-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BpgmWTxMy8BvRxCqlsruMC+b2ZRPiDu8bpNoFSCGsKAiYLWkOoNSxE9iXA0oTVQD 2KERcTbMw0FUQV4vn+a7Mg== 0001002105-98-000131.txt : 19981123 0001002105-98-000131.hdr.sgml : 19981123 ACCESSION NUMBER: 0001002105-98-000131 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 DATE AS OF CHANGE: 19981120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INDEPENDENT COMMUNITY BANKSHARES INC CENTRAL INDEX KEY: 0000914138 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 541696103 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-24159 FILM NUMBER: 98753561 BUSINESS ADDRESS: STREET 1: 111 W WASHINGTON ST STREET 2: C/O MIDDLEBURG BANK CITY: MIDDLEBURG STATE: VA ZIP: 22117 BUSINESS PHONE: 5406876377 MAIL ADDRESS: STREET 1: 111 WEST WASHINGTON STREET STREET 2: C/O MIDDLEBURG BANK CITY: MIDDLEBURG STATE: VA ZIP: 22117 10QSB 1 10QSB - INDEPENDENT COMMUNITY BANKSHARES, INC. 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. INDEPENDENT COMMUNITY BANKSHARES, INC. INDEX
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 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
-2- Part I. Financial Information Item 1. FINANCIAL STATEMENTS Independent Community Bankshares, Inc. Consolidated Balance Sheets (In Thousands)
(Unaudited) September 30 December 31, 1998 1997 ----------------- ------------------ 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 ================= ==================
See Accompanying Notes to Consolidated Financial Statements. -3- Independent Community Bankshares, Inc. Consolidated Statements of Income (In Thousands, Except Per Share Data)
Unaudited Unaudited -------------------------------- --------------------------------- For the Nine Months For the Quarter Ended September 30, Ended September 30, 1998 1997 1998 1997 -------------- --------------- -------------- -------------- 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
See Accompanying Notes to Consolidated Financial Statements. -4- Independent Community Bankshares, Inc. Consolidated Statement of Changes in Shareholders' Equity For the Nine Months Ended September 30, 1998 and 1997 (In Thousands) (Unaudited)
Accumulated Other Common Capital Comprehensive Retained Comprehensive Stock Surplus Income Earnings Income Total ---------- ----------- -------------- ----------- -------------- -------- 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 ========== =========== ============== =========== ========
See Accompanying Notes to Consolidated Financial Statements. -5- Independent Community Bankshares, Inc. Consolidated Statements of Cash Flows (In Thousands) (Unaudited)
For the Nine Months Ended -------------------------------- September 30, September 30, 1998 1997 --------------- --------------- 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)
See Accompanying Note to Consolidated Financial Statements -6- 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:
-------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains (Losses) Value -------------------------------------------------------------------- (in thousands) 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 =============== ================ ================== ================
-7- Securities available for sale as of September 30, 1998 are summarized below:
-------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains (Losses) Value -------------------------------------------------------------------- (in thousands) 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 =============== ================ ================== ================
Note 3. The consolidated loan portfolio is composed of the following:
----------------------------------- September 30, December 31, 1998 1997 ----------------------------------- (in thousands) 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 ================ =================
The Company had $265,103 in non-performing assets at September 30, 1998. -8- Note 4. The following is a summary of transactions in the reserve for loan losses:
-------------------------------------- September 30, December 31, 1998 1997 -------------------------------------- (in thousands) 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 ================== =================
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- 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- 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- 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- 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- 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- 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- 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- EX-27 2 FDS -- INDEPENDENT COMMUNITY BANKSHARES, INC.
9 1000 9-MOS DEC-31-1998 SEP-30-1998 7,191 73 6,000 0 44,986 13,317 13,714 117,150 1,102 199,796 167,506 8,497 1,359 0 0 0 8,895 13,539 199,796 7,505 2,689 0 10,194 3,780 3,996 6,198 135 (64) 4,825 2,749 2,749 0 0 2,122 1.17 1.16 5.11 265 0 0 0 974 37 30 1,102 326 0 776
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