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 September 30, 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 September 30, 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 September 30, 1997 and
December 31, 1996.......................................................3
Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 1997 and 1996......................4
Consolidated Statements of Stockholders' Equity for the
Periods Ended September 30, 1997 and 1996...............................5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 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
September 30, 1997 and December 31, 1996
________________________________________________________________________________
<TABLE>
<CAPTION> September 30, December 31,
1997 1996
____________ ____________
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,114,886 $ 2,749,552
Federal funds sold 8,700,000 500,000
Investment securities available for sale 29,791,850 30,338,456
Investment securities held to maturity;
market value of $11,538,016 in 1997 and
$13,361,576 in 1996 11,439,621 13,383,394
Loans, net of allowance for credit losses
of $1,391,660 in 1997 and $1,002,455 in
1996 85,863,277 85,372,459
Premises and equipment 1,639,886 1,560,582
Accrued income 981,335 1,053,576
Other assets 1,202,596 1,463,702
___________ ___________
Total assets $141,733,451 $136,421,721
___________ ___________
LIABILITIES
Demand deposits $ 11,908,762 $ 12,585,858
NOW deposits 9,050,350 8,572,681
Savings deposits 17,553,530 17,905,685
Large denomination time deposits 9,961,601 10,693,230
Other time deposits 74,311,808 68,666,993
___________ ___________
Total deposits 122,786,051 118,424,447
Short-term debt - 400,000
Long-term debt 2,400,000 2,400,000
Accrued interest payable 279,017 247,000
Other liabilities 470,541 415,355
___________ ___________
Total liabilities 125,935,609 121,886,802
___________ ___________
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 4,655,360 4,655,360
Surplus 1,200,000 1,200,000
Retained earnings 9,745,002 8,585,007
Unrealized appreciation (depreciation) on
investment securities available for sale,
net of income taxes 197,480 94,552
___________ ___________
Total stockholders' equity 15,797,842 14,534,919
___________ ___________
Total liabilities and stockholders'
equity $141,733,451 $136,421,721
___________ ___________
</TABLE>
See Notes to Consolidated Financial Statements 3
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the quarter and nine months ended September 30, 1997 and 1996 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION> Nine Nine
Quarter Quarter Months Months
Ended Ended Ended Ended
September September September September
30, 1997 30, 1996 30, 1997 30, 1996
________ ________ ________ ________
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and fees on loans $ 2,027,228 $ 1,901,159 $ 6,022,325 $ 5,548,529
Federal funds sold 115,529 41,184 196,914 137,125
Taxable investment securities 517,421 535,775 1,616,004 1,626,892
Investment securities exempt
from federal tax 114,109 113,357 363,852 348,302
__________ __________ __________ __________
Total interest income 2,774,287 2,591,475 8,199,095 7,660,848
INTEREST EXPENSE 1,451,389 1,319,464 4,190,984 3,978,776
__________ __________ __________ __________
Net interest income 1,322,898 1,272,011 4,008,111 3,682,072
PROVISION FOR CREDIT LOSSES 275,000 75,000 425,000 250,000
__________ __________ __________ __________
Net interest income after
provision for credit
losses 1,047,898 1,197,011 3,583,111 3,432,072
OTHER INCOME:
Service charges on deposit
accounts 38,331 30,216 109,838 87,527
Other service charges and fees 6,473 3,479 19,929 8,001
Securities gains (1,706) (11,239) 5,102 21,252
Other real estate owned gains 231,494 - 231,494 9,696
Other income 51,916 46,409 169,608 157,379
__________ __________ __________ __________
Total other income 326,508 68,865 535,971 283,855
OTHER EXPENSE:
Salaries and employee benefits 455,793 431,225 1,200,898 1,280,746
Occupancy expense 28,245 26,733 77,777 82,789
Equipment expense 65,480 59,178 175,434 144,774
Other expense 212,475 193,734 717,158 570,818
__________ __________ __________ __________
Total other expense 761,993 710,870 2,171,267 2,079,127
__________ __________ __________ __________
Income before income taxes 612,413 555,006 1,947,815 1,636,800
Income tax expense 185,397 153,900 550,397 460,032
__________ __________ __________ __________
Net income $ 427,016 $ 401,106 $ 1,397,418 $ 1,176,768
__________ __________ __________ __________
NET INCOME PER SHARE $ .92 $ 0.86 $ 3.00 $ 2.53
__________ __________ __________ __________
</TABLE>
See Notes to Consolidated Financial Statements 4
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the nine months ended September 30, 1997 and September 30, 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 1,176,768 1,176,768
Change in market value
of investment securities
available for sale, net
of income taxes (495,559) (495,559)
_________ _________ __________ ________ __________
September 30, 1996 $4,655,360 $1,200,000 $ 8,658,357 $(201,030) $14,312,687
_________ _________ __________ ________ __________
January 1, 1997 $4,655,360 $1,200,000 $ 8,585,007 $ 94,552 $14,534,919
Net income 1,397,418 1,397,418
Change in market value
of investment securities
available for sale, net
of income taxes 102,928 102,928
Dividends paid (237,423) (237,423)
_________ _________ __________ ________ __________
September 30, 1997 $4,655,360 $1,200,000 $ 9,745,002 $ 197,480 $ 15,797,842
_________ _________ __________ ________ __________
</TABLE>
See Notes to Consolidated Financial Statements 5
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1997 and 1996 (Unaudited)
_______________________________________________________________________________
<TABLE>
<CAPTION>
1997 1996
____ ____
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,397,418 $ 1,176,768
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 131,949 123,600
Accretion of discounts on securities,
net of amortization of premiums (7,491) (57,403)
Amortization of loan fees (75,991) (44,451)
Provision for credit losses 425,000 250,000
Deferred income taxes (86,000) 191,465
Net realized gains on securities (5,102) (21,252)
Net realized gains on sale of ORE (231,494) (9,696)
Deferred compensation & pension expense - 47,332
Changes in assets and liabilities:
Accrued income 72,241 77,233
Other assets 117,219 288,523
Accrued interest payable 32,017 29,310
Other liabilities 55,186 (129,671)
__________ ___________
Net cash provided by operating activities 1,824,952 1,921,758
__________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) in federal funds sold (8,200,000) (300,000)
Purchases of securities (7,806,029) (13,758,292)
Sale of securities 2,075,318 3,264,391
Maturities of securities 8,389,634 14,183,383
Net increase in loans (839,827) (4,370,651)
Proceeds from sale of other real estate 408,358 96,249
Purchases of properties and equipment (211,253) (191,726)
__________ __________
Net cash used in investing activities (6,183,799) (1,076,646)
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, NOW,
and savings deposits (551,582) 313,078
Net increase (decrease) in time deposits 4,913,186 (886,353)
Dividends paid (237,423) -
Principal paid on short-term debt (400,000) -
__________ __________
Net cash provided (used) by financing
activities 3,724,181 (573,275)
__________ __________
Net increase (decrease) in cash & cash equiv. (634,666) 271,837
CASH AND CASH EQUIVALENTS, BEGINNING 2,749,552 1,907,215
__________ __________
CASH AND CASH EQUIVALENTS, ENDING $ 2,114,886 $ 2,179,052
__________ __________
</TABLE>
See Notes to Consolidated Financial Statements 6
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
For the nine months ended September 30, 1997 and 1996 (Unaudited)
_______________________________________________________________________________
<TABLE>
<CAPTION>
1997 1996
____ ____
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 4,158,967 $ 3,949,466
__________ __________
Income taxes paid $ 584,830 $ 182,964
__________ __________
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Other real estate acquired in
settlement of loans $ - $ 7,616
</TABLE>
See Notes to Consolidated Financial Statements 7
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
________________________________________________________________________________
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
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 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 three banking
offices.
BASIS OF PRESENTATION
The consolidated financial statements as of September 30, 1997 and for
the periods ended September 30, 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
Company's audited financial statements and the notes thereto as of December 31,
1996, included in the Company's Annual Report for the fiscal year ended December
31, 1996.
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 LOAN LOSSES
The following is an analysis of the allowance for loan losses for the
nine months ended September 30.
<TABLE>
<CAPTION>
1997 1996
____ ____
<S> <C> <C>
Balance at January 1 $ 1,002,455 $ 1,134,182
Provision charged to operations 425,000 250,000
Loans charged off, net of recoveries (35,795) (444,238)
__________ __________
Balance at September 30 $ 1,391,660 $ 939,944
</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 September
30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
____ ____
<S> <C> <C>
Commitments to extend credit $ 5,602,000 $ 5,578,372
Standby letters of credit 188,000 176,000
__________ __________
$ 5,790,000 $ 5,754,372
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the quarter ended September 30, 1997, the Bank earned $427,016 in net
income compared to $401,106 for the quarter ended September 30, 1996. The in-
crease was $25,910, as net interest income remained relatively stable.
Interest income was $2,774,287 for the quarter ended September 30, 1997,
compared to $2,591,475 for the same period of 1996. The $182,812 increase was
due mainly to an increase in average earning assets for the quarter ended
September 30, 1997, as compared to the quarter ended September 30, 1996.
Interest expense for the quarter ended September 30, 1997 was $1,451,389,
up $131,925 from $1,319,464 for the quarter ended September 30, 1996. The
increase was due primarily to an increase in interest bearing liabilities
when compared to the quarter ended September 30, 1996.
The provision for loan losses was $275,000 and $75,000 for the quarters
ended September 30, 1997 and 1996, respectively. Management believes the
provision and the resulting allowance for loan losses is adequate.
CHANGES IN FINANCIAL CONDITION
Total assets at September 30, 1997 were $141,733,451 compared to
$136,421,721 at December 31, 1996. Net loans have increased by $491,000 since
December 31, 1996. The loans were funded by an increase in deposits.
CAPITAL ADEQUACY
Shareholder's equity amounted to $15,797,842 at September 30, 1997, an
increase of $1,262,923 over the December 31, 1996 balance of $14,534,919. The
increase was a result of the earnings for the nine months and an increase
in the market value of securities that are classified as available for sale,
less the payment of $237,423 in dividends.
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 classified as well capitalized.
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: November 12, 1997 By: s/Ronald Leon Moore
President, Chief Executive
Officer
Date: November 12, 1997 By: s/Christopher B. Snodgrass
Assistant Vice President
and 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 SEPTEMBER
30, 1997 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,114,886
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,700,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,791,850
<INVESTMENTS-CARRYING> 11,439,621
<INVESTMENTS-MARKET> 11,538,016
<LOANS> 87,254,937
<ALLOWANCE> (1,391,660)
<TOTAL-ASSETS> 141,733,451
<DEPOSITS> 122,786,051
<SHORT-TERM> 0
<LIABILITIES-OTHER> 749,558
<LONG-TERM> 2,400,000
0
0
<COMMON> 4,655,360
<OTHER-SE> 11,142,482
<TOTAL-LIABILITIES-AND-EQUITY> 141,733,451
<INTEREST-LOAN> 6,022,325
<INTEREST-INVEST> 1,979,856
<INTEREST-OTHER> 196,914
<INTEREST-TOTAL> 8,199,095
<INTEREST-DEPOSIT> 4,190,984
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 4,008,111
<LOAN-LOSSES> 425,000
<SECURITIES-GAINS> 5,102
<EXPENSE-OTHER> 2,171,267
<INCOME-PRETAX> 1,947,815
<INCOME-PRE-EXTRAORDINARY> 1,947,815
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,397,418
<EPS-PRIMARY> 3.00
<EPS-DILUTED> 3.00
<YIELD-ACTUAL> 3.98
<LOANS-NON> 278,557
<LOANS-PAST> 511,240
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,002,455
<CHARGE-OFFS> 35,795
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,391,660
<ALLOWANCE-DOMESTIC> 1,391,660
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
