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 June 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 June 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 June 30, 1997 and
December 31,1996........................................................3
Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 1997 and 1996............................4
Consolidated Statements of Stockholders' Equity for the
Periods Ended June 30, 1997 and 1996....................................5
Consolidated Statements of Cash Flows for the Six Months
Ended June 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
June 30, 1997 and December 31, 1996
________________________________________________________________________________
<TABLE>
<CAPTION> June 30, December 31,
1997 1996
____________ ____________
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,580,180 $ 2,749,552
Federal funds sold 7,700,000 500,000
Investment securities available for sale 27,288,656 30,338,456
Investment securities held to maturity;
market value of $12,436,715 in 1997 and
$12,366,283 in 1996 11,760,711 13,383,394
Loans, net of allowance for credit losses
of $1,129,379 in 1997 and $1,002,455 in
1996 87,507,761 85,372,459
Premises and equipment 1,556,730 1,560,582
Accrued income 1,049,341 1,053,576
Other assets 1,715,735 1,463,702
___________ ___________
Total assets $141,159,114 $136,421,721
___________ ___________
LIABILITIES
Demand deposits $ 12,070,479 $ 12,585,858
NOW deposits 8,316,374 8,572,681
Savings deposits 17,827,062 17,905,685
Large denomination time deposits 11,043,280 10,693,230
Other time deposits 73,395,021 68,666,993
___________ ___________
Total deposits 122,652,216 118,424,447
Short-term debt 0 400,000
Long-term debt 2,400,000 2,400,000
Accrued interest payable 257,774 247,000
Other liabilities 598,139 415,355
___________ ___________
Total liabilities 125,908,129 121,886,802
___________ ___________
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 9,317,986 8,585,007
Unrealized appreciation (depreciation) on
investment securities available for sale,
net of income taxes 77,639 94,552
___________ ___________
Total stockholders' equity 15,250,985 14,534,919
___________ ___________
Total liabilities and stockholders'
equity $141,159,114 $136,421,721
___________ ___________
</TABLE>
See Notes to Consolidated Financial Statements 3
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the quarter and six months ended June 30, 1997 and 1996 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
Six Six
Quarter Quarter Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
____ ____ ____ ____
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and fees on loans $ 2,011,571 $ 1,809,133 $ 3,995,097 $ 3,647,370
Federal funds sold 71,682 34,887 81,385 95,941
Taxable investment securities 532,420 555,335 1,098,583 1,091,117
Investment securities exempt
from federal tax 123,118 108,672 249,743 234,945
__________ __________ __________ __________
Total interest income 2,738,791 2,508,027 5,424,808 5,069,373
INTEREST EXPENSE ON DEPOSITS 1,401,660 1,320,181 2,739,595 2,659,312
__________ __________ __________ __________
Net interest income 1,337,131 1,187,646 2,685,213 2,410,061
PROVISION FOR CREDIT LOSSES 75,000 75,000 150,000 175,000
__________ __________ __________ __________
Net interest income after
provision for credit
losses 1,262,131 1,112,846 2,535,213 2,235,061
OTHER INCOME:
Service charges on deposit
accounts 39,605 30,282 71,507 57,311
Other service charges and fees 6,527 2,160 13,456 4,522
Securities gains - 24,991 6,808 32,491
Other income 69,941 56,736 117,692 120,666
__________ __________ __________ __________
Total other income 116,073 114,169 209,463 214,990
OTHER EXPENSE:
Salaries and employee benefits 368,903 441,994 745,105 849,521
Occupancy expense 26,742 27,962 49,532 56,056
Equipment expense 51,675 42,476 109,954 85,596
Other expense 219,834 191,148 504,683 377,084
__________ __________ __________ __________
Total other expense 667,154 703,580 1,409,274 1,368,257
__________ __________ __________ __________
Income before income taxes 711,050 523,435 1,335,402 1,081,794
Income tax expense 197,850 145,113 365,000 306,132
__________ __________ __________ __________
Net income $ 513,200 $ 378,322 $ 970,402 $ 775,662
__________ __________ __________ __________
NET INCOME PER SHARE $ 1.10 $ 0.81 $ 2.08 $ 1.67
__________ __________ __________ __________
</TABLE>
See Notes to Consolidated Financial Statements 4
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the six months ended June 30, 1997 and June 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 775,662 775,662
Change in market value
of investment securities
available for sale, net
of income taxes (550,812) (550,812)
_________ _________ __________ ________ __________
June 30, 1996 $4,655,360 $1,200,000 $ 8,257,251 $(256,283) $13,856,328
_________ _________ __________ ________ __________
January 1, 1997 $4,655,360 $1,200,000 $ 8,585,007 $ 94,552 $14,534,919
Net income 970,402 970,402
Change in market value
of investment securities
available for sale, net
of income taxes (16,913) (16,913)
Dividends paid (237,423) (237,423)
_________ _________ __________ ________ __________
June 30, 1997 $4,655,360 $1,200,000 $ 9,317,986 $ 77,639 $ 15,250,985
_________ _________ __________ ________ __________
</TABLE>
See Notes to Consolidated Financial Statements 5
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the six months ended June 30, 1997 and 1996 (Unaudited)
_______________________________________________________________________________
<TABLE>
<CAPTION>
1997 1996
____ ____
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 970,402 $ 775,662
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 87,920 79,352
Accretion of discounts on securities,
net of amortization of premiums (29,777) (33,958)
Amortization of loan fees (54,343) (15,493)
Provision for credit losses 150,000 175,000
Deferred income taxes 103,132 207,236
Net realized gains on securities (6,788) (32,991)
Net realized gains on sale of ORE - (9,696)
Deferred compensation & pension expense - 31,806
Changes in assets and liabilities:
Accrued income 4,235 6,374
Other assets (369,645) 277,636
Accrued interest payable 10,774 9,118
Other liabilities 182,784 (76,743)
__________ ___________
Net cash provided by operating activities 1,048,694 1,393,303
__________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) in federal funds sold (7,200,000) 550,000
Purchases of securities (871,444) (9,809,182)
Sale of securities 1,043,761 991,475
Maturities of securities 4,504,317 11,223,138
Net increase in loans (2,230,958) (3,580,177)
Proceeds from sale of other real estate 29,978 91,249
Purchases of properties and equipment (84,067) (125,656)
__________ __________
Net cash used in investing activities (4,808,413) (659,153)
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, NOW,
and savings deposits (850,309) (1,135,038)
Net increase (decrease) in time deposits 5,078,079 496,906
Dividends paid (237,423) -
Principal paid on short-term debt (400,000)
__________ __________
Net cash provided (used) by financing
activities 3,590,347 (638,132)
__________ __________
Net decrease in cash and cash equivalents (169,372) 96,018
CASH AND CASH EQUIVALENTS, BEGINNING 2,749,552 1,907,215
__________ __________
CASH AND CASH EQUIVALENTS, ENDING $ 2,580,180 $ 2,003,233
__________ __________
</TABLE>
See Notes to Consolidated Financial Statements 6
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
For the six months ended June 30, 1997 and 1996 (Unaudited)
_______________________________________________________________________________
<TABLE>
<CAPTION>
1997 1996
____ ____
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 2,728,621 $ 2,650,194
__________ __________
Income taxes paid $ 360,399 $ 288,477
__________ __________
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 June 30, 1997 and for
the periods ended June 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.
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
six months ended June 30.
<TABLE>
<CAPTION>
1997 1996
____ ____
<S> <C> <C>
Balance at January 1 $ 1,002,455 $ 1,134,182
Provision charged to operations 150,000 175,000
Loans charged off, net of recoveries (23,076) (427,073)
__________ __________
Balance at March 31 $ 1,129,379 $ 882,109
</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 June 30,
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
____ ____
<S> <C> <C>
Commitments to extend credit $ 3,988,684 $ 4,767,635
Standby letters of credit 187,700 396,500
__________ __________
$ 4,176,384 $ 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 June 30, 1997, the Bank earned $513,200 in net
income compared to $378,322 for the quarter ended June 30, 1996. The in-
crease of $134,878 was due primarily to an increase in net interest income.
Interest income was $2,738,791 for the quarter ended June 30, 1997,
compared to $2,508,027 for the same period of 1996. The quarterly increase was
due mainly to an increase of $4.5 million in average earning assets for the
quarter ended June 30, 1997, as compared to the quarter ended June 30, 1996.
Interest expense for the quarter ended June 30, 1997 was $1,401,660,
up $81,479 from $1,320,181 for the quarter ended June 30, 1996. The
increase was due primarily to an increase in interest bearing deposits
when compared to the quarter ended June 30, 1996.
The provision for credit losses was $75,000 for the quarters
ended June 30, 1997 and 1996. Management believes the provision and the
resulting allowance for credit losses is adequate.
CHANGES IN FINANCIAL CONDITION
Total assets at June 30, 1997 were $141,159,114 compared to $136,421,721
at December 31, 1996. Net loans have increased by $2.1 million due to solid
loan demand. The loans were funded by an increase in deposits.
CAPITAL ADEQUACY
Shareholder's equity amounted to $15,250,985 at June 30, 1997, an
increase of $716,066 over the December 31, 1996 balance of $14,534,919. The
increase was a result of the earnings for the six months offset by a decrease
in the market value of securities that are classified as available for sale,
and the payment of $237,413 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 considered to be well
capitalized. At June 30, 1997 the Bank had a ratio of Tier 1 capital to
risk-weighted assets of 13.85%, a ratio of total risk-based capital to
risk-weighted assets of 15.01% and a leverage ratio of Tier 1 capital to
average total assets for the quarter ended June 30, 1997 of 8.90%.
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: August 12, 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 JUNE
30, 1997 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,580,180
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,700,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,288,656
<INVESTMENTS-CARRYING> 11,760,711
<INVESTMENTS-MARKET> 12,436,715
<LOANS> 88,637,140
<ALLOWANCE> (1,129,379)
<TOTAL-ASSETS> 141,159,114
<DEPOSITS> 122,652,216
<SHORT-TERM> 0
<LIABILITIES-OTHER> 855,913
<LONG-TERM> 2,400,000
0
0
<COMMON> 4,655,360
<OTHER-SE> 10,595,625
<TOTAL-LIABILITIES-AND-EQUITY> 141,159,114
<INTEREST-LOAN> 3,995,097
<INTEREST-INVEST> 1,348,326
<INTEREST-OTHER> 81,385
<INTEREST-TOTAL> 5,424,808
<INTEREST-DEPOSIT> 2,739,595
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 2,685,213
<LOAN-LOSSES> 150,000
<SECURITIES-GAINS> 7
<EXPENSE-OTHER> 1,409,274
<INCOME-PRETAX> 1,335,402
<INCOME-PRE-EXTRAORDINARY> 1,335,402
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 970,402
<EPS-PRIMARY> 2.08
<EPS-DILUTED> 2.08
<YIELD-ACTUAL> 3.98
<LOANS-NON> 0
<LOANS-PAST> 300,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,002,455
<CHARGE-OFFS> 23,076
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,129,379
<ALLOWANCE-DOMESTIC> 1,129,379
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
