U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
[ ] Transition Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ____________ to _____________
Commission file number: 0-24159
INDEPENDENT COMMUNITY BANKSHARES, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Virginia 54-1696103
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
111 West Washington Street
Middleburg, Virginia 22117
(Address of Principle Executive Offices)
(540) 687-6377
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
1,812,594 shares of common stock, par value $5.00 per share,
outstanding as of May 12, 1998
* This Form 10-QSB also covers 276,600 Contractual Rights to Contingent
Merger Consideration, which are registered under the Securities Act of 1933, as
amended, pursuant to a registration statement declared effective on June 27,
1997.
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C>
Part I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Changes in Shareholder's Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Results of Operation
and Financial Condition 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
</TABLE>
2
<PAGE>
Independent Community Bankshares, Inc.
Consolidated Balance Sheets
(000's omitted)
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1998 1997
------------ -------------
<S> <C> <C>
Assets:
Cash and due from banks $ 6,642 $ 6,584
Securities (fair value: March 31, 1998,
$63,061, December 31, 1997 , $63,958) 62,795 64,422
Federal funds sold - 1,300
Loans, net 107,010 103,253
Bank premises and equipment, net 5,564 5,527
Other assets 3,897 3,774
------------ ------------
Total assets $ 185,908 $ 184,860
============ ============
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Non-interest bearing $ 26,757 $ 26,602
Interest bearing 130,243 129,952
------------ ------------
Total deposits $ 157,000 $ 156,554
Securities sold under agreements to
Repurchase $ 1,812 $ 3,048
Federal Home Loan Bank advances 4,000 2,800
Other liabilities 822 773
------------ ------------
Total liabilities $ 163,634 $ 163,175
Shareholders' Equity
Common stock par value $5.00 per
share, authorized 10,000,000 shares;
issued and outstanding at March 31, 1998 - 1,812,594
issued and outstanding at December 31, 1997 - 1,812,594 $ 9,063 $ 9,063
Capital surplus 1,948 1,948
Retained earnings 11,312 10,873
Unrealized gain (loss) on securities
available for sale, net (49) (199)
------------ ------------
Total shareholders' equity $ 22,274 $ 21,685
Total liabilities and shareholders' equity $ 185,908 $ 184,860
============ ============
</TABLE>
3
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Independent Community Bankshares, Inc.
Consolidated Statements of Income
(000's omitted)
<TABLE>
<CAPTION>
Unaudited
--------------------------
For the Three Months
Ended March 31
1998 1997
----------- ----------
<S> <C> <C>
Interest Income
Interest and fees on loans $ 2,422 $ 2,138
Interest on investment securities
Taxable 27 36
Exempt from federal income taxes 163 161
Interest on securities available for sale
Taxable 484 498
Exempt from federal income taxes 156 -
Dividends 46 68
Interest on federal funds sold 17 57
---------- ----------
Total interest income $ 3,315 $ 2,958
Interest expense
Interest on deposits $ 1,244 $ 1,153
Interest on FHLB advances 38 50
Interest on short-term borrowings 5 24
---------- ----------
Total interest expense $ 1,287 $ 1,227
Net interest income $ 2,028 $ 1,731
Provision for loan losses 45 55
---------- ----------
Net interest income after provision
for loan losses $ 1,983 $ 1,676
Other Income
Commissions and fees from fiduciary
Activities $ 220 $ 23
Service charges on deposit accounts 214 205
Net gains (losses) on securities
available for sale (12) 3
Other operating income 38 -
---------- ----------
Total other income $ 460 $ 231
Other Expense
Advertising $ 32 $ 29
Salaries and employee benefits 871 643
Net occupancy expense of premises 164 132
Other operating expenses 428 273
---------- ----------
Total other expense $ 1,495 $ 1,077
Income before income taxes $ 948 $ 830
Income taxes 236 223
---------- ----------
Net income $ 712 $ 607
========== ==========
Earnings per average share:
(1998 - 1,812,594 shares, 1997 - 1,709,436 shares)
Net income per share $ 0.39 $ 0.35
Dividends per share $ 0.15 $ -
</TABLE>
4
<PAGE>
Independent Community Bankshares, Inc.
Consolidated Statement of Changes in Shareholders' Equity
For the Three Months Ended March 31, 1998 and 1997
(000 omitted)
(unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Common Capital Comprehensive Retained Comprehensive
Stock Surplus Income Earnings Income Total
--------- --------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances - December 31, 1996 $ 4,299 $ 1,411 $ (519) $ 12,817 $ - $ 18,008
Comprehensive Income
Net income 607 607 607
Other comprehensive income,
net of tax
Unrealized loss on available for
sale securities (134)
Less: Reclassification adjustment for
gains realized in net income 2
---------
Other comprehensive income, net of tax (132) (132) (132)
---------
Total comprehensive income $ 475
=========
Cash dividends
Acquisition of common stock (114) (522) -
(636)
--------- --------- ---------- --------- ----------
Balances - March 31, 1997 $ 4,185 $ 889 $ (651) $ 13,424 $ 17,847
========= ========= ========== ========= ==========
Balances- December 31, 1997 $ 9,063 $ 1,948 $ (199) $ 10,873 $ - $ 21,685
Comprehensive Income
Net income 712 712 $ 712
Other comprehensive income,
net of tax
Unrealized loss on available for
sale securities 150
Less: Reclassification adjustment for
gains realized in net income -
---------
Other comprehensive income, net of tax 150 150 150
---------
Total comprehensive income $ 862
=========
Cash dividends (273) (273)
--------- --------- ---------- --------- ----------
Balances - March 31, 1998 $ 9,063 $ 1,948 $ (49) $ 11,312 $ 22,274
========= ========= ========== ========= ==========
</TABLE>
5
<PAGE>
Independent Community Bankshares, Inc.
Consolidated Statement of Cash Flows
(000 omitted)
(unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended
------------------------------
March 31, March 31,
1998 1997
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 712 $ 607
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 45 56
Depreciation and amortization 134 103
Net (gains) losses on securities available for sale - (3)
Discount accretion and premium amortization
on securities, net 39 47
Deferred taxes - -
(Increase) decrease in accrued interest receivable (64) 15
(Increase) decrease in prepaid income taxes 99 (2)
(Increase) decrease in other assets (95) (95)
Increase (decrease) in accrued interest payable (10) (4)
Increase (decrease) in other liabilities (102) (3)
------------- ------------
Net cash provided by operating activities $ 758 $ 721
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity, principal paydowns and
calls of investment securities $ 249 $ 954
Proceeds from maturity, principal paydowns and
calls of securities available for sale 1,553 932
Proceeds from sale of securities available
for sale 354 1,077
Purchase of investment securities - (207)
Purchase of securities available for sale (1,068) (2,656)
Net (increase) in loans (3,800) 29
Purchases of bank premises and equipment (156) (580)
------------- ------------
Net cash (used in) investing activities $ (2,868) $ (451)
CASH FLOWS FROM FINANCING ACTIVTIES
Net increase in demand deposits, NOW accounts,
and savings accounts $ 133 $ 640
Net increase in certificates of deposits 319 2,599
Dividends paid (273) -
Acquisition of common stock - (636)
Payment on Federal Home Loan Bank advances - (1,000)
New borrowings on Federal Home Loan Bank line of credit 1,200
Increase (decrease) in securities sold under agreement to
repurchase (1,236) 672
------------- ------------
Net cash provided by financing activities $ 143 $ 2,275
Increase in cash and cash equivalents $ (1,967) $ 2,545
CASH AND CASH EQUIVALENTS
Beginning $ 8,609 $ 9,919
============= ============
Ending $ 6,642 $ 12,464
============= ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash payments for:
Interest paid to depositors 1,225 1,145
Income taxes 135 -
6
<PAGE>
SUPPLEMENTAL DISCLOSURES FOR NON-CASH
INVESTING AND FINANCING ACTIVITIES
Unrealized gain (loss) on securities available
for sale (74) (200)
See Accompanying Note to Consolidated Financial Statements
</TABLE>
7
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
For the Three Months Ended March 31, 1998 and 1997
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, 1998, and the results of operations and
changes in cash flows for the three months ended March 31, 1998 and
1997. 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, 1997. The results of
operations for the three month periods ended March 31, 1998 and 1997,
are not necessarily indicative of the results to be expected for the
full year.
Note 2. Securities
Securities being held to maturity as of March 31, 1998 are summarized
as follows:
<TABLE>
<CAPTION>
------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
------------------------------------------------------
(000's omitted)
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 2,005 $ - $ (10) $ 1,995
Obligations of states and
political subdivisions 13,644 279 - 13,923
Mortgaged backed securities 373 3 - 376
============ =========== =========== ===========
$ 16,022 $ 282 $ (10) $ 16,294
============ =========== =========== ===========
</TABLE>
8
<PAGE>
Securities available for sale as of March 31, 1998 are summarized
below:
<TABLE>
<CAPTION>
-------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
-------------------------------------------------------
(000's omitted)
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 2,141 $ 9 $ - $ 2,150
Corporate securities 2,840 7 - 2,847
Obligations of states and
political subdivisions 12,082 111 - 12,193
Mortgaged backed securities 28,925 29 (230) 28,724
Other 770 - - 770
------------ ----------- ----------- ------------
$ 46,758 $ 156 $ (230) $ 46,684
============ =========== =========== ============
</TABLE>
Note 3. The consolidated loan portfolio is composed of the following:
<TABLE>
<CAPTION>
-----------------------------
March 31, December 31,
1998 1997
-----------------------------
(000's omitted)
<S> <C> <C>
Commercial, financial and agricultural $ 14,610 $ 15,111
Real estate construction 4,753 3,798
Real estate mortgage 80,724 76,590
Installment loans to individuals 7,947 8,738
------------- -------------
Total loans 108,034 104,237
Less: Unearned income (5) (10)
Allowance for loan losses (1,019) (974)
------------- --------------
Loans, net $ 107,010 $ 103,253
============= ==============
ICBI had $238,000 in non-performing assets at March 31, 1998.
</TABLE>
9
<PAGE>
Note 4. The following is a summary of transactions in the reserve for loan
losses:
<TABLE>
<CAPTION>
---------------------------------
March 31, December 31,
1998 1997
---------------------------------
(000's omitted)
<S> <C> <C>
Balance at January 1 $ 974 $ 884
Provision charged to operating expense 45 178
Recoveries added to the reserve 12 40
Loan losses charged to the reserve (12) (128)
--------------- ---------------
Balance at the end of the period $ 1,019 $ 974
=============== ===============
</TABLE>
The Company had no impaired loans at March 31, 1998 and December 31,
1997.
Nonaccrual loans excluded from impaired loan disclosure under FASB 114
amounted to $238,000 at March 31, 1998 and $243,000 at December 31,
1997. If interest on these loans had been accrued, such income would
have approximated $ 19,000 for the first three months of 1998 and
$2,000 in 1997.
Note 5. New Accounting Pronouncements
FASB Statement No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", was issued in
June 1996 and establishes, among other things, new criteria for
determining whether a transfer of financial assets in exchange for
cash or other consideration should be accounted for as a sale or as a
pledge of collateral in a secured borrowing. Statement 125 also
establishes new accounting requirements for pledged collateral. As
issued, Statement 125 is effective for all transfers and servicing of
financial assets and extinguishments of liabilities occurring after
December 1996.
FASB Statement No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125", defers for one year the
effective date (a) of paragraph 15 of Statement 125 and (b) for
repurchase agreement, dollar-roll, securities lending, or similar
transactions, of paragraph 9-12 and 237(b) of Statement 125.
FASB Statement No. 128, "Earnings per Share", was issued in February
1997 and establishes standards for computing and presenting earnings
per share (EPS) and applies to entities with publicly held common
stock or potential common stock. This Statement simplifies the
standards for computing earnings per share previously found in APB
Opinion No. 15, "Earnings Per Share", and makes them comparable to
international EPS standards. It replaces the presentation of primary
EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted
EPS computation. This Statement is effective for financial statements
issued for periods ending after December 15, 1997, including interim
periods.
FASB Statement No. 129, "Disclosure of Information About Capital
Structure", was issued in February 1997 and establishes standards for
disclosing information about an entity's capital structure. It applies
to all entities. This Statement continues the previous requirements to
disclose certain information about an entity's capital structure found
in APB Opinion No. 10, "Omnibus Opinion - 1966, and No. 15, Earnings
per Share", and FASB Statement No. 47, "Disclosure of Long-Term
Obligations", for entities that were subject to the requirements of
those standards. This Statement is effective for financial statements
for periods ending after December 15, 1997.
10
<PAGE>
FASB Statement No. 130, "Reporting Comprehensive Income", was issued
in June 1997 and establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. This
Statement requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements.
This Statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in
the equity section of a statement of financial position. This
Statement is effective for fiscal years beginning after December 15,
1997.
The effects of these Statements on the Company's financial statements
are not expected to be material.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Summary
Net income for the three months ended March 31, 1998, increased 17.3%
to $712,000 or .39 per share compared to $607,000 or .35 per share for
the first three months of 1997. Annualized returns on average assets
and equity for the period ended March 3, 1998, were 1.54% and 13.66%,
respectively, compared to 1.49% and 13.71% for the same period in
1997.
The total assets of the Company increased to $185,908,000 at March 31,
1998, compared to $184,860,000 at December 31, 1997, representing an
increase of $1,048,000 or .6%. Loan demand has increased the balance
to $107,010,000 at March 31, 1998, up from $103,253,000 at December
31, 1997. The investment portfolio has decreased 2.5% to $62,795,000
at March 31, 1998 compared to $64,422,000 at December 31, 1997.
Shareholders' equity at March 31, 1998, totaled $22,274,000, compared
to $21,685,000 at December 31, 1997. Book value per share of common
stock on March 31, 1998 was $12.29 per share compared to $12.02 at
December 31, 1997.
Net Interest Income
Net interest income is the Company's primary source of earnings and
represents the difference between interest and fees earned on earning
assets and the interest expense paid on deposits and other interest
bearing liabilities. Net interest income totaled $2,028,000 for the
first three months of 1998 compared to $1,731,000 for the same period
in 1997. The improvement in net interest income was attributable to a
higher volume of earning assets as well as management's conscientious
effort to improve the margin through asset/liability management.
11
<PAGE>
Noninterest Income
Service charges on deposit accounts for the first three months of 1998
totaled $214,000 compared $205,000 for the same period in 1997, an
increase of 4.4%. Commission and fees from fiduciary activities was
$220,000 at March 31, 1998 compared to $23,000 at March 31, 1997. The
acquisition of The Tredegar Trust Company on August 1, 1997 has solely
contributed to this increase. Otherwise the Company currently derives
most of its other noninterest income from fees on deposit related
products and sales of non deposit investment products.
Noninterest Expense
In support of the Company's continued growth, total noninterest
expenses consisting of employee related costs, occupancy and other
overhead totaled $1,495,000 for the first three months of 1998,
compared to $1,077,000 for the same period in 1997, representing an
increase of $418,000 or 38.8%. A portion of the increase in expenses
is attributable to the same types of overhead cost of the operation of
The Tredegar Trust Company.
Allowance for Loan Losses
The allowance for loan losses at March 31, 1998 was $1,019,000. This
is a $45,000 increase from December 31, 1997. The current ratio of the
allowance for loan losses to gross loans is .94%. Management believes
the allowance for loan losses is adequate to cover credit losses
inherent in the loan portfolio at March 31, 1998. Loans classified as
loss, doubtful, substandard or special mention are adequately reserved
for and are not expected to have a material impact beyond what has
been reserved.
Capital Resources
Shareholders' equity at March 31, 1998 was $22,274,000 compared to
$21,685,000 on December 31, 1997. The retention of net income as well
as the decrease in allowance for unrealized loss on securities
available for sale have been contributing factors to growth in
shareholders' equity. During the first quarter of 1997, the Company
did purchase and retire 22,689 shares at a cost of $635,292.
At March 31, 1998, the Company's tier 1 and total risk-based capital
ratios were 18.9% and 19.9%, respectively, compared to 18.8% and 19.7%
at December 31, 1997. The Company's leverage ratio was 11.4% at March
31, 1998, compared to a ratio of 11.8% at December 31, 1997. The
Company's capital structure places it above the regulatory guidelines,
as the Company maintains a strong capital base to take advantage of
business opportunities while ensuring that it has the resources to
protect against the risks inherent in its business.
Year 2000
There have not been any material changes in the disclosures provided
in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997 with respect to Year 2000. The Company's Year 2000
Committee continues to meet on a regular basis to address and evaluate
the potential problems that may be encountered within all of the
Company's subsidiaries with respect to Year 2000 issues.
12
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (filed electronically only)
(b) Reports on Form 8-K -- none.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INDEPENDENT COMMUNITY BANKSHARES, INC.
(Registrant)
Date: May 15, 1998 /s/ Joseph L. Boling
------------------- --------------------------------------
Joseph L. Boling,
Chairman of the Board & CEO
Date: May 15, 1998 /s/ Alice P. Frazier
------------------- --------------------------------------
Alice P. Frazier,
Senior Vice President & CFO
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 6642
<INT-BEARING-DEPOSITS> 931
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 46758
<INVESTMENTS-CARRYING> 16022
<INVESTMENTS-MARKET> 16294
<LOANS> 108029
<ALLOWANCE> 1019
<TOTAL-ASSETS> 185908
<DEPOSITS> 157000
<SHORT-TERM> 5812
<LIABILITIES-OTHER> 822
<LONG-TERM> 0
0
0
<COMMON> 9063
<OTHER-SE> 13211
<TOTAL-LIABILITIES-AND-EQUITY> 185908
<INTEREST-LOAN> 2422
<INTEREST-INVEST> 893
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3315
<INTEREST-DEPOSIT> 1244
<INTEREST-EXPENSE> 1287
<INTEREST-INCOME-NET> 2028
<LOAN-LOSSES> 45
<SECURITIES-GAINS> (12)
<EXPENSE-OTHER> 1495
<INCOME-PRETAX> 948
<INCOME-PRE-EXTRAORDINARY> 948
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 712
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
<YIELD-ACTUAL> 5.17
<LOANS-NON> 238
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2400
<ALLOWANCE-OPEN> 1019
<CHARGE-OFFS> 12
<RECOVERIES> 12
<ALLOWANCE-CLOSE> 1019
<ALLOWANCE-DOMESTIC> 641
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 378
</TABLE>
