance 2 - 2
Other operating expenses 1,122 355 (19) A 1,499
(29) A
70 B
---------------- ---------------- ---------------- ---------------
Total other expenses $ 4,383 $ 1,017 $ 22 $ 5,422
Income before taxes $ 2,758 $ (386) $ (70) $ 2,302
Income tax expense 728 - - 728
---------------- ---------------- ---------------- ---------------
Net income $ 2,030 $ (386) $ (70) $ 1,574
EARNINGS PER SHARE $ 2.36 $ (1.40) $ 1.69
AVERAGE SHARES OUTSTANDING 859,838 276,600 928,988
</TABLE>
- -------------------------------------------
A: Elimination of intercompany transactions
B: Amortization of goodwill
See Notes to Pro Forma Condensed Financial Information
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Notes to Pro Forma Condensed Financial Information
1. The pro forma information presented is not necessarily indicative of
the results of operations or the financial position that would have
resulted had the Reorganization been consummated at the beginning of
the period indicated, nor is it necessarily indicative of the results
of operations in future periods or the future financial position of the
combined entities.
2. The Reorganization involves the exchange of ICBI Common Stock having a
value of $1,936,200 which at December 31, 1996 would represent
approximately 69,150 shares, based on a market price of $28.00 per
share, for all the assets and liabilities of TTC and will be accounted
for on a purchase accounting basis. Pro forma condensed balance sheet
amounts at December 31, 1996 and pro forma statements of income for the
year ended December 31, 1996 include TTC historical balance sheet and
income statement amounts.
As a result, information was appropriately adjusted for the
Reorganization by the (I) addition of 69,150 shares of ICBI Common
Stock amounting to $345,750, at par value, (II) elimination of 276,600
shares of TTC Common Stock amounting to $691,500, (III) elimination of
capital surplus of $2,189,750 and accumulated (deficit) of
$(1,549,118), and (IV) increase in capital surplus of $1,590,450 to
record the market value of newly issued shares.
3. The excess of purchase price over net assets acquired is calculated as
follows:
<TABLE>
<CAPTION>
<S> <C>
Purchase Price.............................................. $ 1,936,200
Less: Fair market value of net assets acquired
Cash (22,258)
Other current assets (33,387)
Investments (924,112)
Property and equipment, net (51,304)
Other assets (123,648)
Current liabilities 7,353
Add: Remaining TTC transaction costs and operating losses 50,000
Write-off TTC organizational costs 123,648
ICBI transaction costs 80,000
-----------
Excess of purchase price over net assets acquired (a) $ 1,042,492
</TABLE>
The basis of all assets and liabilities acquired assumed to approximate
market value as of December 31, 1996.
(a) Amortization of excess purchase price over net assets
acquired are being amortized over the estimated life of 15
years.
4. Per share data has been computed based on the combined historical net
income applicable to common shareholders of ICBI and TTC using the
historical weighted average shares outstanding of ICBI and the weighted
average shares, adjusted to equivalent shares of ICBI, of TTC, as of
the earliest period presented.
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Appendix A
AGREEMENT AND PLAN OF REORGANIZATION
between
The Tredegar Trust Company
and
Independent Community Bankshares, Inc.
and
TTC Acquisition Subsidiary, Inc.
March 28, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
The Reorganization and Related Matters
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1.1 The Reorganization.......................................................................... 1
1.2 Management and Business of TTC and ICBI..................................................... 1
1.3 The Closing and Effective Date.............................................................. 2
1.4 Definitions................................................................................. 2
ARTICLE 2
Basis and Manner of Exchange
2.1 Conversion of Common Stock.................................................................. 4
2.2 Calculation and Payment of Merger Consideration............................................. 4
2.3 Manner of Exchange.......................................................................... 6
2.4 Fractional Shares........................................................................... 7
2.5 Dividends................................................................................... 7
2.6 Dissenting Shareholders..................................................................... 7
ARTICLE 3
Representations and Warranties
3.1 Representations and Warranties of TTC....................................................... 7
(a) Organization, Standing and Power................................................... 7
(b) Authority.......................................................................... 8
(c) Capital Structure.................................................................. 8
(d) Ownership of the Stock............................................................. 8
(e) Financial Statements............................................................... 8
(f) Absence of Undisclosed Liabilities................................................. 8
(g) Legal Proceedings; Compliance with Laws............................................ 9
(h) Regulatory Approvals............................................................... 9
(i) Labor Relations.................................................................... 9
(j) Tax Matters........................................................................ 9
(k) Property........................................................................... 9
(l) Reports............................................................................ 10
(m) Employee Benefit Plans............................................................. 10
(n) Investment Securities.............................................................. 10
(o) Certain Contacts................................................................... 10
(p) Insurance.......................................................................... 11
(q) Absence of Material Changes and Events............................................. 11
(r) Statements True and Correct........................................................ 11
(s) Brokers and Finders................................................................ 11
<PAGE>
(t) Repurchase Agreements.............................................................. 11
(u) Administration of Trust Accounts, Consents......................................... 12
(v) Environmental Matters.............................................................. 12
3.2 Representations and Warranties of ICBI...................................................... 13
(a) Organization, Standing and Power................................................... 13
(b) Authority.......................................................................... 13
(c) Capital Structure.................................................................. 14
(d) Ownership of the ICBI Subsidiaries; Capital Structure
of the ICBI Subsidiaries; and Organization of the ICBI
Subsidiaries....................................................................... 14
(e) Financial Statements............................................................... 15
(f) Absence of Undisclosed Liabilities................................................. 15
(g) Legal Proceedings; Compliance with Laws............................................ 15
(h) Regulatory Approvals............................................................... 15
(i) Labor Relations.................................................................... 16
(j) Tax Matters........................................................................ 16
(k) Property........................................................................... 16
(l) Reports............................................................................ 16
(m) Employee Benefit Plans............................................................. 16
(n) Investment Securities.............................................................. 17
(o) Certain Contacts................................................................... 17
(p) Insurance.......................................................................... 18
(q) Loans, OREO and Allowance for Loan Losses.......................................... 18
(r) Absence of Material Changes and Events............................................. 19
(s) Statements True and Correct........................................................ 19
(t) Brokers and Finders................................................................ 19
(u) Repurchase Agreements.............................................................. 19
(v) Administration of Trust Accounts................................................... 19
(w) Environmental Matters.............................................................. 20
ARTICLE 4
Conduct Prior to the Effective Date
4.1 Access to Records and Properties............................................................ 21
4.2 Confidentiality............................................................................. 21
4.3 Registration Statement, Proxy Statement and Shareholder Approval............................ 21
4.4 Operation of the Business of TTC & ICBI..................................................... 22
4.5 Dividends................................................................................... 23
4.6 No Solicitation............................................................................. 23
4.7 Regulatory Filings.......................................................................... 23
4.8 Public Announcements........................................................................ 23
4.9 Notice of Breach............................................................................ 23
4.10 Reorganization Consummation................................................................. 24
ii
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ARTICLE 5
Additional Agreements
5.1 Benefit Plans............................................................................... 24
5.2 Indemnification............................................................................. 24
5.3 Transfer of Trust Business.................................................................. 25
5.4 NASDAQ Listing.............................................................................. 25
5.5 Expense Allocation.......................................................................... 25
ARTICLE 6
Conditions to the Reorganization
6.1 Conditions to Each Party's Obligations to Effect the Reorganization......................... 25
(a) Shareholder Approval............................................................... 25
(b) Regulatory Approvals............................................................... 25
(c) Registration Statement............................................................. 25
(d) Tax Opinion........................................................................ 25
(e) Opinions of Counsel................................................................ 26
(f) Legal Proceedings.................................................................. 26
6.2 Conditions to Obligations of ICBI........................................................... 26
(a) Representations and Warranties..................................................... 26
(b) Performance of Obligations......................................................... 26
(c) Affiliate Letters.................................................................. 26
(d) TTC Expenses; Operating Losses..................................................... 26
(e) TTC Options........................................................................ 26
6.3 Conditions to Obligations of TTC............................................................ 27
(a) Representations and Warranties..................................................... 27
(b) Performance of Obligations......................................................... 27
(c) Investment Banking Letter.......................................................... 27
ARTICLE 7
Termination
7.1 Termination................................................................................. 27
7.2 Effect of Termination....................................................................... 28
7.3 Non-Survival of Representations, Warranties and Covenants................................... 28
7.4 Expenses.................................................................................... 28
ARTICLE 8
General Provisions
8.1 Entire Agreement............................................................................ 29
8.2 Waiver and Amendment........................................................................ 29
iii
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8.3 Descriptive Headings........................................................................ 29
8.4 Governing Law............................................................................... 29
8.5 Notices..................................................................................... 29
8.6 Counterparts................................................................................ 30
8.7 Severability................................................................................ 30
8.8 Subsidiaries................................................................................ 30
</TABLE>
Exhibit A - Plan of Merger between TTC Acquisition Subsidiary, Inc. and The
Tredegar Trust Company
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of March 28, 1997 by and between The Tredegar Trust Company, a
Virginia trust company with its principal office located in Richmond, Virginia
("TTC" or the "Surviving Corporation"), Independent Community Bankshares, Inc.,
a Virginia corporation with its principal office located in Middleburg, Virginia
("ICBI"), and TTC Acquisition Subsidiary, Inc., a Virginia trust company
wholly-owned by ICBI ("Acquisition").
WITNESSETH:
WHEREAS, TTC and ICBI desire to combine their respective businesses;
and
WHEREAS, the boards of directors of ICBI, Acquisition and TTC deem it
advisable to merge Acquisition into TTC pursuant to this Agreement, the Plan of
Merger attached as Exhibit A (the "Plan") and the provisions of Va. Code Section
13.1-716 whereby the holders of shares of common stock of TTC will receive
common stock of ICBI and/or cash in exchange therefor; and
WHEREAS, the parties desire to adopt a plan of reorganization in
accordance with the provisions of Section 368(a) of the United States Internal
Revenue code as amended (the "Code");
WHEREAS, ICBI and TTC have entered into a Stock Option Agreement dated
February 5, 1997 (the "Option Agreement") pursuant to which TTC has granted ICBI
an option to purchase shares of TTC common stock in accordance with the terms of
such Option Agreement; and
WHEREAS, the respective Boards of Directors of TTC and ICBI have
resolved that the transactions described herein are in the best interests of the
parties and their respective shareholders and have authorized and approved the
execution and delivery of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereby agree as follows:
ARTICLE 1
The Reorganization and Related Matters
1.1 The Reorganization. Subject to the terms and conditions of
this Agreement, at the Effective Date as defined in Section 1.3 hereof,
Acquisition will be merged with and into TTC (the "Reorganization"). The
separate corporate existence of Acquisition shall thereupon cease, and TTC will
be the Surviving Corporation in the Reorganization. At the Effective Date TTC
shall become a subsidiary trust company of ICBI, within the meaning of Article
3.1, Chapter 2, Title 6.1 of the Code of Virginia, as amended.
1.2 Management and Business of TTC and ICBI. On the Effective
Date, the directors, officers and employees of TTC on the Effective Date will
remain the directors, officers
<PAGE>
and employees of the Surviving Corporation; provided that the President of ICBI
will become Chairman of the Board of Directors of the Surviving Corporation.
1.3 The Closing and Effective Date. The closing of the
transactions contemplated by this Agreement and the Plan shall take place at the
offices of Williams, Mullen, Christian & Dobbins, 1021 East Cary Street,
Richmond, Virginia or at such other place as may be mutually agreed upon by the
parties. The Reorganization shall become effective on the date shown on the
Certificate of Merger issued by the State Corporation Commission of Virginia
effecting the Reorganization (the "Effective Date"). Unless otherwise agreed
upon in writing by the chief executive officers of ICBI and TTC, subject to the
conditions to the obligations of the parties to effect the Reorganization as set
forth in Article 6, the parties shall use their best efforts to cause the
Effective Date to occur on June 15, 1997. All documents required by the terms of
this Agreement to be delivered at or prior to consummation of the Reorganization
will be exchanged by the parties at the closing of the Reorganization (the
"Reorganization Closing"), which shall be held on or before the Effective Date.
Prior to the Reorganization Closing, Acquisition and TTC shall execute and
deliver to the Virginia State Corporation Commission (the "SCC") Articles of
Merger containing a Plan of Merger in substantially the form of Exhibit A
hereto.
1.4 Definitions. Any term defined anywhere in this Agreement shall
have the meaning ascribed to it for all purposes of this Agreement (unless
expressly noted to the contrary). In addition:
(a) the term "Contingent Merger Consideration" shall
mean, with respect to each share of the common stock of TTC, par value $2.50 per
share ("TTC Common Stock") issued and outstanding on the Effective Date a
ratable share of the sum of (y) 4,940 shares of the common stock of ICBI, par
value $5.00 per share ("ICBI Common Stock") and (z) the number of shares of ICBI
Common Stock determined by dividing $138,300 by the Fair Market Value Per Share
of ICBI Common Stock.
(b) the term "Fair Market Value Per Share of ICBI
Common Stock" shall mean the average of the last sale price for ICBI Common
Stock as reported on the OTC Bulletin Board, the NASDAQ SmallCap Market or the
NASDAQ National Market, as appropriate, for the ten trading day period ending on
the tenth day prior to the date that the Contingent Merger Consideration is
paid; provided, however, that if a transaction involving a proposed change of
control of ICBI is announced during the thirty-six (36) month period referred to
in Section 1.4(f), the measuring period shall be the ten trading days
immediately prior to the first public announcement of such proposed change of
control.
(c) the term "Initial Merger Consideration" shall mean,
with respect to each share of TTC Common Stock issued and outstanding on the
Effective Date, 0.25 shares of ICBI Common Stock unless TTC Operating Losses
exceed $30,000. If TTC Operating Losses exceed $30,000, the Initial Merger
Consideration shall be the fraction of a share of ICBI Common Stock, the
denominator of which shall be 276,600 and the numerator of which shall be the
difference between $1,936,200 and the amount by which TTC Operating Losses
exceed $30,000, such difference then to be divided by $28.00.
(d) the term "knowledge" when used with respect to a
party shall mean the knowledge, after due inquiry, of any "Executive Officer" of
such party, as such term is defined in Regulation O, (12 C.F.R. 215);
2
<PAGE>
(e) the term "Material Adverse Effect", when applied to
a party, shall mean an event, occurrence or circumstance (including without
limitation (i) the making of any provisions for possible loan and lease losses,
write-downs or other real estate and taxes and (ii) any breach of a
representation or warranty by such party) which (a) has or is reasonably likely
to have a material adverse effect on the financial position, results of
operations or business of the party and its subsidiaries, taken as a whole, or
(b) would materially impair the party's ability to perform its obligations under
this Agreement or the consummation of the Reorganization and the other
transactions contemplated by this Agreement; provided, however, that solely for
purposes of measuring whether an event, occurrence or circumstance has a
material adverse effect on such party's results of operations, the term "results
of operations" shall mean net interest income plus non-interest income (less
securities gains) less gross expenses (excluding provisions for possible loan
and lease losses, write-downs of other real estate and taxes); and provided
further, that material adverse effect and material impairment shall not be
deemed to include the impact of (i) changes in banking and similar laws of
general applicability or interpretations thereof by courts or governmental
authorities, (ii) changes in generally accepted accounting principles or
regulatory accounting requirements applicable to banks and bank holding
companies generally, and (iii) the Reorganization on the operating performance
of the parties to this Agreement; and
(f) the term "Merger Consideration" shall mean, with
respect to each share of TTC Common Stock issued and outstanding on the
Effective Date, the Initial Merger Consideration and, if the Surviving
Corporation's aggregate net earnings for the thirty-six (36) month period,
beginning with the month following the month in which the Effective Date occurs,
equal or exceed the Required Net Earnings, the Contingent Merger Consideration.
(g) the term "Previously Disclosed" by a party shall
mean information set forth in a written disclosure letter that is delivered by
that party to the other party prior to or contemporaneously with the execution
of this Agreement and specifically designated as information "Previously
Disclosed" pursuant to this Agreement.
(h) the term "Required Net Earnings" shall mean $638,946
at a minimum, plus the amount, if any, by which (y) severance payments and
benefits (including payroll taxes and insurance) paid to TTC officers and (z)
TTC Transaction Costs (as defined below), in the aggregate, exceed $150,000, net
of the amount by which TTC Operating Losses (as defined below) are less than
$30,000.
(i) the term "TTC Operating Losses" shall mean the
excess, if any, of TTC expenses over TTC revenue (each computed according to
generally accepted accounting principles consistently applied) from January 1,
1997 to the Effective Date; provided, however, that there shall be excluded from
TTC expenses (i) severance benefits (including payroll taxes and insurance)
payable to TTC officers, (ii) TTC Transaction Costs (iii) the amortization or
write-off of TTC start-up costs and (iv) any referral fees payable by TTC to The
Middleburg Bank after June 30, 1997.
(j) the term "TTC Transaction Costs" shall mean the
expenses of TTC accrued on the books of TTC after December 31, 1996 in
connection with the negotiation and preparation of the Option Agreement and the
February 5, 1997 letter of intent between ICBI and TTC and expenses of TTC
incurred in connection with the negotiation, performance and consummation of
this Agreement, including fees and expenses of consultants, investment
3
<PAGE>
bankers, accountants, counsel and printers.
ARTICLE 2
Effect of Reorganization on Common Stock
2.1 Conversion of Common Stock. (a) At the Effective Date, by
virtue of the Reorganization and without any action on the part of the holders
thereof, each share of TTC Common Stock issued and outstanding immediately prior
to the Effective Date (other than shares of TTC Common Stock held by ICBI and
Dissenting Shares as defined in Section 2.6) shall cease to be outstanding and
shall be converted into the right to receive the Merger Consideration.
(b) Each holder of a certificate representing any shares
of TTC Common Stock shall thereafter cease to have any rights with respect to
such TTC Common Stock, except the right to receive the consideration described
in Sections 2.1 and 2.4 upon the surrender of such certificate in accordance
with Section 2.3.
(c) In the event ICBI changes the number of shares of
ICBI Common Stock issued and outstanding prior to the date that the Initial
Merger Consideration or Contingent Merger Consideration is paid, as a result of
any stock split, stock dividend, recapitalization or similar transaction with
respect to the outstanding ICBI Common Stock and the record date therefor shall
be prior to the date that the Initial Merger Consideration or Contingent Merger
Consideration is paid, the Merger Consideration shall be proportionately
adjusted.
(d) At the Effective Date, by virtue of the
Reorganization and without any action on the part of the holder thereof, each
share of the common stock of Acquisition issued and outstanding immediate prior
to the Effective Date shall cease to be outstanding and shall be converted into
one share of TTC Common Stock.
2.2 Calculation and Payment of Merger Consideration. (a) If,
within 30 days following the Effective Date, the parties agree on the amount, if
any, of the TTC Operating Losses, the Initial Merger Consideration shall be
calculated and paid as soon as practicable following the Effective Date in
accordance with Section 2.3(a). If the parties do not so agree, the Initial
Merger Consideration will be determined as follows:
(i) Closing Financial Statement. ICBI shall cause
to be prepared an income statement (the "Closing Financial Statement")
showing the TTC Operating Losses as of the Effective Date. The Closing
Financial Statement shall be prepared in accordance with generally
accepted accounting principles consistently applied with prior periods,
except for adjustments for determining the TTC Operating Losses.
(ii) Audit. The Closing Financial Statement and
related footnotes (if any) shall be audited and reported on by Yount,
Hyde & Barbour ("Yount, Hyde"). The report of Yount, Hyde shall be
unqualified except as necessary to reflect adjustments in determining
the TTC Operating Losses as required herein. ICBI shall exercise its
reasonable best efforts to cause the Closing Financial Statement,
together with the report of Yount, Hyde thereon, to be delivered within
60 days after the Effective Date, subject to the provisions of
subsection (iii) hereof. Such delivery shall be made to F. E. Deacon,
III, as the representative of the TTC Shareholders (the "Shareholders'
Representative"), at the address designated by him to ICBI. ICBI and
4
<PAGE>
the Surviving Corporation shall, and shall cause their respective
employees and agents to, fully cooperate in all respects in the audit
and review process and take such actions and make such undertaking as
are customary in connection therewith.
(iii) Review. Following delivery of the Closing
Financial Statement to the Shareholders' Representative, ICBI shall
cause Yount, Hyde to provide the Shareholders' Representative with an
opportunity to observe all aspects of the audit and to review Yount,
Hyde's work papers, and to discuss the same with Yount, Hyde
representatives. ICBI shall be responsible for the cost of the audit,
including the fees and expenses of Yount, Hyde. The Shareholders'
Representative shall have 30 days to review the Closing Financial
Statement and to give notice to ICBI that he has a material
disagreement with Yount, Hyde regarding the Closing Financial
Statement. Failing such notice, the Closing Financial Statement as
delivered to the Shareholders' Representative shall be final and
binding on the parties hereto.
(iv) Objection Period. If the Shareholders'
Representative gives an objection notice in a timely manner, but ICBI
and the Shareholders' Representative are able to resolve such
objections, the Closing Financial Statement, as modified to resolve
such objections, shall be binding on the parties hereto. If ICBI and
the Shareholders' Representative are unable to reach agreement as to
all differences within 15 days after ICBI's receipt of the
Shareholders' Representative's objection notice, then the unresolved
differences shall be submitted to arbitration to resolve the dispute
and make a determination which shall be binding on the parties to this
Agreement. Such arbitration shall be conducted by an arbitrator
experienced in the matters at issue and selected in accordance with
the then current Commercial Arbitration Rules of the American
Arbitration Association (the "Rules"). The arbitration shall be held
in Richmond, Virginia and shall be conducted in accordance with the
Rules. The decision of the arbitrator shall be final and binding as to
any matters submitted to arbitration; provided that, if necessary,
such decision may be enforced by either ICBI or the Shareholders'
Representative in any court having competent jurisdiction. After
delivery of the arbitrator's decision, the Closing Financial
Statement, modified as appropriate to reflect the arbitrator's
decision, shall be final and binding. The determination of which party
(or combination thereof) bears the costs and expenses incurred in
connection with any such arbitration proceedings shall be determined
by the arbitrator.
(b) If, within 30 days following the end of the 36 month period,
beginning with the month that follows the month in which the Effective Date
occurs, ICBI and the Shareholders' Representative agree that the net earnings of
the Surviving Corporation exceed the Required Net Earnings, the Contingent
Merger Consideration shall be calculated and paid as soon as practicable in
accordance with Section 2.3(b). If the parties do not so agree, the decision to
pay or not to pay Contingent Merger Consideration will be determined as follows:
(i) Post Closing Financial Statement. ICBI shall
cause to be prepared an income statement (the "Post Closing Financial
Statement") showing the Surviving Corporation's net earnings for such
36 month period and calculating the Required Net Earnings. The Post
Closing Financial Statement shall be prepared in accordance with
generally accepted accounting principles consistently applied with
prior periods.
5
<PAGE>
(ii) Audit. The Post Closing Financial Statement and
related footnotes (if any) shall be audited and reported on by Yount,
Hyde & Barbour ("Yount, Hyde"). The report of Yount, Hyde shall be
unqualified. ICBI shall exercise its reasonable best efforts to cause
the Post Closing Financial Statement, together with the report of
Yount, Hyde thereon, to be delivered within 60 days after the end of
the 36 month period described in Section 2.2(b)(i), subject to the
provisions of subsection (iii) hereof. Such delivery shall be made to
the Shareholders' Representative at the address designated by him to
ICBI. ICBI and the Surviving Corporation shall, and shall cause their
respective employees and agents to, fully cooperate in all respects in
the audit and review process and take such actions and make such
undertaking as are customary in connection therewith.
(iii) Review. Following delivery of the Post Closing
Financial Statement to the Shareholders' Representative, ICBI shall
cause Yount, Hyde to provide the Shareholders' Representative with an
opportunity to observe all aspects of the audit and to review Yount,
Hyde's work papers, and to discuss the same with Yount, Hyde
representatives. ICBI shall be responsible for the cost of the audit,
including the fees and expenses of Yount, Hyde. The Shareholders'
Representative shall have 30 days to review the Post Closing Financial
Statement and to give notice to ICBI that he has a material
disagreement with Yount, Hyde regarding the Post Closing Financial
Statement. Failing such notice, the Post Closing Financial Statement
as delivered to the Shareholders' Representative shall be final and
binding on the parties hereto.
(iv) Objection Period. If the Shareholders'
Representative gives an objection notice in a timely manner, but ICBI
and the Shareholders' Representative are able to resolve such
objections, the Post Closing Financial Statement, as modified to
resolve such objections, shall be binding on the parties hereto. If
ICBI and the Shareholders' Representative are unable to reach
agreement as to all differences within 15 days after ICBI's receipt of
the Shareholders' Representative's objection notice, then the
unresolved differences shall be submitted to arbitration to resolve
the dispute and make a determination which shall be binding on the
parties to this Agreement. Such arbitration shall be conducted by an
arbitrator experienced in the matters at issue and selected in
accordance with the then current Commercial Arbitration Rules of the
American Arbitration Association (the "Rules"). The arbitration shall
be held in Richmond, Virginia and shall be conducted in accordance
with the Rules. The decision of the arbitrator shall be final and
binding as to any matters submitted to arbitration; provided that, if
necessary, such decision may be enforced by either ICBI or the
Shareholders' Representative in any court having competent
jurisdiction. After delivery of the arbitrator's decision, the Post
Closing Financial Statement, modified as appropriate to reflect the
arbitrator's decision, shall be final and binding. The determination
of which party (or combination thereof) bears the costs and expenses
incurred in connection with any such arbitration proceedings shall be
determined by the arbitrator.
2.3 Manner of Exchange. As promptly as practicable after the
Effective Date, ICBI shall cause The Middleburg Bank, acting as the exchange
agent ("Exchange Agent"), to send to each former shareholder of record of TTC
immediately prior to the Effective Date transmittal materials for use in
exchanging such shareholder's certificates of TTC Common Stock (other than
shares held by shareholders who perfect their dissenters' rights as provided
under Section 2.6
6
<PAGE>
hereof) for the consideration set forth in Section 2.1 above and Section 2.4
below. Any fractional share checks which a TTC shareholder shall be entitled to
receive in exchange for such shareholder's shares of TTC Common Stock, and all
dividends paid on any shares of ICBI Common Stock that such shareholder shall be
entitled to receive prior to the delivery to the Exchange Agent of such
shareholder's certificates representing all of such shareholder's shares of TTC
Common Stock will be delivered to such shareholder only upon delivery to the
Exchange Agent of the certificates representing all of such shares (or indemnity
satisfactory to ICBI and the Exchange Agent, in their judgment, if any of such
certificates are lost, stolen or destroyed). No interest will be paid on any
such fractional share checks or dividends to which the holder of such shares
shall be entitled to receive upon such delivery.
2.4 Fractional Shares. ICBI shall issue cash in lieu of
fractional shares. ICBI will pay the value of such fractional shares in cash on
the basis of $28.00 per share of ICBI Common Stock.
2.5 Dividends. No dividend or other distribution payable to the
holders of record of ICBI Common Stock at or as of any time after the Effective
Date shall be paid to the holder of any certificate representing shares of TTC
Common Stock issued and outstanding at the Effective Date until such holder
physically surrenders such certificate for exchange as provided in Section 2.3
of this Agreement, promptly after which time all such dividends or distributions
shall be paid (without interest). With respect to its dividend for the three
months ending June 30, 1997, ICBI will not declare or establish a record date
for such dividend prior to July 9, 1997.
2.6 Dissenting Shares. Shareholders of TTC shall have the
right to demand and receive payment of the fair value of their shares of TTC
Common Stock pursuant to the provisions of Virginia Code ss. 13.1-729 et seq.
(the "Dissenting Shares"). If, however, a holder shall have failed to perfect
his right to dissent or shall have effectively withdrawn or lost such right,
each of his shares of TTC Common Stock shall be deemed to have been converted
into, at the Effective Date, the right to receive the Merger Consideration and
cash in lieu of any fractional shares pursuant to Section 2.3 hereof.
ARTICLE 3
Representation and Warranties
3.1 Representations and Warranties of TTC. TTC represents and
warrants to ICBI as follows:
(a) Organization, Standing and Power. (1) TTC is a
corporation and a trust company, duly organized, validly existing and in good
standing under the laws of Virginia, and it has all requisite corporate power
and authority to carry on its business as now being conducted and to own and
operate its assets, properties and business. TTC has no subsidiaries. TTC has
the corporate power and authority to execute and deliver this Agreement and
perform the respective terms of this Agreement and the Plan of Merger.
(2) All of the shares of capital stock of TTC are fully
paid and nonassessable.
7
<PAGE>
(b) Authority. (1) The execution and delivery of this
Agreement and the Plan and the consummation of the Reorganization, have been
duly and validly authorized by all necessary corporate action on the part of
TTC, except the approval of shareholders. The Agreement represents the legal,
valid, and binding obligations of TTC, enforceable against TTC in accordance
with its terms (except in all such cases as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought).
(2) Neither the execution and delivery of this Agreement,
the consummation of the transactions contemplated herein, nor compliance by TTC
with any of the provisions hereof will: (i) conflict with or result in a breach
of any provision of TTC's Articles of Incorporation or Bylaws; (ii) except as
Previously Disclosed, constitute or result in the breach of any term, condition
or provision of, or constitute a default under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon, any property or assets of TTC
pursuant to (A) any note, bond, mortgage, indenture, or (B) any material
license, agreement, lease, or other instrument or obligation, to which TTC is a
party or by which it or any of its properties or assets may be bound, or (iii)
subject to the receipt of the requisite approvals referred to in Section 4.7,
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to TTC or any or its properties or assets.
(c) Capital Structure. The authorized capital stock of
TTC consists of 500,000 shares of common stock, par value $2.50 per share, of
which, as of the date hereof, 276,600 shares are issued, outstanding, fully paid
and nonassessable, not subject to shareholder preemptive rights and were not
issued in violation of any agreement to which TTC is a party or otherwise bound,
or of any registration or qualification provisions of any federal or state
securities laws. Except as Previously Disclosed, there are no outstanding
options, warrants or other rights to subscribe for or purchase from TTC any
capital stock of TTC or securities convertible into or exchangeable for capital
stock of TTC.
(d) Ownership of the Stock. TTC does not beneficially
own, directly or indirectly, 5% or more of the outstanding capital stock or
other voting securities of any corporation or other organization except as
Previously Disclosed.
(e) Financial Statements. TTC has previously furnished to
ICBI true and complete copies of its audited consolidated balance sheets and
related consolidated statements of income, statements of cash flows, and
statements of stockholders' equity for the three year period ended December 31,
1996 (together with the notes thereto, the "TTC Financial Statements"). The TTC
Financial Statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis during the periods
presented, and present fairly the financial position of TTC as of the respective
dates thereof and the results of its operations for the three year period then
ended.
(f) Absence of Undisclosed Liabilities. At December 31,
1996 TTC had no obligation or liability (contingent or otherwise) of any nature
which was not reflected in the TTC Financial Statements, except for those which
in the aggregate are immaterial or have been Previously Disclosed.
8
<PAGE>
(g) Legal Proceedings; Compliance with Laws. Except as
Previously Disclosed, there are no actions, suits or proceedings instituted or
pending or, to the best knowledge of TTC's management, threatened against TTC,
or against any property, asset, interest or right of TTC. TTC is not a party to
any agreement or instrument or subject to any judgment, order, writ, injunction,
decree or rule that might reasonably be expected to have a material adverse
effect on the condition (financial or otherwise), business or prospects of TTC.
Except as Previously Disclosed, TTC has complied in all material respects with
all laws, ordinances, requirements, regulations or orders applicable to its
business (including environmental laws, ordinances, requirements, regulations or
orders).
(h) Regulatory Approvals. To the knowledge of TTC there
is no reason why the regulatory approvals referred to in Section 6.1(b) should
not be obtained without the imposition of any condition of the type referred to
in Section 6.1(b).
(i) Labor Relations. TTC is not a party to or bound by
any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is it the subject of
a proceeding asserting that it has committed an unfair labor practice (within
the meaning of the National Labor Relations Act) or seeking to compel it to
bargain with any labor organization as to wages and conditions of employment,
nor is there any strike or other labor dispute involving it, pending or, to the
best of its knowledge, threatened, nor is it aware of any activity involving its
employees seeking to certify a collective bargaining unit or engaging in any
other organization activity.
(j) Tax Matters. TTC has filed all federal, state and
local tax returns and reports required to be filed, and all taxes shown by such
returns to be due and payable have been paid or are reflected as a liability in
the TTC Financial Statements or are being contested in good faith and have been
Previously Disclosed. Except to the extent that liabilities therefor are
specifically reflected in the TTC Financial Statements, there are no federal,
state or local tax liabilities of TTC other than liabilities that have arisen
since December 31, 1996, all of which have been properly accrued or otherwise
provided for on the books and records of TTC. Except as Previously Disclosed, no
tax return or report of TTC is under examination by any taxing authority or the
subject of any administrative or judicial proceeding, and no unpaid tax
deficiency has been asserted against TTC by any taxing authority.
(k) Property. Except as Previously Disclosed or reserved
against in the TTC Financial Statements, TTC has good and marketable title free
and clear of all material liens, encumbrances, charges, defaults or equities of
whatever character to all of the material properties and assets, tangible or
intangible, reflected in the TTC Financial Statements as being owned by TTC as
of the dates thereof. To the best knowledge of TTC, all buildings, and all
fixtures, equipment, and other property and assets which are material to its
business on a consolidated basis, held under leases or subleases by TTC are held
under valid instruments enforceable in accordance with their respective terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought). The buildings,
structures, and appurtenances owned, leased, or occupied by TTC are in good
operating condition and in a state of good maintenance and repair, and to the
best knowledge
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of TTC (i) comply with applicable zoning and other municipal laws and
regulations, and (ii) there are no latent defects therein.
(l) Reports. Since January 1, 1993, TTC has filed all
reports and statements, together with any amendments required to be made with
respect thereto, that were required to be filed with the SCC and to the best
knowledge of TTC, any other governmental or regulatory authority or agency
having jurisdiction over its operations.
(m) Employee Benefit Plans. (1) TTC will deliver for
ICBI's review, as soon as practicable, true and complete copies of all material
pension, retirement, profit-sharing, deferred compensation, stock option, bonus,
vacation or other material incentive plans or agreements, all material medical,
dental or other health plans, all life insurance plans and all other material
employee benefit plans or fringe benefit plans, including, without limitation,
all "employee benefit plans" as that term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), currently
adopted, maintained by, sponsored in whole or in part by, or contributed to by
TTC for the benefit of employees, retirees or other beneficiaries eligible to
participate (collectively, the "TTC Benefit Plans"). Any of the TTC Benefit
Plans which is an "employee pension benefit plan," as that term is defined in
Section (32) of ERISA, is referred to herein as a "TTC ERISA Plan." No TTC
Benefit Plan is or has been a multi-employer plan within the meaning of Section
3(37) of ERISA.
(2) Except as Previously Disclosed, all TTC Benefit Plans
are in compliance with the applicable terms of ERISA and the Internal Revenue
Code of 1986, as amended (the "IRC") and any other applicable laws, rules and
regulations, the breach or violation of which could result in a material
liability to TTC on a consolidated basis.
(3) No TTC ERISA Plan is a defined benefit pension plan.
(n) Investment Securities. Except as Previously
Disclosed, none of the investment securities reflected in the TTC Financial
Statements is subject to any restriction, contractual, statutory, or otherwise,
which would impair materially the ability of the holder of such investment to
dispose freely of any such investment at any time.
(o) Certain Contracts. (1) Except as Previously
Disclosed, TTC is not a party to, or is bound by, (i) any material agreement,
arrangement or commitment, (ii) any agreement, indenture or other instrument
relating to the borrowing of money by TTC or the guarantee by TTC of any such
obligation, (iii) any agreement, arrangement or commitment relating to the
employment of a consultant or the employment, election, retention in office or
severance of any present or former director or officer, (iv) any agreement to
make loans or for the provision, purchase or sale of goods, services or property
between TTC and any director of officer of TTC, or any member of the immediate
family or affiliate of any of the foregoing, or (v) any agreement between TTC
and any 5% or more shareholder of TTC; in each case other than agreements
entered into in the ordinary course of the business of TTC consistent with past
practice.
(2) Neither TTC nor, to the knowledge of TTC, the other
party thereto, is in default under any material agreement, commitment,
arrangement, lease, insurance policy or other instrument whether entered into in
the ordinary course of business or otherwise, nor has there occurred any event
that, with the lapse of time or giving of notice or both, would constitute such
a default.
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(3) Since December 31, 1996 TTC has not incurred or paid
any obligation or liability that would be material to TTC, except obligations
incurred or paid in connection with transactions in the ordinary course of
business of TTC consistent with its practice and, except as Previously
Disclosed, from December 31, 1996 to the date hereof, TTC has not taken any
action that, if taken after the date hereof, would breach any of the covenants
contained in Section 4.4 hereof.
(p) Insurance. A complete list of all policies or binders
of fire, liability, product liability, workmen's compensation, vehicular and
other insurance held by or on behalf of TTC has previously been furnished to
ICBI and all such policies or binders are valid and enforceable in accordance
with their terms, are in full force and effect, and insure against risks and
liabilities to the extent and in the manner customary for the industry and are
deemed appropriate and sufficient by TTC. TTC is not in default with respect to
any provision contained in any such policy or binder and has not failed to give
any notice or present any claim under any such policy or binder in due and
timely fashion. TTC has not received notice of cancellation or non-renewal of
any such policy or binder. TTC has no knowledge of any inaccuracy in any
application for such policies or binders, any failure to pay premiums when due
or any similar state of facts or the occurrence of any event that is reasonably
likely to form the basis for any material claim against it not fully covered
(except to the extent of any applicable deductible) by the policies or binders
referred to above. TTC has not received notice from any of its insurance
carriers that any insurance premiums will be increased materially in the future
or that any such insurance coverage will not be available in the future on
substantially the same terms as now in effect.
(q) Absence of Material Changes and Events. Since
December 31, 1996, there has not been any material adverse change in the
condition (financial or otherwise), aggregate assets or liabilities, assets
under management, cash flow, earnings or business of TTC, and except for
entering into this Agreement, TTC has conducted its business only in the
ordinary course consistent with past practice.
(r) Statements True and Correct. None of the information
supplied or to be supplied by TTC pursuant to Section 4.1 or for inclusion in
the Registration Statement on Form S-4 (the "Registration Statement") to be
filed by ICBI with the SEC, the Proxy Statement/Prospectus (as defined in
Section 4.3) to be mailed to every TTC shareholder or any other document to be
filed with the SEC, the SCC, the Federal Reserve, or any other regulatory
authority in connection with the transactions contemplated hereby, will, at the
respective time such documents are filed, and, in the case of the Registration
Statement, when it becomes effective and with respect to the Proxy
Statement/Prospectus, when first mailed to TTC shareholders, be false or
misleading with respect to any material fact or omit to state any material fact
necessary in order to make the statements therein not misleading, or, in the
case of the Proxy Statement/Prospectus or any supplement thereto, at the time of
the TTC Shareholders' Meeting (as defined in Section 4.3), be false or
misleading with respect to any material fact or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for the TTC Shareholders' Meeting.
(s) Brokers and Finders. Neither TTC nor any of its
officers, directors or employees, has employed any broker, finder or financial
advisor or incurred any liability for any fees or commissions in connection with
the transactions contemplated herein, except for Scott & Stringfellow, Inc.
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(t) Repurchase Agreements. With respect to all agreements
pursuant to which TTC or any TTC Subsidiary has purchased securities subject to
an agreement to resell, if any, TTC or such TTC Subsidiary, as the case may be,
has a valid, perfected first lien or security interest in the government
securities or other collateral securing the repurchase agreement, and the value
of such collateral equals or exceeds the amount of the debt secured thereby.
(u) Administration of Trust Accounts; Consents. TTC has
properly administered, in all respects material and which could reasonably be
expected to be material to the business, operations or financial condition of
TTC all accounts for it acts as fiduciary including but not limited to accounts
for which it serves as executor trustee, agent, custodian, personal
representative, guardian, conservator or investment advisor, in accordance with
the terms of the governing documents and applicable law and regulation and
common law. Neither TTC, nor any director, officer or employee of TTC has
committed any breach of trust with respect to any such fiduciary account which
is material to or could reasonably be expected to be material to the business,
operations or financial condition of TTC and the accountings for each such
fiduciary account are true and correct in all material respects and accurately
reflect the assets of such fiduciary account in all material respects.
(v) Environmental Matters. (1) There are no legal,
administrative, arbitral or other claims, causes of action or governmental
investigations of any nature, seeking to impose, or that could result in the
imposition, on TTC of any liability arising under any Environmental Laws pending
or, to the best knowledge of TTC, threatened against (A) TTC, (B) any person or
entity whose liability for any Environmental Claim TTC has or may have retained
or assumed either contractually or by operation of law, or (C) any real or
personal property which TTC owns or leases, or has been or is judged to have
managed or to have supervised or participated in the management of, which
liability might have a material adverse effect on the business, financial
condition or results of operations of TTC. TTC is not subject to any agreement,
order, judgment, decree or memorandum by or with any court, governmental
authority, regulatory agency or third party imposing any such liability.
(2) To the best knowledge of TTC, there are no past or
present actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the release, emission, discharge or disposal of
any Materials of Environmental Concern, that could reasonably form the basis of
any Environmental Claim or other claim or action or governmental investigation
that could result in the imposition of any liability arising under any
Environmental Laws currently in effect or adopted but not yet effective against
TTC or against any person or entity whose liability for any Environmental Claim
TTC or any TTC Subsidiary has or may have retained or assumed either
contractually or by operation of law.
(3) For the purpose of this Agreement, the following
terms shall have the following meanings:
(i) "Communication" means a communication which is
of a substantive nature and which is made (A) in writing to TTC or any TTC
Subsidiary on the one hand or to ICBI or any ICBI Subsidiary on the other hand,
or (B) orally to a senior officer of TTC or any TTC Subsidiary or of ICBI or any
ICBI Subsidiary, whether from a governmental authority or a third party.
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(ii) "Environmental Claim" means any Communication
from any governmental authority or third party alleging potential liability
(including, without limitation, potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or resulting
from the presence, or release into the environment, of any Material of
Environmental Concern.
(iii) "Environmental Laws" means all applicable
federal, state and local laws and regulations, including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, that
relate to pollution or protection of human health or the environment (including,
without limitation, ambient air, surface water, ground water, land surface or
subsurface strata). This definition includes, without limitation, laws and
regulations relating to emissions, discharges, releases or threatened releases
of Materials of Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environmental Concern.
(iv) "Materials of Environmental Concern" means
pollutants, contaminants, wastes, toxic substances, petroleum and petroleum
products and any other materials regulated under Environmental Laws.
3.2 Representations and Warranties of ICBI. represents and
warrants to TTC as follows:
(a) Organization, Standing and Power. (1) ICBI is a
corporation duly organized, validly existing and in good standing under the laws
of Virginia. It has all requisite corporate power and authority to carry on its
business as now being conducted and to own and operate its assets, properties
and business, and ICBI has the corporate power and authority to execute and
deliver this Agreement and perform the respective terms of this Agreement and
Plan of Reorganization. ICBI is duly registered as a bank holding company under
the Bank Holding Company Act of 1956. The Middleburg Bank, a wholly owned
subsidiary of ICBI, is a Virginia corporation and a Virginia state bank, duly
organized, validly existing and in good standing under the laws of Virginia, is
in compliance in all material respects with all rules and regulations
promulgated by any relevant regulatory authority, and it has all requisite
corporate power and authority to carry on a commercial banking business as now
being conducted and to own and operate its assets, properties and business.
(2) ICBI has Previously Disclosed its subsidiary
corporations (and the subsidiaries thereof), all of which are duly organized,
validly existing and in good standing in their respective states of
incorporation and which have all requisite corporate power and authority to
carry on their businesses as now being conducted and to own and operate their
assets, properties and business (the "ICBI Subsidiaries" and, collectively with
ICBI, the "ICBI Companies"). Each ICBI Subsidiary that is a depository
institution is an "insured bank" as defined in the Federal Deposit Insurance Act
and applicable regulations thereunder. All of the shares of capital stock of the
ICBI Subsidiaries held by ICBI are duly and validly issued, fully paid and
nonassessable, and all such shares are owned by ICBI or a ICBI Subsidiary free
and clear of any claim, lien, pledge or encumbrance of any kind, and were not
issued in violation of the preemptive rights of any shareholder or in violation
of any agreement or of any registration or qualification provisions of federal
or state securities laws. Except as Previously Disclosed, none of the ICBI
Companies owns any equity securities of any other corporation or entity. Except
as Previously Disclosed, each of the ICBI Companies is in good standing as a
foreign corporation in each jurisdiction where the
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properties owned, leased or operated, or the business conducted, by it require
such qualification and where failure to so qualify either singly or in the
aggregate would have a material adverse effect on the financial condition,
properties, businesses or results of operations of the ICBI Companies.
(b) Authority. (1) The execution and delivery of this
Agreement and the Plan and the consummation of the Reorganization have been duly
and validly authorized by all necessary corporate action on the part of ICBI.
The Agreement represents the legal, valid, and binding obligation of ICBI,
enforceable against ICBI in accordance with its terms (except in all such cases
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(2) Neither the execution and delivery of the Agreement,
the consummation of the transactions contemplated therein, nor the compliance by
ICBI with any of the provisions thereof will (i) conflict with or result in a
breach of any provision of the Articles of Incorporation or Bylaws of ICBI, (ii)
except as Previously Disclosed, constitute or result in the breach of any term,
condition or provision of, or constitute default under, or give rise to any
right of termination, cancellation or acceleration with respect to, or result in
the creation of any lien, charge or encumbrance upon, any property or assets of
the ICBI Companies pursuant to (A) any note, bond, mortgage, indenture, or (B)
any material license, agreement, lease or other instrument or obligation, to
which any of the ICBI Companies is a party or by which any of them or any of
their properties or assets may be bound, or (iii) subject to the receipt of the
requisite approvals referred to in Section 4.7, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to any of the ICBI
Companies or any of their properties or assets.
(c) Capital Structure. The authorized capital stock of
ICBI consists of: 10,000,000 shares of common stock, par value $5.00 per share
("ICBI Common Stock), of which 837,149 shares are issued and outstanding, fully
paid and nonassessable, not subject to shareholder preemptive rights, and not
issued in violation of any agreement to which ICBI is a party or otherwise
bound, or of any registration or qualification provisions of any federal or
state securities laws. The shares of ICBI Common Stock to be issued upon
consummation of the Reorganization will have been duly authorized and, when
issued in accordance with the terms of this Agreement, will be validly issued,
fully paid and nonassessable and subject to no preemptive rights. Except as
Previously Disclosed, there are no outstanding understandings or commitments of
any character pursuant to which ICBI and any of the ICBI Companies could be
required or expected to issue shares of capital stock.
(d) Ownership of the ICBI Subsidiaries; Capital Structure
of ICBI Subsidiaries; and Organization of the ICBI Subsidiaries. (1) ICBI does
not own, directly or indirectly, 5% or more of the outstanding capital stock or
other voting securities of any corporation, bank or other organization actively
engaged in business except as Previously Disclosed (collectively the "ICBI"
Subsidiaries" and each individually a "ICBI Subsidiary"). The outstanding shares
of capital stock of each ICBI Subsidiary have been duly authorized and are
validly issued, and are fully paid and nonassessable and all such shares are
directly or indirectly owned by ICBI free and clear of all liens, claims and
encumbrances. No Rights are authorized, issued or outstanding with respect to
the capital stock of any ICBI Subsidiary and there are no agreements,
understandings or commitments relating to the right of ICBI to vote or to
dispose of
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said shares. None of the shares of capital stock of any ICBI Subsidiary has been
issued in violation of the preemptive rights of any person.
(2) Each ICBI Subsidiary is a duly organized corporation,
validly existing and in good standing under applicable laws. Each ICBI
Subsidiary (i) has full corporate power and authority to own, lease and operate
its properties and to carry on its business as now conducted except where the
absence of such power or authority would not have a material adverse effect on
the financial condition, results of operations or business of ICBI on a
consolidated basis, and (ii) is duly qualified to do business in the states of
the United States and foreign jurisdictions where its ownership or leasing of
property or the conduct of its business requires such qualification and where
failure to do qualify would have a material adverse effect on the financial
condition, results of operations or business of ICBI on a consolidated basis.
Each ICBI Subsidiary has all federal, state, local and foreign governmental
authorizations and licenses necessary for it to own or lease its properties and
assets and to carry on its business as it is now being conducted, except where
failure to obtain such authorization or license would not have a material
adverse effect on the business of such ICBI Subsidiary.
(e) Financial Statements. ICBI has previously furnished
to TTC true and complete copies of its audited consolidated balance sheets and
related consolidated statements of income, statements of cash flows, and
statements of stockholders equity for the three year period ended December 31,
1996 (together with the notes thereto, the "ICBI Financial Statement"). The ICBI
Financial Statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis during the periods
presented, and present fairly the financial position of ICBI as a of the
respective dates thereof and the results of its operations for the three year
period then ended.
(f) Absence of Undisclosed Liabilities. At December 31,
1996, none of the ICBI Companies had any obligation or liability (contingent or
otherwise) of any nature which were not reflected in the ICBI Financial
Statements, except for those which in the aggregate are immaterial or have been
Previously Disclosed.
(g) Legal Proceedings; Compliance with Laws. Except as
Previously Disclosed, there are no actions, suits or proceedings instituted or
pending or, to the best knowledge of ICBI's management, threatened or probable
of assertion against any of the ICBI Companies, or against any property, asset,
interest or right of any of them, that are reasonably expected to have, either
individually or in the aggregate, a material adverse effect on the financial
condition of ICBI on a consolidated basis or that are reasonably expected to
threaten or impede the consummation of the transactions contemplated by this
Agreement. None of the ICBI Companies is a party to any agreement or instrument
or subject to any judgment, order, writ, injunction, decree or rule that might
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), business or prospects of ICBI on a consolidated basis.
Except as Previously Disclosed, as of the date of this Agreement, none of the
ICBI Companies nor any of their properties is a party to or is subject to any
order, decree, agreement, memorandum of understanding or similar arrangement
with, or a commitment letter or similar submission to, any federal or state
governmental agency or authority charged with the supervision or regulation of
depository institutions or mortgage lenders or engaged in the insurance of
deposits which restricts or purports to restrict in any material respect the
conduct of the business of it or any of its subsidiaries or properties, or in
any manner relates to the capital, liquidity, credit policies or management of
it; and except as Previously Disclosed, none of the ICBI Companies has been
advised by any such
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regulatory authority that such authority is contemplating issuing or requesting
(or is considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, commitment letter or similar
submission. To the best knowledge of ICBI, the ICBI Companies have complied in
all material respects with all laws, ordinances, requirements, regulations or
orders applicable to its business (including environmental laws, ordinances,
requirements, regulations or orders).
(h) Regulatory Approvals. ICBI knows of no reason why the
regulatory approvals referred to in Section 6.1(b) should not be obtained
without the imposition of any condition of the type referred to in Section
6.1(b).
(i) Labor Relations. None of the ICBI Companies is a
party to, or is bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is it
the subject of a proceeding asserting that is has committed an unfair labor
practice (within the meaning of the National Labor Relations Act) or seeking to
compel it to bargain with any labor organization as to wages and conditions of
employment, nor is there any strike or other labor dispute involving it, pending
or, to the best of its knowledge, threatened, nor is it aware of any activity
involving its employees seeking to certify a collective bargaining unit or
engaging in any other organizational activity.
(j) Tax Matters. The ICBI Companies have filed all
federal, state, and local tax returns and reports required to be filed, and all
taxes shown by such returns to be due and payable have been paid or are
reflected as a liability in the ICBI Financial Statements or are being contested
in good faith and have been Previously Disclosed. Except to the extent that
liabilities therefor are specifically reflected in the ICBI Financial
Statements, there are no federal, state or local tax liabilities of the ICBI
Companies other than liabilities that have arisen since December 31, 1996, all
of which have been properly accrued or otherwise provided for on the books and
records of the ICBI Companies. Except as Previously Disclosed, no tax return or
report of any of the ICBI Companies is under examination by any taxing authority
or the subject of any administrative or judicial proceeding, and no unpaid tax
deficiency has been asserted against any of the ICBI Companies by any taxing
authority.
(k) Property. Except as Previously Disclosed or reserved
against in the ICBI Financial Statements, all of the ICBI Companies have good
and marketable title free and clear of all material liens, encumbrances,
charges, defaults or equities of whatever character to all of the material
properties and assets, tangible or intangible, reflected in the ICBI Financial
Statements as being owned by the ICBI Companies as of the dates thereof. To the
best knowledge of ICBI, all buildings, and all fixtures, equipment, and other
property and assets which are material to its business on a consolidated basis,
held under leases or subleases by the ICBI Companies are held under valid
instruments enforceable in accordance with their respective terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws. The
buildings, structures, and appurtenances owned, leased, or occupied by the ICBI
Companies are, to the best knowledge of ICBI, in good operating condition, in a
state of good maintenance and repair and (i) comply with applicable zoning and
other municipal laws and regulations, and (ii) there are no latent defects
therein.
(l) Reports. Since January 1, 1991, the ICBI Companies
have filed all reports and statements, together with any amendments required to
be made with respect thereto, that were
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required to be filed with the Federal Reserve, the SCC, and any other
governmental or regulatory authority or agency having jurisdiction over their
operations.
(m) Employee Benefit Plans. (1) ICBI will deliver for
TTC's review, as soon as practicable, true and complete copies of all material
pension, retirement, profit-sharing, deferred compensation, stock option, bonus,
vacation or other material incentive plans or agreements, all material medical,
dental or other health plans, all life insurance plans and all other material
employee benefit plans or fringe benefit plans, including, without limitation,
all "employee benefit plans" as that term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), currently
adopted, maintained by, sponsored in whole or in part by, or contributed to by
ICBI for the benefit of employees, retirees or other beneficiaries eligible to
participate (collectively, the "ICBI Benefit Plans"). Any of the ICBI Benefit
Plans which is an "employee pension benefit plan," as that term is defined in
Section 3(2) of ERISA, is referred to herein as a "ICBI ERISA Plan." No ICBI
Benefit Plan is or has been a multi-employer plan within the meaning of Section
3(37) of ERISA.
(2) Except as Previously Disclosed, all ICBI Benefit
Plans are in compliance with the applicable terms of ERISA and the Internal
Revenue Code of 1986, as amended (the "IRC") and any other applicable laws,
rules and regulations the breach or violation of which could result in a
material liability to ICBI on a consolidated basis.
(3) No ICBI ERISA Plan which is a defined benefit pension
plan has any "unfunded current liability," as that term is defined in Section
302(d)(8)(A) of ERISA, and the present fair market value of the assets of any
such plan exceeds the plan's "benefit liabilities," as that term is defined in
Section 4001(a)(16) of ERISA, when determined under actuarial factors that would
apply if the plan was terminated in accordance with all applicable legal
requirements.
(n) Investment Securities. Except for pledges to secure
public and trust deposits and obligations under agreements pursuant to which any
of the ICBI Companies has sold securities subject to an obligation to
repurchase, none of the investment securities reflected in the ICBI Financial
Statements is subject to any restriction, contractual, statutory, or otherwise,
which would impair materially the ability of the holder of such investment to
dispose freely of any such investment at any time.
(o) Certain Contracts. (1) Except as Previously
Disclosed, neither ICBI nor any ICBI subsidiary is a party to, or is bound by,
(i) any material agreement, arrangement or commitment, (ii) any agreement,
indenture or other instrument relating to the borrowing of money by ICBI or any
ICBI Subsidiary or the guarantee by ICBI or any ICBI Subsidiary of any such
obligation, (iii) any agreement, arrangement or commitment relating to the
employment of a consultant or the employment, election, retention in office or
severance of any present or former director or officer, (iv) any agreement to
make loans or for the provision, purchase or sale of goods, services or property
between ICBI or any ICBI Subsidiary and any director or officer of ICBI or any
ICBI Subsidiary, or any member of the immediate family or affiliate of any of
the foregoing, or (v) any agreement between ICBI or any ICBI Subsidiary and any
5% or more shareholder of ICBI; in each case other than agreements entered into
in the ordinary course of the banking business of ICBI or a ICBI Subsidiary
consistent with past practice.
(2) Neither ICBI or any ICBI Subsidiary, nor to the
knowledge of ICBI, the other party thereto, is in default under any material
agreement, commitment, arrangement, lease,
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insurance policy or other instrument whether entered into in the ordinary course
of business or otherwise, nor has there occurred any event that, with the lapse
of time or giving of notice or both, would constitute such a default, other than
defaults of loan agreements by borrowers from ICBI or a ICBI Subsidiary in the
ordinary course of its business.
(p) Insurance. A complete list of all policies or binders
of fire, liability, product liability, workmen's compensation, vehicular and
other insurance held by or on behalf of the ICBI Companies has previously been
furnished to TTC and all such policies or binders are valid and enforceable in
accordance with their terms, are in full force and effect, and insure against
risks and liabilities to the extent and in the manner customary for the industry
and are deemed appropriate and sufficient by ICBI. The ICBI Companies are not in
default with respect to any provision contained in any such policy or binder and
have not failed to give any notice or present any claim under any such policy or
binder in due and timely fashion. None of the ICBI Companies has received notice
of cancellation or non-renewal of any such policy or binder. None of the ICBI
Companies has knowledge of any inaccuracy in any application for such policies
or binders, any failure to pay premiums when due or any similar state of facts
or the occurrence of any event that is reasonably likely to form the basis for
any material claim against it not fully covered (except to the extent of any
applicable deductible) by the policies or binders referred to above. None of the
ICBI Companies has received notice from any of its insurance carriers that any
insurance premiums will be increased materially in the future or that any such
insurance coverage will not be available in the future on substantially the same
terms as now in effect.
(q) Loans, OREO, and Allowance for Loan Losses. (1)
Except as Previously Disclosed, and except for matters which individually or in
the aggregate, do not materially adversely affect the Reorganization or the
financial condition of ICBI, to ICBI's best knowledge each loan reflected as an
asset in the ICBI Financial Statements (i) is evidenced by notes, agreements, or
other evidences of indebtedness which are true, genuine and what they purport to
be, (ii) to the extent secured, has been secured by valid liens and security
interests which have been perfected, and (iii) is the legal, valid and binding
obligation of the obligor named therein, enforceable in accordance with its
terms, subject to bankruptcy, insolvency, and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles. All loans and extensions of credit which are subject to regulation
of the Federal Reserve which have been made by ICBI and the ICBI Subsidiaries
comply therewith.
(2) The classification on the books and records of ICBI
and each ICBI Subsidiary of loans and/or non-performing assets as nonaccrual,
troubled debt restructuring, OREO or other similar classification, complies in
all material respects with generally accepted accounting principles and
applicable regulatory accounting principles.
(3) Except for liens, security interests, claims,
charges, or such other encumbrances as have been appropriately reserved for in
the ICBI Financial Statements or are not material, title to the OREO is good and
marketable, and there are no adverse claims or encumbrances on the OREO. All
title, hazard and other insurance claims and mortgage guaranty claims with
respect to the OREO have been timely filed and neither ICBI nor any ICBI
Subsidiary has been received any notice of denial of any such claim.
(4) ICBI and each ICBI Subsidiary are in possession of
all of the OREO or, if any of the OREO remains occupied by the mortgagor,
eviction or summary proceedings have been commenced or rental arrangements
providing for market rental rates have been agreed upon and
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ICBI and/or each ICBI Subsidiary are diligently pursuing such eviction of
summary proceedings or such rental arrangements. Except as Previously Disclosed,
no legal proceeding or quasi-legal proceeding is pending or, to the knowledge of
ICBI and each ICBI Subsidiary, threatened concerning any OREO or any servicing
activity or omission to provide a servicing activity with respect to any of the
OREO.
(5) Except as Previously Disclosed, all loans made
by any of the ICBI Companies to facilitate the disposition of OREO are
performing in accordance with their terms.
(6) The allowance for possible loan losses shown on the
ICBI Financial Statements was, and the allowance for possible loan losses shown
on the financial statements of ICBI as of dates subsequent to the execution of
this Agreement will be, in each case as of the dates thereof, adequate in all
material respects to provide for possible losses, net of recoveries relating to
loans previously charged off, on loans outstanding (including accrued interest
receivable) of the ICBI Companies and other extensions of credit (including
letters of credit and commitments to make loans or extend credit) by ICBI.
(r) Absence of Material Changes and Events. Since
December 31, 1996, there has not been any material adverse change in the
condition (financial or otherwise), aggregate assets or liabilities, cash flow,
earnings or business or ICBI, and ICBI has conducted its business only in the
ordinary course consistent with past practice.
(s) Statements True and Correct. None of the information
supplied or to be supplied by ICBI pursuant to Section 4.1 or for inclusion in
the Registration Statement, the Proxy Statement/Prospectus or any other document
to be filed with the SEC or any other regulatory authority in connection with
the transactions contemplated hereby, will, at the respective time such
documents are filed, and, in the case of the Registration Statement, when it
becomes effective and with respect to the Proxy Statement/Prospectus, when first
mailed to TTC shareholders, be false or misleading with respect to any material
fact or omit to state any material fact necessary in order to make the
statements therein not misleading, or, in the case of the Proxy
Statement/Prospectus or any supplement thereto, at the time of the TTC
Shareholders' Meeting, be false or misleading with respect to any material fact
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of any proxy for the TTC
Shareholders' Meeting. All documents that ICBI is responsible for filing with
the SEC or any other regulatory authority in connection with the transactions
contemplated, hereby will comply as to form in all material respects with the
provisions of applicable law, including applicable provisions of federal and
state securities law.
(t) Brokers and Finders. Neither ICBI nor any ICBI
Subsidiary, nor any of their respective officers, directors or employees, has
employed any broker, finder or financial advisor or incurred any liability for
any fees or commissions in connection with the transactions contemplated herein,
except for the Davenport & Co. of Virginia, Inc..
(u) Repurchase Agreements. With respect to all agreements
pursuant to which ICBI or any ICBI Subsidiary has purchased securities subject
to an agreement to resell, if any, ICBI or such ICBI Subsidiary, as the case may
be, has a valid, perfected first lien or security interest in the government
securities or other collateral securing the repurchase agreement, and the value
of such collateral equals or exceeds the amount of the debt secured thereby.
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(v) Administration of Trust Accounts. ICBI and ICBI
Subsidiaries have properly administered, in all respects material and which
could reasonably be expected to be material to the business, operations or
financial condition of ICBI and ICBI Subsidiaries, taken as a whole, all
accounts for which they act as fiduciaries including but not limited to accounts
for which they serve as trustees, agents, custodians, personal representatives,
guardians, conservators or investment advisors, in accordance with the terms of
the governing documents and applicable state and federal law and regulation and
common law. Neither ICBI nor a ICBI Subsidiary, nor any director, officer or
employee of ICBI or a ICBI Subsidiary has committed any breach of trust with
respect to any such fiduciary account which is material to or could reasonably
be expected to be material to the business, operations or financial condition of
ICBI, or a ICBI Subsidiary, taken as a whole, and the accountings for each such
fiduciary account are true and correct in all material respects and accurately
reflect the assets of such fiduciary account in all material respects.
(w) Environmental Matters. (1) Except as Previously
Disclosed, to the best of ICBI's knowledge, neither ICBI nor any ICBI Subsidiary
owns or leases any properties affected by toxic waste, radon gas or other
hazardous conditions or constructed in part with the use of asbestos. Each of
ICBI and the ICBI Subsidiaries is in substantial compliance with all
Environmental Laws applicable to real or personal properties in which it has a
direct fee ownership or, with respect to a direct interest as lessee, applicable
to the leasehold premises or, to the best knowledge of ICBI and the ICBI
Subsidiaries, the premises on which the leasehold is situated. Neither ICBI nor
any ICBI Subsidiary has received any Communication alleging that ICBI or such
ICBI Subsidiary is not in such compliance and, to the best knowledge of ICBI and
the ICBI Subsidiaries, there are no present circumstances (including
Environmental Laws that have been adopted but are not yet effective) that would
prevent or interfere with the continuation of such compliance.
(2) There are no legal, administrative, arbitral or other
claims, causes of action or governmental investigations of any nature, seeking
to impose, or that could result in the imposition, on ICBI and the ICBI
Subsidiaries of any liability arising under any Environmental Laws pending or,
to the best knowledge of ICBI and the ICBI Subsidiaries, threatened against (A)
ICBI or any ICBI Subsidiary, (B) any person or entity whose liability for any
Environmental Claim, ICBI or any ICBI Subsidiary has or may have retained or
assumed either contractually or by operation of law, or (C) any real or personal
property which ICBI or any ICBI Subsidiary owns or leases, or has been or is
judged to have managed or to have supervised or participated in the management
of, which liability might have a material adverse effect on the business,
financial condition or results of operations of ICBI. ICBI and the ICBI
Subsidiaries are not subject to any agreement, order, judgment, decree or
memorandum by or with any court, governmental authority, regulatory agency or
third party imposing any such liability.
(3) To the best knowledge of ICBI and the ICBI
Subsidiaries, there are no legal, administrative, arbitral or other proceedings,
or Environmental Claims or other claims, causes of action or governmental
investigations of any nature, seeking to impose, or that could result in the
imposition, on ICBI or any ICBI Subsidiary of any liability arising under any
Environmental Laws pending or threatened against any real or personal property
in which ICBI or any ICBI Subsidiary holds a security interest in connection
with a loan or a loan participation which liability might have a material
adverse effect on the business, financial condition or results of operations of
ICBI. ICBI and the ICBI Subsidiaries are not subject to any agreement, order,
judgment, decree or memorandum by or with any court, governmental authority,
regulatory agency or third party imposing any such liability.
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(4) With respect to all real and personal property owned
or leased by ICBI or any ICBI Subsidiary, other than OREO, ICBI has made
available to TTC copies of any environmental audits, analyses and surveys that
have been prepared relating to such properties. With respect to all OREO held by
ICBI or any ICBI Subsidiary and all real or personal property which ICBI or any
ICBI Subsidiary has been or is judged to have managed or to have supervised or
participated in the management of, ICBI has made available to TTC the
information relating to such OREO available to ICBI. ICBI and the ICBI
Subsidiaries are in compliance in all material respects with all recommendations
contained in any environmental audits, analyses and surveys relating to any of
the properties, real or personal, described in this subsection (4).
(5) There are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge or disposal of any Materials of Environmental
Concern, that could reasonably form the basis of any Environmental Claim or
other claim or action or governmental investigation that could result in the
imposition of any liability arising under any Environmental Laws currently in
effect or adopted but not yet effective against ICBI or any ICBI Subsidiary or
against any person or entity whose liability for any Environmental Claim ICBI or
any ICBI Subsidiary has or may have retained or assumed either contractually or
by operation of law.
ARTICLE 4
Conduct Prior to the Effective Date
4.1 Access to Records and Properties. TTC will keep ICBI, and ICBI
will keep TTC advised of all material developments relevant to their respective
businesses prior to consummation of the Reorganization. Prior to the Effective
Date, ICBI, on the one hand, and TTC on the other, agree to give to the other
party reasonable access to all the premises and books and records (including tax
returns filed and those in preparation) of it and its subsidiaries and to cause
its officers to furnish the other with such financial and operating data and
other information with respect to the business and properties as the other shall
from time to time request for the purposes of verifying the warranties and
representations set forth herein; provided, however, that any such investigation
shall be conducted in such manner as not to interfere unreasonably with the
operation of the respective business of the other.
4.2 Confidentiality. Between the date of this Agreement and
the Effective Date, ICBI and TTC each will maintain in confidence, and cause its
directors, officers, employees, agents and advisors to maintain in confidence,
and not use to the detriment of the other party, any written, oral or other
information obtained in confidence from the other party or a third party in
connection with this Agreement or the transactions contemplated hereby unless
such information is already known to such party or to others not bound by a duty
of confidentiality or unless such information becomes publicly available through
no fault of such party, unless use of such information is necessary or
appropriate in making any filing or obtaining any consent or approval required
for the consummation of the transactions contemplated hereby or unless the
furnishing or use of such information is required by or necessary or appropriate
in connection with legal proceedings. If the Reorganization is not consummated,
each party will return or destroy as much of such written information as may
reasonably be requested.
4.3 Registration Statement, Proxy Statement and Shareholder
Approval. The Board of Directors of TTC will duly call and will hold a meeting
of the TTC shareholders as soon
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as practicable for the purpose of approving the Reorganization (the "TTC
Shareholders' Meeting") and, subject to the fiduciary duties of the Board of
Directors of TTC (as advised in writing by its counsel), TTC shall use its best
efforts to solicit and obtain votes of the holders of its Common Stock in favor
of the Reorganization and will comply with the provisions in its Articles of
Incorporation and Bylaws relating to the call and holding of a meeting of
shareholders for such purpose; each member of the Board of Directors of TTC
shall vote all shares of TTC Common Stock under his control (and not held in a
fiduciary capacity) in favor of the Reorganization; and TTC shall, at the
request of ICBI, recess or adjourn the meeting if such recess or adjournment is
deemed by ICBI to be necessary or desirable. ICBI and TTC will prepare jointly
the proxy statement/prospectus to be used in connection with the TTC
Shareholders' Meeting (the "Proxy Statement"). ICBI will prepare and file with
the SEC the Registration Statement, of which such Proxy Statement shall be a
part and will use its best efforts to have the Registration Statement declared
effective as promptly as possible. When the Registration Statement or any
post-effective amendment or supplement thereto shall become effective, and at
all times subsequent to such effectiveness, up to and including the date of the
Meeting, such Registration Statement and all amendments or supplements thereto,
with respect to all information set forth therein furnished or to be furnished
by TTC relating to TTC and by ICBI relating to the ICBI Companies, (i) will
comply in all material respects with the provisions of the Securities Act of
1933 and any other applicable statutory or regulatory requirements, including
applicable state blue-sky and securities laws, and (ii) will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein not
misleading; provided, however, in no event shall any party hereto be liable for
any untrue statement of a material fact or omission to state a material fact in
the Registration Statement made in reliance upon, and in conformity with,
written information concerning another party furnished by such other party
specifically for use in the Registration Statement.
4.4 Operation of the Businesses of TTC and ICBI. (a) TTC agrees
that from the date hereof to the Effective Date it will operate its business
substantially as presently operated and only in the ordinary course, and,
consistent with such operation, it will use its best efforts to preserve intact
its relationships with persons having business dealings with it. Without
limiting the generality of the foregoing, TTC agrees that it will not, without
the prior written consent of ICBI:
(i) Make any change in its authorized capital stock, or
issue or sell any additional shares of, securities convertible into or
exchangeable for, or options, warrants or rights to purchase, its capital stock,
nor shall it purchase, redeem or otherwise acquire any of its outstanding shares
of capital stock;
(ii) Voluntarily make any changes in the composition of
its officers, directors or other key management personnel;
(iii) Make any change in the compensation or title of any
officer, director or key management employee or make any change in the
compensation or title of any other employee, other than permitted by current
employment policies in the ordinary course of business, any of which changes
shall be reported promptly to ICBI;
(iv) Enter into any bonus, incentive compensation, stock
option, deferred compensation, profit sharing, thrift, retirement, pension,
group insurance or other benefit plan or any employment or consulting agreement;
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(v) (i) Incur any obligation or liability in excess of $5,000
(whether absolute or contingent, excluding suits instituted against it) or (ii)
make any pledge, or encumber any of its assets, nor dispose of any of its assets
in any other manner, except in the ordinary course of its business and for
adequate value, or as otherwise specifically permitted in this Agreement;
(vi) Contract to issue any shares of its Common Stock,
options for shares of its Common Stock, or securities exchangeable for or
convertible into such shares;
(vii) Knowingly waive any right to substantial value:
(viii) Enter into material transactions otherwise than in
the ordinary course of its business;
(ix) Alter, amend or repeal its Bylaws or Articles of
Incorporation; or
(x) Propose or take any other action which would make
any representation or warranty in Section 3.1 hereof untrue.
(b) ICBI agrees that from the date hereof to the Effective Date it will
operate its business substantially as presently operated and only in the
ordinary course and, consistent with such operation, it will use its best
efforts to preserve intact its relationships with persons having business
dealings with it; provided, however, that nothing herein shall be interpreted to
prevent ICBI from paying dividends on its common stock, repurchasing shares of
its common stock or engaging in discussions with respect to, or pursuing,
acquisitions of other corporations.
4.5 Dividends. TTC agrees that it will not declare or pay any
cash dividend from the date of this Agreement through the Effective Date.
4.6 No Solicitation. Unless and until this Agreement shall have
been terminated pursuant to its terms, neither TTC nor any of its officers,
directors, representatives or agents shall, directly or indirectly, (i)
encourage, solicit or initiate discussions or negotiations with any person other
than ICBI concerning any merger, share exchange, sale of substantial assets,
tender offer, sale of shares of capital stock or similar transaction involving
TTC, (ii) enter into any agreement with any third party providing for a business
combination transaction, equity investment or sale of a significant amount of
assets, or (iii) furnish any information to any other person relating to or in
support of such transaction. TTC and its directors, officers and employees,
advisors and representatives may, however, furnish information, and enter into
discussions or negotiations in response to unsolicited bona fide requests or
bids, if TTC's Board of Directors determines in good faith, upon advice of
counsel, that such action is in the best interests of TTC and its shareholders.
TTC will promptly communicate to ICBI the terms of any proposal which it may
receive in respect to any of the foregoing transactions.
4.7 Regulatory Filings. ICBI and TTC shall prepare jointly all
regulatory filings required to consummate the transactions contemplated by the
Agreement and the Plan of Merger and submit the filings for approval with the
Federal Reserve Board and the SCC, and any other governing regulatory authority,
as soon as practicable after the date hereof. ICBI and TTC shall use their best
efforts to obtain approvals of such filings.
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4.8 Public Announcements. Each party will consult with the other
before issuing any press release or otherwise making any public statements with
respect to the Reorganization and shall not issue any such press release or make
any such public statement prior to such consultations except as may be required
by law.
4.9 Notice of Breach. ICBI and TTC will give written notice to
the other promptly upon becoming aware of the impending or threatened occurrence
of any event which would cause or constitute a breach of any of the
representations, warranties or covenants made to the other party in this
Agreement and will use its best efforts to prevent or promptly remedy the same.
4.10 Reorganization Consummation. Subject to the terms and
conditions of this Agreement, each party shall use its best efforts in good
faith to take, or cause to be taken, all actions, and to do or cause to be done
all things necessary, proper or desirable, or advisable under applicable laws,
as promptly as practicable so as to permit consummation of the Reorganization at
the earliest possible date, consistent with Section 1.3 herein, and to otherwise
enable consummation of the transactions contemplated hereby and shall cooperate
fully with the other parties hereto to that end, and each of TTC and ICBI shall
use, and shall cause each of their respective subsidiaries to use, its best
efforts to obtain all consents (governmental or other) necessary or desirable
for the consummation of the transactions contemplated by this Agreement.
ARTICLE 5
Additional Agreements
5.1 Benefit Plans. Upon consummation of the Reorganization, as
soon as administratively practicable and subject to ICBI's best efforts,
employees of TTC shall be entitled to participate in ICBI pension, benefit,
health and similar plans on the same terms and conditions as employees of ICBI
and its subsidiaries, without waiting periods and giving effect to years of
service with TTC as if such service were with ICBI. ICBI also shall cause TTC to
honor in accordance with their terms as in effect on the date hereof (or as
amended after the date hereof with the prior written consent of ICBI), all
employment, severance, consulting and other compensation contracts and
agreements Previously Disclosed and executed in writing by TTC on the one hand
and any individual current or former director, officer or employee thereof on
the other hand, copies of which have previously been delivered by TTC to ICBI.
5.2 Indemnification. ICBI agrees that following the Effective
Date, TTC may indemnify and hold harmless any person who has rights to
indemnification from TTC, to the same extent and on the same conditions as such
person is entitled to indemnification pursuant to Virginia law and TTC's
Articles of Incorporation or Bylaws, as in effect on the date of this Agreement,
to the extent legally permitted to do so, with respect to matters occurring on
or prior to the Effective Date. ICBI further agrees that any such person is
expressly made a third party beneficiary of this Section 5.2 and may directly,
in such person's personal capacity, enforce such rights through an action at law
or in equity or through any other manner or means of redress allowable under
Virginia law to the same extent as if such person were a party hereto. Without
limiting the foregoing, in any case in which corporate approval may be required
to effectuate any indemnification, TTC shall direct, at the election of the
party to be indemnified, that the determination of permissibility of
indemnification shall be made by independent counsel mutually agreed upon
between TTC and the indemnified party.
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With respect to matters occurring after the Effective Date, (i) ICBI
shall cover TTC's directors and officers under ICBI's directors' and officers'
liability insurance policy and (ii) directors and officers of TTC shall have the
same rights of indemnification under ICBI's Articles of Incorporation as
directors and officers of ICBI and its existing subsidiaries.
5.3 Transfer of Trust Business. As soon as practicable after
the Effective Date, ICBI shall cause the trust business of The Middleburg Bank
to be transferred to TTC in accordance with applicable law, including Section
6.1-32.9 of the Code of Virginia, as amended. Until such transfer is complete,
for purposes of Section 1.4(h) hereof, the revenue and expense of TTC shall be
deemed to include the revenue and expense of the trust department of The
Middleburg Bank.
5.4 NASDAQ Listing. ICBI shall use its best efforts to have the
ICBI Common Stock quoted on the NASDAQ SmallCap Market or OTC Bulletin Board
within thirty (30) days after the Effective Date.
5.5 Expense Allocation. For purposes of calculating the Required
Net Earnings, the Surviving Corporation shall be deemed to have the benefit of
the TTC net operating loss carryforwards and no expense shall be charged or
allocated to the Surviving Corporation for (a) ICBI overhead, (b) ICBI expenses
other than the Surviving Corporation's proportionate share of direct expenses
for goods and services reasonably incurred by ICBI and requested by the
Surviving Corporation, (c) good will resulting from the Reorganization, to the
extent such good will is amortized over a period of less than fifteen years, or
(d) any amount in excess of one-half of the annual salary of the chief executive
officer of the Surviving Corporation paid to such officer as severance pay.
Section 1.4(h) and this Section 5.5 shall be interpreted and applied
consistently.
ARTICLE 6
Conditions to the Reorganization
6.1 Conditions to Each Party's Obligations to Effect the
Reorganization. The respective obligations of each of ICBI and TTC to effect the
Reorganization and the other transactions contemplated by this Agreement shall
be subject to the fulfillment or waiver at or prior to the Effective Date of the
following conditions:
(a) Shareholder Approval. Shareholders of TTC shall
have approved all matters relating to this Agreement and the Reorganization
required to be approved by such shareholders in accordance with Virginia law.
(b) Regulatory Approvals. This Agreement and the Plan of
Merger shall have been approved by the Federal Reserve, the SCC, and any other
regulatory authority whose approval is required for consummation of the
transactions contemplated hereby, and such approvals shall not have imposed any
condition or requirement which would so materially adversely impact the economic
or business benefits of the transactions contemplated by this Agreement as to
render inadvisable the consummation of the Reorganization in the reasonable
opinion of the Board of Directors of ICBI or TTC.
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(c) Registration Statement. The Registration Statement
shall have been declared effective and shall not be subject to a stop order or
any threatened stop order.
(d) Tax Opinion. ICBI and TTC shall have received an
opinion of Williams, Mullen, Christian & Dobbins, or other counsel reasonably
satisfactory to ICBI and TTC, to the effect that the Reorganization will
constitute a reorganization within the meaning of Section 368 of the Internal
Revenue Code and that no gain or loss will be recognized by the shareholders of
TTC to the extent they receive ICBI Common Stock solely in exchange for their
TTC Common Stock in the Reorganization.
(e) Opinions of Counsel. TTC shall have delivered to ICBI
and ICBI shall have delivered to TTC opinions of counsel, dated as of the
Effective Date, as to such matters as they may each reasonably request with
respect to the transactions contemplated by this Agreement and in a form
reasonably acceptable to each of them.
(f) Legal Proceedings. Neither ICBI nor TTC shall be
subject to any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits the consummation of the Reorganization.
6.2 Conditions to Obligations of ICBI. The obligations of ICBI to
effect the Reorganization shall be subject to the fulfillment or waiver at or
prior to the Effective Date of the following additional conditions:
(a) Representations and Warranties. Each of the
representations and warranties contained herein of TTC shall be true and correct
as of the date of this Agreement and upon the Effective Date with the same
effect as though all such representations and warranties had been made on the
Effective Date, except (i) for any such representations and warranties made as
of a specified date, which shall be true and correct as of such date, (ii) as
expressly contemplated by this Agreement, or (iii) for representations and
warranties the inaccuracies of which relate to matters that, individually or in
the aggregate, do not materially adversely affect the Reorganization and the
other transactions contemplated by this Agreement and ICBI shall have received a
certificate or certificates signed by the Chief Executive Officer and Chief
Financial Officer of TTC dated the Effective Date, to such effect.
(b) Performance of Obligations. TTC shall have performed
in all material respects all obligations required to be performed by it under
this Agreement prior to the Effective Date, and ICBI shall have received a
certificate signed by the Chief Executive Officer of TTC to that effect.
(c) Affiliate Letters. Each shareholder of TTC who may be
deemed by counsel for ICBI to be an "affiliate" of TTC within the meaning of
Rule 145 under the Securities Act of 1933 shall have executed and delivered a
commitment and undertaking to the effect that (1) such shareholder will dispose
of the shares of ICBI Common Stock received by him in connection with the
Reorganization only in accordance with the provisions of paragraph (d) of Rule
145; (2) such shareholders will not dispose of any such shares until ICBI has
received an opinion of counsel acceptable to it that such proposed disposition
will not violate the provisions of any applicable securities laws; and (3) the
certificates representing said shares may bear a conspicuous legend referring to
the forgoing restrictions.
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(d) TTC Expenses; Operating Losses. The sum of (i) the
TTC Operating Losses; (ii) severance benefits (including payroll taxes and
insurance) payable to TTC officers; and (iii) TTC Transaction Costs shall not
have exceeded $200,000, without the consent of ICBI.
(e) TTC Options. All options, warrants or rights to
purchase TTC Common Stock shall have been terminated.
6.3 Conditions to Obligations of TTC. The obligations of TTC to
effect the Reorganization shall be subject to the fulfillment or waiver at or
prior to the Effective Date of the following additional conditions:
(a) Representations and Warranties. Each of the
representations and warranties contained herein of ICBI shall be true and
correct as of the date of this Agreement and upon the Effective Date with the
same effect as though all such representations and warranties had been made on
the Effective date, except (i) for any such representations and warranties made
as of a specified date, which shall be true and correct as of such date, (ii) as
expressly contemplated by this Agreement, or (iii) for representations and
warranties the inaccuracies of which relate to matters that, individually or in
the aggregate, do not materially adversely affect the Reorganization and the
other transactions contemplated by this Agreement and TTC shall have received a
certificate or certificates signed by the Chief Executive Officer and Chief
Financial Officer of ICBI dated the Effective Date, to such effect.
(b) Performance of Obligations. ICBI shall have performed
in all material respects all obligations required to be performed by it under
this Agreement prior to the Effective Date, and TTC shall have received a
certificate signed by Chief Executive Officer of ICBI to that effect.
(c) Investment Banking Letter. TTC shall have received a
written opinion in form and substance satisfactory to TTC from Scott &
Stringfellow, Inc. addressed to TTC and dated the date the Proxy
Statement/Prospectus is mailed to shareholders of TTC, to the effect that the
terms of the Reorganization, including the Merger Consideration, are fair, from
a financial point of view, to TTC. At its option, TTC may require that such
fairness opinion be updated as of the Effective Date and, in such event, it
shall also be a condition to TTC's obligation to consummate the Reorganization
that TTC receive such updated opinion.
ARTICLE 7
Termination
7.1 Termination. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement and the Plan of
Merger by the shareholders of TTC, this Agreement may be terminated and the
Reorganization abandoned at any time prior to the Effective Date:
(a) By the mutual consent of the Board of Directors of
each of ICBI and TTC;
27
<PAGE>
(b) By the respective Boards of Directors of ICBI or
TTC if the conditions set forth in Section 6.1 have not been met or waived by
ICBI and TTC;
(c) By the Board of Directors of ICBI if the conditions
set forth in Section 6.2 have not been met or waived by ICBI;
(d) By the Board of Directors of TTC if the conditions
set forth in Section 6.3 have not been met or waived by TTC;
(e) By the respective Boards of Directors ICBI or
TTC if the Reorganization is not consummated by September 30, 1997.
(f) By the Board of Directors of ICBI if the Board of
Directors of TTC receives a subsequent bona-fide offer to acquire TTC and does
not within fourteen (14) days after receipt of such subsequent offer confirm in
writing to ICBI that each member of the Board of Directors of TTC supports the
Reorganization, will vote his shares of TTC Common Stock in favor of the
Reorganization, and will recommend to the shareholders of TTC that they approve
the Reorganization.
(g) By the Board of Directors of TTC if, before the
Effective Date, ICBI shall enter into any agreement or letter of intent
providing for the direct or indirect acquisition of substantially all of the
assets and liabilities or voting stock of ICBI.
7.2 Effect of Termination. In the event of the termination
and abandonment of this agreement and the Reorganization pursuant to Section
7.1, this Agreement shall become void and have no effect, except that (i) the
last sentence of Section 4.2 and all of Sections 4.8 and 7.4 shall survive any
such termination and abandonment and (ii) no party shall be relieved or released
from any liability arising out of an intentional breach of any provision of this
Agreement.
7.3 Non-Survival of Representations, Warranties and Covenants.
Except for Sections 1.2, 1.4, 2.1, 2.2, 2.3, 2.4, 5.1, 5.2, 5.3, 5.4, 5.5 and
7.4 of this Agreement, none of the respective representations and warranties,
obligations, covenants and agreements of the parties shall survive the Effective
Date, provided that no such representations, warranties, obligations, covenants
and agreements shall be deemed to be terminated or extinguished so as to deprive
ICBI or TTC (or any director, officer, or controlling person thereof) of any
defense in law or equity which otherwise would be available against the claims
of any person, including without limitation any shareholder or former
shareholder of either ICBI or TTC.
7.4 Expenses. The parties provide for the payment of expenses as
follows:
(a) Except as provided below, each of the parties shall
bear and pay all costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated herein, including fees and
expenses of its own consultants, investment bankers, accountants and counsel.
28
<PAGE>
(b) If this Agreement is terminated by ICBI or TTC
because of a willful and material breach by the other of any representation,
warranty, covenant, undertaking or restriction set forth herein, and provided
that the terminating party shall not have been in breach (in any material
respect) of any representation and warranty, covenant, undertaking or
restriction contained herein, then the breaching party shall bear and pay all
such costs and expenses of the other party, including fees and expenses of
consultants, investment bankers, accountants, counsel, printers, and persons
involved in the transactions contemplated by this Agreement, including the
preparation of the Registration Statement and the Proxy Statement.
(c) Final settlement with respect to the payment of such
fees and expenses by the parties shall be made within thirty (30) days after the
termination of this Agreement.
ARTICLE 8
General Provisions
8.1 Entire Agreement. This Agreement contains the entire agreement
among ICBI and TTC with respect to the Reorganization and the related
transactions and supersedes all prior arrangements or understandings with
respect thereto.
8.2 Waiver and Amendment. Any term or provision of this Agreement
may be waived in writing at any time by the party which is, or whose
shareholders are, entitled to the benefits thereof, and this Agreement may be
amended or supplemented by written instructions duly executed by the parties
hereto at any time, whether before or after the meetings of TTC and ICBI
shareholders referred to in Section 6.1(a) hereof, except statutory requirements
and requisite approvals of shareholders and regulatory authorities.
8.3 Descriptive Headings. Descriptive headings are for convenience
only and shall not control or affect the meaning and construction of any
provisions of this Agreement.
8.4 Governing Law. Except as required otherwise or otherwise
indicated herein, this Agreement shall be construed and enforced according to
the laws of the Commonwealth of Virginia.
8.5 Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, addressed
as follows:
If to ICBI:
Joseph L. Boling
Independent Community Bankshares, Inc.
111 West Washington Street
Middleburg, VA 20117
(Tel. 540-687-4220)
29
<PAGE>
Copy to:
Wayne A. Whitham, Jr.
Williams, Mullen, Christian & Dobbins
1021 East Cary Street
P.O. Box 1320
Richmond, Virginia 23210-1320
(Tel. 804-783-6473)
If to TTC:
F. E. Deacon, III
The Tredegar Trust Company
901 East Byrd Street
Richmond, VA 23219
(Tel. 804-644-2848)
Copy to:
Gary D. LeClair
LeClair, Ryan
707 E. Main Street, #1100
Richmond, VA 23219
(Tel. 804-783-2003)
8.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts together
shall constitute one and the same agreement.
8.7 Severability. In the event any provisions of this Agreement shall
be held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provisions
hereof. Any provision of this Agreement held invalid or unenforceable only in
part or degree shall remain in full force and effect to the extent not held
invalid or unenforceable. Further, the parties agree that a court of competent
jurisdiction may reform any provision of this Agreement held invalid or
unenforceable so as to reflect the intended agreement of the parties hereto.
8.8 Subsidiaries. All representations, warranties, and covenants
herein, where pertinent, include and shall apply to the wholly owned
subsidiaries belonging to the party making such representations, warranties, and
covenants.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in counterparts by their duly authorized officers and
their corporate seals to be affixed hereto, all as of the dates first written
above.
Independent Community Bankshares, Inc.
By:
--------------------------------------
Joseph L. Boling,
President and Chief Executive Officer
ATTEST:
30
<PAGE>
- ---------------------
Secretary
The Tredegar Trust Company
By:
--------------------------------------
F. E. Deacon, III
President and Chief Executive Officer
ATTEST:
- ----------------------
Secretary
TTC Acquisition Subsidiary, Inc.
By:
--------------------------------------
Joseph L. Boling,
President and Chief Executive Officer
ATTEST:
- -----------------------
Secretary
31
<PAGE>
EXHIBIT A
to the
Agreement and Plan
of Reorganization
PLAN OF MERGER
OF
TTC ACQUISITION SUBSIDIARY, INC.
INTO
THE TREDEGAR TRUST COMPANY
ARTICLE 1
TTC Acquisition Subsidiary, Inc., a Virginia trust company
("Acquisition") shall upon the time that the Articles of Merger are made
effective by the State Corporation Commission of Virginia (the "Effective
Time"), be merged (the "Merger") into The Tredegar Trust Company ("TTC or the
"Surviving Corporation"), a Virginia trust company. TTC shall be the Surviving
Corporation. Acquisition is a wholly-owned subsidiary of Independent Community
Bankshares, Inc., a Virginia corporation ("ICBI").
At the Effective Time TTC shall become a subsidiary trust company of
ICBI, within the meaning of Article 3.1, Chapter 2, Title 6.1 of the Code of
Virginia, as amended.
ARTICLE 2
Definitions
For all purposes of this Plan:
2.1 the term "Charter" shall mean articles of incorporation.
2.2 the term "Contingent Merger Consideration" shall mean, with respect
to each share of the common stock of TTC, par value, $2.50 per share ("TTC
Common Stock") issued and outstanding on the Effective Date a ratable share of
the sum of (y) 4,940 shares of the common stock of ICBI, par value $5.00 per
share ("ICBI Common Stock") and (z) the number of shares of ICBI Common Stock
determined by dividing $138,300 by the Fair Market Value Per Share of ICBI
Common Stock.
A-1
<PAGE>
2.3 the term "Fair Market Value Per Share of ICBI Common Stock" shall
mean the average of the last sale or high bid price for ICBI Common Stock as
reported on the OTC Bulletin Board, the NASDAQ SmallCap Market or the NASDAQ
National Market, as appropriate, for the ten trading day period ending on the
tenth day prior to the date that the Contingent Merger Consideration is paid;
provided, however, that if a transaction involving a proposed change of control
of ICBI is announced during the thirty-six (36) month period referred to in
Section 1.4(f), the measuring period shall be the ten trading days immediately
prior to the first public announcement of such proposed change of control.
2.4 the term "Initial Merger Consideration" shall mean, with respect to
each share of the common stock of TTC Common Stock issued and outstanding on the
Effective Date, 0.25 shares of ICBI Common Stock unless TTC Operating Losses
exceed $30,000. If TTC Operating Losses exceed $30,000, the Initial Merger
Consideration shall be the fraction of a share of ICBI Common Stock, the
denominator of which shall be 276,600 and the numerator of which shall be the
difference between $1,936,200 and the amount by which TTC Operating Losses
exceed $30,000, such difference then to be divided by $28.00.
2.5 the term "Merger Consideration" shall mean, with respect to each
share of TTC Common Stock issued and outstanding on the Effective Date, the
Initial Merger Consideration and, if the Surviving Corporation's aggregate net
earnings for the thirty-six (36) month period, beginning with the month
following the month in which the Effective Date occurs, equal or exceed the
Required Net Earnings, the Contingent Merger Consideration (which, if payable,
shall be paid as promptly as practicable after the end of the thirty-sixth
(36th) month following the month in which the Effective Date occurs.
2.6 the term "Required Net Earnings" shall mean $638,946 at a minimum,
plus the amount, if any, by which (y) severance payments and benefits (including
payroll taxes and insurance) paid to TTC officers and (z) TTC Transaction Costs
(as defined below), in the aggregate, exceed $150,000, net of the amount by
which TTC operating losses (as defined below) as less than $30,000.
2.7 the term "TTC Operating Losses" shall mean the excess, if any, of
TTC expenses over TTC revenue (each computed according to generally accepted
accounting principles consistently applied) from January 1, 1997 to the
Effective Date; provided, however, that there shall be excluded from TTC
expenses (i) severance benefits (including payroll taxes and insurance) payable
to TTC officers, (ii) TTC Transaction Costs (iii) the amortization or write-off
of TTC start-up costs and (iv) any referral fees payable by TTC to The
Middleburg Bank after June 30, 1997.
2.8 the term "TTC Transaction Costs" shall mean the expenses of TTC
accrued on the books of TTC after December 31, 1996 in connection with the
negotiation and preparation of the Option Agreement and the February 5, 1997
letter of intent between ICBI and TTC and expenses of TTC incurred in connection
with the negotiation, performance and consummation of this Agreement, including
fees and expenses of consultants, investment bankers, accountants, counsel and
printers.
ARTICLE 3
Effect of Reorganization on Common Stock
3.1 (a) At the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, each share of TTC Common Stock issued
and outstanding immediately prior to the Effective Time(other than shares of TTC
Common Stock held by ICBI and Dissenting Shares as defined in Section 3.6) shall
cease to be outstanding and shall be converted into the right to receive the
Merger Consideration.
A-2
<PAGE>
(b) Each holder of a certificate representing any shares of TTC Common
Stock shall thereafter cease to have any rights with respect to such TTC Common
Stock, except the right to receive the consideration described in Sections 3.1
and 3.4 upon the surrender of such certificate in accordance with Section 3.3.
(c) In the event ICBI changes the number of shares of ICBI Common Stock
issued and outstanding prior to the date that the Initial Merger Consideration
or Contingent Merger Consideration is paid, as a result of any stock split,
stock dividend, recapitalization or similar transaction with respect to the
outstanding ICBI Common Stock and the record date therefor shall be prior to the
date that the Initial Merger Consideration or Contingent Merger Consideration is
paid, the Merger Consideration shall be proportionately adjusted.
(d) At the Effective Time, by virtue of the Reorganization and without
any action on the part of the holder thereof, each share of the common stock of
Acquisition issued and outstanding immediate prior to the Effective Time shall
cease to be outstanding and shall be converted into one share of TTC Common
Stock.
3.2 Calculation and Payment of Merger Consideration. (a) If, within 30
days following the Effective Time, the parties agree on the amount, if any, of
the TTC Operating Losses, the Initial Merger Consideration shall be calculated
and paid as soon as practicable following the Effective Date in accordance with
Section 3.3(a). If the parties do not so agree, the Initial Merger Consideration
will be determined as follows:
(i) Closing Financial Statement. ICBI shall cause to
be prepared an income statement (the "Closing Financial Statement")
showing the TTC Operating Losses as of the Effective Date. The Closing
Financial Statement shall be prepared in accordance with generally
accepted accounting principles consistently applied with prior periods,
except for adjustments for determining the TTC Operating Losses.
(ii) Audit. The Closing Financial Statement and
related footnotes (if any) shall be audited and reported on by Yount,
Hyde & Barbour ("Yount, Hyde"). The report of Yount, Hyde shall be
unqualified except as necessary to reflect adjustments in determining
the TTC Operating Losses as required herein. ICBI shall exercise its
reasonable best efforts to cause the Closing Financial Statement,
together with the report of Yount, Hyde thereon, to be delivered within
60 days after the Effective Date, subject to the provisions of
subsection (iii) hereof. Such delivery shall be made to F. E. Deacon,
III, as the representative of the TTC Shareholders (the "Shareholders'
Representative"), at the address designated by him to ICBI. ICBI and
the Surviving Corporation shall, and shall cause their respective
employees and agents to, fully cooperate in all respects in the audit
and review process and take such actions and make such undertaking as
are customary in connection therewith.
(iii) Review. Following delivery of the Closing Financial
Statement to the Shareholders' Representative, ICBI shall cause Yount,
Hyde to provide the Shareholders' Representative with an opportunity to
observe all aspects of the audit and to review Yount, Hyde's work
papers, and to discuss the same with Yount, Hyde representatives. ICBI
shall be responsible for the cost of the audit, including the fees and
expenses of Yount, Hyde. The Shareholders' Representative shall have 30
days to
A-3
<PAGE>
review the Closing Financial Statement and to give notice to ICBI
that he has a material disagreement with Yount, Hyde regarding the
Closing Financial Statement. Failing such notice, the Closing Financial
Statement as delivered to the Shareholders' Representative shall be
final and binding on the parties hereto.
(iv) Objection Period. If the Shareholders' Representative
gives an objection notice in a timely manner, but ICBI and the
Shareholders' Representative are able to resolve such objections, the
Closing Financial Statement, as modified to resolve such objections,
shall be binding on the parties hereto. If ICBI and the Shareholders'
Representative are unable to reach agreement as to all differences
within 15 days after ICBI's receipt of the Shareholders'
Representative's objection notice, then the unresolved differences
shall be submitted to arbitration to resolve the dispute and make a
determination which shall be binding on the parties to this Agreement.
Such arbitration shall be conducted by an arbitrator experienced in the
matters at issue and selected in accordance with the then current
Commercial Arbitration Rules of the American Arbitration Association
(the "Rules"). The arbitration shall be held in Richmond, Virginia and
shall be conducted in accordance with the Rules. The decision of the
arbitrator shall be final and binding as to any matters submitted to
arbitration; provided that, if necessary, such decision may be enforced
by either ICBI or the Shareholders' Representative in any court having
competent jurisdiction. After delivery of the arbitrator's decision,
the Closing Financial Statement, modified as appropriate to reflect the
arbitrator's decision, shall be final and binding. The determination of
which party (or combination thereof) bears the costs and expenses
incurred in connection with any such arbitration proceedings shall be
determined by the arbitrator.
(b) If, within 30 days following the end of the 36 month period,
beginning with the month that follows the month in which the Effective Date
occurs, ICBI and the Shareholders' Representative agree that the net earnings of
the Surviving Corporation exceed the Required Net Earnings, the Contingent
Merger Consideration shall be calculated and paid as soon as practicable in
accordance with Section 3.3(b). If the parties do not so agree, the decision to
pay or not to pay Contingent Merger Consideration will be determined as follows:
(i) Post Closing Financial Statement. ICBI shall
cause to be prepared an income statement (the "Post Closing Financial
Statement") showing the Surviving Corporation's net earnings for such
36 month period and calculating the Required Net Earnings. The Post
Closing Financial Statement shall be prepared in accordance with
generally accepted accounting principles consistently applied with
prior periods.
(ii) Audit. The Post Closing Financial Statement and
related footnotes (if any) shall be audited and reported on by Yount,
Hyde & Barbour ("Yount, Hyde"). The report of Yount, Hyde shall be
unqualified. ICBI shall exercise its reasonable best efforts to cause
the Post Closing Financial Statement, together with the report of
Yount, Hyde thereon, to be delivered within 60 days after the end of
the 36 month period described in Section 3.2(b)(i), subject to the
provisions of subsection (iii) hereof. Such delivery shall be made to
the Shareholders' Representative, at the address designated by him to
ICBI. ICBI and the Surviving Corporation shall, and shall cause their
respective employees and agents to, fully cooperate in all respects in
the audit and review process and take such actions and make such
undertaking as are customary in
A-4
<PAGE>
connection therewith.
(iii) Review. Following delivery of the Post Closing Financial
Statement to the Shareholders' Representative, ICBI shall cause Yount,
Hyde to provide the Shareholders' Representative with an opportunity to
observe all aspects of the audit and to review Yount, Hyde's work
papers, and to discuss the same with Yount, Hyde representatives. ICBI
shall be responsible for the cost of the audit, including the fees and
expenses of Yount, Hyde. The Shareholders' Representative shall have 30
days to review the Post Closing Financial Statement and to give notice
to ICBI that he has a material disagreement with Yount, Hyde regarding
the Post Closing Financial Statement. Failing such notice, the Post
Closing Financial Statement as delivered to the Shareholders'
Representative shall be final and binding on the parties hereto.
(iv) Objection Period. If the Shareholders' Representative
gives an objection notice in a timely manner, but ICBI and the
Shareholders' Representative are able to resolve such objections, the
Post Closing Financial Statement, as modified to resolve such
objections, shall be binding on the parties hereto. If ICBI and the
Shareholders' Representative are unable to reach agreement as to all
differences within 15 days after ICBI's receipt of the Shareholders'
Representative's objection notice, then the unresolved differences
shall be submitted to arbitration to resolve the dispute and make a
determination which shall be binding on the parties to this Agreement.
Such arbitration shall be conducted by an arbitrator experienced in the
matters at issue and selected in accordance with the then current
Commercial Arbitration Rules of the American Arbitration Association
(the "Rules"). The arbitration shall be held in Richmond, Virginia and
shall be conducted in accordance with the Rules. The decision of the
arbitrator shall be final and binding as to any matters submitted to
arbitration; provided that, if necessary, such decision may be enforced
by either ICBI or the Shareholders' Representative in any court having
competent jurisdiction. After delivery of the arbitrator's decision,
the Post Closing Financial Statement, modified as appropriate to
reflect the arbitrator's decision, shall be final and binding. The
determination of which party (or combination thereof) bears the costs
and expenses incurred in connection with any such arbitration
proceedings shall be determined by the arbitrator.
3.3 Manner of Conversion. As promptly as practicable after the
Effective Date, ICBI shall cause The Middleburg Bank, acting as the exchange
agent ("Exchange Agent"), to send to each former shareholder of record of TTC
immediately prior to the Effective Date transmittal materials for use in
exchanging such shareholder's certificates of TTC Common Stock (other than
shares held by shareholders who perfect their dissenters' rights as provided
under Section 3.6 hereof) for the consideration set forth in Section 3.1 above
and Section 3.4 below. Any fractional share checks which a TTC shareholder shall
be entitled to receive in exchange for such shareholder's shares of TTC Common
Stock, and all dividends paid on any shares of ICBI Common Stock that such
shareholder shall be entitled to receive prior to the delivery to the Exchange
Agent of such shareholder's certificates representing all of such shareholder's
shares of TTC Common Stock will be delivered to such shareholder only upon
delivery to the Exchange Agent of the certificates representing all of such
shares (or indemnity satisfactory to ICBI and the Exchange Agent, in their
judgment, if any of such certificates are lost, stolen or destroyed). No
interest will be paid on any such fractional share checks or dividends to which
the holder of such shares shall be entitled to receive upon such delivery.
A-5
<PAGE>
3.4 Fractional Shares. ICBI shall issue cash in lieu of fractional
shares. ICBI will pay the value of such fractional shares in cash on the basis
of $28.00 per share of ICBI Common Stock.
3.5 Dividends. No dividend or other distribution payable to the holders
of record of ICBI Common Stock at or as of any time after the Effective Date
shall be paid to the holder of any certificate representing shares of TTC Common
Stock issued and outstanding at the Effective Date until such holder physically
surrenders such certificate for exchange as provided in Section 2.2 of this
Agreement, promptly after which time all such dividends or distributions shall
be paid (without interest). With respect to its dividend for the three months
ending June 30, 1997, ICBI will not declare or establish a record date for such
dividend prior to July 9, 1997.
3.6 Dissenting Shares. Shareholders of TTC shall have the right to
demand and receive payment of the fair value of their shares of TTC Common Stock
pursuant to the provisions of Virginia Code ss. 13.1-729 et seq. (the
"Dissenting Shares"). If, however, a holder shall have failed to perfect his
right to dissent or shall have effectively withdrawn or lost such right, each of
his shares of TTC Common Stock shall be deemed to have been converted into, at
the Effective Date, the right to receive the Merger Consideration and cash in
lieu of any fractional shares pursuant to Section 3.4 hereof.
ARTICLE 4
Name, Charter and Bylaws
4.1 At the Effective Time, the name, Charter of TTC (amended as
described in Section 4.2) and bylaws of TTC shall be the name, Charter and
bylaws of the Surviving Corporation.
4.2 The Articles of Merger shall include articles of restatement of the
Charter of the Surviving Corporation, that amend the Charter of the Surviving
Corporation as follows:
(a) Article II shall read as follows:
"The purpose for which the corporation is formed is to engage
in the trust business under Title 6.1, Chapter 2, Article 3.1 of the
Code of Virginia, as amended from time to time"; and
(b) Article V shall read as follows:
"The number of directors constituting the Board of Directors
shall be determined in accordance with the Bylaws."
A-6
<PAGE>
THE TREDEGAR TRUST COMPANY
BOARD OF DIRECTORS
Each of the undersigned members of the Board of Directors of The
Tredegar Trust Company agrees to be bound by his personal obligations as
provided in Sections 4.3 and 4.6 of the Agreement and Plan of Reorganization,
dated March __, 1997 by and among The Tredegar Trust Company, Independent
Community Bankshares, Inc., a Virginia corporation and TTC Acquisition
subsidiary, Inc., a Virginia corporation.
____________________, 1997 _______________________________(SEAL)
Heriot Clarkson
____________________, 1997 _______________________________(SEAL)
F. E. Deacon, III
____________________, 1997 _______________________________(SEAL)
Delman H. Eure, Esq.
____________________, 1997 _______________________________(SEAL)
James W. Harkness, Jr.
____________________, 1997 _______________________________(SEAL)
Gary D. LeClair, Esq.
____________________, 1997 _______________________________(SEAL)
Ivor Massey, Jr.
____________________, 1997 _______________________________(SEAL)
John D. Perrin
____________________, 1997 _______________________________(SEAL)
Richard L. Ramsey
____________________, 1997 _______________________________(SEAL)
Stuart C. Siegel
____________________, 1997 _______________________________(SEAL)
James C. Wheat, III
<PAGE>
Appendix B
THE TREDEGAR TRUST COMPANY
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
<PAGE>
CONTENTS
AUDITED FINANCIAL STATEMENTS:
INDEPENDENT AUDITOR'S REPORT.......................................... Page 1
BALANCE SHEETS........................................................ 2 - 3
STATEMENTS OF OPERATIONS.............................................. 4
STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY.............................................. 5
STATEMENTS OF CASH FLOWS.............................................. 6
NOTES TO FINANCIAL STATEMENTS......................................... 7 - 13
<PAGE>
[Harris, Hardy, & Johnstone, P.C.]
INDEPENDENT AUDITOR'S REPORT
Stockholders and Board of Directors
The Tredegar Trust Company
Richmond, Virginia
We have audited the accompanying balance sheets of The Tredegar Trust
Company (a Virginia corporation) as of December 31, 1996 and 1995, and the
related statements of operations, changes in stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The Tredegar Trust
Company at December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Harris, Hardy & Johnstone, P.C.
Richmond, Virginia
February 5, 1997, except for Notes to Financial Statements as to
which the date is May 8, 1997
-1-
<PAGE>
THE TREDEGAR TRUST COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
--------- ------------
1997 1996 1995
---- ---- ----
(Unaudited)
-----------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 67,154 $ 65,459 $ 105,374
Accounts receivable 9,757 19,804 7,847
Investments - held to maturity 879,216 1,067,108 1,329,716
Prepaid expenses and other assets 23,587 16,536 19,658
----------- ----------- ------------
TOTAL CURRENT ASSETS 979,714 1,168,907 1,462,595
----------- ----------- ------------
PROPERTY AND EQUIPMENT
Office furniture and equipment 81,785 80,109 65,193
Software 26,008 26,008 26,008
----------- ----------- ------------
107,793 106,117 91,201
Less accumulated depreciation and amortization (56,484) (53,354) (36,135)
----------- ----------- ------------
51,309 52,763 55,066
----------- ----------- ------------
OTHER ASSETS
Organization costs (net of amortization of
$199,988 in 1996 and $131,854 in 1995) 123,648 140,682 208,816
----------- ----------- ------------
$1,154,671 $1,362,352 $ 1,726,477
========== ========== ===========
</TABLE>
See Notes to Financial Statements
-2-
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
1997 1996 1995
---- ---- ----
(Unaudited)
-----------
CURRENT LIABILITIES
<S> <C> <C> <C>
Accounts payable $ 5,853 $ 28,235 $ 3,979
Current installments of obligation
under capital lease 1,457 1,985 2,011
----------- ------------ ------------
TOTAL CURRENT LIABILITIES 7,310 30,220 5,990
LONG-TERM DEBT
Obligation under capital lease,
excluding current installments - - 1,985
----------- ------------ ------------
TOTAL LIABILITIES 7,310 30,220 7,975
----------- ------------ ------------
STOCKHOLDERS' EQUITY
Common stock, par value $2.50 per share:
Authorized 500,000 shares; issued and
outstanding 276,600 shares 691,500 691,500 691,500
Capital surplus 2,189,750 2,189,750 2,189,750
Accumulated deficit (1,733,889) (1,549,118) (1,162,748)
---------- ----------- -----------
1,147,361 1,332,132 1,718,502
----------- ----------- -----------
$1,154,671 $1,362,352 $ 1,726,477
========== ========== ===========
</TABLE>
See Notes to Financial Statements
-3-
<PAGE>
THE TREDEGAR TRUST COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
---------------------- ------------
1997 1996 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited)
INCOME
<S> <C> <C> <C> <C>
Fees $ 181,030 $124,950 $ 557,498 $ 313,633
Interest and other 16,954 18,793 73,827 68,415
--------- -------- ---------- ---------
TOTAL INCOME 197,984 143,743 631,325 382,048
--------- -------- ---------- ---------
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries 96,389 118,445 491,820 462,433
Insurance 21,788 16,868 80,774 73,789
Amortization - 19,248 77,058 76,861
Accounting and legal 4,974 10,534 55,932 60,096
Other 9,443 14,838 41,176 36,428
Rent 11,684 7,350 34,456 30,520
Referral fees 25,303 1,243 30,559 411
Taxes 8,159 10,376 29,459 28,224
Custody service fee 4,826 6,280 25,624 47,838
Consulting 1,500 1,500 22,232 6,000
Office supplies 3,857 4,638 18,602 17,727
Equipment rent 4,688 4,482 18,235 18,564
Investment research 4,635 5,050 17,931 8,273
Retirement plan - 3,553 14,592 13,873
State examination fee - - 12,840 11,120
Marketing 586 1,076 11,223 11,565
Depreciation 2,512 2,445 11,158 13,218
Telephone 2,257 2,094 8,182 9,130
Travel 585 1,478 6,595 3,425
Postage 490 1,773 5,977 4,769
Dues and subscriptions 136 905 3,270 4,682
Placement fee 2,900 - - -
---------- -------- ----------- ----------
TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES 206,712 234,176 1,017,695 938,946
---------- -------- ----------- ----------
NET LOSS BEFORE COSTS
RELATED TO MERGER $ (8,728) $(90,433) $ (386,370) $(556,898)
</TABLE>
See Notes to Financial Statements
-4-
<PAGE>
THE TREDEGAR TRUST COMPANY
STATEMENTS OF OPERATIONS - Continued
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
--------- ------------
1997 1996 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET LOSS BEFORE COSTS
RELATED TO MERGER $ (8,728) $ (90,433) $(386,370) $(556,898)
COSTS RELATED TO MERGER
Amortization 17,652 - - -
Salaries 106,745 - - -
Accounting and legal 50,637 - - -
Other 1,009 - - -
--------- -------- --------- ---------
NET LOSS $(184,771) $(90,433) $(386,370) $(556,898)
========= ======== ========= =========
LOSS PER SHARE
Per average share outstanding, net loss $ (.67) $ (.33) $ (1.40) $ (2.28)
=========== ========= ========== ==========
</TABLE>
See Notes to Financial Statements
-5-
<PAGE>
THE TREDEGAR TRUST COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON CAPITAL ACCUMULATED
STOCK SURPLUS DEFICIT TOTAL
<S> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1994 $ 576,250 $1,728,750 $ (605,850) $1,699,150
Net loss for the year - - (556,898) (556,898)
Issuance of 46,100 shares
of common stock 115,250 461,000 - 576,250
--------- ------------ ------------ ----------
BALANCE AT
DECEMBER 31, 1995 691,500 2,189,750 (1,162,748) 1,718,502
Net loss for the year - - (386,370) (386,370)
--------- ------------ ------------ ----------
BALANCE AT
DECEMBER 31, 1996 691,500 2,189,750 (1,549,118) 1,332,132
Net loss for the
period (unaudited) - - (184,771) (184,771)
--------- ------------ ------------ ----------
BALANCE AT
MARCH 31, 1997
(UNAUDITED) $ 691,500 $2,189,750 $(1,733,889) $1,147,361
========= ========== =========== ==========
</TABLE>
See Notes to Financial Statements
-6-
<PAGE>
THE TREDEGAR TRUST COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
---------------------- ------------
1997 1996 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited)
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net loss $(184,771) $(90,433) $ (386,370) $ (556,898)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 20,164 21,693 88,216 90,079
Loss on sale of assets - - 2,748 -
(Increase) decrease in accounts receivable 10,047 (16) (11,957) (6,847)
(Increase) decrease in prepaid expenses and
other assets (7,051) (20,416) 3,122 (74)
Increase (decrease) in accounts payable (22,382) 398 24,256 (22,567)
---------- -------- ----------- ----------
NET CASH USED BY
OPERATING ACTIVITIES (183,993) (88,774) (279,985) (496,307)
---------- -------- ---------- ----------
INVESTING ACTIVITIES
Purchase of furniture and equipment (1,676) (1,365) (21,177) (1,264)
Proceeds from sale of property and equipment - - 650 -
Proceeds from maturity of investment securities 187,892 202,000 1,128,100 1,505,894
Purchase of securities - (176,906) (865,492) (2,835,610)
------------- ---------- ----------- -----------
NET CASH PROVIDED BY
(USED BY) INVESTING ACTIVITIES 186,216 23,729 242,081 (1,330,980)
---------- -------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from issuance of common stock - - - 576,250
Reduction of capital lease obligation (528) (247) (2,011) (1,862)
----------- ------- ------------ ------------
NET CASH PROVIDED BY
(USED BY) FINANCING ACTIVITIES (528) (247) (2,011) 574,388
----------- ------- ------------ ----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 1,695 (65,292) (39,915) (1,252,899)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 65,459 105,374 105,374 1,358,273
----------- --------- ----------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 67,154 $ 40,082 $ 65,459 $ 105,374
========== ========= =========== ==========
Cash paid during the period for:
Interest $ 42 $ 74 $ 268 $ 387
</TABLE>
See Notes to Financial Statements
-7-
<PAGE>
THE TREDEGAR TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Tredegar Trust Company (the "Company") was formed in August, 1993 as an
independent trust company under the Trust Company Act enacted by the Virginia
legislature in 1993. The Company provides a full range of investment management,
trust, estate settlement and custodial services. The Company is headquartered in
Richmond, Virginia, and operates in the Commonwealth of Virginia.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Property and Equipment
Property and equipment are stated on the basis of cost. Expenditures for
ordinary maintenance and repairs are charged to income as incurred. Costs of
betterments, renewals and major replacements are capitalized. At the time
properties are retired or otherwise disposed of, the related costs and
allowances for depreciation are eliminated from the accounts and any gain or
loss on disposition is reflected in income.
Provision for depreciation is computed using an accelerated method at rates
calculated to amortize the cost of the assets over their estimated useful lives.
The estimated useful lives of these assets are five to seven years.
Investments
The Company's investments are classified as held-to-maturity and reported at
amortized cost which approximates fair market value.
Gains and losses on sales of securities are recognized when realized on a
specific identification basis. Premiums and discounts are amortized into
interest income using a level yield method.
Trust Fees
Trust fees are recorded on the accrual basis.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.
-8-
<PAGE>
THE TREDEGAR TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS - Continued
DECEMBER 31, 1996 AND 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Loss per Share
Loss per share amounts are based on the weighted average number of shares
outstanding (276,000 in 1996 and 244,000 in 1995). The assumed exercise of
warrants and stock options do not result in material dilution.
Interim Financial Information
The balance sheet as of March 31, 1997 and the related statements of operations,
changes in stockholders' equity, and cash flows for the three months ended March
31, 1997 and 1996 have been prepared by the Company, without audit. In the
opinion of management, all adjustments, which include only normal recurring
adjustments, necessary to present fairly the financial position at March 31,
1997 and the results of operations and cash flows for the interim periods
presented have been made. The statement of operations for the three months ended
March 31, 1997 is not necessarily indicative of the results to be expected for
the full year.
NOTE B - INVESTMENTS
Investments shown in the balance sheet at December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
December 31, 1995 Cost Gains Losses Market Value
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Held to maturity
U.S. Treasury note $ 198,773 $ 712 $ - $ 199,485
U.S. Treasury bills 1,027,053 506 - 1,027,559
Certificate of deposit 103,890 - - 103,890
----------- --------- --------- -----------
Total Investment Securities $1,329,716 $ 1,218 $ - $1,330,934
========== ======= ========= ==========
December 31, 1996
Held to maturity
U.S. Treasury notes $ 437,325 $ 408 $ - $ 437,733
U.S. Treasury bills 425,162 - 1,058 424,104
Certificate of deposit 204,621 - 512 204,109
----------- --------- -------- -----------
Total Investment Securities $1,067,108 $ 408 $ 1,570 $1,065,946
========== ======= ======= ==========
</TABLE>
-9-
<PAGE>
THE TREDEGAR TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS - Continued
DECEMBER 31, 1996 AND 1995
NOTE B - INVESTMENTS - Continued
The scheduled maturities of securities to be held to maturity at December 31,
1996 were as follows:
Amortized Estimated
Cost Market Value
Due in one year or less $ 827,909 $ 826,274
Due from one year to five years 239,199 239,672
---------- ----------
$1,067,108 $1,065,946
NOTE C - OPERATING LEASES
The Company has several operating leases for equipment. Equipment rent expense
totaled $18,235 and $18,564 for the years ended December 31, 1996 and 1995,
respectively. An additional operating lease exists on the office facility from
which the Company conducts its business. Rental expense on the office facility
was $34,456 for 1996 and $30,520 for 1995.
Minimum future lease payments under operating leases are as follows:
Year Real Estate Equipment
---- ----------- ---------
1997 $ 46,734 $ 9,264
1998 47,241 2,920
1999 48,900 600
2000 50,855 -
2001 47,829 -
---------- -----------
$ 241,559 $ 12,784
========= ========
NOTE D - CAPITALIZED LEASE OBLIGATION
The Company entered into a lease agreement in 1994 for a copier. The lease term
is 36 months with a purchase option at the end of the lease.
The present value of the net minimum lease payments is summarized as follows:
Total minimum lease payments $ 2,061
Less amount representing interest (76)
-------
Present value of net
minimum lease payments $ 1,985
=======
-10-
<PAGE>
THE TREDEGAR TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS - Continued
DECEMBER 31, 1996 AND 1995
NOTE D - CAPITALIZED LEASE OBLIGATION - Continued
The leased copier is included in office furniture and equipment at a cost of
$6,008 with accumulated depreciation of $4,278 and $3,125 as of December 31,
1996 and 1995, respectively.
NOTE E - OUTSTANDING WARRANTS
At December 31, 1996 and 1995, the Company had outstanding warrants to purchase
20,000 shares of the Company's common stock at $10 per share. The warrants were
sold for $20,000, which was included in capital surplus. The warrants became
exercisable in 1993 and expire September 20, 2003. No warrants were exercised in
1996 and 1995.
NOTE F - ORGANIZATION COSTS
The Company commenced business on January 12, 1994. Prior to that date the
Company had approximately $340,670 of start-up and organization costs which are
being amortized using the straight-line method over a five year period.
Amortization for 1996 and 1995 was $68,134 and $68,134, respectively.
NOTE G - INCOME TAXES
The Company's total deferred tax assets, and deferred tax asset valuation
allowances are as follows:
December 31, 1996 December 31, 1995
----------------- -----------------
Total deferred tax assets $507,400 $376,034
Less valuation allowance (507,400) (376,034)
-------- --------
Total deferred tax assets $ 0 $ 0
========== ==========
The deferred tax assets were calculated with respect to net operating loss
carryforwards. Management considers the valuation allowance necessary due to
expected loss of the net operating loss.
The Company has a net operating loss carryforward of approximately $1,527,100.
The loss carryforward is available to offset future federal taxable income.
Approximately $600,000 of the loss expires in 2009, $544,700 expires in 2010,
and $382,400 expires in 2011.
-11-
<PAGE>
THE TREDEGAR TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS - Continued
DECEMBER 31, 1996 AND 1995
NOTE H - STOCK OPTION PLAN
The Company has a stock option plan (the "Plan") that reserves up to 150,000
shares of common stock for the issuance of stock options and corresponding stock
appreciation rights to certain employees, directors, advisors and consultants of
the Company. The Plan is intended to permit the issuance of both options
qualifying under Section 422 of the Internal Revenue Code ("Incentive Stock
Options") and options not so qualifying. The Company applies Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related Interpretations in accounting for options granted to date
under such Plan. In accordance with APB 25, no compensation cost has been
recognized since the exercise price equals or exceeds the market price of the
stock on the date of grant. All options granted under the Plan are exercisable
at $10 per share and expire in 2003. No stock options have been exercised since
the adoption of the Plan. A summary of the status of the Company's options as of
December 31, 1996 and 1995 and changes for the years then ended are as follows:
1996 1995
---- ----
Outstanding shares - beginning of year 105,450 85,500
Granted - 19,950
---------- --------
Outstanding shares - end of year 105,450 105,450
======= =======
Exercisable shares - end of year 29,330 18,200
======= =======
Had the Company used the fair value - based accounting method to account for
stock based compensation, consistent with the method prescribed by SFAS No. 123,
the effect on the Company's compensation expense, net loss and loss per share
would be de minimus based on the Company's lack of profitability and the absence
of dividend payments since inception.
NOTE I - RETIREMENT PLAN
The Company has a 401(k) profit sharing plan for all employees at least 21 years
old who have been credited with at least 1,000 hours of service. Employer
contributions were $14,592 and $13,873 for 1996 and 1995, respectively, and are
discretionary. Employees become 100% vested in Company contributions
immediately. The plan also allows for employees to make contributions based upon
a percentage of their compensation. Employees are 100% vested in their
contributions at all times.
NOTE J - PROPOSED MERGER
Independent Community Bankshares, Inc. and the Company have entered into a
Letter of Intent dated February 5, 1997. The transaction is subject to the
approval of regulatory authorities and shareholders of the Company. The proposed
merger will entitle the shareholders of the Company to receive, in a tax-free
-12-
<PAGE>
THE TREDEGAR TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS - Continued
DECEMBER 31, 1996 AND 1995
NOTE J - PROPOSED MERGER - Continued
exchange, .25 shares of Independent Community Bankshares, Inc. common stock for
each share of the Company's common stock, and up to 9,879 additional shares
contingent on a three-year net earnings requirement.
NOTE K - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following discloses the fair value of financial instruments as of December
31, 1996 and 1995, whether or not recognized in the balance sheets, for which it
is practical to estimate fair value. As required under generally accepted
accounting principles, these disclosures exclude certain financial instruments
and all nonfinancial instruments from its disclosure requirements. Accordingly,
the aggregate fair value amounts presented do not represent the underlying value
of the Company.
The following methods and assumptions were used by the Company in estimating the
fair value as of December 31, 1996 and 1995, for its financial instruments:
Cash: The carrying amount approximated fair value.
Cash Equivalents: The carrying amounts of federal funds sold and
interest-bearing deposits at other banks approximated fair value.
Investments Held to Maturity: The fair value of investments held to maturity was
determined using current market prices. See Note B.
Interest Receivable: The carrying amount approximated fair value.
NOTE L - RELATED PARTY TRANSACTIONS
At December 31, 1996, the accounts payable balance of the Company included
$12,187 owed to LeClair Ryan, PC for legal services. Gary LeClair is a
stockholder and Director of The Tredegar Trust Company and a stockholder of
LeClair Ryan, PC. During 1996 and 1995 the Company paid LeClair Ryan, PC $5,815
and $22,124, respectively, for legal services.
NOTE M - RECLASSIFICATIONS
Certain items for 1995 have been reclassified to conform with the 1996
presentation. Such reclassifications had no effect on net income or
stockholders' equity as previously reported.
-13-
<PAGE>
Appendix C
[LETTERHEAD]
June __, 1997
Board of Directors
The Tredegar Trust Company
901 E. Byrd Street - Suite 190
Richmond, VA 23219
Gentlemen:
You have asked us to render our opinion relating to the fairness, from
a financial point of view, to the shareholders of The Tredegar Trust Company
("TTC") of the terms of the Agreement and Plan of Reorganization and the Plan of
Merger by and between Independent Community Bankshares, Inc., ("ICBI") and TTC
Acquisition Subsidiary, Inc., a wholly-owned subsidiary of ICBI ("Acquisition")
dated March 28, 1997 (together, the "Agreement"). The Agreement provides for the
merger of TTC with Acquisition (the "Reorganization") and further provides that
each share of Common Stock of TTC which is issued and outstanding immediately
prior to the Effective Date of the Reorganization shall be converted into and
represent the right to receive a maximum of 0.25 shares of ICBI Common Stock
(the "Initial Merger Consideration") and each TTC shareholder will receive a
ratable share of the sum of (i) 4,940 shares of ICBI Common Stock and (ii) the
number of shares of ICBI Common Stock determined by dividing $138,300 by the
Fair Market Value Per Share of ICBI Common Stock approximately three years after
the consummation of the Reorganization if TTC's net earnings in the three years
that follow the Reorganization equal or exceed $638,946, subject to adjustment
as described in the Agreement (the "Contingent Merger Consideration").
In developing our opinion, we have, among other things, reviewed and
analyzed: (1) the Agreement; (2) the Registration Statement and this Proxy
Statement; (3) TTC's audited financial statements for the three years ended
December 31, 1996; (4) other internal information
<PAGE>
relating to TTC prepared by TTC's management; (5) information regarding the
trading market for the common stocks of TTC and ICBI and the price ranges within
which the respective stocks have traded; (6) the relationship of prices paid to
relevant financial data such as net worth, assets, deposits and earnings in this
transaction and the relative valuation of ICBI compared to a group of peer banks
located within the Commonwealth of Virginia with assets less than $2.0 billion;
(7) ICBI's annual reports to shareholders and its audited financial statements
for the three years ended December 31, 1996; and (8) other internal information
relating to ICBI prepared by ICBI's management. We have discussed with members
of management of TTC and ICBI the background to the Reorganization, reasons and
basis for the Reorganization and the business and future prospects of TTC and
ICBI individually and as a combined entity. Finally, we have conducted such
other studies, analyses and investigations, particularly of the trust and
banking industries, and considered such other information as we deemed
appropriate. In conducting our review and arriving at our opinion, we have
relied upon and assumed the accuracy and completeness of the information
furnished to us by or on behalf of TTC and ICBI. We have not attempted
independently to verify such information, nor have we made any independent
appraisal of the assets of TTC or ICBI. We have taken into account our
assessment of general economic, financial market and industry conditions as they
exist and can be evaluated at the date hereof, as well as our experience in
business valuation in general.
On the basis of our analyses and review and in reliance on the accuracy
and completeness of the information furnished to us and subject to the
conditions noted above, it is our opinion that, as of the date hereof the terms
of the Agreement are fair from a financial point of view to the shareholders of
TTC Common Stock.
Very truly yours,
SCOTT & STRINGFELLOW, INC.
By: /s/ G. Jacob Savage III
--------------------------------
G. Jacob Savage III, CFA
Managing Director
Financial Institutions Group
<PAGE>
Appendix D
Code of Virginia (1950), as amended
Title 13.1
Chapter 9
Article 15.
Dissenters' Rights.
ss. 13.1-729. Definitions.
In this article:
"Corporation" means the issuer of the shares held by a
dissenter before the corporate action, except that (i) with respect to
a merger, "corporation" means the surviving domestic or foreign
corporation or limited liability company by merger of that issuer, and
(ii) with respect to a share exchange, "corporation" means the
acquiring corporation by share exchange, rather than the issuer, if the
plan of share exchange places the responsibility for dissenters' rights
on the acquiring corporation.
"Dissenter" means a shareholder who is entitled to dissent
from corporate action under ss. 13.1-730 and who exercises that right
when and in the manner required by ss.ss. 13.1-732 through 13.1-739.
"Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the
corporate action to which the dissenter objects, excluding any
appreciation or depreciation in anticipation of the corporate action
unless exclusion would be inequitable.
"Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate
currently paid by the corporation on its principal bank loans or, if
none, at a rate that is fair and equitable under all the circumstances.
"Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on
file with a corporation.
"Beneficial shareholder" means the person who is a beneficial
owner of shares held by a nominee as the record shareholder.
"Shareholder" means the record shareholder or the beneficial
shareholder.
ss. 13.1-730. Right to dissent.
A. A shareholder is entitled to dissent from, and obtain payment
of the fair value of his shares in the event of, any of the following corporate
actions:
D-1
<PAGE>
1. Consummation of a plan of merger to which the
corporation is a party (i) if shareholder approval is required for the
merger by ss. 13.1-718 or the articles of incorporation and the
shareholder is entitled to vote on the merger or (ii) if the
corporation is a subsidiary that is merged with its parent under ss.
13.1-719;
2. Consummation of a plan of share exchange to which
the corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan;
3. Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation if the
shareholder was entitled to vote on the sale or exchange or if the
sale or exchange was in furtherance o a dissolution on which the
shareholder was entitled to vote, provided that such dissenter's
rights shall not apply in the case of (i) a sale or exchange pursuant
to court order, or (ii) a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of
sale;
4. Any corporate action taken pursuant to a shareholder
vote to the extent the articles of incorporation, bylaws, or a
resolution of the board of directors provides that voting or nonvoting
shareholders are entitled to dissent and obtain payment for their
shares.
B. A shareholder entitled to dissent and obtain payment for his
shares under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
C. Notwithstanding any other provision of this article, with
respect to a plan of merger or share exchange or a sale or exchange of property
there shall be no right of dissent in favor of holders of shares of any class or
series which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at the meeting at which the plan of merger or
share exchange or the sale or exchange of property is to be acted on, were (i)
listed on a national securities exchange or on the National Association of
Securities Dealers Automated Quotation System (NASDAQ) or (ii) held by at least
2,000 record shareholders, unless in either case:
1. The articles of incorporation of the corporation
issuing such shares provide otherwise;
2. In the case of a plan of merger or share exchange,
the holders of the class or series are required under the plan of
merger orshare exchange to accept for such shares anything except:
a. Cash;
b. Shares or membership interests, or shares or
membership interests and cash in lieu of fractional shares (i)
of the surviving or acquiring corporation or limited liability
company or (ii) of any other corporation or limited liability
company which, at the record date fixed to determine the
shareholders entitled to receive notice of and to vote at the
meeting at which the plan of merger or share exchange is to be
acted on, were either listed subject to notice of issuance on
a national securities exchange or held of record by at least
2,000 record shareholders or members; or
c. A combination of cash and shares or membership
interests as set forth in subdivisions 2 a and 2 b of this
subsection; or
D-2
<PAGE>
3. The transaction to be voted on is an "affiliated
transaction" and is not approved by a majority of "disinterested
directors" as such terms are defined in ss. 13.1-725.
D. The right of a dissenting shareholder to obtain payment of
the fair value of his shares shall terminate upon the occurrence of any one of
the following events:
1. The proposed corporate action is abandoned or
rescinded;
2. A court having jurisdiction permanently enjoins or
sets aside the corporate action; or
3. His demand for payment is withdrawn with the written
consent of the corporation.
ss. 13.1-731. Dissent by nominees and beneficial owners.
A. A record shareholder may assert dissenters' rights as to
fewer than all the shares registered in his name only if he dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf he
asserts dissenters' rights. The rights of a partial dissenter under this
subsection are determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if:
1. He submits to the corporation the record
shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenters' rights; and
2. He does so with respect to all shares of which he
is the beneficial shareholder or over which he has power to direct
the vote.
ss. 13.1-732. Notice of dissenters' rights.
A. If proposed corporate action creating dissenters' rights
under ss. 13.1-730 is submitted to a vote at a shareholders' meeting, the
meeting notice shall state that shareholders are or may be entitled to assert
dissenters' rights under this article and be accompanied by a copy of this
article.
B. If corporate action creating dissenters' rights under
ss. 13.1-730 is taken without a vote of shareholders, the corporation, during
the ten-day period after the effectuation of such corporate action, shall notify
in writing all record shareholders entitled to assert dissenters' rights that
the action was taken and send them the dissenters' notice described in ss.
13.1-734.
ss. 13.1-733. Notice of intent to demand payment.
A. If proposed corporate action creating dissenters' rights
under ss. 13.1-730 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights (i) shall deliver to the
D-3
<PAGE>
corporation before the vote is taken written notice of his intent to demand
payment for his shares if the proposed action is effectuated and (ii) shall not
vote such shares in favor of the proposed action.
B. A shareholder who does not satisfy the requirements of
subsection A of this section is not entitled to payment for his shares under
this article.
ss. 13.1-734. Dissenters' notice.
A. If proposed corporate action creating dissenters' rights
under ss. 13.1-730 is authorized at a shareholders' meeting, the corporation,
during the ten-day period after the effectuation of such corporate action, shall
deliver a dissenters' notice in writing to all shareholders who satisfied the
requirements of ss. 13.1-733.
B. The dissenters' notice shall:
1. State where the payment demand shall be sent and
where and when certificates for certificated shares shall be
deposited;
2. Inform holders of uncertificated shares to what
extent transfer of the shares will be restricted after the payment
demand is received;
3. Supply a form for demanding payment that includes
the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action and requires that the
person asserting dissenters' rights certify whether or not he acquired
beneficial ownership of the shares before or after that date;
4. Set a date by which the corporation must receive
the payment demand, which date may not be fewer than thirty nor more
than Sixty days after the date of delivery of the dissenters' notice;
and
5. Be accompanied by a copy of this article.
ss. 13.1-735. Duty to demand payment.
A. A shareholder sent a dissenters' notice described in
ss. 13.1-734 shall demand payment, certify that he acquired beneficial ownership
of the shares before or after the date required to be set forth in the
dissenters' notice pursuant to subdivision 3 of subsection B of ss. 13.1-734,
and, in the case of certificated shares, deposit his certificates in accordance
with the terms of the notice.
B. The shareholder who deposits his shares pursuant to
subsection A of this section retains all other rights of a shareholder except to
the extent that these rights are canceled or modified by the taking of the
proposed corporate action.
C. A shareholder who does not demand payment and deposits his
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his shares under this article.
D-4
<PAGE>
ss. 13.1-736. Share restrictions.
A. The corporation may restrict the transfer of uncertificated
shares from the date the demand for their payment is received.
B. The person for whom dissenters' rights are asserted
as to uncertificated shares retains all other rights of a shareholder except to
the extent that these rights are canceled or modified by the taking of the
proposed corporate action.
ss. 13.1-737. Payment.
A. Except as provided in ss. 13.1-738, within thirty days after
receipt of a payment demand made pursuant to ss. 13.1-735, the corporation shall
pay the dissenter the amount the corporation estimates to be the fair value of
his shares, plus accrued interest. The obligation of the corporation under this
paragraph may be enforced (i) by the circuit court in the city or county where
the corporation's principal office is located, or, if none in this Commonwealth,
where its registered office is located or (ii) at the election of any dissenter
residing or having its principal office in the Commonwealth, by the circuit
court in the city or county where the dissenter resides or has its principal
office. The court shall dispose of the complaint on an expedited basis.
B. The payment shall be accompanied by:
1. The corporation's balance sheet as of the end of a
fiscal year ending not more than sixteen months before the effective
date of the corporate action creating dissenters' rights, an income
statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial
statements, if any;
2. An explanation of how the corporation estimated
the fair value of the shares and of how the interest was calculated;
3. A statement of the dissenters' right to demand
payment under ss. 13.1-739; and
4. A copy of this article.
ss. 13.1-738. After-acquired shares.
A. A corporation may elect to withhold payment required by
ss. 13.1-737 from a dissenter unless he was the beneficial owner of the shares
on the date of the first publication by news media or the first announcement to
shareholders generally, whichever is earlier, of the terms of the proposed
corporate action, as set forth in the dissenters' notice.
B. To the extent the corporation elects to withhold payment
under subsection A of this section, after taking the proposed corporate action,
it shall estimate the fair value of the shares, plus accrued interest, and shall
offer to pay this amount to each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer an
explanation of how it estimated the
D-5
<PAGE>
fair value of the shares and of how the interest was calculated, and a statement
of the dissenter's right to demand payment under ss. 13.1-739.
ss. 13.1-739. Procedure if shareholder dissatisfied with payment or offer.
A. A dissenter may notify the corporation in writing of
his own estimate of the fair value of his shares and amount of interest due, and
demand payment of his estimate (less any payment under ss. 13.1-737), or reject
the corporation's offer under ss. 13.1-738 and demand payment of the fair value
of his shares and interest due, if the dissenter believes that the amount paid
under ss. 13.1-737 or offered under ss. 13.1-738 is less than the fair value of
his shares or that the interest due is incorrectly calculated.
B. A dissenter waives his right to demand payment under this
section unless he notifies the corporation of his demand in writing under
subsection A of this section within thirty days after the corporation made or
offered payment for his shares.
ss. 13.1-740. Court action.
A. If a demand for payment under ss. 13.1-739 remains unsettled,
the corporation shall commence a proceeding within sixty days after receiving
the payment demand and petition the circuit court in the city or county
described in subsection B of this section to determine the fair value of the
shares and accrued interest. If the corporation does not commence the proceeding
within the sixty-day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
B. The corporation shall commence the proceeding in the city or
county where its principal office is located, or, if none in this Commonwealth,
where its registered office is located. If the corporation is a foreign
corporation without a registered office in this Commonwealth, it shall commence
the proceeding in the city or county in this Commonwealth where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
C. The corporation shall make all dissenters, whether or not
residents of this Commonwealth, whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties shall be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
D. The corporation may join as a party to the proceeding
any shareholder who claims to be a dissenter but who has not, in the opinion of
the corporation, complied with the provisions of this article. If the court
determines that such shareholder has not complied with the provisions of this
article, he shall be dismissed as a party.
E. The jurisdiction of the court in which the proceeding is
commenced under subsection B of this section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
a decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
F. Each dissenter made a party to the proceeding is entitled
to judgment (i) for the amount, if any, by which the court finds the fair value
of his shares, plus interest, exceeds the amount paid by the
D-6
<PAGE>
corporation or (ii) for the fair value, plus accrued interest, of his
after-acquired shares for which the corporation elected to withhold payment
under ss. 13.1-738.
ss. 13.1-741. Court costs and counsel fees.
A. The court in an appraisal proceeding commenced under
ss. 13.1-740 shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court. The
court shall assess the costs against the corporation, except that the court may
assess costs against all or some of the dissenters, in amounts the court finds
equitable, to the extent the court finds the dissenters did not act in good
faith in demanding payment under ss. 13.1-739.
B. The court may also assess the reasonable fees and expenses
of experts, excluding those of counsel, for the respective parties, in amounts
the court finds equitable:
1. Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially
comply with the requirements of ss.ss. 13.1-732 through 13.1-739; or
2. Against either the corporation or a dissenter, in
favor of any other party, if the court finds that the party against
whom the fees and expenses are assessed did not act in good faith
with respect to the rights provided by this article.
C. If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly situated,
the court may award to these counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
D. In a proceeding commenced under subsection A of
ss. 13.1-737 the court shall assess the costs against the corporation, except
that the court may assess costs against all or some of the dissenters who are
parties to the proceeding, in amounts the court finds equitable, to the extent
the court finds that such parties did not act in good faith in instituting the
proceeding.
D-7
<PAGE>
Appendix E
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Independent Community Bankshares, Inc.
Middleburg, Virginia
We have audited the accompanying consolidated balance sheets of
Independent Community Bankshares, Inc. and Subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years ended December 31, 1996, 1995
and 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Independent Community Bankshares, Inc. and Subsidiaries as of December 31, 1996
and 1995, and the results of its operations and its cash flows for the years
ended December 31, 1996, 1995 and 1994, in conformity with generally accepted
accounting principles.
/s/Yount, Hyde & Barbour, P.C.
Winchester, Virginia
January 24, 1997, except for Note 17,
as to which the date is February 5, 1997.
E-1
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
--------------- ----------------
<S> <C> <C>
Cash and due from banks $ 6 519 078 $ 3 285 798
Securities (fair value: 1996, $52,375,995;
1995, $48,080,263) (Notes 1 and 2) 52 402 253 48 290 890
Federal funds sold 3 400 000 5 100 000
Loans, net (Notes 1, 3, 4 and 11) 93 710 819 80 048 398
Bank premises and equipment, net (Notes 1 and 5) 4 698 586 3 376 553
Accrued interest receivable and other assets (Notes 9 and 10) 2 235 220 1 911 382
--------------- ----------------
Total assets $ 162 965 956 $ 142 013 021
=============== ================
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Noninterest bearing $ 23 242 448 $ 17 898 501
Interest bearing 115 547 692 103 623 569
--------------- ----------------
Total deposits (Note 6) $ 138 790 140 $ 121 522 070
Securities sold under agreements to repurchase 1 444 697 - -
Federal Home Loan Bank advances (Note 7) 4 000 000 3 000 000
Accrued interest and other liabilities 723 252 538 330
Commitments and contingent liabilities (Notes 12 and 14) - - - -
--------------- ----------------
Total liabilities $ 144 958 089 $ 125 060 400
--------------- ----------------
Shareholders' Equity
Common stock, par value $5 per share,
authorized 10,000,000 shares; issued and
outstanding 859,838 shares $ 4 299 190 $ 4 299 190
Capital surplus 1 411 174 1 411 174
Retained earnings (Notes 8 and 13) 12 816 782 11 508 100
Unrealized gain (loss) on securities
available for sale, net (519 279) (265 843)
--------------- ----------------
Total shareholders' equity $ 18 007 867 $ 16 952 621
--------------- ----------------
Total liabilities and shareholders' equity $ 162 965 956 $ 142 013 021
=============== ================
</TABLE>
See Notes to Consolidated Financial Statements.
E-2
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
Consolidated Statements of Income
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
Interest Income
<S> <C> <C> <C>
Interest and fees on loans $ 8 137 263 $ 7 264 647 $ 6 542 366
Interest and dividends on investment securities:
Taxable interest income 194 506 314 910 298 814
Interest income exempt from federal income taxes 588 431 620 429 577 987
Interest and dividends on securities available for sale:
Taxable interest income 1 792 824 1 503 322 1 288 515
Dividends 267 791 13 884 8 064
Interest income on federal funds sold 130 414 137 514 215 495
-------------- -------------- --------------
Total interest income $ 11 111 229 $ 9 854 706 $ 8 931 241
-------------- -------------- --------------
Interest Expense
Interest on deposits (Note 6) $ 4 455 684 $ 4 055 755 $ 3 198 173
Interest on short-term borrowings 4 580 9 016 - -
Interest on Federal Home Loan Bank advances 186 513 31 185 - -
-------------- -------------- --------------
Total interest expense $ 4 646 777 $ 4 095 956 $ 3 198 173
-------------- -------------- --------------
Net interest income $ 6 464 452 $ 5 758 750 $ 5 733 068
Provision for loan losses (Note 4) 65 000 54 950 - -
-------------- -------------- --------------
Net interest income after provision
for loan losses $ 6 399 452 $ 5 703 800 $ 5 733 068
-------------- -------------- --------------
Other Income
Service charges, commissions and fees $ 676 655 $ 651 327 $ 614 116
Trust fee income 29 316 - - - -
Investment securities (loss) (1 875) - - - -
Profits (losses) on securities available for sale, net 22 496 (122 698) (125 312)
Other 15 551 165 932 35 450
-------------- -------------- --------------
Total other income $ 742 143 $ 694 561 $ 524 254
-------------- -------------- --------------
Other Expenses
Salaries and employees' benefits (Notes 1, 8 and 9) $ 2 532 777 $ 2 163 447 $ 1 880 059
Net occupancy and equipment expense 561 760 433 269 325 519
Advertising 164 189 105 590 104 569
FDIC insurance 2 000 134 787 234 187
Other operating expenses 1 121 844 1 230 045 1 127 114
-------------- -------------- --------------
Total other expenses $ 4 382 570 $ 4 067 138 $ 3 671 448
-------------- -------------- --------------
Income before income taxes $ 2 759 025 $ 2 331 223 $ 2 585 874
Income tax expense (Notes 1 and 10) 728 079 624 729 748 134
-------------- -------------- --------------
Net income (Note 8) $ 2 030 946 $ 1 706 494 $ 1 837 740
============== ============== ==============
Earnings per Share (Notes 1 and 8)
Per average share outstanding, net income $ 2.36 $ 1.92 $ 2.06
============== ============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
E-3
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
Consolidated Statements of Changes in Shareholders' Equity
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on Securities
Common Capital Retained Available
Stock Surplus Earnings for Sale, Net Total
----- ------- -------- ------------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ 2 240 000 $ 2 240 000 $ 11 626 226 $ - - $ 16 106 226
Net income - 1994 (Note 8) - - - - 1 837 740 - - 1 837 740
Cash dividends - 1994
($0.80 per share) - - - - (714 962) - - (714 962)
Issuance of common stock
- stock split effected in
the form of 100% stock
dividend (448,000 shares) 2 240 000 (2 240 000) - - - - - -
Discretionary transfer from
retained earnings - - 2 240 000 (2 240 000) - - - -
Purchase of common stock
(4,072 shares) (20 360) (105 544) - - - - (125 904)
Sale of common stock
(1,755 shares) 8 775 46 515 - - - - 55 290
Change in unrealized gain
(loss) on securities available
for sale, net of deferred
income taxes of $806,690 - - - - - - (1 498 139) (1 498 139)
------------- -------------- -------------- -------------- ---------------
Balance, December 31, 1994 $ 4 468 415 $ 2 180 971 $ 10 509 004 $ (1 498 139) $ 15 660 251
Net income - 1995 - - - - 1 706 494 - - 1 706 494
Cash dividends - 1995
($0.80 per share) - - - - (707 398) - - (707 398)
Purchase of common stock
(36,162 shares) (180 810) (831 726) - - - - (1 012 536)
Sale of common stock
(2,317 shares) 11 585 61 929 - - - - 73 514
Change in unrealized gain
(loss) on securities available
for sale, net of deferred
income taxes of $669,740 - - - - - - 1 232 296 1 232 296
------------- -------------- -------------- -------------- ---------------
Balance, December 31, 1995 $ 4 299 190 $ 1 411 174 $ 11 508 100 $ (265 843) $ 16 952 621
Net income - 1996 - - - - 2 030 946 - - 2 030 946
Cash dividends - 1996
($0.84 per share) - - - - (722 264) - - (722 264)
Change in unrealized gain
(loss) on securities available
for sale, net of deferred
income taxes of $130,558 - - - - - - (253 436) (253 436)
------------- -------------- -------------- -------------- ---------------
Balance, December 31, 1996 $ 4 299 190 $ 1 411 174 $ 12 816 782 $ (519 279) $ 18 007 867
============= ============== ============== ============== ===============
</TABLE>
See Notes to Consolidated Financial Statements.
E-4
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ----------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 2 030 946 $ 1 706 494 $ 1 837 740
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 301 497 251 390 161 411
Amortization 16 487 16 487 12 366
Provision for loan losses 65 000 54 950 - -
Net loss on investment securities 1 875 - - - -
Net (gain) loss on securities available for sale (22 496) 122 698 125 312
Net (gain) loss on sale of assets - - (6 437) 20 877
Net (gain) on sale of other real estate - - (97 624) - -
Discount accretion and premium amortization
on securities, net 157 657 69 601 72 017
Deferred income taxes 68 349 82 137 86 328
Changes in assets and liabilities:
(Increase) in accrued interest receivable (56 251) (47 694) (248 667)
(Increase) decrease in prepaid income taxes (84 032) 65 772 (65 772)
(Increase) in other assets (148 758) (156 914) (244 322)
Increase (decrease) in accrued interest payable 63 255 91 601 (45 475)
Increase (decrease) in other liabilities 132 592 134 572 (17 496)
--------------- --------------- ---------------
Net cash provided by
operating activities $ 2 526 121 $ 2 287 033 $ 1 694 319
--------------- --------------- ---------------
Cash Flows from Investing Activities
Proceeds from maturity, principal paydowns
and calls of investment securities $ 2 455 501 $ 1 015 276 $ 1 244 668
Proceeds from maturity, principal paydowns
and calls of securities available for sale 2 149 662 1 216 149 765 300
Proceeds from sale of securities
available for sale 24 282 770 15 539 612 13 933 294
Purchase of investment securities (2 846 520) (3 442 091) (4 455 208)
Purchase of securities available for sale (30 673 806) (19 499 409) (20 240 599)
Proceeds on sale of other real estate - - 1 015 000 395 000
Proceeds from sale of equipment - - 15 000 6 505
Purchases of bank premises and equipment (1 623 530) (1 142 864) (1 350 559)
Net (increase) in loans (13 727 421) (1 336 510) (8 795 648)
--------------- --------------- ---------------
Net cash (used in)
investing activities $ (19 983 344) $ (6 619 837) $ (18 497 247)
--------------- --------------- ---------------
</TABLE>
See Notes to Consolidated Financial Statements.
E-5
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
Consolidated Statements of Cash Flows
(Continued)
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash Flows from Financing Activities
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts $ 9 896 598 $ (3 681 539) $ 8 359 147
Net increase in certificates of deposit 7 371 472 7 119 273 5 627 777
Increase in securities sold under agreements to
repurchase 1 444 697 - - - -
Repayment of Federal Home Loan Bank advances (2 000 000) - - - -
Proceeds from Federal Home Loan Bank advances 3 000 000 3 000 000 - -
Purchase of common stock - - (1 012 536) (125 904)
Proceeds from sale of common stock - - 73 514 55 290
Cash dividends paid (722 264) (707 398) (714 962)
--------------- --------------- ---------------
Net cash provided by
financing activities $ 18 990 503 $ 4 791 314 $ 13 201 348
--------------- --------------- ---------------
Increase (decrease) in cash
and cash equivalents $ 1 533 280 $ 458 510 $ (3 601 580)
Cash and Cash Equivalents
Beginning 8 385 798 7 927 288 11 528 868
--------------- --------------- ---------------
Ending $ 9 919 078 $ 8 385 798 $ 7 927 288
=============== =============== ===============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors $ 4 425 048 $ 3 964 454 $ 3 244 466
Interest paid on short-term obligations 4 580 9 016 - -
Interest paid on Federal Home Loan Bank advances 153 894 31 185 - -
--------------- --------------- ---------------
$ 4 583 522 $ 4 004 655 $ 3 244 466
=============== =============== ===============
Income taxes $ 863 723 $ 272 447 $ 746 646
=============== =============== ===============
Supplemental Disclosure of Noncash Transactions
Other real estate acquired in settlement of loans $ - - $ - - $ 367 377
=============== =============== ===============
Unrealized gain (loss) on securities available for sale $ (383 994) $ 1 902 036 $ (2 304 829)
=============== =============== ===============
</TABLE>
See Notes to Consolidated Financial Statements.
E-6
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
Notes to Consolidated Financial Statements
Note 1. Nature of Banking Activities and Significant Accounting Policies
Independent Community Bankshares, Inc. and Subsidiaries (the
Company) grant commercial, financial, agricultural, residential
and consumer loans to customers principally in Loudoun County and
Fauquier County, Virginia. The loan portfolio is well diversified
and generally is collateralized by assets of the customers. The
loans are expected to be repaid from cash flow or proceeds from
the sale of selected assets of the borrowers.
The accounting and reporting policies of the Company conform to
generally accepted accounting principles and to accepted practice
within the banking industry.
Principles of Consolidation
The consolidated financial statements of Independent
Community Bankshares, Inc. and its wholly-owned
subsidiaries, The Middleburg Bank and Middleburg Bank
Service Corporation, include the accounts of all three
companies. All material intercompany balances and
transactions have been eliminated in consolidation.
Securities
The Company adopted FASB No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". This statement
addresses the accounting and reporting for investments in
equity securities that have readily determinable fair
values and for all investments in debt securities. Those
investments are classified in three categories and
accounted for as follows:
a. Securities Held to Maturity
Securities classified as held to maturity are those
debt securities the Company has both the intent and
ability to hold to maturity regardless of changes in
market conditions, liquidity needs or changes in
general economic conditions. These securities are
carried at cost adjusted for amortization of premium
and accretion of discount, computed by the interest
method over their contractual lives.
b. Securities Available for Sale
Securities classified as available for sale are those
debt and equity securities that the Company intends
to hold for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a
security classified as available for sale would be
based on various factors, including significant
movements in interest rates, changes in the maturity
mix of the Company's assets and liabilities,
liquidity needs, regulatory capital considerations,
and other similar factors. Securities available for
sale are carried at fair value. Unrealized gains or
losses are reported as increases or decreases in
shareholders' equity, net of the related deferred tax
effect. Realized gains or losses, determined on the
basis of the cost of specific securities sold, are
included in earnings.
E-7
<PAGE>
Notes to Consolidated Financial Statements
c. Trading Securities
Trading securities, which are generally held for the
short term in anticipation of market gains, are
carried at fair value. Realized and unrealized gains
and losses on trading account assets are included in
interest income on trading account securities. The
Company had no trading securities at December 31,
1996 and 1995.
Loans
Loans are shown on the balance sheets net of unearned
discounts and the allowance for loan losses. Interest is
computed by methods which result in level rates of return
on principal. Loans are charged off when in the opinion of
management they are deemed to be uncollectible after
taking into consideration such factors as the current
financial condition of the customer and the underlying
collateral and guarantee.
Unearned interest on installment loans is amortized to
income over the life of the loans, using the sum-of-digits
formula. For all other loans, interest is computed on the
loan balance outstanding.
On January 1, 1995, the Company adopted FASB No. 114,
"Accounting by Creditors for Impairment of a Loan." This
statement has been amended by FASB No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition
and Disclosures." Statement 114, as amended, requires that
the impairment of loans that have been separately
identified for evaluation is to be measured based on the
present value of expected future cash flows or,
alternatively, the observable market price of the loans or
the fair value of the collateral. However, for those loans
that are collateral dependent (that is, if repayment of
those loans is expected to be provided solely by the
underlying collateral) and for which management has
determined foreclosure is probable, the measure of
impairment of those loans is to be based on the fair value
of the collateral. Statement 114, as amended, also
requires certain disclosures about investments in impaired
loans and the allowance for credit losses and interest
income recognized on loans.
The Company considers all consumer installment loans and
residential mortgage loans to be homogeneous loans. These
loans are not subject to impairment under FASB 114. A loan
is considered impaired when it is probable that the
Company will be unable to collect all principal and
interest amounts according to the contractual terms of the
loan agreement. Factors involved in determining impairment
include, but are not limited to, expected future cash
flows, financial condition of the borrower, and current
economic conditions. A performing loan may be considered
impaired, if the factors above indicate a need for
impairment. A loan on nonaccrual status may not be
impaired if in the process of collection or there is an
insignificant shortfall in payment. An insignificant delay
of less than 30 days or a shortfall of less than 5% of the
required principal and interest payment generally does not
indicate an impairment situation, if in management's
judgment the loan will be paid in full. Loans that meet
the regulatory definitions of doubtful or loss generally
qualifies as an impaired loan under FASB 114. Charge-offs
for impaired loans occur when the loan, or portion of the
loan is determined to be uncollectible, as is the case for
all loans.
E-8
<PAGE>
Notes to Consolidated Financial Statements
Loans are placed on nonaccrual when a loan is specifically
determined to be impaired or when principal or interest is
delinquent for 90 days or more. Any unpaid interest
previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific
impaired loans unless the likelihood of further loss is
remote. Interest payments received on such loans are
applied as a reduction of the loan principal balance.
Interest income on other nonaccrual loans is recognized
only to the extent of interest payments received.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level
which, in management's judgement, is adequate to absorb
credit losses inherent in the loan portfolio. The amount
of the allowance is based on management's evaluation of
the collectibility of the loan portfolio, credit
concentrations, trends in historical loss experience,
specific impaired loans, and economic conditions.
Allowances for impaired loans are generally determined
based on collateral values or the present value of
estimated cash flows. The allowance is increased by a
provision for loan losses, which is charged to expense and
reduced by charge-offs, net of recoveries. Changes in the
allowances relating to impaired loans are charged or
credited to the provision for loan losses. Because of
uncertainties inherent in the estimation process,
management's estimate of credit losses inherent in the
loan portfolio and the related allowance may change in the
near term.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation of property and
equipment is computed principally on the straight-line
method over the following estimated useful lives:
Years
-----
Buildings and improvements 31.5-39
Furniture and equipment 3-10
Maintenance and repairs of property and equipment are
charged to operations and major improvements are
capitalized. Upon retirement, sale or other disposition of
property and equipment, the cost and accumulated
depreciation are eliminated from the accounts and gain or
loss is included in operations.
Other Real Estate
Real estate acquired by foreclosure is carried at the
lower of cost or fair market value less an allowance for
estimated selling expenses on the future disposition of
the property.
E-9
<PAGE>
Notes to Consolidated Financial Statements
Income Taxes
Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible
temporary differences, operating loss carryforwards, and
tax credit carryforwards. Deferred tax liabilities are
recognized for taxable temporary differences. Temporary
differences are the differences between the reported
amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
Earnings and Dividends Paid Per Share
Computations are based on the weighted average number of
shares outstanding during each year after giving
retroactive effect to the 100% stock dividend declared in
1994.
Pension Plan
The Company has a trusteed, noncontributory, defined
benefit pension plan covering substantially all full-time
employees. The Company computes the net periodic pension
cost of the plan in accordance with FASB No. 87,
"Employers' Accounting For Pensions."
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks
and federal funds sold. Generally, federal funds are
purchased and sold for one-day periods.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Advertising Costs
The Company follows the policy of charging the costs of
advertising to expense as incurred.
E-10
<PAGE>
Notes to Consolidated Financial Statements
Note 2. Securities
Amortized costs and fair values of securities being held to
maturity as of December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
---- ----- -------- -----
1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 3 012 050 $ - - $ (67 845) $ 2 944 205
Obligations of states and
political subdivisions 13 396 166 106 404 (69 500) 13 433 070
Mortgage-backed securities 957 809 9 265 (4 582) 962 492
-------------- --------------- -------------- ---------------
$ 17 366 025 $ 115 669 $ (141 927) $ 17 339 767
============== =============== ============== ===============
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
---- ----- -------- -----
1995
----------------------------------------------------------------
U.S. Treasury securities
and obligations of U.S.
government corporations
<S> <C> <C> <C> <C>
and agencies $ 4 367 134 $ 1 314 $ (199 052) $ 4 169 396
Obligations of states and
political subdivisions 11 396 358 69 204 (60 167) 11 405 395
Mortgage-backed securities 1 248 074 7 686 (29 612) 1 226 148
-------------- --------------- -------------- ---------------
$ 17 011 566 $ 78 204 $ (288 831) $ 16 800 939
============== =============== ============== ===============
</TABLE>
E-11
<PAGE>
Notes to Consolidated Financial Statements
The amortized cost and fair value of securities being held to
maturity as of December 31, 1996 by contractual maturity are
shown below. Maturities may differ from contractual maturities in
mortgage-backed securities because the mortgages underlying the
securities may be called or repaid without any penalties.
Therefore, these securities are not included in the maturity
categories in the following maturity summary.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due in one year or less $ 2 225 891 $ 2 219 627
Due after one year through five years 6 066 498 6 009 785
Due after five years through 10 years 6 551 484 6 573 589
Due after 10 years 1 564 343 1 574 274
Mortgage-backed securities 957 809 962 492
--------------- ----------------
$ 17 366 025 $ 17 339 767
=============== ================
</TABLE>
Amortized costs and fair values of securities available for sale
as of December 31, 1996 and 1995, are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
---- ----- -------- -----
1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 4 987 626 $ 745 $ (38 408) $ 4 949 963
Mortgage-backed securities 27 216 393 17 851 (713 390) 26 520 854
Corporate preferred 3 033 996 6 876 (60 461) 2 980 411
Other 585 000 - - - - 585 000
-------------- --------------- -------------- ---------------
$ 35 823 015 $ 25 472 $ (812 259) $ 35 036 228
============== =============== ============== ===============
1995
----------------------------------------------------------------
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 3 871 194 $ 5 101 $ (2 333) $ 3 873 962
Mortgage-backed securities 24 291 927 22 439 (428 000) 23 886 366
Corporate preferred 2 933 996 - - - - 2 933 996
Other 585 000 - - - - 585 000
-------------- --------------- -------------- ---------------
$ 31 682 117 $ 27 540 $ (430 333) $ 31 279 324
============== =============== ============== ===============
</TABLE>
E-12
<PAGE>
Notes to Consolidated Financial Statements
The amortized cost and fair value of securities available for
sale as of December 31, 1996, by contractual maturity are shown
below. Maturities may differ from contractual maturities in
corporate and mortgage-backed securities because the securities
and mortgages underlying the securities may be called or repaid
without any penalties. Therefore, these securities are not
included in the maturity categories in the following maturity
summary.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due after one year through five years $ 900 789 $ 893 762
Due after five years through 10 years 3 877 784 3 848 920
Due after 10 years 209 053 207 281
Mortgage-backed securities 27 216 393 26 520 854
Corporate preferred 3 033 996 2 980 411
Other 585 000 585 000
--------------- ----------------
$ 35 823 015 $ 35 036 228
=============== ================
</TABLE>
Proceeds from sales of securities available for sale during 1996,
1995 and 1994 were $24,282,770, $15,539,612 and $13,933,294,
respectively. Gross gains of $42,269, $125,906 and $71,374 and
gross losses of $19,773, $248,604 and $196,686 were realized on
those sales, respectively.
As allowed by the Question and Answer Guide to FASB No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities" issued in November of 1995, debt securities with an
amortized cost of $4,191,051 were transferred from
held-to-maturity to available-for-sale in December, 1995. The
securities had a net unrealized gain of $1,623.
The carrying value of securities pledged to qualify for fiduciary
powers, to secure public monies as required by law and for other
purposes amounted to $1,430,421 and $1,436,694 at December 31,
1996 and 1995, respectively.
E-13
<PAGE>
Notes to Consolidated Financial Statements
Note 3. Loans, Net
The composition of the net loans is as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
--------------- ---------------
(in thousands)
<S> <C> <C>
Real estate loans:
Construction and land development $ 4 182 $ 1 791
Secured by farmland 2 105 1 549
Secured by 1-4 family residential 43 860 36 678
Other real estate loans 24 774 21 697
Loans to farmers (except secured by real estate) 891 936
Commercial and industrial loans (except those
secured by real estate) 10 681 9 211
Loans to individuals for personal expenditures 8 061 9 170
All other loans 76 68
--------------- ----------------
Total loans $ 94 630 $ 81 100
Less: Unearned income 35 186
Allowance for loan losses 884 866
--------------- ----------------
Net loans $ 93 711 $ 80 048
=============== ================
</TABLE>
Note 4. Allowance for Loan Losses
Transactions in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- -------------- ---------------
<S> <C> <C> <C>
Balance, beginning $ 866 173 $ 940 081 $ 859 341
Provision charged to operating expense 65 000 54 950 - -
Recoveries 77 523 82 860 296 581
Loan losses charged to the allowance (125 160) (211 718) (215 841)
--------------- -------------- ---------------
$ 883 536 $ 866 173 $ 940 081
=============== ============== ===============
</TABLE>
E-14
<PAGE>
Notes to Consolidated Financial Statements
Information about impaired loans as of and for the years ended
December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
<S> <C> <C>
Impaired loans for which an allowance
has been provided $ - - $ 662 177
Impaired loans for which no allowance
has been provided - - - -
--------------- --------------
Total impaired loans $ - - $ 662 177
=============== ==============
Allowance provided for impaired
loans, included in the allowance
for loan losses $ - - $ 168 677
Average balance in impaired loans $ 180 860 $ 1 018 695
Interest income recognized $ 102 846 $ 43 852
</TABLE>
All impaired loans for 1996 and 1995 have been measured based on
the fair value of the collateral. The impaired loans for 1995 are
included on the nonperforming assets table under nonaccrual loans
along with other nonaccrual loans excluded from impaired loan
disclosure under FASB 114.
Nonaccrual loans excluded from impaired loan disclosure under
FASB 114 amounted to $76,227 and $991,513 at December 31, 1996
and 1995, respectively. If interest on these loans had been
accrued, such income would have approximated $1,993 and $21,708
for 1996 and 1995, respectively.
Note 5. Bank Premises and Equipment, Net
Bank premises and equipment consists of the following:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Land $ 989 520 $ 989 520
Banking facilities 1 989 570 1 959 690
Furniture, fixtures and equipment 2 706 998 2 075 065
Construction in progress and deposits
on equipment 1 028 027 66 310
---------------- ---------------
$ 6 714 115 $ 5 090 585
Less accumulated depreciation 2 015 529 1 714 032
---------------- ---------------
$ 4 698 586 $ 3 376 553
================ ===============
</TABLE>
The Company is presently under a construction contract, dated
November 20, 1995 to construct a new branch facility in Leesburg,
Virginia. The estimate of total construction costs is
approximately $1,350,000 of which $650,063 is held in
construction in progress as of December 31, 1996.
E-15
<PAGE>
Notes to Consolidated Financial Statements
Depreciation expense was $301,497, $251,390 and $161,411 for the
years ended December 31, 1996, 1995 and 1994, respectively.
Note 6. Deposits
Deposits outstanding at December 31, 1996, 1995 and 1994, and the
related interest expense for the periods then ended are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------------------
Amount Expense Amount Expense
------ ------- ------ -------
<S> <C> <C> <C> <C>
Noninterest bearing $ 23 242 448 $ - - $ 17 898 501 $ - -
--------------- ---------------- --------------- ----------------
Interest bearing:
Interest checking $ 20 641 101 $ 389 569 $ 19 055 900 $ 435 812
Money market
accounts 28 808 722 868 900 26 872 893 833 746
Regular savings
and IRA's 14 984 279 561 193 13 952 658 533 867
Certificates of deposit:
Less than $100,000 37 100 835 1 897 940 31 735 740 1 563 232
$100,000 and more 14 012 755 738 082 12 006 378 689 098
--------------- ---------------- --------------- ----------------
Total interest
bearing $ 115 547 692 $ 4 455 684 $ 103 623 569 $ 4 055 755
--------------- ---------------- --------------- ----------------
Total deposits $ 138 790 140 $ 4 455 684 $ 121 522 070 $ 4 055 755
=============== ================ =============== ================
</TABLE>
<TABLE>
<CAPTION>
1994
----------------------------------
Amount Expense
------ -------
<S> <C> <C>
Noninterest bearing $ 18 697 684 $ - -
--------------- ----------------
Interest bearing:
Interest checking $ 20 247 199 $ 414 056
Money market
accounts 27 980 367 803 064
Regular savings
and IRA's 14 536 241 454 050
Certificates of deposit:
Less than $100,000 25 225 321 1 003 259
$100,000 and more 11 397 524 523 744
--------------- ----------------
Total interest
bearing $ 99 386 652 $ 3 198 173
--------------- ----------------
Total deposits $ 118 084 336 $ 3 198 173
=============== ================
</TABLE>
E-16
<PAGE>
Notes to Consolidated Financial Statements
Note 7. Federal Home Loan Bank Advances
As of December 31, 1996 and 1995, the Company had borrowed
$4,000,000 and $3,000,000, respectively, on a short-term basis
from its $16,000,000 line of credit with the Federal Home Loan
Bank of Atlanta.
Note 8. Prior Period Adjustment
In 1995, the Company changed its method for accounting for
split-dollar insurance premiums paid on behalf of key executive
officers. In prior years, premiums paid by the Company were
recorded as an asset whereas only the cash surrender value of the
policy should have been recorded with the remainder being
recognized in the statements of income. The result of the change
for 1994 was to increase net income by approximately $5,633 or
$.01 per share.
Note 9. Employee Benefits
The amount charged to expense for the Company's pension plan
totaled $85,739, $86,294 and $28,541 for the years ended December
31, 1996, 1995 and 1994, respectively. The components of the
pension cost charged to expense for 1996, 1995 and 1994 consisted
of the following:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- -------------- ---------------
<S> <C> <C> <C>
Service cost $ 103 203 $ 86 803 $ 72 428
Interest cost on projected benefit
obligation 133 703 121 361 177 184
Actual return on plan assets (163 858) (134 561) (226 209)
Net amortization and deferral 12 691 12 691 5 138
--------------- -------------- ---------------
$ 85 739 $ 86 294 $ 28 541
=============== ============== ===============
</TABLE>
E-17
<PAGE>
Notes to Consolidated Financial Statements
The following table sets forth the plan's funded status as of
September 30, 1996 and 1995, and the amount recognized in the
accompanying balance sheets as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ 908 635 $ 1 132 394
=============== ==============
Accumulated benefits $ 998 018 $ 1 180 231
=============== ==============
Projected benefits $ (1 425 983) $ (1 576 391)
Plan assets at fair value 1 480 340 1 728 227
--------------- --------------
Funded status $ 54 357 $ 151 836
Unrecognized net (gain) loss 88 368 (80 254)
Unrecognized net transition (asset) (47 751) (51 731)
Unrecognized prior service cost 216 720 233 391
--------------- --------------
Asset on balance sheet as of
September 30 $ 311 694 $ 253 242
Fourth quarter entries, employer
contributions 181 472 145 200
--------------- --------------
Asset on balance sheet as of
December 31 $ 493 166 $ 398 442
=============== ==============
</TABLE>
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present
value of the benefit obligations were 8.5% and 6%, respectively.
The expected long-term rate of return on plan assets was 9.5%.
Plan assets consist of diversified domestic bond and common stock
mutual funds. Bond funds account for approximately 40% of plan
assets and equity funds approximate 60% of plan assets.
A deferred compensation plan was adopted for the President and
Chief Executive Officer. Benefits are to be paid in monthly
installments for 15 years following retirement or death. The
agreement provides that if employment is terminated for reasons
other than death or disability prior to age 65, the amount of
benefits would be reduced. The deferred compensation expense for
1996 and 1995, based on the present value of the retirement
benefits, was $15,539 and $14,522. The plan is unfunded. However,
life insurance has been acquired on the life of the employee in
an amount sufficient to discharge the obligation.
E-18
<PAGE>
Notes to Consolidated Financial Statements
Note 10. Income Taxes
Net deferred tax assets (liabilities) consist of the following
components as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 185 432 $ 179 503
Deferred compensation 19 280 14 035
Unearned loan fees 4 607 9 469
Interest on nonaccrual loans 678 29 531
Securities available for sale 267 508 136 950
--------------- ---------------
$ 477 505 $ 369 488
--------------- ---------------
Deferred tax liabilities:
Property and equipment $ 259 774 $ 245 286
Prepaid pension costs 166 447 135 127
--------------- ---------------
$ 426 221 $ 380 413
--------------- ---------------
$ 51 284 $ (10 925)
=============== ===============
</TABLE>
The provision for income taxes charged to operations for the
years ended December 31, 1996, 1995 and 1994 consists of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
------------ -------------- --------------
<S> <C> <C> <C>
Current tax expense $ 659 730 $ 542 592 $ 661 806
Deferred tax expense 68 349 82 137 86 328
------------ -------------- --------------
$ 728 079 $ 624 729 $ 748 134
============ ============== ==============
</TABLE>
The income tax provision differs from the amount of income tax
determined by applying the U.S. federal income tax rate to pretax
income for the years ended December 31, 1996, 1995 and 1994, due
to the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ------------- -------------
<S> <C> <C> <C>
Computed "expected" tax expense $ 938 069 $ 792 614 $ 877 282
Increase (decrease) in income taxes
resulting from:
Tax exempt interest income (175 099) (185 166) (176 816)
Other, net (34 891) 17 281 47 668
----------- ------------- -------------
$ 728 079 $ 624 729 $ 748 134
=========== ============= =============
</TABLE>
E-19
<PAGE>
Notes to Consolidated Financial Statements
Note 11. Related Party Transactions
The Company has had, and may be expected to have in the future,
banking transactions in the ordinary course of business with
directors, principal officers, their immediate families and
affiliated companies in which they are principal stockholders
(commonly referred to as related parties), on the same terms,
including interest rates and collateral, as those prevailing at
the time for comparable transactions with others. These persons
and firms were indebted to the Company for loans totaling
$845,656 and $1,625,801 at December 31, 1996 and 1995,
respectively. During 1996, total principal additions were
$389,642 and total principal payments were $1,169,787.
Note 12. Contingent Liabilities and Commitments
In the normal course of business, there are outstanding various
commitments and contingent liabilities, which are not reflected
in the accompanying financial statements. The Company does not
anticipate any material loss as a result of these transactions.
See Note 14 with respect to financial instruments with
off-balance-sheet risk.
The Company must maintain a reserve against its deposits in
accordance with Regulation D of the Federal Reserve Act. For the
final weekly reporting period in the years ended December 31,
1996 and 1995, the aggregate amounts of daily average required
reserves were approximately $1,073,000 and $1,007,000,
respectively.
Note 13. Retained Earnings
Transfers of funds from the banking subsidiary to the parent
corporation in the form of loans, advances and cash dividends are
restricted by federal and state regulatory authorities. As of
December 31, 1996, there were no unrestricted funds which could
be transferred from the banking subsidiary to the parent
corporation, without prior regulatory approval.
Note 14. Financial Instruments With Off-Balance-Sheet Risk and Credit Risk
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 and to reduce its own
exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount
recognized in the balance sheet. The contract or notional amounts
of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
E-20
<PAGE>
Notes to Consolidated Financial Statements
The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is
represented by the contractual notional amount of those
instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for
on-balance-sheet instruments.
A summary of the contract or notional amount of the Company's
exposure to off-balance-sheet risk as of December 31, 1996 and
1995, is as follows:
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 6 617 119 $ 3 323 697
Standby letters of credit $ 606 364 $ 568 744
</TABLE>
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each
customer's credit worthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation
of the counterparty. Collateral held varies but may include
accounts receivable, inventory, property and equipment, and
income-producing commercial properties.
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 support public
and private borrowing arrangements, including commercial paper,
bond financing, and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The
Company holds real estate as collateral supporting those
commitments for which collateral is deemed necessary. The extent
of collateral held for those commitments at December 31, 1996,
varies from 0 percent to 100 percent; the average amount
collateralized is 40.6 percent.
The Company has approximately $4,412,704 in deposits in financial
institutions in excess of amounts insured by the Federal Deposit
Insurance Corporation (FDIC) at December 31, 1996.
E-21
<PAGE>
Notes to Consolidated Financial Statements
Note 15. Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value:
Cash and Short-Term Investments
For those short-term instruments, the carrying amount is a
reasonable estimate of fair value.
Securities
For securities held for investment purposes, fair values are
based on quoted market prices or dealer quotes.
Loans
For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on
carrying values. The fair values for other loans were
estimated using discounted cash flow analyses, using interest
rates currently being offered.
Deposit Liabilities
The fair value of demand deposits, savings accounts, and
certain money market deposits is the amount payable on demand
at the reporting date. The fair value of fixed-maturity
certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities.
Off-Balance Sheet Financial Instruments
The fair value of commitments to extend credit is estimated
using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the
agreements and the present credit worthiness of the
counterparties. For fixed-rate loan commitments, fair value
also considers the difference between current levels of
interest rates and the committed rates.
The fair value of stand-by letters of credit is based on fees
currently charged for similar agreements or on the estimated
cost to terminate them or otherwise settle the obligations
with the counterparties at the reporting date.
At December 31, 1996 and 1995, the carrying amounts and fair
values of loan commitments and stand-by letters of credit were
immaterial.
E-22
<PAGE>
Notes to Consolidated Financial Statements
The estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------------- -------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 9 919 $ 9 919 $ 8 386 $ 8 386
Securities 52 402 52 376 48 291 48 080
Loans 94 595 94 878 80 914 82 269
Less: allowance for loan losses (884) - - (866) - -
------------- -------------- ------------- --------------
Total financial assets $ 156 032 $ 157 173 $ 136 725 $ 138 735
------------- -------------- ------------- --------------
Financial liabilities:
Deposits $ 138 790 $ 139 149 $ 121 522 $ 121 952
Securities sold under agreements
to repurchase 1 445 1 445 - - - -
Federal Home Loan Bank advances 4 000 4 000 3 000 3 004
------------- -------------- ------------- --------------
Total financial liabilities $ 144 235 $ 144 594 $ 124 522 $ 124 956
------------- -------------- ------------- --------------
</TABLE>
Note 16. Capital Requirements
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory
possibly additional discretionary - actions by regulators that,
if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve
quantitative measures of the Company's assets, liabilities, and
certain off- balance-sheet items as calculated under regulatory
accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1 capital
to risk-weighted assets, and of Tier 1 capital to average assets.
Management believes, as of December 31, 1996, that the Company
meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the
Federal Reserve Bank categorized the Company as well capitalized
under the regulatory framework for prompt corrective action. To
be categorized as well capitalized, the Company must maintain
minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage
ratios as set forth in the table. There are no conditions or
events since that notification that management believes have
changed the institution's category.
E-23
<PAGE>
The Company's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- -------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk
Weighted Assets):
Consolidated $ 19 376 20.2% >=$ 7 680 >= 8.0% N/A
The Middleburg Bank $ 16 187 17.0% >=$ 7 627 >= 8.0% >=$ 9 534 >= 10.0%
Tier 1 Capital (to Risk
Weighted Assets):
Consolidated $ 18 492 19.3% >=$ 3 840 >= 4.0% N/A
The Middleburg Bank $ 15 303 16.1% >=$ 3 813 >= 4.0% >=$ 5 720 >= 6.0%
Tier 1 Capital (to
Average Assets):
Consolidated $ 18 492 11.7% >=$ 6 307 >= 4.0% N/A
The Middleburg Bank $ 15 303 9.9% >=$ 6 187 >= 4.0% >=$ 7 733 >= 5.0%
As of December 31, 1995:
Total Capital (to Risk
Weighted Assets):
Consolidated $ 18 085 21.9% >=$ 6 603 >= 8.0% N/A
The Middleburg Bank $ 15 030 18.4% >=$ 6 552 >= 8.0% >=$ 8 190 >= 10.0%
Tier 1 Capital (to Risk
Weighted Assets):
Consolidated $ 17 218 20.9% >=$ 3 301 >= 4.0% N/A
The Middleburg Bank $ 14 164 17.3% >=$ 3 276 >= 4.0% >=$ 4 914 >= 6.0%
Tier 1 Capital (to
Average Assets):
Consolidated $ 17 218 12.4% >=$ 5 574 >= 4.0% N/A
The Middleburg Bank $ 14 164 10.2% >=$ 5 564 >= 4.0% >=$ 6 955 >= 5.0%
</TABLE>
Note 17. Proposed Merger
The Tredegar Trust Company (Tredegar) and the Company have
entered into a Letter of Intent dated February 5, 1997. The
transaction is subject to the approval of regulatory authorities
and shareholders of Tredegar. The proposed merger will entitle
the shareholders of Tredegar to receive, in a tax-free exchange,
.25 shares of Independent Community Bankshares, Inc. common stock
for each share of Tredegar common stock, and up to 9,879
additional shares contingent on a three-year net earnings
requirement.
E-24
<PAGE>
Notes to Consolidated Financial Statements
Note 18. Condensed Financial Information - Parent Company Only
INDEPENDENT COMMUNITY BANKSHARES, INC.
(Parent Corporation Only)
<TABLE>
<CAPTION>
Balance Sheets
December 31, 1996 and 1995
Assets 1996 1995
--------------- ----------------
<S> <C> <C>
Cash on deposit with subsidiary bank $ 7 387 $ 2 703
Money market fund 141 011 65 335
Securities available for sale 2 980 411 2 933 996
Investment in subsidiaries, at cost, plus
equity in undistributed net income 14 818 885 13 886 437
Organizational expenses, net 35 723 52 210
Other assets 24 450 11 940
--------------- ----------------
Total assets $ 18 007 867 $ 16 952 621
=============== ================
Liabilities and Shareholders' Equity
Liabilities $ - - $ - -
--------------- ----------------
Shareholders' Equity
Common stock $ 4 299 190 $ 4 299 190
Capital surplus 1 411 174 1 411 174
Retained earnings 12 816 782 11 508 100
Unrealized (loss) on securities available
for sale, net (519 279) (265 843)
--------------- ----------------
Total shareholders' equity $ 18 007 867 $ 16 952 621
--------------- ----------------
Total liabilities and shareholders' equity $ 18 007 867 $ 16 952 621
=============== ================
</TABLE>
E-25
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
(Parent Corporation Only)
Statements of Income
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- --------------- --------------
<S> <C> <C> <C>
Income
Dividends from subsidiary $ 704 000 $ 4 621 374 $ 940 829
Dividends 226 896 - - - -
Interest 5 351 - - - -
-------------- --------------- --------------
Total income $ 936 247 $ 4 621 374 $ 940 829
-------------- --------------- --------------
Expenses
Amortization of organization expenses $ 16 487 $ 16 487 $ 12 366
Legal and professional fees 18 620 8 856 32 744
Printing and supplies 8 818 8 601 10 041
Other 1 124 1 174 1 266
-------------- --------------- --------------
Total expenses $ 45 049 $ 35 118 $ 56 417
-------------- --------------- --------------
Income before allocated tax benefits and
undistributed income of subsidiaries $ 891 198 $ 4 586 256 $ 884 412
Income tax (benefit) 10 770 (11 940) (18 066)
-------------- --------------- --------------
Income before equity (deficit) in
undistributed income of subsidiaries $ 880 428 $ 4 598 196 $ 902 478
Equity (deficit) in undistributed
income of subsidiaries 1 150 518 (2 891 702) 935 262
-------------- --------------- --------------
Net income $ 2 030 946 $ 1 706 494 $ 1 837 740
============== =============== ==============
</TABLE>
E-26
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
(Parent Corporation Only)
Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- --------------- --------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 2 030 946 $ 1 706 494 $ 1 837 740
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 16 487 16 487 12 366
Undistributed (earnings) deficit of subsidiary (1 150 518) 2 891 702 (935 262)
Decrease in other assets 5 709 5 009 (100 506)
-------------- --------------- --------------
Net cash provided by
operating activities $ 902 624 $ 4 619 692 $ 814 338
-------------- --------------- --------------
Cash Flow from Investing Activities,
purchase of securities available for sale $ (100 000) $ (2 933 996) $ - -
-------------- --------------- --------------
Cash Flows from Financing Activities
Purchase of common stock $ - - $ (1 012 536) $ (125 904)
Net proceeds from sale of common stock - - 73 514 55 290
Cash dividends paid (722 264) (707 398) (714 962)
-------------- --------------- --------------
Net cash (used in)
financing activities $ (722 264) $ (1 646 420) $ (785 576)
-------------- --------------- --------------
Increase in cash and
cash equivalents $ 80 360 $ 39 276 $ 28 762
Cash and Cash Equivalents
Beginning 68 038 28 762 - -
-------------- --------------- --------------
Ending $ 148 398 $ 68 038 $ 28 762
============== =============== ==============
</TABLE>
E-27
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
Consolidated Balance Sheet
(Unaudited)
For the Three Months Ended March 31, 1997
Assets
Cash and due from banks $ 5 163 681
Securities (fair value $51,862,900) 52 058 440
Federal funds sold 7 300 000
Loans, net 93 626 582
Bank premises and equipment, net 5 179 172
Accrued interest receivable and other assets 2 814 394
----------------
Total assets $ 166 142 269
================
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Noninterest bearing $ 23 604 901
Interest bearing 118 423 603
----------------
Total deposits $ 142 028 504
Securities sold under agreements to repurchase 2 115 521
Federal Home Loan Bank advances 3 000 000
Accrued interest and other liabilities 1 150 716
Commitments and contingent liabilities - -
----------------
Total liabilities $ 148 294 741
----------------
Shareholders' Equity
Common stock, par value $5 per share, authorized
10,000,000 shares; issued and outstanding 837,149
shares $ 4 185 745
Capital surplus 889 327
Retained earnings 13 423 632
Unrealized (loss) on securities available for sale, net (651 176)
----------------
Total shareholders' equity $ 17 847 528
----------------
Total liabilities and shareholders' equity $ 166 142 269
================
See Notes to Consolidated Financial Statements.
E-28
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
Consolidated Statements of Income
(Unaudited)
For the Three Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------------- ---------------
<S> <C> <C>
Interest Income
Interest and fees on loans $ 2 138 407 $ 1 857 278
Interest on investment securities:
Taxable interest income 36 086 50 634
Interest income exempt from federal income taxes 160 577 135 530
Interest and dividends on securities available for sale:
Taxable interest income 497 671 428 137
Dividends 68 841 55 278
Interest income on federal funds sold 56 511 36 200
----------------- ----------------
Total interest income $ 2 958 093 $ 2 563 057
----------------- ----------------
Interest Expense
Interest on deposits $ 1 152 536 $ 1 091 151
Interest on short-term borrowings 24 187 376
Interest on Federal Home Loan Bank advances 50 408 44 683
----------------- ----------------
Total interest expense $ 1 227 131 $ 1 136 210
----------------- ----------------
Net interest income $ 1 730 962 $ 1 426 847
Provision for loan losses 55 400 - -
----------------- ----------------
Net interest income after provision for loan losses $ 1 675 562 $ 1 426 847
----------------- ----------------
Other Income
Service charges, commission and fees $ 204 898 $ 175 225
Trust fee income 22 500 4 242
Profits on securities available for sale, net 3 143 14 242
Other 100 - -
----------------- ----------------
Total other income $ 230 641 $ 193 709
----------------- ----------------
Other Expenses
Salaries and employees' benefits $ 643 372 $ 610 342
Net occupancy and equipment expense 131 559 117 960
Advertising 28 818 53 965
FDIC insurance 8 035 500
Other operating expenses 264 693 267 474
----------------- ----------------
Total other expenses $ 1 076 477 $ 1 050 241
----------------- ----------------
Income before income taxes $ 829 726 $ 570 315
Income tax expense 222 876 139 652
----------------- ----------------
Net income $ 606 850 $ 430 663
================= ================
Earnings Per Share, per average share outstanding, net income $ 0.71 $ 0.50
================= ================
</TABLE>
See Notes to Consolidated Financial Statements.
E-29
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
For the Three Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on Securities
Common Capital Retained Available for
Stock Surplus Earnings Sale, Net Total
----- ------- -------- --------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 4 299 190 $ 1 411 174 $ 11 508 100 $ (265 843) $ 16 952 621
Net income - 1996 - - - - 430 663 - - 430 663
Cash dividends - 1996 - - - - (154 771) - - (154 771)
Change in unrealized gain
(loss) on securities available
for sale, net - - - - - - (299 396) (299 396)
------------- -------------- ---------------- --------------- --------------
Balance, March 31, 1996 $ 4 299 190 $ 1 411 174 $ 11 783 992 $ (565 239) $ 16 929 117
============= ============== ================ =============== ==============
Balance, December 31, 1996 $ 4 299 190 $ 1 411 174 $ 12 816 782 $ (519 279) $ 18 007 867
Net income - 1997 - - - - 606 850 - - 606 850
Purchase of common stock
(22,689 shares) (113 445) (521 847) - - - - (635 292)
Change in unrealized gain
(loss) on securities available
for sale, net - - - - - - (131 897) (131 897)
------------- -------------- ---------------- --------------- --------------
Balance, March 31, 1997 $ 4 185 745 $ 889 327 $ 13 423 632 $ (651 176) $ 17 847 528
============= ============== ================ =============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
E-30
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------------- ----------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 606 850 $ 430 663
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 99 000 67 608
Amortization 4 122 4 122
Provision for loan losses 55 400 - -
Net (gain) on securities available for sale (3 143) (14 242)
Discount accretion and premium amortization
on securities, net 46 825 51 951
Deferred taxes - - 10 911
Changes in assets and liabilities:
Decrease in accrued interest receivable 15 302 53 898
(Increase) in prepaid income taxes (2 365) - -
(Increase) in other assets (94 479) (70 857)
(Decrease) in accrued interest payable (3 796) (1 629)
Increase (decrease) in other liabilities (2 547) 19 571
---------------- ---------------
Net cash provided by operating activities $ 721 169 $ 551 996
---------------- ---------------
Cash Flows from Investing Activities
Proceeds from maturity, principal paydowns and
calls of investment securities $ 953 687 $ 830 336
Proceeds from maturity, principal paydowns and
calls of securities available for sale 931 886 540 654
Proceeds from sale of securities available for sale 1 077 494 9 982 384
Purchase of investment securities (206 628) (678 114)
Purchase of securities available for sale (2 656 151) (10 295 755)
Purchases of bank premises and equipment (579 586) (421 473)
Net (increase) decrease in loans 28 836 (1 419 961)
----------------- ---------------
Net cash (used in) investing activities $ (450 462) $ (1 461 929)
----------------- ---------------
Cash Flows from Financing Activities
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts $ 639 605 $ (2 155 960)
Net increase in certificates of deposit 2 598 759 1 599 355
Increase in securities sold under agreements to repurchase 670 824 - -
Repayments on Federal Home Loan Bank advances (1 000 000) - -
Purchase of common stock (635 292) - -
Cash dividends paid - - (154 771)
----------------- ---------------
Net cash provided by (used in) financing activities $ 2 273 896 $ (711 376)
----------------- ---------------
</TABLE>
See Notes to Consolidated Financial Statements.
E-31
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(Continued)
For the Three Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------------- ----------------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents $ 2 544 603 $ (1 621 309)
Cash and Cash Equivalents
Beginning 9 919 078 8 385 798
----------------- ----------------
Ending $ 12 463 681 $ 6 764 489
================= ================
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors $ 1 145 027 $ 1 092 780
Interest paid on short-term obligations 24 187 376
Interest paid on Federal Home Loan Bank advances 54 121 44 683
----------------- ----------------
$ 1 223 335 $ 1 137 839
================= ================
Income taxes $ - - $ 120 191
================= ================
Supplemental Disclosure of Noncash Transactions,
unrealized (loss) on securities available for sale $ (199 844) $ (453 630)
================= ================
</TABLE>
See Notes to Consolidated Financial Statements.
E-32
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
For the Three Months Ended March 31, 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 March 31, 1997, and the results of operations and
changes in cash flows for the three months ended March 31, 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 three-month periods ended March
31, 1997 and 1996, are not necessarily indicative of the results to
be expected for the full year.
Note 2. Securities
Amortized costs and fair values of securities being held to
maturity as of March 31, 1997 are summarized as follows:
<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 $ 2 510 284 $ - - $ (64 219) $ 2 446 065
Obligations of states
and political
subdivisions 13 241 378 28 982 (162 182) 13 108 178
Mortgage-backed
securities 853 754 6 937 (5 058) 855 633
-------------- --------------- -------------- ---------------
$ 16 605 416 $ 35 919 $ (231 459) $ 16 409 876
============== =============== ============== ===============
</TABLE>
The amortized cost and fair value of securities being held to
maturity as of March 31, 1997 by contractual maturity are shown
below. Maturities may differ from contractual maturities in
mortgage-backed securities because the mortgages underlying the
securities may be called or repaid without any penalties.
Therefore, these securities are not included in the maturity
categories in the following maturity summary.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 1 469 230 $ 1 466 390
Due after one year through five years 6 666 691 6 557 133
Due after five years through 10 years 6 234 867 6 165 547
Due after 10 years 1 380 874 1 365 173
Mortgage-backed securities 853 754 855 633
-------------- ---------------
$ 16 605 416 $ 16 409 876
============== ================
</TABLE>
E-33
<PAGE>
Notes to Consolidated Financial Statements
(Unaudited)
The amortized costs and fair values of securities available for
sale as of March 31, 1997, are summarized as follows:
<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 $ 4 820 681 $ - - $ (126 954) $ 4 693 727
Mortgage-backed
securities 27 891 610 9 429 (845 875) 27 055 164
Corporate preferred 3 033 996 - - (37 663) 2 996 333
Other 707 800 - - - - 707 800
-------------- --------------- -------------- ---------------
$ 36 454 087 $ 9 429 $ (1 010 492) $ 35 453 024
============== =============== ============== ===============
</TABLE>
The amortized cost and fair value of securities available for sale
as of March 31, 1997, by contractual maturity are shown below.
Maturities may differ from contractual maturities in corporate and
mortgage-backed securities because the securities and mortgages
underlying the securities may be called or repaid without any
penalties. Therefore, these securities are not included in the
maturity categories in the following maturity summary.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due after one year through five years $ 849 894 $ 834 767
Due after five years through 10 years 3 970 787 3 858 960
Mortgage-backed securities 27 891 610 27 055 164
Corporate preferred 3 033 996 2 996 333
Other 707 800 707 800
--------------- ---------------
$ 36 454 087 $ 35 453 024
=============== ===============
</TABLE>
Proceeds from sales of securities available for sale for the three
months ended March 31, 1997 and 1996 were $1,077,494 and
$9,982,384, respectively. Gross gains of $4,907 and $31,195 and
gross losses of $1,764 and $16,953 were realized on those sales,
respectively.
The carrying value of securities pledged to qualify for fiduciary
powers, to secure public monies as required by law and for other
purposes amounted to $7,187,782 at March 31, 1997.
E-34
<PAGE>
Notes to Consolidated Financial Statements
(Unaudited)
Note 3. Loans, Net
The composition of the net loans is as follows:
March 31,
1997
--------------
(In Thousands)
Real estate loans:
Construction and land development $ 3 702
Secured by farmland 2 093
Secured by 1-4 family residential 43 103
Other real estate loans 25 643
Loans to farmers (except secured by real estate) 884
Commercial and industrial loans (except those
secured by real estate) 11 244
Loans to individuals for personal expenditures 7 852
All other loans 55
--------------
Total loans $ 94 576
Less: Unearned income 28
Allowance for loan losses 921
--------------
Net loans $ 93 627
==============
Note 4. Allowance for Loan Losses
Transactions in the allowance for loan losses are as follows:
March 31,
1997 1996
------------
(In Thousands)
Balance, beginning January 1, 1997 $884 $866
Provision charged to operating expense 55 --
Recoveries 9 42
Loan losses charged to the allowance 27 5
---- ----
$921 $903
==== ====
As of March 31, 1997, the Company had no impaired loans. Nonaccrual
loans excluded from impaired loan disclosure under FASB 114
amounted to $140,000 at March 31, 1997. If interest on these loans
had been accrued, such income would have approximated $2,345 for
the quarter ended March 31, 1997.
E-35
<PAGE>
Notes to Consolidated Financial Statements
(Unaudited)
Note 5. Deposits
Deposits outstanding at March 31, 1997 and 1996, and the related
interest expense for the three-month periods then ended are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------------------------
Amount Expense Amount Expense
------ ------- ------ -------
<S> <C> <C> <C> <C>
Noninterest bearing $ 23 604 901 $ - - $ 16 811 176 $ - -
---------------- ------------- --------------- -------------
Interest bearing:
Interest checking $ 19 094 549 $ 87 915 $ 18 587 112 $ 109 768
Money market accounts 30 392 244 210 010 26 139 196 210 835
Regular savings and IRA's 15 224 461 141 195 14 086 509 135 631
Certificates of deposit:
Less than $100,000 38 143 942 529 218 33 826 020 460 702
$100,000 and more 15 568 407 184 198 11 515 453 174 215
---------------- ------------- --------------- -------------
Total interest bearing $ 118 423 603 $ 1 152 536 $ 104 154 290 $ 1 091 151
---------------- ------------- --------------- -------------
Total deposits $ 142 028 504 $ 1 152 536 $ 120 965 466 $ 1 091 151
================ ============= =============== =============
</TABLE>
E-36
<PAGE>
Appendix F
June ____, 1997
Board of Directors
Independent Community Bankshares, Inc.
111 West Washington Street
Middleburg, Virginia 20117
Board of Directors
The Tredegar Trust Company
901 East Byrd Street
Richmond, Virginia 23219
Re: Tax Opinion - Merger of TTC Acquisition Subsidiary, Inc.
with and into The Tredegar Trust Company
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the proposed merger (the "Merger") of TTC Acquisition
Subsidiary, Inc. ("Acquisition"), a wholly owned subsidiary of Independent
Community Bankshares, Inc. ("ICBI"), with and into The Tredegar Trust Company
("TTC") pursuant to the Agreement and Plan of Reorganization by and between
these parties dated March 28, 1997 (the "Merger Agreement"). Our opinion is
given pursuant to Section 6.1(d) of the Merger Agreement.
FACTS:
ICBI is a bank holding company headquartered in Middleburg, Virginia.
In addition to Acquisition, ICBI has one other subsidiary, The Middleburg Bank,
a Virginia-chartered bank that operates three banking offices and offers a full
range of banking services. ICBI was formed in 1993 to serve as the parent
holding company for The Middleburg Bank.
TTC is a Virginia-chartered independent trust company and provides
trust and investment services, primarily to customers in Virginia, through its
offices in Richmond, Virginia.
Pursuant to the Merger Agreement, Acquisition will be merged with and
into TTC in accordance with the provisions of Title 13.1 of the Code of Virginia
of 1950, as amended. After the Merger, TTC will continue its existing business
and operations as a wholly owned subsidiary of ICBI. Upon consummation of the
Merger (the "Effective Date"), each outstanding share of common stock of TTC
will be converted into and represent the right to receive, as of the Effective
Date, a maximum of .25 shares of common stock of ICBI (the "Initial Merger
Consideration"). The Initial Merger Consideration will be less than .25 shares
if TTC's losses from January 1, 1997 to the Effective Date exceed $30,000.
Additional shares of common stock of ICBI will be issued with respect to the TTC
common stock approximately three years after the Effective Date if the net
earnings of TTC for the 36 month period after the Effective Date exceed $638,946
plus certain adjustments (the "Contingent Merger Consideration"). The number of
ICBI shares paid as Contingent Merger Consideration will be the ratable share of
the sum of (1) 4,940 shares plus (ii) the number of shares determined by
dividing $138,300 by the average last sale price for ICBI common stock for the
ten trading day period ending on the tenth day prior to the date the Contingent
Merger Consideration is paid. Cash will be paid in lieu of any fractional
shares.
In connection with this opinion, we have examined (i) the Merger
Agreement, (ii) the Registration Statement of ICBI on Form S-4, dated May 23,
1997, including the Joint Proxy Statement/Prospectus contained therein, and
(iii) such other documents concerning the Merger as we have deemed necessary
((i), (ii), and (iii) collectively, the "Merger Documents"). With respect to the
various factual matters material to our opinions, we have relied upon
certificates of management of ICBI and TTC (the "Officers' Certificates"). We
have assumed the correctness of the factual matters contained in such reliance
sources and have made no independent investigation for the purpose of confirming
that such factual matters are correct.
We have assumed (i) the genuineness of all signatures on the Merger
Documents, (ii) the due authorization, execution, and delivery of all documents
and the validity and binding effect thereof, (iii) the authenticity of all
documents submitted to us as originals, (iv) the conformity to the originals of
all documents submitted to us as copies and the authenticity of the originals
from which the copies were made, and (v) the legal capacity of natural persons.
REPRESENTATIONS:
In connection with the proposed Merger, the following representations
have been made to us by the management of ICBI and the management of TTC,
respectively, in the Officers' Certificates upon which we have been authorized
to rely:
A. The fair market value of the ICBI stock received by TTC
shareholders in the Merger will be approximately equal to the fair market value
of the TTC stock surrendered by such shareholders in exchange therefor.
B. To the best of the knowledge of the management of ICBI and the
management of TTC, there is no plan or intention on the part of TTC's
shareholders to sell, exchange or otherwise dispose of a number of the shares of
ICBI stock received by them in the Merger that would reduce such shareholders'
ownership of ICBI to a number of shares having a value, as of the date of the
Merger, of less than fifty percent (50%) of the value of all of the formerly
outstanding shares of TTC, as of the date of the same date. For purposes of this
representation, shares of TTC stock surrendered by dissenters or exchanged for
cash in lieu of fractional shares of ICBI stock will be treated as outstanding
TTC stock on the date of the transaction. Moreover, shares of TTC stock and
shares of ICBI stock held by TTC shareholders and otherwise sold, redeemed, or
disposed of before or after the transaction will be considered in making this
representation.
C. ICBI has no plan or intention to reacquire any of its stock
issued in the Merger.
D. ICBI has no plan or intention to sell or otherwise dispose of any
of the assets of TTC acquired in the Merger except for dispositions made in the
ordinary course of business.
E. Following the Merger, TTC will hold assets representing at least
ninety percent (90%) of the fair market value of the net assets and at least
seventy percent (70%) of the fair market value of the gross assets held by TTC
and Acquisition immediately prior to the Merger. For this purpose, amounts used
to pay dissenters and all redemptions and distributions (except for regular,
normal dividends) made by TTC immediately prior to the Merger will be considered
as assets held by TTC immediately prior to the Merger.
F. TTC has not redeemed any of its stock, made any distributions
with respect to any of its stock or disposed of any of its assets in
anticipation of or as part of the Merger.
G. ICBI has no plan or intention to liquidate TTC, to merge TTC into
another corporation, to sell or otherwise dispose of the stock of TTC or to
cause TTC to issue additional shares of stock that would result in ICBI losing
control of TTC within the meaning of Section 368(c) of the Internal Revenue Code
of 1986, as amended (the "Code").
H. At the time of the transaction, TTC will not have outstanding any
warrants, options, convertible securities, or any other type of rights pursuant
to which any person could acquire stock in TTC that, if exercised or converted,
would affect ICBI's acquisition or retention of control of TTC, as defined in
Section 368(c) of the Code.
I. ICBI does not presently own, nor has it ever owned, directly or
indirectly, any of the stock of TTC.
J. There is no intercompany indebtedness of ICBI, Acquisition or TTC
that was issued, acquired or will be settled at a discount as a result of the
Merger.
K. The sole consideration to be issued by ICBI in the Merger will be
shares of its voting common stock for the voting common stock of TTC plus cash
for fractional shares. Further, no liabilities of TTC or its shareholders will
be assumed by ICBI, nor will any of the TTC stock acquired be subject to any
liabilities.
L. TTC will pay its dissenting shareholders the value of their stock
out of its own funds. No funds will be supplied for that purpose, directly or
indirectly, by ICBI nor will ICBI directly or indirectly reimburse TTC for any
payments to dissenters.
M. The payment of cash in lieu of fractional shares of ICBI stock is
solely for the purpose of avoiding the expense and inconvenience to ICBI of
issuing fractional shares and does not represent separately bargained for
consideration.
N. Following the Merger, TTC will continue its historic business in
a substantially unchanged manner or continue to use a significant portion of its
historic business assets in a business.
O. At the time of the Merger, the fair market value of the assets of
TTC will exceed the sum of its liabilities, including any liabilities to which
its assets are subject.
P. TTC is not under the jurisdiction of a court in a case under
Title 11 of the United States Code, as amended, or a similar case within the
meaning of Section 368(a)(3)(A) of the Code.
Q. No two parties to the Merger are investment companies as defined
in Section 368(a)(2)(F)(iii) and (iv) of the Code.
R. ICBI, Acquisition, TTC and the shareholders of TTC will pay their
own expenses, if any, incurred in connection with the Merger.
S. None of the shares of common stock of ICBI received by any
stockholder-employee of TTC pursuant to the Merger are or will be consideration
for services rendered. Any compensation paid to any stockholder-employee of TTC
will be for services actually rendered and will be commensurate with the amounts
paid to third parties bargaining at arms length for similar services.
T. The right to receive the Contingent Merger Consideration can only
give rise to the right to receive additional shares of ICBI common stock.
U. The issuance of additional shares of ICBI stock for the
Contingent Merger Consideration will not be triggered by an event the occurrence
or non-occurrence of which is or will be within the control of ICBI, TTC or the
TTC shareholders.
V. The issuance of additional shares of ICBI stock for the
Contingent Merger Consideration will not be triggered by the payment of
additional tax or reduction in tax paid as a result of an Internal Revenue
Service examination of ICBI, TTC or the TTC shareholders.
TREATMENT OF CONTINGENT MERGER CONSIDERATION
Section 354 of the Code provides that no gain or loss is recognized if
stock in a corporation that is a party to a reorganization under Section 368 of
the Code is exchanged for stock in another corporation that is also a party to
the reorganization. However, when contingent rights to acquire stock, rather
than the stock itself, are issued in connection with a reorganization, the
question arises as to whether the contingent right is a separate property right
independent of the stock itself which may be taxable. In situations where the
contingent right could only give rise to additional shares of stock and there
was a valid business reason for granting the contingent right rather than the
stock itself, the courts and the Internal Revenue Service (the "Service") have
generally held that the contingent right is not separate property. Rather, such
rights are viewed as the equivalent of stock and, therefore, may be received
without recognizing gain or loss in the context of a reorganization.
However, in order to obtain an advance ruling from the Service
regarding a reorganization that includes contingent stock, the terms of the
contingency must meet certain guidelines set forth in Revenue Procedure 84-42,
1984-1 C.B. 521. These guidelines include the requirements that (i) the maximum
number of shares that may be issued must be set forth in the Agreement and (ii)
at least fifty percent (50%) of the maximum number of shares that may eventually
be issued must be issued in the initial distribution. Because there is no
maximum number of shares that may be received by the shareholders of TTC as
Contingent Merger Consideration, two of the requirements set forth in the
advance ruling guidelines are not met. Accordingly, the Service would not issue
an advance ruling that the Merger qualifies as a reorganization under Section
368(a) of the Code if such a ruling was requested. In any event the parties have
not nor do they intend to seek such an advance ruling.
The guidelines contained in Revenue Procedure 84-42 do not necessarily
constitute a statement of existing substantive law but rather are only
conditions to the issuance of an advance ruling. Nevertheless, the advance
ruling guidelines create an uncertainty as to whether it is the Service's
position that there must be a limit on the number of shares that may be issued
to avoid treating the contingent right as separate property. In light of this
uncertainty and because we have not identified any authority, either favorable
or unfavorable, that specifically addresses whether a limit is necessary, we
have not expressed an opinion regarding whether the Contingent Merger
Consideration will be treated as separate property or as stock. Instead, our
opinion describes the tax treatment of the Contingent Merger Consideration under
each alternative.
OPINION:
Based on the foregoing and subject to the limitations and
qualifications set forth herein, we give our opinion as follows:
1. Whether or not the Contingent Merger Consideration is treated as
separate property, the proposed Merger will qualify as a reorganization within
the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code, and ICBI,
Acquisition and TTC will each qualify as a "party to a reorganization" within
the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized for federal tax purposes by
ICBI, Acquisition or TTC as a result of the Merger.
3. No gain or loss will be recognized for federal tax purposes by
the shareholders of TTC as a result of their receipt of solely common stock of
ICBI as Initial Merger Consideration in exchange for their common stock of TTC.
4. If the Contingent Merger Consideration is treated as stock and
not as a separate property right, no gain or loss will be recognized for federal
tax purposes by the shareholders of TTC as a result of their receipt of solely
ICBI common stock as Contingent Merger Consideration.
5. If the right to receive the Contingent Merger Consideration, or a
portion thereof, is treated as a separate property right, gain, if any, will be
recognized by the shareholders of TTC upon the receipt of the Contingent Merger
Consideration in an amount not in excess of the value of the ICBI stock, or
portion thereof, treated as received pursuant to the separate property right. If
the exchange has the effect of the distribution of a dividend, the amount of any
gain recognized that is not in excess of the ratable share of the undistributed
earnings and profits of TTC will be treated as a dividend. The remainder, if
any, of gain recognized will be treated as a gain from the exchange of property
and will be recognized as capital gain, provided the TTC common stock was a
capital assets in the hands of the TTC shareholder on the Effective Date. The
determination of whether the exchange has the effect of a distribution of a
dividend will be made on a shareholder by shareholder basis in accordance with
the principles of Section 302 of the Code. No loss may be recognized on the
exchange.
6. Any dissenting shareholder of TTC who receives solely cash in
exchange for shares of TTC stock will be treated as receiving a distribution in
redemption of such stock subject to the provisions and limitations of Section
302 of the Code.
7. Any shareholder of TTC who receives cash in lieu of a fractional
share interest shall be treated as receiving a payment in redemption of such
fractional interest subject to the provisions of Section 302 of the Code. Gain
or loss will be realized and recognized to such shareholder measured by the
difference between the redemption price and the portion of the shareholder's
basis in TTC stock allocable to such fractional share interest.
8. The aggregate tax basis of the shares of ICBI stock received by
each shareholder of TTC, except for any shares of ICBI stock treated as received
pursuant to a separate property right, will be equal to the aggregate tax basis
of such shareholder's shares of TTC stock surrendered therefor in the Merger,
decreased by the value of any shares of ICBI stock received which are treated as
received pursuant to a separate property right, and increased by any gain
recognized. The tax basis of any shares of ICBI stock treated as received
pursuant to a separate property right will be equal to the value of such shares
when received.
9. The holding period under Section 1223 of the Code for the shares
of ICBI stock received by each shareholder of TTC, except for shares of ICBI
stock treated as received pursuant to a separate property right, will include
the holding period for the shares of TTC stock of such shareholder surrendered
therefor in the Merger, provided that the TTC shareholder held such stock as a
capital asset on the date of the Merger.
In rendering our opinion, we have considered the applicable provisions
of the Code, Treasury Regulations promulgated thereunder, pertinent judicial
authorities, interpretive rulings of the Internal Revenue Service, and other
authorities as we have considered relevant. Our opinion is limited to the
federal tax law of the United States and is expressed as of the date hereof. We
do not assume any obligation to update or supplement our opinion to reflect any
fact or circumstance which hereafter comes to our attention or any change in law
which hereafter occurs. Our opinions are limited to the matters expressly
stated; no opinion is implied or may be inferred beyond such matters.
Our opinion expressed herein is made in connection with the Merger and
is solely for the benefit of ICBI and its Shareholders, and TTC and its
shareholders. We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement, which has been filed by ICBI with the Securities and
Exchange Commission, and to the reference to our firm under the caption "Certain
Federal Income Tax Consequences" in the Joint Proxy Statement/Prospectus forming
a part of the Registration Statement. This opinion may not, without our prior
written consent, be otherwise distributed or relied upon by any other person,
filed with any other government agency or quoted in any other document.
Very truly yours,
WILLIAMS, MULLEN, CHRISTIAN & DOBBINS
By: ___________________________________
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits:
The following exhibits are filed on behalf of the Registrant as part of
this Registration Statement:
5 Legal opinion of Williams, Mullen, Christian & Dobbins.*
8 Tax opinion of Williams, Mullen, Christian & Dobbins, filed as
Appendix F to the Proxy Statement/Prospectus included in this
Registration Statement.*
23.1 Consent of Williams, Mullen, Christian & Dobbins (included in
Exhibits 5 and 8).
23.2 Consent of Scott & Stringfellow, Inc.*
23.3 Consent of Yount, Hyde & Barbour, P.C.*
23.4 Consent of Harris, Hardy & Johnstone, P.C.*
24 Powers of Attorney (included on Signature Page).
- -------------------
* Filed herewith.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the County of Loudoun,
Commonwealth of Virginia, on June 9, 1997.
INDEPENDENT COMMUNITY BANKSHARES, INC.
By: /s/ Joseph L. Boling
---------------------
Joseph L. Boling
President and Chief Executive Officer
and Director
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Joseph L. Boling President and Chief Executive June 9, 1997
- -------------------------------------------
Joseph L. Boling Officer and Director
(Principal Executive Officer)
* Chief Financial Officer
- -------------------------------------------
Alice P. Frazier (Principal Financial and
Accounting Officer)
* Director
- -------------------------------------------
William F. Curtis
* Director
- -------------------------------------------
Howard M. Armfield
* Director
- -------------------------------------------
J. Lynn Cornwell, Jr.
* Director
- -------------------------------------------
J. Gordon Grayson
<PAGE>
* Director
- -------------------------------------------
George A. Horkan, Jr.
* Director
- -------------------------------------------
C. Oliver Iselin, III
* Director
- -------------------------------------------
William S. Leach
* Director
- -------------------------------------------
John C. Palmer
* Director
- -------------------------------------------
Millicent W. West
* Director
- -------------------------------------------
Edward T. Wright
</TABLE>
*Joseph L. Boling, by signing his name hereto, signs this document on
behalf of each of the persons indicated by an asterisk above pursuant to powers
of attorney duly executed by such persons and previously filed with the
Securities and Exchange Commission as part of the Registration Statement.
Date: June 9, 1997 /s/ Joseph L. Boling
-----------------------------------
Joseph L. Boling
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document
<S> <C>
5 Legal opinion of Williams, Mullen, Christian & Dobbins.*
8 Tax opinion of Williams, Mullen, Christian & Dobbins, filed as
Appendix F to the Proxy Statement/Prospectus included in this
Registration Statement.*
23.1 Consent of Williams, Mullen, Christian & Dobbins (included in
Exhibits 5 and 8).
23.2 Consent of Scott & Stringfellow, Inc.*
23.3 Consent of Yount, Hyde & Barbour, P.C.*
23.4 Consent of Harris, Hardy & Johnstone, P.C.*
24 Powers of Attorney (included on Signature Page).
</TABLE>
- -------------------
* Filed herewith.
Exhibit 5
[Williams, Mullen, Christian & Dobbins letterhead]
April _, 1997
Board of Directors
Independent Community Bankshares, Inc.
111 West Washington Street
Middleburg, Virginia 22117
Ladies and Gentlemen:
This letter is in reference to the Registration Statement on Form S-4
dated April 4, 1997, filed by Independent Community Bankshares, Inc. (the
"Company") with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (the "Registration Statement"). The
Registration Statement relates to 79,029 shares of Common Stock, $5.00 par value
per share (the "Shares"), which Shares are proposed to be offered to the
shareholders of The Tredegar Trust Company ("TTC") pursuant to an Agreement and
Plan of Reorganization, dated as of March 28, 1997, between TTC, the Company and
TTC Acquisition Subsidiary, Inc. ("Acquisition") and a related Plan of Merger,
providing for a Merger of TTC and Acquisition (the "Agreement").
We have examined such corporate proceedings, records and documents as
we considered necessary for the purposes of this opinion. We have relied upon
certificates of officers of the Company where we have deemed it necessary in
connection with our opinion.
Based upon such examination, it is our opinion that the aforementioned
Shares, when issued against payment therefor pursuant to the Agreement, will be
validly issued, fully paid and nonassessable under the laws of the Commonwealth
of Virginia.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Opinion" in the Proxy Statement/Prospectus forming a part of the Registration
Statement.
Very truly yours,
WILLIAMS, MULLEN, CHRISTIAN & DOBBINS
By:
---------------------------------------
Wayne A. Whitham, Jr.
[Williams, Mullen, Christian & Dobbins letterhead]
June ____, 1997
Board of Directors
Independent Community Bankshares, Inc.
111 West Washington Street
Middleburg, Virginia 20117
Board of Directors
The Tredegar Trust Company
901 East Byrd Street
Richmond, Virginia 23219
Re: Tax Opinion - Merger of TTC Acquisition Subsidiary, Inc.
with and into The Tredegar Trust Company
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the proposed merger (the "Merger") of TTC Acquisition
Subsidiary, Inc. ("Acquisition"), a wholly owned subsidiary of Independent
Community Bankshares, Inc. ("ICBI"), with and into The Tredegar Trust Company
("TTC") pursuant to the Agreement and Plan of Reorganization by and between
these parties dated March 28, 1997 (the "Merger Agreement"). Our opinion is
given pursuant to Section 6.1(d) of the Merger Agreement.
FACTS:
ICBI is a bank holding company headquartered in Middleburg, Virginia.
ICBI has one subsidiary, The Middleburg Bank, a Virginia-chartered bank that
operates three banking offices and offers a full range of banking services. ICBI
was formed in 1993 to serve as the parent holding company for The Middleburg
Bank.
TTC is a Virginia-chartered independent trust company and provides
trust and investment services, primarily to customers in Virginia, through its
offices in Richmond, Virginia.
Pursuant to the Merger Agreement, Acquisition will be merged with and
into TTC in accordance with the provisions of Titles 13.1 of the Code of
Virginia of 1950, as amended. After the Merger, TTC will continue its existing
business and operations as a wholly owned subsidiary of ICBI. Upon consummation
of the Merger (the "Effective Date"), each outstanding share of common stock of
TTC will be converted into and represent the right to receive a maximum of .25
shares of common stock of ICBI (the "Initial Merger Consideration"), promptly
after the Effective Date, and a maximum of .0357 shares of common stock of ICBI,
payable approximately three years after the Effective Date (the "Contingent
Merger Consideration"). The Initial Merger Consideration will be less than .25
shares if TTC's losses from January 1, 1997 to the Effective Date exceed
$30,000. The Contingent Merger Consideration will be determined by the earnings
of TTC after the merger and the value of common stock of ICBI at the time the
Contingent Merger Consideration is paid. Cash will be paid in lieu of fractional
shares.
In connection with this opinion, we have examined (i) the Merger
Agreement, (ii) the Registration Statement of ICBI on Form S-4, dated May 23,
1997, including the Joint Proxy Statement/Prospectus contained therein, and
(iii) such other documents concerning the Merger as we have deemed necessary
((i), (ii), and (iii) collectively, the "Merger Documents"). With respect to the
various factual matters material to our opinions, we have relied upon
certificates of management of ICBI and TTC (the "Officers' Certificates"). We
have assumed the correctness of the factual matters contained in such reliance
sources and have made no independent investigation for the purpose of confirming
that such factual matters are correct.
We have assumed (i) the genuineness of all signatures on the Merger
Documents, (ii) the due authorization, execution, and delivery of all documents
and the validity and binding effect thereof, (iii) the authenticity of all
documents submitted to us as originals, (iv) the conformity to the originals of
all documents submitted to us as copies and the authenticity of the originals
from which the copies were made, and (v) the legal capacity of natural persons.
REPRESENTATIONS:
In connection with the proposed Merger, the following representations
have been made to us by the management of ICBI and the management of TTC,
respectively, in the Officers' Certificates upon which we have been authorized
to rely:
A. The fair market value of the ICBI stock received by TTC
shareholders in the Merger will be approximately equal to the fair market value
of the TTC stock surrendered by such shareholders in exchange therefor.
B. To the best of the knowledge of the management of ICBI and
the management of TTC, there is no plan or intention on the part of TTC's
shareholders to sell, exchange or otherwise dispose of a number of the shares of
ICBI stock received by them in the Merger that would reduce such shareholders'
ownership of ICBI to a number of shares having a value, as of the date of the
Merger, of less than fifty percent (50%) of the value of all of the formerly
outstanding shares of TTC, as of the date of the same date. For purposes of this
representation, shares of TTC stock surrendered by dissenters or exchanged for
cash in lieu of fractional shares of ICBI stock will be treated as outstanding
TTC stock on the date of the transaction. Moreover, shares of TTC stock and
shares of ICBI stock held by TTC shareholders and otherwise sold, redeemed, or
disposed of before or after the transaction will be considered in making this
representation.
C. ICBI has no plan or intention to reacquire any of its stock
issued in the Merger.
D. ICBI has no plan or intention to sell or otherwise dispose of
any of the assets of TTC acquired in the Merger except for dispositions made in
the ordinary course of business.
E. Following the Merger, TTC will hold assets representing at
least ninety percent (90%) of the fair market value of the net assets and at
least seventy percent (70%) of the fair market value of the gross assets held by
TTC and Acquisition immediately prior to the Merger. For this purpose, amounts
used to pay dissenters and all redemptions and distributions (except for
regular, normal dividends) made by TTC immediately prior to the Merger will be
considered as assets held by TTC immediately prior to the Merger. TTC has not
redeemed any of its stock, made any distributions with respect to any of its
stock or disposed of any of its assets in anticipation of or as part of the
Merger.
F. ICBI has no plan or intention to liquidate TTC, to merge
TTC into another corporation, to sell or otherwise dispose of the stock of TTC
or to cause TTC to issue additional shares of stock that would result in ICBI
losing control of TTC within the meaning of Section 368(c) of the Internal
Revenue Code of 1986, as amended (the "Code").
G. At the time of the transaction, TTC will not have outstanding
any warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire stock in TTC that, if exercised or
converted, would affect ICBI's acquisition or retention of control of TTC, as
defined in Section 368(c) of the Code.
H. ICBI does not presently own, nor has it ever owned, directly
or indirectly, any of the stock of TTC.
I. There is no intercompany indebtedness of ICBI, Acquisition or
TTC that was issued, acquired or will be settled at a discount as a result of
the Merger.
J. The sole consideration to be issued by ICBI in the Merger
will be shares of its voting common stock for the voting common stock of TTC
plus cash for fractional shares. Further, no liabilities of TTC or its
shareholders will be assumed by ICBI, nor will any of the TTC stock acquired be
subject to any liabilities.
K. TTC will pay its dissenting shareholders the value of their
stock out of its own funds. No funds will be supplied for that purpose, directly
or indirectly, by ICBI nor will ICBI directly or indirectly reimburse TTC for
any payments to dissenters.
L. The payment of cash in lieu of fractional shares of ICBI
stock is solely for the purpose of avoiding the expense and inconvenience to
ICBI of issuing fractional shares and does not represent separately bargained
for consideration.
M. Following the Merger, TTC will continue its historic business
in a substantially unchanged manner or continue to use a significant portion of
its historic business assets in a business.
N. At the time of the Merger, the fair market value of the assets
of TTC will exceed the sum of its liabilities, including any liabilities to
which its assets are subject.
O. TTC is not under the jurisdiction of a court in a case under
Title 11 of the United States Code, as amended, or a similar case within the
meaning of Section 368(a)(3)(A) of the Code.
P. No two parties to the Merger are investment companies as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
Q. ICBI, Acquisition, TTC and the shareholders of TTC will pay
their own expenses, if any, incurred in connection with the Merger.
R. None of the shares of common stock of ICBI received by any
stockholder-employee of TTC pursuant to the Merger are or will be consideration
for services rendered. Any compensation paid to any stockholder-employee of TTC
will be for services actually rendered and will be commensurate with the amounts
paid to third parties bargaining at arms length for similar services.
S. The right to receive the Contingent Merger Consideration can
only give rise to the right to receive additional shares of ICBI common stock.
T. The issuance of additional shares of ICBI stock for the
Contingent Merger Consideration will not be triggered by an event the occurrence
or non-occurrence of which is or will be within the control of ICBI, TTC or the
TTC shareholders.
U. The issuance of additional shares of ICBI stock for the
Contingent Merger Consideration will not be triggered by the payment of
additional tax or reduction in tax paid as a result of an Internal Revenue
Service examination of ICBI, TTC or the TTC shareholders.
OPINION:
Based on the foregoing and subject to the limitations and
qualifications set forth herein, we give our opinion as follows:
1. The proposed Merger will qualify as a reorganization within
the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code, and ICBI,
Acquisition and TTC will each qualify as a "party to a reorganization" within
the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized for federal tax purposes by
ICBI, Acquisition or TTC as a result of the Merger.
3. No gain or loss will be recognized for federal tax purposes
by the shareholders of TTC as a result of the exchange of their common stock
solely for the common stock of ICBI, including common stock received as
Contingent Merger Consideration.
4. Any dissenting shareholder of TTC who receives solely cash in
exchange for shares of TTC stock will be treated as receiving a distribution in
redemption of such stock subject to the provisions and limitations of Section
302 of the Code.
5. Any shareholder of TTC who receives cash in lieu of a
fractional share interest shall be treated as receiving a payment in redemption
of such fractional interest subject to the provisions of section 302 of the
Code. Gain or loss will be realized and recognized to such shareholder measured
by the difference between the redemption price and the portion of the
shareholder's basis in TTC stock allocable to such fractional share interest.
6. The aggregate tax basis of the shares of ICBI stock received
by each shareholder of TTC will be equal to the aggregate tax basis of such
shareholder's shares of TTC stock surrendered therefore in the Merger.
7. The holding period under Section 1223 of the Code for the
shares of ICBI stock received by each shareholder of TTC will include the
holding period for the shares of TTC stock of such shareholder surrendered
therefore in the Merger, provided that the TTC shareholder held such stock as a
capital asset on the date of the Merger.
8. ICBI's basis in each TTC share received in the exchange will
equal the basis of that share in the hands of the TTC shareholder.
In rendering our opinion, we have considered the applicable provisions
of the Code, Treasury Regulations promulgated thereunder, pertinent judicial
authorities, interpretive rulings of the Internal Revenue Service, and other
authorities as we have considered relevant. Our opinion is limited to the
federal tax law of the United States and is expressed as of the date hereof. We
do not assume any obligation to update or supplement our opinion to reflect any
fact or circumstance which hereafter comes to our attention or any change in law
which hereafter occurs. Our opinions are limited to the matters expressly
stated; no opinion is implied or may be inferred beyond such matters.
Our opinion expressed herein is made in connection with the Merger and
is solely for the benefit of ICBI and its Shareholders, and TTC and its
shareholders. We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement, which has been filed by ICBI with the Securities and
Exchange Commission, and to the reference to our firm under the caption "Certain
Federal Income Tax Consequences" in the Joint Proxy Statement/Prospectus forming
a part of the Registration Statement. This opinion may not, without our prior
written consent, be otherwise distributed or relied upon by any other person,
filed with any other government agency or quoted in any other document.
Very truly yours,
WILLIAMS, MULLEN, CHRISTIAN & DOBBINS
By: ___________________________________
Exhibit 23.2
[LETTERHEAD]
June 16, 1997
Mr. Wayne A. Whitham, Jr., Esquire
Williams, Mullen, Christian & Dobbins
1021 E. Cary St.
Richmond, VA 23219
Re: The Tredegar Trust Company /
Independent Community Bankshares, Inc.
Dear Whit:
CONSENT OF INVESTMENT BANKERS
We consent to the use, quotation and summarization in the Registration
Statement on Form S-4 of our Opinion of Fairness dated June __, 1996, rendered
to the Board of Directors of The Tredegar Trust Company in connection with its
merger with Independent Community Bankshares, Inc. and to the use of our name,
and the statements with respect to us, appearing in the Registration Statement.
Sincerely,
SCOTT & STRINGFELLOW, INC.
/s/ G. Jacob Savage
--------------------------------------
G. Jacob Savage III, CFA
Managing Director
Financial Institutions Group
[Richmond, Virginia]
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement of our
report dated January 24, 1997, except for Note 17, as to which the date is
February 5, 1997, relating to the consolidated financial statements of
Independent Community Bankshares, Inc., and to the reference to our Firm under
the caption "Experts" in the Prospectus.
/s/ Yount, Hyde & Barbour, P.C.
YOUNT, HYDE & BARBOUR, P.C.
Winchester, Virginia
June 10, 1997
Exhibit 23.4
[LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
The Tredegar Trust Company
We hereby consent to the use in the Registration Statement of Independent
Community Bankshares, Inc. and the amendment thereto of our report dated
February 5, 1997, on our audit of the financial statements of The Tredegar Trust
Company and to the reference to our firm under the heading experts in the Proxy
Statement/Prospectus.
/s/ Harris, Hardy & Johnstone, P.C.
June 10, 1997
[Richmond, Virginia]
