U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 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:
1,778,994 shares of common stock, par value $5.00 per share,
outstanding as of November 13, 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>
Part I. Financial Information Page No.
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Changes in Shareholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Results of
Operation and Financial Condition 11
Part II. Other Information
Item 1. Legal Proceedings 15
Item 2. Change in securities 15
Item 3. Defaults upon senior securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
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<PAGE>
Part I. Financial Information
Item 1. FINANCIAL STATEMENTS
Independent Community Bankshares, Inc.
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
September 30 December 31,
1998 1997
----------------- ------------------
<S> <C> <C>
Assets:
Cash and due from banks $ 7,191 $ 6,129
Interest-bearing balances in banks 73 456
Temporary investments:
Federal funds sold 6,000 1,300
Other money market investments 2,821 725
Securities (fair value: September 30, 1998,
$58,700, December 31, 1997, $52,376) 58,304 63,696
Loans, net 116,048 103,253
Bank premises and equipment, net 5,560 5,527
Other assets 3,799 3,774
----------------- ------------------
Total assets $ 199,796 $ 184,860
================= ==================
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Non-interest bearing $ 33,640 $ 26,603
Interest bearing 133,866 129,952
----------------- ------------------
Total deposits $ 167,506 $ 156,555
Federal funds purchased $ - $ -
Securities sold under agreements to
repurchase 3,497 3,048
Federal Home Loan Bank advances 5,000 2,800
Other liabilities 1,359 771
----------------- ------------------
Total liabilities $ 177,362 $ 163,174
Shareholders' Equity
Common stock par value $5.00 per
share, authorized 10,000,000 shares;
issued and outstanding at September 30, 1998 - 1,778,994
issued and outstanding at December 31, 1997 - 1,812,594 $ 8,895 $ 9,063
Capital surplus 1,293 1,948
Retained earnings 11,910 10,874
Unrealized gain (loss) on securities
available for sale, net 336 (199)
----------------- ------------------
Total shareholders' equity $ 22,434 $ 21,686
Total liabilities and shareholders' equity $ 199,796 $ 184,860
================= ==================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
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<PAGE>
Independent Community Bankshares, Inc.
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Unaudited Unaudited
-------------------------------- ---------------------------------
For the Nine Months For the Quarter
Ended September 30, Ended September 30,
1998 1997 1998 1997
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $ 7,505 $ 6,544 $ 2,553 $ 2,211
Interest on investment securities
Taxable 61 98 12 31
Exempt from federal income taxes 470 513 150 178
Interest on securities available for sale
Taxable 1,266 1,788 377 698
Exempt from federal income taxes 513 5 185 -
Dividends 189 220 82 80
Interest on federal funds sold and other 190 124 105 27
--------------- --------------- -------------- --------------
Total interest income $ 10,194 $ 9,292 $ 3,464 $ 3,225
Interest expense
Interest on deposits $ 3,780 $ 3,646 $ 1,275 $ 1,272
Interest on FHLB advances 207 132 74 37
Interest on short-term borrowings 9 89 - 34
--------------- --------------- -------------- --------------
Total interest expense $ 3,996 $ 3,867 $ 1,349 $ 1,343
Net interest income $ 6,198 $ 5,425 $ 2,115 $ 1,882
Provision for loan losses 135 178 45 62
--------------- --------------- -------------- --------------
Net interest income after provision for loan
losses $ 6,063 $ 5,247 $ 2,070 $ 1,820
Other Income
Commissions and fees from fiduciary
Activities $ 615 $ 172 $ 191 $ 130
Service charges on deposit accounts 685 658 222 214
Net gains (losses) on securities available for sale (64) (29) (12) (22)
Other operating income 274 113 110 75
--------------- --------------- -------------- --------------
Total other income $ 1,511 $ 914 $ 511 $ 397
Other Expense
Advertising $ 153 $ 106 $ 56 $ 22
Salaries and employee benefits 2,738 2,023 981 760
Net occupancy expense of premises 614 407 233 137
Other operating expenses 1,320 1,013 396 326
--------------- --------------- -------------- --------------
Total other expense $ 4,825 $ 3,549 $ 1,666 $ 1,245
Income before income taxes $ 2,749 $ 2,612 $ 915 $ 972
Income taxes 627 706 159 260
Net income $ 2,122 $ 1,906 $ 756 $ 712
=============== ================ ============== ==============
Earnings per weighted average share:
(1998 - 1,810,748; 1997 - 1,694,028 average shares)
Net income per share $ 1.17 $ 1.13 $ 0.42 $ 0.42
Dividends per share $ 0.45 $ 0.20 $ 0.15 $ 0.23
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
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<PAGE>
Independent Community Bankshares, Inc.
Consolidated Statement of Changes in Shareholders' Equity
For the Nine Months Ended September 30, 1998 and 1997
(In Thousands)
(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 1,906 1,906 1,906
Other comprehensive income net of tax 275
Unrealized loss on available for
sale securities -
Less: Reclassification adjustment
for gains realized in net income -
--------------
Other comprehensive income, net of tax 275 275 275
--------------
Total comprehensive income $ 2,181
==============
Cash dividends (367) (367)
Acquisition of common stock (114) (522) (636)
Issuance of common stock 346 1,590 1,936
---------- ----------- -------------- ----------- --------
Balances - September 30, 1997 $ 4,531 $ 2,479 $ (244) $ 14,356 $ 21,122
========== =========== ============== =========== ========
Balances - December 31, 1997 $ 9,063 $ 1,948 $ (199) $ 10,874 $ - $ 21,686
Comprehensive Income
Net income 2,122 2,122 2,122
Other comprehensive income net of tax 535
Unrealized loss on available for
sale securities -
Less: Reclassification adjustment for
gains realized in net income -
--------------
Other comprehensive income, net of tax 535 535 535
--------------
Total comprehensive income $ 2,657
==============
Cash dividends declared (1,086) (1,086)
Acquisition of common stock (168) (655) (823)
---------- ----------- -------------- ----------- --------
Balances - September 30, 1998 $ 8,895 $ 1,293 $ 336 $ 11,910 $ 22,434
========== =========== ============== =========== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
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<PAGE>
Independent Community Bankshares, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
--------------------------------
September 30, September 30,
1998 1997
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,122 $ 1,906
Adjustments to reconcile net income to net cash provided by operating
activities
Provision for loan losses 128 134
Depreciation and amortization 174 299
Net losses on securities available for sale 64 29
Discount accretion and premium amortization on securities, net 159 152
Deferred taxes (15) -
Net losses on sale of assets - 15
(Increase) in accrued interest receivable (12) (111)
Decrease in prepaid income taxes 62 78
(Increase) in other assets (83) (1,298)
Increase in accrued interest payable 32 68
Increase (decrease) in other liabilities 258 (135)
-------------- --------------
Net cash provided by operating activities $ 2,889 $ 1,137
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity, principal paydowns and calls of investment securities $ 3,024 $ 1,387
Proceeds from maturity, principal paydowns and calls of securities available 6,639 3,381
for sale
Proceeds from sale of securities available for sale 2,311 15,313
Proceeds from sale of assets - 37
Purchase of investment securities - (1,889)
Purchase of securities available for sale (5,995) (30,977)
Net (increase) in loans (12,922) (2,590)
Purchases of bank premises and equipment (162) (1,148)
-------------- --------------
Net cash (used in) investing activities $ (7,105) $(16,486)
CASH FLOWS FROM FINANCING ACTIVTIES
Net increase in demand deposits, NOW accounts, and savings accounts $ 12,888 $ 2,969
Net (decrease) increase in certificates of deposits (1,936) 7,411
Proceeds from Federal Home Loan Bank advances 5,000 1,900
Increase in Federal Funds sold - -
Dividends declared (1,086) (367)
Acquisition of common stock (823) (636)
Issuance of common stock - 1,936
Payment on Federal Home Loan Bank advances (2,800) (2,000)
Increase in securities sold under agreement to repurchase 449 1,598
-------------- --------------
Net cash provided by financing activities $ 11,692 $ 12,811
Increase in cash and cash equivalents $ 7,476 $ (2,538)
CASH AND CASH EQUIVALENTS
Beginning $ 8,609 $ 9,919
============== ==============
Ending $ 16,085 $ 7,381
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors 2,434 3,577
Income taxes 505 684
SUPPLEMENTAL DISCLOSURES FOR NON-CASH INVESTING AND
FINANCING ACTIVITIES
Unrealized gain (loss) on securities available for sale (9) (416)
</TABLE>
See Accompanying Note to Consolidated Financial Statements
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<PAGE>
Independent Community Bankshares, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
For the Nine Months Ended September 30, 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 September 30, 1998, and the results of operations and
changes in cash flows for the three months ended September 30, 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 nine month periods ended September 30, 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 September 30, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
--------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 503 $ 3 $ - $ 506
Obligations of states and
political subdivisions 12,582 395 - 12,977
Mortgaged backed securities 232 (1) - 231
=============== ================ ================== ================
$13,317 $ 397 $ - $ 13,714
=============== ================ ================== ================
</TABLE>
-7-
<PAGE>
Securities available for sale as of September 30, 1998 are summarized
below:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
--------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 2,740 $ 17 $ - $ 2,757
Corporate securities 2,840 18 - 2,858
Obligations of states and
Political subdivisions 14,572 521 - 15,093
Mortgaged backed securities 23,555 28 (75) 23,508
Other 770 - - 770
--------------- ---------------- ------------------ ---------------
$ 44,477 $ 584 $ (75) $ 44,986
=============== ================ ================== ================
</TABLE>
Note 3. The consolidated loan portfolio is composed of the following:
<TABLE>
<CAPTION>
-----------------------------------
September 30, December 31,
1998 1997
-----------------------------------
(in thousands)
<S> <C> <C>
Commercial, financial and agricultural $ 16,896 $ 15,111
Real estate construction 4,116 3,798
Real estate mortgage 87,818 76,590
Installment loans to individuals 8,321 8,738
---------------- -----------------
Total loans 117,151 104,237
Less: Unearned income (1) (10)
Allowance for loan losses (1,102) (974)
---------------- -----------------
Loans, net $ 116,048 $ 103,253
================ =================
</TABLE>
The Company had $265,103 in non-performing assets at September 30,
1998.
-8-
<PAGE>
Note 4. The following is a summary of transactions in the reserve for loan
losses:
<TABLE>
<CAPTION>
--------------------------------------
September 30, December 31,
1998 1997
--------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance at January 1 $ 974 $ 884
Provision charged to operating expense 135 178
Recoveries added to the reserve 30 40
Loan losses charged to the reserve (37) (128)
------------------ -----------------
Balance at the end of the period $ 1,102 $ 974
================== =================
</TABLE>
Nonaccrual loans excluded from impaired loan disclosure under FASB
114 amounted to $265,000 at September 30, 1998 and $243,000 at
December 31, 1997. If interest on these loans had been accrued, such
income would have approximated $29,000 for the first nine months of
1998 and $2,000 in 1997.
Note 5. New Accounting Pronouncements
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132, "Employers
Disclosures about Pensions and Other Post Retirement Benefits." This
statement revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or
recognition of those plans. This statement standardizes the
disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information
on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain
disclosures. Restatement of disclosures for earlier periods is
required. This statement is effective for the Company's financial
statements for the year ended December 31, 1998.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement
requires companies to record derivatives on the balance sheet as
assets and liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. This statement is not expected to
have a material impact on the Company's financial statements. This
statement is effective for fiscal years beginning after June 15,
1999, with earlier adoption encouraged. The Company will adopt this
accounting standard as required by January 1, 2000.
In March 1998, the American Institute of Certified Public Accountants
(the "AICPA") issued Statement of Position ("SOP") 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal
Use." This SOP provides guidance on accounting for the costs of
computer software developed or obtained for internal use. This SOP
requires that entities capitalize certain internal use software costs
once certain criteria are met. This SOP is not expected to have a
material impact on the Company's financial statements.
-9-
<PAGE>
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which requires the costs of start-up activities
and organization costs to be expensed as incurred. This SOP is not
expected to have a material impact on the Company's financial
statements.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
statement 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.
Financial statements for prior periods have been restated as
required.
-10-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Summary
Net income for the nine months ended September 30, 1998 increased
11.3% to $2.1 million or $1.16 per diluted share compared to $1.9
million or $1.11 per diluted share for the first nine months of 1997.
Annualized returns on average assets and equity for the period ended
September 30, 1998 were 1.48% and 12.67%, respectively, compared to
1.47% and 13.52% for the same period in 1997.
The total assets of Independent Community Bankshares, Inc. (the
"Company") increased to $199.8 million at September 30, 1998 compared
to $184.9 million at December 31, 1997, representing an increase of
$14.9 million or 8%. Total loans at September 30, 1998 were $116
million, an increase of $12.7 million from the December 31, 1997
balance of $103.3 million. Strong loan demand and an expanded branch
network have been contributing factors to the loan growth in the
first nine months of 1998. The loan portfolio has decreased 8.5% to
$58.3 million at September 30, 1998 compared to $63.7 million at
December 31, 1998. Funds from matured investments were either used to
reduce outstanding Federal Home Loan Bank advances or placed in money
market investments for future investments. Deposits increased to
$167.5 million at September 30, 1998 compared to $156.6 million at
December 31, 1997, representing an increase of $10.9 million or 7%.
Shareholders' equity at September 30, 1998 totaled $22.4 million
compared to $21.7 million at December 31, 1997. During the third
quarter, the Company retired 33,600 shares of outstanding stock
resulting in a decrease in common stock par value of $168 thousand
and capital surplus of $655 thousand. Book value per common share on
September 30, 1998 was $12.61 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 $6.2 million for the
first nine months of 1998 compared to $5.4 million for the same
period in 1997. Net interest income has been positively affected by a
25 basis point increase in the net interest margin from 4.86% at
September 30, 1997 to 5.11% at September 30, 1998 as well as an
11.35% increase in interest bearing assets.
Noninterest Income
Service charges on deposit accounts for the first nine months of 1998
totaled $685 thousand compared to $658 thousand for the same period
in 1997, an increase of 4%. Commission and fees from fiduciary
activities were $615 thousand at September 30, 1998 compared to $172
thousand at September 30, 1997. Non-deposit investment sales and
mortgage originations within The Middleburg Bank, the Company's
banking subsidiary (the "Bank"), account for a majority of the
increase in other operating income.
-11-
<PAGE>
Noninterest Expense
In support of the Company's continued growth, total noninterest
expense consisting of employee related costs, occupancy and other
overhead totaled $4.8 million for the first nine months of 1998
compared to $3.5 million for the same period of 1997, representing an
increase of $1.3 million or 37%. On August 1, 1997, the Company
acquired The Tredegar Trust Company, its trust and investment
management subsidiary ("Tredegar"). On an adjusted basis, which
excludes Tredegar for the first seven months in 1998, noninterest
expense increased $700 thousand or 19.8% for the first nine months of
1998. Other increases are attributable to the start up of the
mortgage origination department in the Bank.
Allowance for Loan Losses
The allowance for loan losses at September 30, 1998 was $1.1 million,
representing an increase of $128 thousand or 13% from December 31,
1997. The current ratio of the allowance for loan losses to gross
loans is .94%. Management believes that the allowance for loan losses
is adequate to cover credit losses inherent in the loan portfolio at
September 30, 1998. Loans classified as loss, doubtful, substandard
or special mention are adequately reserved for and are not expected
to have material impact beyond what has been reserved.
Capital Resources
Shareholders' equity at September 30, 1998 was $22.4 million compared
to $21.7 million at December 31, 1997. The retention of net income as
well as an increase in the allowance for unrealized gains on
securities available for sale have been contributing factors to the
growth in shareholders' equity. During the third quarter, the Company
retired 33,600 shares of outstanding stock, resulting in a decrease
in common stock par value of $168 thousand and capital surplus of
$655 thousand.
At September 30, 1998 the Company's tier 1 and total risk-based
capital ratios were 17.6% and 18.5%, respectively, compared to 18.8%
and 19.7% at December 31, 1997. The Company's leverage ratio was
11.0% at September 30, 1998 compared to a ratio of 11.8% at December
31, 1997. The Company's capital structure places it above the
regulatory guidelines, which affords the Company the opportunity to
take advantage of business opportunities while ensuring that it has
resources to protect against the risks inherent in its business.
Year 2000
In recent months, there has been increasing public awareness and
attention paid to the year 2000 problem, which stems from the
inability of certain computerized devices (hardware, software and
equipment) to process year-dates properly after 1999. Leap years and
other dates may be included as related to the year 2000 problems.
Affected devices may fail or malfunction unless repaired or replaced.
Although the actual magnitude and effect of the issue cannot be
reasonably determined in advance, the Company has given it high
priority.
The Company began its analysis of the possible implications to the
Company of the year 2000 problem and the development of a plan to
prevent the problem from adversely affecting its
-12-
<PAGE>
operations in 1997. The Company's year 2000 plans are subject to
guidelines promulgated by the Federal Financial Institutions
Examination Council ("FFIEC"). The Federal Reserve Bank of Richmond
periodically measures the status of the Company's plans and progress,
as outlined in the FFIEC guidelines.
The plan as adopted and refined by the Company to handle year 2000
issues can be divided into two principal areas:
(1) Resolution of the internal aspects of the year 2000 problem.
The focus of this area includes the effects of the year 2000
problem on the Company's technology, including computer
hardware and software systems. The Company's internal
technology plan includes (a) locating, listing and
prioritizing the specific technology that is potentially
subject to the year 2000 problem (referred to as the
"inventory" phase), (b) assessing the actual exposure of such
technology to the year 2000 problem by inquiry, research,
testing and other means (the "assessment" phase), (c)
selecting the method necessary to resolve the year 2000
problems that were identified, including replacement, upgrade,
repair or abandonment and implementing the selected resolution
method (the "remediation" phase), and (d) testing the
remediated or converted technology to determine the efficacy
of the resolutions (the "testing" phase).
(2) Determination and control of the external aspects of the year
2000 problem. The focus of this area includes (a) assessing
the potential for credit and liquidity problems within the
Company as a result of the investments of, loans to and
deposits from our important customers as well as the risk of
possible business interruption by relying on vendors of goods
and services due to year 2000 problems affecting their
technology or business, and (b) developing contingency plans
to address failures by external parties to remediate fully any
year 2000 problems that are material to the Company.
Assessment of external parties is accomplished by written and
verbal inquiry, and by research to the extent that reliable
information is available.
The Company expects to have substantially completed both the internal
and external plans by December 31, 1998 and to further test its
computer systems during 1999 to confirm compliance with year 2000
data processing standards. The Company considers its current state of
readiness in addressing the year 2000 problem to be adequate and
fully expects to meet the timetable. The total cost of remediation
and testing is estimated to be between $250 thousand and $350
thousand, with a majority of the costs being incurred during 1998.
This estimate includes some costs, such as the purchase of computer
hardware and software that qualifies as a depreciable or amortizable
assets for accounting purposes, with the related depreciation or
amortization recognized over the estimated lives of the related
assets. However, the majority of the costs will be expensed as
incurred. Through September 30, 1998, the Company had incurred
approximately $105 thousand in noninterest expense associated with
the year 2000 problem.
The Company is in the process of developing its contingency plans for
areas deemed "mission critical" for continual operation. The
contingency plan considers the likelihood of problem occurrences
based on test results. The Company's contingency plan addresses
operational issues, including communication links with other entities
and the utility and availability of alternative sources among key
vendor relationships. The Company anticipates completing its
contingency plan throughout 1998 and 1999 with constant monitoring of
the status of each item.
-13-
<PAGE>
At this time, the Company believes that the most likely worst case
year 2000 scenario would not have a material effect on the Company's
results of operations, liquidity and financial condition for the year
ending December 31, 2000. The Company does not foresee a material
loss of revenue due to the year 2000 problem. The Company's
contingency plan, however, is based on assessments of the likelihood
of a problematic occurrence; the Company believes that no entity can
address the virtually unlimited possible circumstances relating to
year 2000 issues, including risks outside of the Company's primary
marketplace of Loudoun County, Virginia. While unlikely, it is
acknowledged that the failure of the Company to successfully
implement its year 2000 plan, including modifications and
conversions, or to adequately assess the likelihood of various events
relating to the year 2000 issue, could have a material adverse effect
on the Company's results of operations and financial condition.
The cost of the project and the date on which the Company plans to
complete the year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of
future events including the continued availability of certain
resources, third party modification plans and other factors. However,
there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are
not limited to, the availability of personnel trained in this area,
the ability of third party vendors to correct their software and
hardware, the ability of significant customers to remedy their year
2000 issues and similar uncertainties.
Forward-Looking Statements
Certain information contained in this discussion may include
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements
are generally identified by phrases such as "the Company expects,"
"the Company believes" or words of similar import. Such
forward-looking statements involve known and unknown risks including,
but not limited to, changes in general economic and business
conditions, interest rate fluctuations, competition within and from
outside the banking industry, new products and services in the
banking industry, risk inherent in making loans such as repayment
risks and fluctuating collateral values, problems with technology
utilized by the Company, changing trends in customer profiles and
changes in laws and regulations applicable to the Company. Although
the Company believes that its expectations with respect to the
forward-looking statements are based upon reliable assumptions within
the bounds of its knowledge of its business and operations, there can
be no assurance that actual results, performance or achievements of
the Company will not differ materially from any future results,
performance or achievements expressed or implied by such
forward-looking statements.
-14-
<PAGE>
Part II. Other Information
Item 1. Legal proceedings
None
Item 2. Change in securities.
None
Item 3. Defaults upon senior securities
None
Item 4. Submission of matters to a vote of security holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27 Financial Data Schedule (filed electronically only)
b) Reports on Form 8-K -- None
-15-
<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: November 13, 1998 /s/ Joseph L. Boling
--------------------------------------
Joseph L. Boling
Chairman of the Board & CEO
Date: November 13, 1998 /s/ Alice P. Frazier
--------------------------------------
Alice P. Frazier
Senior Vice President & CFO
-16-
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