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, 1998
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, 1998 was 511,911.
Transitional Small Business Disclosure Format (check one):Yes No X
Page 1 of 13.
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, 1998 and
December 31,1997........................................................3
Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 1998 and 1997............................4
Consolidated Statements of Stockholders' Equity for the
Periods Ended June 30, 1998 and 1997....................................5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997..........................................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................................................11
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, 1998 and December 31, 1997
________________________________________________________________________________
<TABLE>
<CAPTION> June 30, December 31,
1998 1997
____________ ____________
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,527,637 $ 1,941,494
Interest-bearing deposits with banks 5,020,797 5,000,000
Federal funds sold 8,150,000 3,825,000
Investment securities available for sale 27,686,235 31,663,068
Investment securities held to maturity;
market value of $15,188,606 in 1998 and
$13,614,488 in 1997 15,008,570 13,430,624
Loans, net of allowance for credit losses
of $1,558,698 in 1998 and $1,452,126 in
1997 81,695,906 85,304,739
Premises and equipment 2,065,515 1,687,859
Accrued income 1,145,803 1,093,063
Other assets 1,299,193 1,126,470
___________ ___________
Total assets $144,599,656 $145,072,317
___________ ___________
LIABILITIES
Demand deposits $ 13,518,946 $ 12,229,167
NOW deposits 8,763,399 8,923,777
Savings deposits 17,212,186 17,507,178
Large denomination time deposits 12,348,735 15,120,658
Other time deposits 74,886,369 74,407,946
___________ ___________
Total deposits 126,729,635 128,188,726
Short-term debt - -
Long-term debt - -
Accrued interest payable 275,329 269,032
Other liabilities 899,667 630,408
___________ ___________
Total liabilities 127,904,631 129,088,166
___________ ___________
Commitments and contingencies (Note 3)
STOCKHOLDERS'EQUITY:
Common stock, $10 par value, authorized
5,000,000 shares, issued 511,911
shares in 1998 and 1997 5,119,110 5,119,110
Surplus 2,925,150 2,925,150
Retained earnings 8,469,390 7,727,506
Unrealized appreciation (depreciation) on
investment securities available for sale,
net of income taxes 181,375 212,385
___________ ___________
Total stockholders' equity 16,695,025 15,984,151
___________ ___________
Total liabilities and stockholders'
equity $144,599,656 $145,072,317
___________ ___________
</TABLE>
See Notes to Consolidated Financial Statements <PAGE> 3
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the quarter and six months ended June 30, 1998 and 1997 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION> Six Six
Quarter Quarter Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
____ ____ ____ ____
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and fees on loans $ 1,983,332 $ 2,011,571 $ 4,023,885 $ 3,995,097
Federal funds sold 111,929 71,682 193,982 81,385
Taxable investment securities 573,269 532,420 1,170,887 1,098,583
Investment securities exempt
from federal tax 150,897 123,118 291,111 249,743
__________ __________ __________ __________
Total interest income 2,819,427 2,738,791 5,679,865 5,424,808
INTEREST EXPENSE ON DEPOSITS 1,444,072 1,401,660 2,903,378 2,739,595
__________ __________ __________ __________
Net interest income 1,375,355 1,337,131 2,776,487 2,685,213
PROVISION FOR CREDIT LOSSES 60,000 75,000 135,000 150,000
__________ __________ __________ __________
Net interest income after
provision for credit
losses 1,315,355 1,262,131 2,641,487 2,535,213
OTHER INCOME:
Service charges on deposit
accounts 36,949 39,605 69,989 71,507
Other service charges and fees 6,425 6,527 12,258 13,456
Securities gains 7,774 - 19,583 6,808
Other income 16,545 69,941 53,579 117,692
__________ __________ __________ __________
Total other income 67,693 116,073 155,409 209,463
OTHER EXPENSE:
Salaries and employee benefits 444,033 368,903 868,903 745,105
Occupancy expense 29,205 26,742 59,892 49,532
Equipment expense 64,971 51,675 120,169 109,954
Other expense 183,601 219,834 356,829 504,683
__________ __________ __________ __________
Total other expense 721,810 667,154 1,405,793 1,409,274
__________ __________ __________ __________
Income before income taxes 661,238 711,050 1,391,103 1,335,402
Income tax expense 178,098 197,850 383,024 365,000
__________ __________ __________ __________
Net income $ 483,140 $ 513,200 $ 1,008,079 $ 970,402
__________ __________ __________ __________
BASIC AND DILUTED EARNINGS
PER SHARE $ 0.94 $ 1.00 $ 1.97 $ 1.90
__________ __________ __________ __________
</TABLE>
See Notes to Consolidated Financial Statements <PAGE> 4
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the six months ended June 30, 1998 and June 30, 1997 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
OTHER STOCK-
COMMON RETAINED COMPREHENSIVE HOLDERS'
STOCK SURPLUS EARNINGS INCOME (LOSS) EQUITY
__________ _______ _________ _____________ ________
<S> <C> <C> <C> <C> <C>
January 1, 1997 $4,655,360 $1,200,000 $ 8,585,007 $ 94,552 $14,534,919
Comprehensive income
Net income 970,402 970,402
Net change in unrealized
appreciation on
investment securities
available for sale, net
of income taxes (16,913) (16,913)
Total comprehensive __________
income 953,489
__________
Dividends paid ($.51
per share) (237,423) (237,423)
_________ _________ __________ ________ __________
June 30, 1997 $4,655,360 $1,200,000 $ 9,317,986 $ 77,639 $15,250,985
_________ _________ __________ ________ __________
January 1, 1998 $5,119,110 $2,925,150 $ 7,727,506 $ 212,385 $15,984,151
Comprehensive income
Net income 1,008,079 1,008,079
Net change in unrealized
appreciation on
investment securities
available for sale, net
of income taxes (31,010) (31,010)
Total comprehensive __________
income 977,069
__________
Dividends paid ($.52
per share) (266,195) (266,195)
_________ _________ __________ ________ __________
June 30, 1998 $5,119,110 $2,925,150 $ 8,469,390 $ 181,375 $ 16,695,025
_________ _________ __________ ________ __________
</TABLE>
See Notes to Consolidated Financial Statements <PAGE> 5
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the six months ended June 30, 1998 and 1997 (Unaudited)
_______________________________________________________________________________
<TABLE>
<CAPTION>
1998 1997
____ ____
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,008,079 $ 970,402
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 71,513 87,920
Accretion of discounts on securities,
net of amortization of premiums 16,724 (29,777)
Amortization of loan fees (51,216) (54,343)
Provision for credit losses 135,000 150,000
Deferred income taxes - 103,132
Net realized gains on securities (19,583) (6,788)
Net realized gains on sale of ORE - -
Deferred compensation & pension expense 32,692 -
Changes in assets and liabilities:
Accrued income (52,740) 4,235
Other assets (208,521) (369,645)
Accrued interest payable 6,297 10,774
Other liabilities 236,567 182,784
__________ ___________
Net cash provided by operating activities 1,174,812 1,048,694
__________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in federal funds
sold and interest-bearing deposits in banks (4,345,797) (7,200,000)
Purchases of securities (7,457,125) (871,444)
Sale of securities 12,125 1,043,761
Maturities of securities 9,799,762 4,504,317
Net (increase) decrease in loans 3,525,049 (2,230,958)
Proceeds from sale of other real estate 51,772 29,978
Purchases of properties and equipment (449,169) (84,067)
__________ __________
Net cash used in investing activities 1,136,617 (4,808,413)
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, NOW,
and savings deposits 834,409 (850,309)
Net increase (decrease) in time deposits (2,293,500) 5,078,079
Dividends paid (266,195) (237,423)
Net decrease in short-term debt - (400,000)
__________ __________
Net cash provided (used) by financing
activities (1,725,286) 3,590,347
__________ __________
Net increase (decrease) in cash and cash
equivalents 586,143 (169,372)
CASH AND CASH EQUIVALENTS, BEGINNING 1,941,494 2,749,552
__________ __________
CASH AND CASH EQUIVALENTS, ENDING $ 2,527,637 $ 2,580,180
__________ __________
</TABLE>
See Notes to Consolidated Financial Statements <PAGE> 6
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
For the six months ended June 30, 1998 and 1997 (Unaudited)
_______________________________________________________________________________
<TABLE>
<CAPTION>
1998 1997
____ ____
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 2,897,081 $ 2,728,621
__________ __________
Income taxes paid $ 398,309 $ 360,399
__________ __________
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Other real estate acquired in
settlement of loans $ - $ -
</TABLE>
See Notes to Consolidated Financial Statements <PAGE> 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, 1998 and for
the periods ended June 30, 1998 and 1997 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,
1997, included in the Company's Annual Report for the fiscal year ended December
31, 1997.
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 Bank 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, Carroll,
and Roanoke, Virginia and the City of Roanoke and Radford, Virginia through
four 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>
1998 1997
____ ____
<S> <C> <C>
Balance at January 1 $ 1,452,126 $ 1,002,455
Provision charged to operations 135,000 150,000
Loans charged off, net of recoveries 1,572 (23,076)
__________ __________
Balance at June 30 $ 1,588,698 $ 1,129,379
</TABLE>
<PAGE> 8
NOTE 3. COMMITMENTS AND CONTINGENCIES
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments 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, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
____ ____
<S> <C> <C>
Commitments to extend credit $ 4,352,232 $ 3,988,684
Standby letters of credit 250,000 187,700
__________ __________
$ 4,602,232 $ 4,176,384
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the six month period ended June 30, 1998, the Bank earned $1,008,079,
an increase of $37,677 over the $970,402 earned for the six months ended
June 30, 1997. The increase was primarily due to an increase in net interest
income and a slight reduction in total other expense.
For the quarter ended June 30, 1998, the Bank earned $483,140 in net
income compared to $513,200 for the quarter ended June 30, 1997. The decrease
of $30,060 was due primarily to an increase in total other expense and a
decrease in total other income.
Interest income was $5,679,865 for the six month period ending June 30,
1998, compared to $5,424,808 for the six month period ending June 30, 1997.
The increase was due mainly to increases in the volume of money market assets
and investments as well as an increase overall loan yields.
Interest expense for the six month period ending June 30, 1998, was
$2,903,378 compared to $2,739,595 for the prior period in 1997. The increase
was due primarily to increases in the interest rate paid on total time deposits
coupled with an increase in the volume of total time deposits.
The provision decreased by $15,000 to $135,000 from $150,000 for the six
months ended June 30, 1998 compared to the six months ended June 30, 1997. The
decreases in loan loss provision were accomplished because management of the
Bank has continued to reduce the level of classified assets.
CHANGES IN FINANCIAL CONDITION
Total assets at June 30, 1998 were $144,599,656 compared to $145,072,317
at December 31, 1997. Net loans have decreased $3,608,833. These funds have
been invested in federal funds to fund future loans.
<PAGE> 9
CAPITAL ADEQUACY
Shareholder's equity totaled $16,695,025 at June 30, 1998, an increase
of $710,874 over the December 31, 1997 balance of $15,984,151. The increase
was a result of earnings for the six months offset by dividends paid of
$266,195 and a decrease in the market value of securities that are classified
available for sale.
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, 1998, the Bank had a ratio of Tier 1 capital to
risk-weighted assets of 15.2%, a ratio of total risk-based capital to
risk-weighted assets of 16.5% and a leverage ratio of Tier 1 capital to
average total assets for the quarter ended June 30, 1998 of 9.0%.
<PAGE> 10
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.
<PAGE> 11
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, 1998 By: s/Ronald Leon Moore
President, Chief Executive
Officer, and Principal Financial
Officer
<PAGE> 12
<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, 1998 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1998 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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,527,637
<INT-BEARING-DEPOSITS> 5,020,797
<FED-FUNDS-SOLD> 8,150,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,686,235
<INVESTMENTS-CARRYING> 15,008,570
<INVESTMENTS-MARKET> 15,188,606
<LOANS> 83,284,604
<ALLOWANCE> (1,588,698)
<TOTAL-ASSETS> 144,599,656
<DEPOSITS> 126,729,635
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,174,996
<LONG-TERM> 0
0
0
<COMMON> 5,119,110
<OTHER-SE> 11,575,915
<TOTAL-LIABILITIES-AND-EQUITY> 144,599,656
<INTEREST-LOAN> 4,023,885
<INTEREST-INVEST> 1,461,998
<INTEREST-OTHER> 193,982
<INTEREST-TOTAL> 5,679,865
<INTEREST-DEPOSIT> 2,903,378
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 2,776,487
<LOAN-LOSSES> 135,000
<SECURITIES-GAINS> 19,583
<EXPENSE-OTHER> 1,405,793
<INCOME-PRETAX> 1,391,103
<INCOME-PRE-EXTRAORDINARY> 1,008,079
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,008,079
<EPS-PRIMARY> 1.97
<EPS-DILUTED> 1.97
<YIELD-ACTUAL> 3.80
<LOANS-NON> 285,738
<LOANS-PAST> 47,291
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,452,126
<CHARGE-OFFS> 25,641
<RECOVERIES> 27,213
<ALLOWANCE-CLOSE> 1,588,698
<ALLOWANCE-DOMESTIC> 1,588,698
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
