U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 1997
or
_____Transition Report under Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the transition period from__________________ to __________________.
Commission File No. -0-28780-
CARDINAL BANKSHARES CORPORATION
(Exact name of the registrant as specified in its charter)
Virginia 54-1804471
(State of Incorporation) (I.R.S. Employer Identification No.)
101 Jacksonville Circle (P. O. Box 215), Floyd VA 24091
(Address of principal executive offices)
(540) 745-4191
(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
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
The number of shares outstanding of the Issuer's Common Stock, $10 Par
Value, as of March 31, 1997 was $465,536.
Transitional Small Business Disclosure Format (check one):Yes No X
Page 1 of 14.
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
FORM 10-QSB
INDEX
_____________________________________________________________________________
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of Cardinal Bankshares Corporation
(the "Company") are set forth in the following pages.
Consolidated Balance Sheets as of March 31, 1997 and
December 31,1996........................................................3
Consolidated Statements of Operations for the Three Months
Ended March 31, 1997 and 1996...........................................4
Consolidated Statements of Stockholders' Equity for the
Periods Ended March 31, 1997 and 1996...................................5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1997 and 1996.........................................6-7
Notes to Consolidated Financial Statements.............................8-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................9-10
PART II. OTHER INFORMATION................................................10
All schedules have been omitted because they are inapplicable or the
required information is provided in the financial statements, including the
notes thereto.
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996
________________________________________________________________________________
<TABLE>
<CAPTION> March 31, December 31,
1997 1996
____________ ____________
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,423,799 $ 2,749,552
Federal funds sold 1,950,000 500,000
Investment securities available for sale 28,331,551 30,338,456
Investment securities held to maturity;
market value of $12,547,512 in 1997 and
$13,362,000 in 1996 13,195,453 13,383,394
Loans, net of allowance for credit losses
of $1,062,556 in 1997 and $1,002,455 in
1996 (Note 2) 86,976,841 85,372,459
Premises and equipment 1,518,520 1,560,582
Accrued income 961,830 1,053,576
Other assets 1,572,782 1,463,702
___________ ___________
Total assets $136,930,776 $136,421,721
___________ ___________
LIABILITIES
Demand deposits $ 11,808,341 $ 12,585,858
NOW deposits 9,240,395 8,572,681
Savings deposits 17,790,397 17,905,685
Large denomination time deposits 10,712,939 10,693,230
Other time deposits 69,366,704 68,666,993
___________ ___________
Total deposits 118,918,776 118,424,447
Short-term debt 0 400,000
Long-term debt 2,400,000 2,400,000
Accrued interest payable 270,799 247,000
Other liabilities 566,189 415,355
___________ ___________
Total liabilities 122,155,764 121,886,802
___________ ___________
Commitments and contingencies (Note 3)
STOCKHOLDERS'EQUITY:
Common stock, $10 par value, authorized
5,000,000 shares, issued 465,536
shares in 1997 and 1996, respectively 4,655,360 4,655,360
Surplus 1,200,000 1,200,000
Retained earnings 9,042,209 8,585,007
Unrealized appreciation (depreciation) on
investment securities available for sale,
net of income taxes (122,557) 94,552
___________ ___________
Total stockholders' equity 14,775,012 14,534,919
___________ ___________
Total liabilities and stockholders'
equity $136,930,776 $136,421,721
___________ ___________
</TABLE>
See Notes to Consolidated Financial Statements 3
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the three months ended March 31, 1997 and 1996 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
1997 1996
____ ____
<S> <C> <C>
INTEREST INCOME:
Loans and fees on loans $ 1,983,526 $ 1,838,237
Federal funds sold 9,703 61,054
Taxable investment securities 566,163 535,782
Investment securities exempt from
federal tax 126,625 126,273
__________ __________
Total interest income 2,686,017 2,561,346
INTEREST EXPENSE ON DEPOSITS 1,337,935 1,339,130
__________ __________
Net interest income 1,348,082 1,222,216
PROVISION FOR CREDIT LOSSES 75,000 100,000
__________ __________
Net interest income after provision
for credit losses 1,273,082 1,122,216
OTHER INCOME:
Service charges on deposit accounts 31,902 27,029
Other service charges and fees 6,929 2,362
Securities gains 6,808 7,500
Other income 47,751 83,929
__________ __________
Total other income 93,390 100,820
OTHER EXPENSE:
Salaries and employee benefits 376,202 407,527
Occupancy expense 22,790 28,094
Equipment expense 58,279 43,120
Other expense 284,849 185,936
__________ __________
Total other expense 742,120 664,677
__________ __________
Income before income taxes 624,352 558,359
Income tax expense 167,150 161,019
__________ __________
Net income $ 457,202 $ 397,340
__________ __________
NET INCOME PER SHARE $ 0.98 $ 0.85
__________ __________
</TABLE>
See Notes to Consolidated Financial Statements 4
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the three months ended March 31, 1997 and March 31, 1996 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
UNREALIZED TOTAL
APPRECIATION STOCK-
COMMON RETAINED (DEPRECIATION) HOLDERS'
STOCK SURPLUS EARNINGS SECURITIES EQUITY
__________ _______ _________ _____________ ________
<S> <C> <C> <C> <C> <C>
January 1, 1996 $4,655,360 $1,200,000 $ 7,481,589 $ 294,529 $13,631,478
Net income 397,340 397,340
Change in market value
of investment securities
available for sale, net
of income taxes (140,892) (140,892)
_________ _________ __________ ________ __________
March 31, 1996 $4,655,360 $1,200,000 $ 7,878,929 $ 153,637 $13,887,926
_________ _________ __________ ________ __________
January 1, 1997 $4,655,360 $1,200,000 $ 8,585,007 $ 94,552 $14,534,919
Net income 457,202 457,202
Change in market value
of investment securities
available for sale, net
of income taxes (217,109) (217,109)
_________ _________ __________ ________ __________
March 31, 1997 $4,655,360 $1,200,000 $ 9,042,209 $(122,557) $14,775,012
_________ _________ __________ ________ __________
</TABLE>
See Notes to Consolidated Financial Statements 5
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended March 31, 1997 and 1996 (Unaudited)
_______________________________________________________________________________
<TABLE>
<CAPTION>
1997 1996
____ ____
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 457,202 $ 397,340
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 43,891 38,517
Accretion of discounts on securities,
net of amortization of premiums (24,967) (15,224)
Amortization of loan fees (25,000) (3,005)
Provision for credit losses 75,000 100,000
Deferred income taxes - 246,200
Net realized gains on securities (5,039) (7,500)
Deferred compensation & pension expense 9,356 16,281
Changes in assets and liabilities:
Accrued income 91,746 84,850
Other assets 2,764 242,354
Accrued interest payable 23,799 46,190
Other liabilities 141,479 (140,045)
__________ ___________
Net cash provided by operating activities 790,231 1,005,958
__________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) in federal funds sold (1,450,000) (1,700,000)
Purchases of securities - (7,143,963)
Sale of securities 938,526 -
Maturities of securities 957,375 8,638,769
Net increase in loans (1,654,383) 142,130
Proceeds from sale of other real estate - 17,200
Purchases of properties and equipment (1,829) (41,473)
__________ __________
Net cash used in investing activities (1,210,311) (87,337)
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, NOW,
and savings deposits (225,093) (771,546)
Net increase (decrease) in time deposits 719,420 (312,934)
Dividends paid - -
Principal paid on short-term debt (400,000)
__________ __________
Net cash provided (used) by financing
activities 94,327 (1,084,480)
__________ __________
Net decrease in cash and cash equivalents (325,753) (165,859)
CASH AND CASH EQUIVALENTS, BEGINNING 2,749,552 1,907,215
__________ __________
CASH AND CASH EQUIVALENTS, ENDING $ 2,423,799 $ 1,741,356
__________ __________
</TABLE>
See Notes to Consolidated Financial Statements 6
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
For the three months ended March 31, 1997 and 1996 (Unaudited)
_______________________________________________________________________________
<TABLE>
<CAPTION>
1997 1996
____ ____
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 1,314,136 $ 1,292,940
__________ __________
Income taxes paid $ 4,396 $ -
__________ __________
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Other real estate acquired in
settlement of loans $ - $ -
</TABLE>
See Notes to Consolidated Financial Statements 7
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
________________________________________________________________________________
ITEM 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
NOTE 1. BASIS OF PRESENTATION:
Cardinal Bankshares Corporation (the Company) was incorporated as a
Virginia corporation on March 12, 1996 to acquire the stock of The Bank of
Floyd (the Bank). The Bank was acquired by the Company on July 1, 1996 and
used the pooling of interests accounting method.
The consolidated financial statements as of March 31, 1997 and for
the periods ended March 31, 1997 and 1996 included herein, have been
prepared by Cardinal Bankshares Corporation, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. In the
opinion of management, the information furnished in the interim consolidated
financial statements reflects all adjustments necessary to present fairly the
Company's consolidated financial position, results of operations, changes in
stockholders' equity and cash flows for such interim periods. Management
believes that all interim period adjustments are of a normal recurring nature.
These consolidated financial statements should be read in conjunction with the
Bank's audited financial statements and the notes thereto as of December 31,
1996, included in the Bank's Annual Report for the fiscal year ended December
31, 1996.
The Bank of Floyd and its wholly owned subsidiary, FBC, Inc. are organized
and incorporated under the laws of the Commonwealth of Virginia. As a state
chartered Federal Reserve member, the Bank is subject to regulation by the
Virginia Bureau of Financial Institutions and the Federal Reserve. FBC, Inc.'s
assets and operations consist primarily of a minority interest in a title
insurance company. The Bank serves the counties of Floyd, Montgomery, and
Roanoke, Virginia and the City of Roanoke, Virginia through two banking
offices.
All significant intercompany accounts and transactions have been elimi-
nated in consolidation. Certain prior year amounts have been reclassified to
conform to the current year presentation.
NOTE 2. ALLOWANCES FOR CREDIT LOSSES
The following is an analysis of the allowance for credit losses for the
three months ended March 31.
<TABLE>
<CAPTION>
1997 1996
____ ____
<S> <C> <C>
Balance at January 1 $ 1,002,455 $ 1,134,182
Provision charged to operations 75,000 100,000
Loans charged off, net of recoveries (14,899) (399,697)
__________ __________
Balance at March 31 $ 1,062,556 $ 834,485
</TABLE>
8
NOTE 3. COMMITMENTS AND CONTINGENCIES
The Bank's exposure to credit loss in the event of nonperformance by the
other party for commitments to extend credit and standby letters of credit is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as for
on-balance-sheet instruments. A summary of the Bank's commitments at March 31,
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
____ ____
<S> <C> <C>
Commitments to extend credit $ 4,638,538 $ 4,767,635
Standby letters of credit 197,100 396,500
__________ __________
$ 4,835,638 $ 5,164,135
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the quarter ended March 31, 1997, the Bank earned $457,202 in net
income compared to $397,340 for the quarter ended March 31, 1996. The in-
crease of $59,862 was due primarily to an increase in net interest income.
Interest income was $2,686,017 for the quarter ended March 31, 1997,
compared to $2,561,346 for the same period of 1996. The quarterly increase was
due mainly to an increase of $5.7 million in average earning assets for the
quarter ended March 31, 1997, as compared to the quarter ended March 31, 1996.
Interest expense for the quarter ended March 31, 1997 was $1,337,935,
down $1,195 from $1,339,130 for the quarter ended March 31, 1996. The
decrease was due to a decrease of approximately 20 basis point in interest
rate when compared to the quarter ended March 31, 1996.
The provision for credit losses was $75,000 and $100,000 for the quarters
ended March 31, 1997 and March 31, 1996, respectively. Management believes the
provision and the resulting allowance for credit losses is adequate.
CHANGES IN FINANCIAL CONDITION
Total assets at March 31, 1997 were $136,930,766 compared to $136,421,721
at December 31, 1996. Net loans have increased by $1.6 million due to solid
loan demand. The loans were funded by lower yielding investments that had
either matured or were sold, and by an increase in deposits of $494,329.
CAPITAL ADEQUACY
Shareholder's equity amounted to $14,775,012 at March 31, 1997, an
increase of $240,093 over the December 31, 1996 balance of $14,534,919. The
increase was a result of the earnings for the three months offset by a decrease
in the market value of securities that are classified as available for sale.
9
Regulatory guidelines relating to capital adequacy provide minimum risk-
based ratios at the Bank level which assess capital adequacy while encompassing
all credit risks, including those related to off-balance sheet activities. The
Bank of Floyd (a wholly owned subsidiary of Cardinal Bankshares Corporation)
exceeds all regulatory capital guidelines and is considered to be well
capitalized. At March 31, 1997 the Bank had a ratio of Tier 1 capital to
risk-weighted assets of 13.86%, a ratio of total risk-based capital to
risk-weighted assets of 15.11% and a leverage ratio of Tier 1 capital to
average total assets for the quarter ended March 31, 1997 of 8.59%.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no matters pending legal proceedings to which the Company or any
of its subsidiaries is a party or of which any of their property is subject.
ITEM 2. CHANGES IN SECURITIES
(a) Not applicable.
(b) Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
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
None.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CARDINAL BANKSHARES CORPORATION
Date: May 14, 1997 By: s/Ronald Leon Moore
President, Chief Executive
Officer, and Principal Financial
Officer
10
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CARDINAL BANKSHARES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AT MARCH
31, 1997 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,423,799
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,950,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,331,551
<INVESTMENTS-CARRYING> 13,195,453
<INVESTMENTS-MARKET> 12,547,512
<LOANS> 88,014,397
<ALLOWANCE> (1,037,556)
<TOTAL-ASSETS> 136,930,776
<DEPOSITS> 118,918,776
<SHORT-TERM> 0
<LIABILITIES-OTHER> 836,988
<LONG-TERM> 2,400,000
0
0
<COMMON> 4,655,360
<OTHER-SE> 10,119,652
<TOTAL-LIABILITIES-AND-EQUITY> 136,930,776
<INTEREST-LOAN> 1,983,526
<INTEREST-INVEST> 692,788
<INTEREST-OTHER> 9,703
<INTEREST-TOTAL> 2,686,017
<INTEREST-DEPOSIT> 1,337,935
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 1,348,082
<LOAN-LOSSES> 75,000
<SECURITIES-GAINS> 6,808
<EXPENSE-OTHER> 742,120
<INCOME-PRETAX> 624,352
<INCOME-PRE-EXTRAORDINARY> 624,352
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 457,202
<EPS-PRIMARY> .98
<EPS-DILUTED> .98
<YIELD-ACTUAL> 4.15
<LOANS-NON> 0
<LOANS-PAST> 300,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,002,455
<CHARGE-OFFS> 16,000
<RECOVERIES> 2,000
<ALLOWANCE-CLOSE> 1,062,556
<ALLOWANCE-DOMESTIC> 1,062,556
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
