U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999
[ ] 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) 777-6327
(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 August 5, 1999
o 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 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 10
Part II. Other Information
Item 1. Legal Proceedings 14
Item 2. Change in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
<PAGE>
Part 1. Financial Information
Item 1. FINANCIAL STATEMENTS
Independent Community Bankshares, Inc.
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1999 1998
------------------ ------------------
<S> <C> <C>
Assets:
Cash and due from banks $ 9,988 $ 8,161
Interest-bearing balances in banks 76 109
Temporary investments:
Federal funds sold 12,925 1,421
Other money market investments 1,847 3,122
Securities (fair value: June 30, 1999,
$60,279, December 31, 1998, $58,159) 60,137 57,786
Loans, net 136,256 124,932
Bank premises and equipment, net 6,323 5,852
Other assets 4,303 4,020
------------------ ------------------
Total assets $ 231,855 $ 205,403
================== ==================
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Non-interest bearing $ 44,294 $ 36,883
Interest bearing 152,387 135,797
------------------ ------------------
Total deposits $ 196,681 $ 172,680
Federal funds purchased $ - $ -
Securities sold under agreements to
Repurchase 6,270 2,530
Federal Home Loan Bank advances 5,000 6,000
Other liabilities 1,039 1,330
------------------ ------------------
Total liabilities $ 208,990 $ 182,540
------------------ ------------------
Shareholders' Equity
Common stock par value $5.00 per
share, authorized 10,000,000 shares;
issued and outstanding at June 30, 1999 and
December 31, 1998 - 1,778,994 shares $ 8,895 $ 8,895
Capital surplus 1,293 1,293
Retained earnings 13,525 12,495
Unrealized gain (loss) on securities
available for sale, net (848) 180
------------------ ------------------
Total shareholders' equity $ 22,865 $ 22,863
Total liabilities and shareholders' equity $ 231,855 $ 205,403
================== ==================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
Independent Community Bankshares, Inc
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Unaudited Unaudited
-----------------------------------------------------------------------
For the Six Months For the Quarter
Ended June 30, Ended June 30,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $ 5,597 $ 4,952 $ 2,925 $ 2,530
Interest on investment securities
Taxable 21 49 13 22
Exempt from federal income taxes 283 320 138 157
Interest on securities available for sale
Taxable 761 889 409 405
Exempt from federal income taxes 438 328 222 172
Dividends 127 107 85 61
Interest on federal funds sold and other 174 85 98 68
-------------- -------------- -------------- --------------
Total interest income $ 7,401 $ 6,730 $ 3,890 $ 3,415
Interest expense
Interest on deposits $ 2,361 $ 2,505 $ 1,180 $ 1,261
Interest on FHLB advances 142 133 71 95
Interest on short-term borrowings 92 9 60 4
-------------- -------------- -------------- --------------
Total interest expense $ 2,595 $ 2,647 $ 1,311 $ 1,360
Net interest income $ 4,806 $ 4,083 $ 2,579 $ 2,055
Provision for loan losses 204 90 123 45
-------------- -------------- -------------- --------------
Net interest income after provision
for loan losses $ 4,602 $ 3,993 $ 2,456 $ 2,010
Other Income
Commissions and fees from fiduciary
activities $ 512 $ 424 $ 264 $ 204
Service charges on deposit accounts 553 463 307 249
Net gains (losses) on securities
available for sale (11) (52) (3) (40)
Other operating income 310 165 133 127
-------------- -------------- -------------- --------------
Total other income $ 1,364 $ 1,000 $ 701 $ 540
Other Expense
Advertising $ 161 $ 97 $ 79 $ 65
Salaries and employee benefits 2,127 1,757 1,055 886
Net occupancy expense of premises 463 381 260 217
Other operating expenses 1,120 924 585 496
-------------- -------------- -------------- --------------
Total other expense $ 3,871 $ 3,159 $ 1,979 $ 1,664
-------------- -------------- -------------- --------------
Income before income taxes $ 2,095 $ 1,834 $ 1,178 $ 886
Income taxes 461 468 266 232
============== ============== ============== ==============
Net income $ 1,634 $ 1,366 $ 912 $ 654
============== ============== ============== ==============
Earnings per diluted share:
(1999 - 1,792,722, 1998 - 1,832,075 shares)
Net income per diluted share $ 0.91 $ 0.75 $ 0.51 $ 0.36
Dividends per share $ 0.34 $ 0.30 $ 0.34 $ 0.15
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
Independent Community Bankshares, Inc.
Consolidated Statements of Changes in Shareholders' Equity
For the Six Months Ended June 30, 1999 and 1998
(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, 1997 $ 9,063 $ 1,948 $ (199) $ 10,874 $ - $ 21,686
Comprehensive Income
Net income 1,366 1,366 1,366
Other comprehensive income
net of tax 193
Unrealized loss on available for
sale securities -
Less: Reclassification adjustment for
gains realized in net income -
-------------
Other comprehensive income, net of tax 193 193 193
-------------
Total comprehensive income $ 1,559
=============
Cash dividends (818) (818)
----------- ---------- ------------- ----------- -----------
Balances - June 30, 1998 $ 9,063 $ 1,948 $ (6) $ 11,422 $ 22,427
=========== ========== ============= =========== ===========
Balances - December 31, 1998 $ 8,895 $ 1,293 $ 180 $ 12,495 $ - $ 22,863
Comprehensive Income
Net income 1,634 1,634 1,634
Other comprehensive income
net of tax (1,028)
Unrealized loss on available for
sale securities
Less: Reclassification adjustment for
gains realized in net income
-------------
Other comprehensive income, net of tax (1,028) (1,028) (1,028)
-------------
Total comprehensive income $ 606
=============
Cash dividends declared (604) (604)
----------- ---------- ------------- ----------- -----------
Balances - June 30, 1999 $ 8,895 $ 1,293 $ (848) $ 13,525 $ 22,865
=========== ========== ============= =========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE>
Independent Community Bankshares, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
-------------------------------
June 30, June 30,
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,634 $ 1,366
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 204 90
Depreciation and amortization 311 282
Net (gains) losses on securities available for sale 12 52
Discount accretion and premium amortization on securities, net 50 99
Deferred taxes - (23)
Net (gains) losses on sale of assets (6) -
Net loss on sale of other real estate 5 -
Originations of loans held for sale (13,453) -
Proceeds from sales of loans held for sale 15,529 -
(Increase) decrease in prepaid income taxes (77) 101
(Increase) decrease in other assets (153) (226)
Increase (decrease) in other liabilities (45) 301
-------------- --------------
Net cash provided by operating activities $ 4,011 $ 2,042
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity, principal paydowns and calls on investment securities $ 526 $ 2,637
Proceeds from maturity, principal paydowns and
calls of securities available for sale 3,368 4,146
Proceeds from sale of securities available for sale 1,835 2,024
Proceeds from sale of bank premises and equipment 117 -
Purchase of investment securities (250) -
Purchase of securities available for sale (9,449) (5,655)
Net (increase) in loans (13,604) (8,878)
Proceeds from sale of other real estate 195 -
Purchases of bank premises and equipment (863) (297)
-------------- --------------
Net cash (used in) investing activities $ (18,125) $ (6,023)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts, and savings accounts $ 20,849 $ 530
Net (decrease) increase in certificates of deposits 3,152 968
Proceeds from Federal Home Loan Bank advances - 5,000
Increase in Federal Funds sold - 1,000
Dividends declared (604) (818)
Acquisition of common stock - -
Issuance of common stock - -
Payment on Federal Home Loan Bank advances (7,000) (800)
New borrowings for Federal Home Loan Bank Advances 6,000 -
Increase (decrease) in securities sold under agreement to repurchase 3,740 (230)
-------------- --------------
Net cash provided by financing activities $ 26,137 $ 5,650
Increase in cash and cash equivalents $ 12,023 $ 1,669
CASH AND CASH EQUIVALENTS
Beginning $ 12,813 $ 8,609
============== ==============
Ending $ 24,836 $ 10,278
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors $ 2,377 $ 2,434
Income taxes $ 559 $ 505
SUPPLEMENTAL DISCLOSURES FOR NON-CASH
INVESTING AND FINANCING ACTIVITIES
Unrealized gain (loss) on securities available for sale $ (1,557) $ (9)
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
6
<PAGE>
Independent Community Bankshares, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
For the Six Months Ended June 30, 1999 and 1998
Note 1.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of June 30, 1999
and the results of operations and changes in cash flows for the six months ended
June 30, 1999 and 1998. 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, 1998. The results of operations for the
six month periods ended June 30, 1999 and 1998, are not necessarily indicative
of the results to be expected for the full year.
Note 2. Securities
Securities being held to maturity as of June 30, 1999 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 $ 751 $ 1 $ - $ 752
Obligations of states and
political subdivisions 11,406 143 (2) 11,547
Mortgaged backed securities 125 - - 125
------------ ------------ ------------ ------------
$ 12,282 $ 144 $ (2) $ 12,424
============ ============ ============ ============
</TABLE>
7
<PAGE>
Securities available for sale as of June 30, 1999 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 $ 3,781 $ - $ (94) $ 3,687
Corporate securities 2,447 29 (60) 2,416
Obligations of states and
political subdivisions 18,584 14 (585) 18,013
Mortgaged backed securities 23,411 5 (592) 22,824
Other 915 - - 915
------------ ------------ ------------ ------------
$ 49,138 $ 48 $ (1,331) $ 47,855
============ ============ ============ ============
</TABLE>
Note 3. Loans
The consolidated loan portfolio is composed of the following:
----------------------------------
June 30, December 31,
1999 1998
----------------------------------
(In Thousands)
Commercial, financial and agricultural $ 18,206 $ 18,880
Real estate construction 10,287 5,436
Real estate mortgage 100,055 93,584
Installment loans to individuals 8,939 8,095
--------------- ---------------
Total loans 137,487 125,995
Less: Unearned income - -
Allowance for loan losses (1,231) (1,063)
--------------- ---------------
Loans, net $ 136,256 $ 124,932
=============== ===============
The Company had $425,000 in non-performing assets at June 30, 1999.
8
<PAGE>
Note 4. Reserve for Loan Losses
The following is a summary of transactions in the reserve for loan
losses:
----------------------------
June 30, December 31,
1999 1998
----------------------------
(In Thousands)
Balance at January 1 $ 1,063 $ 974
Provision charged to operating expense 163 135
Recoveries added to the reserve 17 40
Loan losses charged to the reserve (54) (86)
------------ ------------
Balance at the end of the period $ 1,189 $ 1,063
============ ============
Note 5. Earnings Per Share
The following table shows the weighted average number of shares used in
computing earnings per share and the effect on the weighted average number of
shares of potential dilutive common stock. Potential dilutive common stock has
no effect on income available to common shareholders. Earnings per share amounts
for prior periods have been restated to give effect to the application of FASB
Statement No. 128 that was adopted by the Company in 1997.
June 30, 1999 June 30, 1998
Per share Per share
Shares Amount Shares Amount
------------ ------------ ------------ ------------
Basic EPS 1,778,994 $ 0.92 1,812,594 $ 0.75
============ ============
Effect of dilutive
securities:
stock options(1) 13,728 19,481
------------ ------------
Diluted EPS 1,792,722 $ 0.91 1,832,075 $ 0.75
============ ============ ============ ============
(1) The anti-dilutive effects of 32,000 options were not included in the
calculation.
Note 6. New Accounting Pronouncements
FASB Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued in June 1998. This statement requires companies
to record derivatives on the balance sheet as assets and liabilities, measured
at fair value. Gains and 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.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Summary
Net income for the six months ended June 30, 1999 increased 19.62% to
$1.6 million or $.92 per diluted share compared to $1.4 million or $.75 per
diluted share for the first six months of 1998. Annualized returns on average
assets and equity for the six months ended June 30, 1999 were 1.54% and 14.25%,
respectively, compared to 1.45% and 12.32% for the same period in 1998.
Total assets for Independent Community Bankshares, Inc. (the "Company")
increased to $231.9 million at June 30, 1999 compared to $205.4 million at
December 31, 1998, representing an increase of $26.5 million or 12.90%. Total
loans at June 30, 1999 were $137.5 million, an increase of $12.6 million from
the December 31, 1998 balance of $124.9 million. The driving forces behind the
loan growth are the desire of the Company's customers to seek a local financial
institution that has the ability to make decisions locally regarding credit as
well as a good local economy. The investment portfolio increased 4.07% to $60.1
million at June 30, 1999 compared to $57.8 million at December 31, 1998. Funds
from deposit growth not used for loans were used to purchase obligations of both
the U.S. government and municipalities. Deposits increased $24.0 million to
$196.7 million from $172.7 million at December 31, 1998. Growth in the
transactional accounts account for $12.3 million of the increase during the
first six months of 1998. Branch expansion and increased advertising have
promoted awareness of the Company and resulted in additional business.
Shareholders' equity totaled $22.9 million at June 30, 1998 and
December 31, 1998. The book value per common share was $12.85 at June 30, 1998
and December 31, 1999.
The Company opened two branches within Loudoun County and introduced
internet banking during the second quarter of 1999.
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 $4.8 million for the first six months of 1999
compared to $4.1 million for the same period in 1998. The increase is largely
due to growth in the average earning assets and a strong net interest margin.
Noninterest Income
Noninterest income consisting of fees from deposit accounts, fiduciary
activities as well as mortgage banking was $1.4 million for the first six months
of 1999 compared to $1.0 million for the same period in 1998. Service charges on
deposit accounts for the first six months of 1999 totaled $553 thousand compared
to $463 thousand for the same period in 1998, an increase of 19.44%. Commissions
and fees from fiduciary activities were $512 thousand for the six month period
ending June 30, 1999 compared to $424 thousand for the same period in 1998.
Other operating income increased to $310 thousand for the six months ending June
30, 1999 compared to $165 for the same period in 1998. Commissions from the
Company's mortgage banking department account for a majority of the increase in
other operating income. The mortgage banking department opened for business in
April 1998.
10
<PAGE>
Noninterest Expense
Total noninterest expenses include employee related costs, occupancy
and equipment expense and other overhead. Total noninterest expense was $3.9
million for the first six months of 1999 compared to $3.2 million for the same
period in 1998. This is a 22.5% increase from 1998 to 1999. Salary and benefit
expense increased 16.7% from $1.8 million for the six months ending June 30,
1998 to $2.1 million for the six months ending June 30, 1999. Net occupancy
expense of premises increased 21.5% from $381 thousand for the six months ending
June 30, 1998 to $463 thousand for the six months ending June 30, 1999. Two new
branches, continued branch growth on pre-existing branches and mortgage banking
continue to drive the increase in salary and employee benefit and occupancy
expenses. During 1998, the Company implemented a new marketing strategy that
continues throughout 1999. This new approach has increased advertising expenses
by 66.0% from $97 thousand for the first six months of 1998 to $161 thousand for
the same period in 1999.
Allowance for Loan Losses
The allowance for loan losses at June 30, 1999 was $1.2 million
compared to $1.1 million at June 30, 1998. The provision for loan losses for the
first six months of 1999 was $204 thousand compared to $90 thousand for the same
period of 1998. The growth in the loan portfolio has caused the ratio of the
allowance for loan losses to total loans to decrease from .95% at June 30, 1998
to .90% at June 30, 1999. This decrease has caused the increase in the provision
for loan losses in 1999. Management believes the allowance for loan losses is
adequate to cover credit losses inherent in the loan portfolio at June 30, 1999.
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 June 30, 1999 and June 30, 1998 was $22.9
million. The payment of dividends to shareholders as well as the decrease in the
market value of the investment portfolio are the contributing factors to lack of
growth in shareholders' equity.
At June 30, 1999 the Company's tier 1 and total risk-based capital
ratios were 14.9% and 15.7%, respectively, compared to 17.1% and 17.9% at
December 31, 1998. The Company's leverage ratio was 10.7% at June 30, 1999
compared to 11.2% at December 31, 1998. 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 risk inherent in its business.
Year 2000
The year 2000 issue is defined as the inability of certain computerized
devices (hardware, software and equipment) to process the century date properly
after 1999. Although the actual magnitude and effect of the issue cannot be
reasonably determined in advance, the Company has given the issue high priority
by appointing a Year 2000 team. The Year 2000 team includes eight members
representing all areas and subsidiaries of the Company.
In 1997 the Year 2000 team began its analysis of the possible
application to the Company of the year 2000 issue and the development of a plan
to prevent the problem from adversely affecting its operations. 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
regularly measures the status of the Company's plans and progress with site
visits and teleconferences.
11
<PAGE>
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 issue. The
focus of this area includes the effects of the year 2000 issue 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 issue (referred to as the
"inventory" phase), (b) assessing the actual exposure of such
technology to the year 2000 issue by inquiry, research, testing and
other means (the "assessment" phase), (c) selecting the method
necessary to resolve the year 2000 issues 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
issue. The focus of this area includes (a) assessing the potential
for credit and liquidity risks within the Company as a result of
the investments in, loans to and deposits from our significant
customers as well as the risk of possible business interruption by
relying on vendors of goods and services whose technology or
business is affected by the year 2000 issue, and (b) developing
contingency plans to address failures by external parties to
remediate fully any year 2000 issues 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 Year 2000 team has spend considerable time testing both the
internal and external applications deemed as "mission critical" to daily
business operations. These applications affect the Company's customer
information files. The testing was finalized by March 31, 1999 to confirm
compliance with year 2000 data processing standards. In March 1999, the Company
converted to a new automated teller machine service processor to complete the
last conversion of a "mission critical" link. The processor has been tested and
determined to be year 2000 compliant. 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 and early 1999. 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
December 31, 1998, the Company had incurred approximately $175 thousand in
noninterest expense associated with the year 2000 problem. Included in
noninterest expense for the first six months of 1999 is $75 thousand of expense
associated with the year 2000 problem.
The Company has developed a program to continually assess the year 2000
risk amongst its large loan customers. The loan officers have been trained to
complete a precredit year 2000 analysis for all new large loans and renewing
large loans. The program tracks the progress towards year 2000 compliance of the
identified customers. Loan documents contain convenants regarding the customer's
responsibility towards bringing their company within compliance.
The Company and its Year 2000 team feel strongly that customer
education and awareness are crucial to the success of the year 2000 plan. The
Company has hosted a public forum in March 1999 with a representative from the
Federal Reserve Bank of Richmond and its own Year 2000 team. The Year 2000 team
is currently establishing a toll free information hotline. The customers
received a Year 2000 Readiness Question and Answer Disclosure about the
Company's status. The same information has been posted on the Company's website.
The Year 2000 team continues to provide employee training about the status of
the Company's year 2000 plan.
12
<PAGE>
The Year 2000 team has developed a contingency plan 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 contingency plan has been approved by the
Company's Board of Directors early in 1999 with testing of the contingency plan
to begin early in the third quarter of 1999. The Year 2000 team will monitor the
status of each item as well.
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 considered unlikely, 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.
Additionally, there can be no assurances that the federal regulators
will not issue new regulatory requirements that require additional work by the
Company and, if issued, that new regulatory requirements will not increase the
cost or delay the completion of the Company's year 2000 plan.
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 are based on numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. There can be no guarantee that these estimates will be achieved and
actual results could differ materially from the Company's 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, 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.
13
<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.
The Company's Annual Meeting of Shareholders was held Wednesday, April
21, 1999 in Middleburg, Virginia. The shareholders were asked to elect
14 directors to serve for terms of one year each and to ratify the
appointment of the firm Yount, Hyde & Barbour, PC as independent
auditors for the fiscal year ending December 31, 1999.
The votes cast for, against or withheld for the election of directors
were as follows:
-----------------------------------------------------------------------
Name For Withheld
-----------------------------------------------------------------------
Howard M. Armfield 1,158,925 1,250
-----------------------------------------------------------------------
Joseph L. Boling 1,158,525 1,650
-----------------------------------------------------------------------
Childs Frick Burden 1,158,925 1,250
-----------------------------------------------------------------------
J. Lynn Cornwell, Jr. 1,158,825 1,350
-----------------------------------------------------------------------
William F. Curtis 1,158,925 1,250
-----------------------------------------------------------------------
F. E. Deacon, III 1,142,405 17,770
-----------------------------------------------------------------------
George A. Horkan, Jr. 1,158,825 1,350
-----------------------------------------------------------------------
C. Oliver Iselin, III 1,158,925 1,250
-----------------------------------------------------------------------
William S. Leach 1,158,077 2,098
-----------------------------------------------------------------------
Thomas W. Nalls 1,158,925 1,250
------------------------------------------------------------------------
John C. Palmer 1,158,925 1,250
-----------------------------------------------------------------------
John Sherman 1,158,925 1,250
----------------------------------------------------------------------
Millicent W. West 1,158,925 1,250
-----------------------------------------------------------------------
Edward T. Wright 1,158,925 1,250
-----------------------------------------------------------------------
The votes cast for, against or withheld for the remaining item were as
follows:
- ----------------------------------- --------------- ------------- --------------
Item For Against Abstain
- ----------------------------------- --------------- ------------- --------------
Independent Auditors - Yount, 1,158,693 200 1,282
Hyde & Barbour, P.C.
- ----------------------------------- --------------- ------------- --------------
14
<PAGE>
Item 5. Other Information.
On August 9, 1999, the Company purchased 100 shares (the "Shares") of
the capital stock of Gilkison Patterson Investment Advisers, Inc., an investment
advisory firm based in Alexandria, Virginia ("GPIA"). The shares represent one
percent of the issued and outstanding capital stock of GPIA. In connection with
this purchase, the Company acquired the right (the "Merger Option") to purchase
all of the remaining authorized, issued and outstanding shares of GPIA capital
stock on or after July 1, 2001 and thereafter cause the merger of GPIA into the
Company's wholly-owned subsidiary, The Tredegar Trust Company ("TTC"), both
pursuant to a Stock Purchase and Redemption Agreement dated August 9, 1999
between the Company and GPIA, an Agreement and Plan of Reorganization dated
August 9, 1999 by and among the Company, GPIA, and TTC, and certain related
agreements. The consideration for the Shares and the Merger Option consisted of
$2.26 million in cash and other non-stock consideration. Upon exercise of the
Merger Option, the Company will purchase all of the remaining issued and
outstanding shares of GPIA capital stock for an additional $3.8 million in cash
and shares of the Company's common stock, and GPIA will be merged into TTC, with
TTC remaining as the surviving corporation.
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: 8/9/99 /s/ Joseph L. Boling
----------------- --------------------------------------
Joseph L. Boling
Chairman of the Board & CEO
Date: 8/9/99 /s/ Alice P. Frazier
----------------- --------------------------------------
Alice P. Frazier
Senior Vice President & CFO
16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB FOR INDEPENDENT COMMUNITY BANKSHARES, INC. FOR
THE PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 9,988
<INT-BEARING-DEPOSITS> 76
<FED-FUNDS-SOLD> 12,925
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,855
<INVESTMENTS-CARRYING> 12,282
<INVESTMENTS-MARKET> 12,424
<LOANS> 137,487
<ALLOWANCE> 1,231
<TOTAL-ASSETS> 231,855
<DEPOSITS> 196,681
<SHORT-TERM> 6,270
<LIABILITIES-OTHER> 1,039
<LONG-TERM> 5,000
0
0
<COMMON> 8,895
<OTHER-SE> 13,970
<TOTAL-LIABILITIES-AND-EQUITY> 231,855
<INTEREST-LOAN> 5,597
<INTEREST-INVEST> 1,630
<INTEREST-OTHER> 174
<INTEREST-TOTAL> 7,401
<INTEREST-DEPOSIT> 2,361
<INTEREST-EXPENSE> 2,595
<INTEREST-INCOME-NET> 4,806
<LOAN-LOSSES> 204
<SECURITIES-GAINS> (11)
<EXPENSE-OTHER> 3,871
<INCOME-PRETAX> 2,095
<INCOME-PRE-EXTRAORDINARY> 2,095
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,634
<EPS-BASIC> 0.91
<EPS-DILUTED> 0.91
<YIELD-ACTUAL> 4.91
<LOANS-NON> 427
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,440
<ALLOWANCE-OPEN> 1,063
<CHARGE-OFFS> 53
<RECOVERIES> 17
<ALLOWANCE-CLOSE> 1,231
<ALLOWANCE-DOMESTIC> 573
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 658
</TABLE>
