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, 2000
[ ] 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 20117
(Address of Principle Executive Offices)
(703) 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:
1,721,209 shares of common stock, par value $5.00 per share,
outstanding as of May 11, 2000
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 Shareholder's 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 12
Item 2. Change in Securities 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INDEPENDENT COMMUNITY BANKSHARES, INC.
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
March 30 December 31,
2000 1999
---------------- ----------------
<S> <C> <C>
Assets:
Cash and due from banks $ 5,418 $ 8,037
Interest-bearing balances in banks 87 87
Temporary investments:
Federal funds sold 4,090 12,139
Other money market investments 365 293
Securities (fair value: March 31, 2000,
$ 81,690, December 31, 1999, $ 67,745) 81,687 67,739
Loans held for sale 1,359 1,232
Loans, net 146,094 141,782
Bank premises and equipment, net 6,236 6,285
Other assets 7,634 6,331
---------------- ----------------
Total assets $ 252,970 $ 243,925
================ ================
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Non-interest bearing $ 45,941 $ 44,900
Savings and interest-bearing demand deposits 101,959 97,208
Time deposits 56,878 61,729
---------------- ----------------
Total deposits $ 204,778 $ 203,837
Federal funds purchased $ - $ -
Securities sold under agreements to
Repurchase 10,739 10,811
Federal Home Loan Bank advances 12,000 5,000
Other liabilities 2,889 1,202
---------------- ----------------
Total liabilities $ 230,406 $ 220,850
Shareholders' Equity
Common stock par value $5.00 per
share, authorized 10,000,000 shares;
issued and outstanding at March 31, 2000 - 1,721,209
issued and outstanding at December 31, 1999 - 1,778,994 $ 8,606 $ 8,895
Capital surplus 255 1,293
Retained earnings 15,567 14,852
Unrealized gain (loss) on securities
available for sale, net (1,864) (1,965)
---------------- ----------------
Total shareholders' equity $ 22,564 $ 23,075
Total liabilities and shareholders' equity $ 252,970 $ 243,925
================ ================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
Consolidated Statements of Income
(In Thousands, Except Per Share)
<TABLE>
<CAPTION>
Unaudited
-----------------------------------------
For the Three Months
Ended March 31,
2000 1999
----------------- -----------------
<S> <C> <C>
Interest Income
Interest and fees on loans $ 3,148 $ 2,672
Interest on investment securities
Taxable 6 8
Exempt from federal income taxes 93 145
Interest on securities available for sale
Taxable 488 352
Exempt from federal income taxes 367 216
Dividends 73 42
Interest on federal funds sold and other 151 76
----------------- -----------------
Total interest income $ 4,326 $ 3,511
Interest expense
Interest on deposits $ 1,234 $ 1,181
Interest on FHLB advances 70 71
Interest on short-term borrowings 130 32
----------------- -----------------
Total interest expense $ 1,434 $ 1,284
Net interest income $ 2,892 $ 2,227
Provision for loan losses 75 81
----------------- -----------------
Net interest income after provision
for loan losses $ 2,817 $ 2,146
Other Income
Commissions and fees from fiduciary activities $ 366 $ 248
Service charges on deposit accounts 321 246
Net gains (losses) on securities
available for sale - (8)
Other operating income 167 177
----------------- -----------------
Total other income $ 854 $ 663
Other Expense
Advertising $ 73 $ 82
Salaries and employee benefits 1,314 1,072
Net occupancy expense of premises 285 203
Other operating expenses 530 535
----------------- -----------------
Total other expense $ 2,202 $ 1,892
----------------- -----------------
Income before income taxes $ 1,469 $ 917
Income taxes 381 195
----------------- -----------------
Net income $ 1,088 $ 722
================= =================
Earnings per weighted average share:
(2000 - 1,777,972, 1999 - 1,778,994)
Net income per share $ 0.61 $ 0.41
Dividends per share $ 0.21 $ 0.17
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
Consolidated Statement of Changes in Shareholders' Equity
For the Three Months Ended March 31, 2000 and 1999
(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, 1998 $ 8,895 $ 1,293 $ 179 $ 12,496 $ - $ 22,863
Comprehensive Income
Net income 722 722 722
Other comprehensive income
net of tax -
Unrealized loss on available for
sale securities (201)
Less: Reclassification adjustment for
gains realized in net income -
Other comprehensive income, net of tax (201) (201) (201)
Total comprehensive income $ 521
===========
Cash dividends (301) (301)
------------ ------------ ------------- ------------- ------------
Balances - March 31, 1999 $ 8,895 $ 1,293 $ (22) $ 12,917 $ 23,083
============ ============ ============= ============= ============
Balances - December 31, 1999 $ 8,895 $ 1,293 $ (1,965) $ 14,852 $ - $ 23,075
Comprehensive Income
Net income 1,088 1,088 1,088
Other comprehensive income
net of tax
Unrealized loss on available for
sale securities 101
Less: Reclassification adjustment for
gains realized in net income --
------------
Other comprehensive income, net of tax 101 101 101
------------
Total comprehensive income $ 1,189
============
Cash dividends declared (373) (373)
Purchase of common stock (57,785 shares) (289) (1,038) (1,327)
------------ ------------ ------------- -------------- -----------
Balances - March 31, 2000 $ 8,606 $ 255 $ (1,864) $ 15,567 $ 22,564
============ ============ ============= ============== ===========
</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 Three Months Ended
------------------------------------
March 31, March 31,
2000 1999
----------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,088 $ 722
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses 75 81
Depreciation and amortization 178 151
Net (gains) losses on securities available for sale - 7
Discount accretion and premium amortization on securities, net - 29
Net (gains) losses on sale of assets - (7)
Net loss on sale of other real estate - 5
Originations of loans held for sale (7,794) (7,608)
Proceeds from sales of loans held for sale 7,667 8,388
Decrease in prepaid income taxes 6 -
(Increase) in other assets (1,371) (357)
Increase in other liabilities 1,682 307
----------------- ------------------
Net cash provided by operating activities $ 1,531 $ 1,718
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity, principal paydowns and calls on investment securities $ 14 $ -
Proceeds from maturity, principal paydowns and
calls of securities available for sale 838 1,528
Proceeds from sale of securities available for sale 490 1,735
Proceeds from sale of bank premises and equipment - 75
Purchase of securities available for sale (15,137) (6,453)
Net (increase) in loans (4,387) (2,746)
Proceeds from sale of other real estate - 195
Purchases of bank premises and equipment (114) (375)
----------------- ------------------
Net cash (used in) investing activities $ (18,296) $ (6,041)
CASH FLOWS FROM FINANCING ACTIVTIES
Net increase in demand deposits, NOW accounts, and savings accounts $ 5,792 $ 4,809
Net (decrease) increase in certificates of deposits (4,851) 403
Proceeds from Federal Home Loan Bank advances 9,000 -
Payment on Federal Home Loan Bank advances (2,000) (1,000)
Dividends declared (373) (301)
Acquisition of common stock (1,327) -
Increase (decrease) in securities sold under agreement to repurchase (72) 2,413
----------------- ------------------
Net cash provided by financing activities $ 6,169 $ 6,324
Increase in cash and cash equivalents $ (10,596) $ 2,001
CASH AND CASH EQUIVALENTS
Beginning $ 20,556 $ 12,813
================= ==================
Ending $ 9,960 $ 14,814
================= ==================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors 1,381 1,188
Income taxes 2 4
SUPPLEMENTAL DISCLOSURES FOR NON-CASH
INVESTING AND FINANCING ACTIVITIES
Unrealized gain (loss) on securities available for sale 153 (303)
</TABLE>
See Accompanying Note to Consolidated Financial Statements.
6
<PAGE>
INDEPENDENT COMMUNITY BANKSHARES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
For the Three Months Ended March 31, 2000 and 1999
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,
2000, and the results of operations and changes in cash flows for the three
months ended March 31, 2000 and 1999. 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, 1999. The results of
operations for the three month periods ended March 31, 2000 and 1999, 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, 2000 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 $ 250 $ - $ (17) $ 233
Obligations of states and
political subdivisions 7,432 33 (12) 7,453
Mortgaged backed securities 53 - (1) 52
--------------- --------------- ---------------- --------------
$ 7,735 $ 33 $ (30) $ 7,738
=============== =============== ================ ==============
</TABLE>
7
<PAGE>
Securities available for sale as of March 31, 2000 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 $ 5,818 $ 2 $ (145) $ 5,675
Corporate securities 2,989 2 (368) 2,623
Obligations of states and
political subdivisions 25,170 14 (1,254) 23,930
Mortgaged backed securities 36,478 5 (1,033) 35,450
Other 6,322 4 (52) 6,274
--------------- ------------- --------------- ------------
$ 76,777 $ 27 $ (2,852) $ 73,952
=============== ============= =============== ============
</TABLE>
Note 3. The consolidated loan portfolio is composed of the following:
<TABLE>
<CAPTION>
----------------------------------------
March 31, December 31,
2000 1999
------------------ --------------------
(In Thousands)
<S> <C> <C>
Commercial, financial and agricultural $ 19,544 $ 19,055
Real estate construction 11,330 12,151
Real estate mortgage 107,018 102,184
Installment loans to individuals 9,694 9,845
------------------ -------------------
Total loans 147,586 143,235
Less: Unearned income - -
Allowance for loan losses (1,492) (1,453)
------------------ -------------------
Loans, net $ 146,094 $ 141,782
================== ===================
</TABLE>
ICBI had $391,940 in non-performing assets at March 31, 2000.
Note 4. The following is a summary of transactions in the reserve for loan
losses:
------------------------------
March 31, December 31,
2000 1999
------------------------------
(In Thousands)
Balance at January 1 $ 1,453 $ 1,064
Provision charged to operating expense 75 420
Recoveries added to the reserve 28 120
Loan losses charged to the reserve (64) (151)
------------- --------------
Balance at the end of the period $ 1,492 $ 1,453
============= ==============
8
<PAGE>
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 diluted potential 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
Statement 128 that was adopted by the Company in 1997.
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
Per share Per share
Shares Amount Shares Amount
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Basic EPS 1,777,972 $ 0.61 1,778,994 $ 0.41
============= =============
Effect of dilutive
securities:
stock options(1) 15,048 13,825
------------ ------------
Diluted EPS 1,793,020 $ 0.61 1,792,819 $ 0.41
============ ============= ============ =============
</TABLE>
(1) The anit-dilutive effects of 31,000 options were not included in the
calculation.
9
<PAGE>
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, 2000 increased 50.7% to
$1.1 million or $.61 per diluted share compared to $722 thousand or $.41 per
diluted share for the first three months of 1999. Annualized returns on average
assets and equity for the period ended March 31, 2000 were 1.81% and 18.98%,
respectively, compared to 1.40% and 12.75% for the same period in 1999.
The total assets of the Independent Community Bankshares, Inc. ("ICBI")
increased to $253.0 million at March 31, 2000 compared to $243.9 million at
December 31, 1999 representing an increase of $9.1 million or 3.7%. Net loans at
March 31, 2000, were $146.1 million, an increase of $4.3 million from the
December 31, 1999 balance of $141.8 million. Continued loan demand fueled the
loan growth experienced for the first three months of 2000. The investment
portfolio increased 20.6% to $81.7 million at March 31, 2000 compared to the
$67.7 million balance at December 31, 1999. Federal funds sold decreased $8.0
million to $4.1 million at March 31, 2000 compared to $12.1 million at December
31, 1999. Deposits increased to $204.8 million at March 31, 2000, from the
$203.8 million balance at December 31, 1999.
Shareholders' equity at March 31, 2000 totaled $22.6 million compared
to $23.1 million at December 31, 1999. The book value per common share on March
31, 2000 was $13.11 per share compared to $12.97 at December 31, 1999.
Net Interest Income
Net interest income is ICBI'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 $2.9 million for the first three months of 2000 compared
to $2.2 million for the same period in 1999. Net interest income has been
positively affected by a 17.2% increase in average earning assets from March 31,
1999 to March 31, 2000.
Noninterest Income
Service charges on deposit accounts for the first three months of 2000
totaled $321,000 compared to $246,000 for the same period in 1999, a increase of
30.5%. Commission and fees from fiduciary activities were $366,000 at March 31,
2000 compared to $248,000 at March 31, 1999. Other Operating Income decreased to
$167,000 at March 31, 2000 from the $177,000 at March 31, 1999. Non-deposit
investment sales commissions and loan fees from the mortgage banking department
within The Middleburg Bank, ICBI's banking subsidiary, account for a majority of
other operating income.
Noninterest Expense
Enhancing ICBI's continued growth, total noninterest expense consisting
of employee related costs, occupancy and other overhead totaled $2.2 million for
the first three months of 2000 compared to $1.9 million for the same period of
1999. This represents a 16.4% increase or $310,000. Branch expansion and
mortgage banking has increased salary and benefit expense by 22.6% from $1.1
million in the first quarter of 1999 to $1.3 million for the same period in
2000.
10
<PAGE>
Allowance for Loan Losses
The allowance for loan losses at March 31, 2000 was $1.5 million. This
is an increase of $39,000 from December 31, 1999. The ratio of the allowance for
loan losses to gross loans is 1.01%. Management believes the allowance for loan
losses is adequate to cover credit losses inherent in the loan portfolio at
March 31, 2000. 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
Shareholder's equity at March 31, 2000 was $22.6 million compared to
$23.1 million at December 31, 1999. During March 2000, ICBI repurchased 57,785
shares of common stock at an average price of $22.43. This reduced the number of
shares outstanding to 1,721,209 at March 31, 2000. Common stock decreased by
$289,000 to $8.6 million and capital surplus decreased by $1.0 million to
$255,000. ICBI's board of directors has authorized a share repurchase program
which allows management to repurchase up to 100,000 shares as deemed
appropriate.
At March 31, 2000 ICBI's tier 1 and total risked-based capital ratios
were 13.16% and 114.00%, respectively, compared to 14.0% and 14.8% at December
31, 1999. ICBI's leverage ratio was 9.73% at March 31, 2000 compared to a ratio
of 10.8% at December 31, 1999. ICBI's capital structure places it above
applicable regulatory guidelines which affords ICBI the opportunity to take
advantage of business opportunities while ensuring that it has resources to
protect against the risks inherent in its business.
Forward-looking Statement
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.
11
<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
12
<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, 2000 /s/ Joseph L. Boling
------------ -----------------------------------
Joseph L. Boling,
Chairman of the Board & CEO
Date: May 15, 2000 /s/ Alice P. Frazier
------------ -----------------------------------
Alice P. Frazier,
Senior Vice President & CFO
<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 MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 5,418
<INT-BEARING-DEPOSITS> 452
<FED-FUNDS-SOLD> 4,090
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 73,952
<INVESTMENTS-CARRYING> 7,735
<INVESTMENTS-MARKET> 7,738
<LOANS> 147,586
<ALLOWANCE> 1,492
<TOTAL-ASSETS> 252,970
<DEPOSITS> 204,778
<SHORT-TERM> 22,739
<LIABILITIES-OTHER> 2,889
<LONG-TERM> 0
0
0
<COMMON> 8,606
<OTHER-SE> 13,958
<TOTAL-LIABILITIES-AND-EQUITY> 252,970
<INTEREST-LOAN> 3,148
<INTEREST-INVEST> 1,027
<INTEREST-OTHER> 151
<INTEREST-TOTAL> 4,326
<INTEREST-DEPOSIT> 1,234
<INTEREST-EXPENSE> 1,434
<INTEREST-INCOME-NET> 2,892
<LOAN-LOSSES> 75
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,202
<INCOME-PRETAX> 1,469
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,088
<EPS-BASIC> 0.61
<EPS-DILUTED> 0.61
<YIELD-ACTUAL> 5.24
<LOANS-NON> 392
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 392
<ALLOWANCE-OPEN> 1,453
<CHARGE-OFFS> 64
<RECOVERIES> 28
<ALLOWANCE-CLOSE> 1,492
<ALLOWANCE-DOMESTIC> 548
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 944
</TABLE>
