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, 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 March 31, 1998 was 511,911.
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, 1998 and
December 31,1997........................................................3
Consolidated Statements of Operations for the Three Months
Ended March 31, 1998 and 1997...........................................4
Consolidated Statements of Stockholders' Equity for the
Periods Ended March 31, 1998 and 1997...................................5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 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................................................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, 1998 and December 31, 1997
________________________________________________________________________________
<TABLE>
<CAPTION> March 31, December 31,
1998 1997
____________ ____________
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,240,604 $ 1,941,494
Interest-bearing deposits with banks 5,000,000 5,000,000
Federal funds sold 10,000,000 3,825,000
Investment securities available for sale 30,804,860 31,663,068
Investment securities held to maturity;
market value of $13,275,298 in 1998 and
$13,614,488 in 1997 13,090,347 13,430,624
Loans, net of allowance for credit losses
of $1,541,968 in 1998 and $1,452,126 in
1997 (Note 2) 80,819,527 85,304,739
Premises and equipment 1,918,789 1,687,859
Accrued income 1,015,950 1,093,063
Other assets 1,117,321 1,126,470
___________ ___________
Total assets $146,007,398 $145,072,317
___________ ___________
LIABILITIES
Demand deposits $ 12,856,666 $ 12,229,167
NOW deposits 8,787,935 8,923,777
Savings deposits 18,141,374 17,507,178
Large denomination time deposits 13,221,747 15,120,658
Other time deposits 75,517,253 74,407,946
___________ ___________
Total deposits 128,524,975 128,188,726
Short-term debt 0 0
Long-term debt 0 0
Accrued interest payable 297,128 269,032
Other liabilities 682,722 630,408
___________ ___________
Total liabilities 129,504,825 129,088,166
___________ ___________
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 8,252,445 7,727,506
Unrealized appreciation (depreciation) on
investment securities available for sale,
net of income taxes 205,868 212,385
___________ ___________
Total stockholders' equity 16,502,573 15,984,151
___________ ___________
Total liabilities and stockholders'
equity $146,007,398 $145,072,317
</TABLE> ___________ ___________
See Notes to Consolidated Financial Statements 3
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the three months ended March 31, 1998 and 1997 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
1998 1997
____ ____
<S> <C> <C>
INTEREST INCOME:
Loans and fees on loans $ 2,040,553 $ 1,983,526
Federal funds sold 82,053 9,703
Taxable investment securities 597,618 566,163
Investment securities exempt from
federal tax 140,214 126,625
__________ __________
Total interest income 2,860,438 2,686,017
INTEREST EXPENSE ON DEPOSITS 1,459,306 1,337,935
__________ __________
Net interest income 1,401,132 1,348,082
PROVISION FOR CREDIT LOSSES 75,000 75,000
__________ __________
Net interest income after provision
for credit losses 1,326,132 1,273,082
OTHER INCOME:
Service charges on deposit accounts 33,040 31,902
Other service charges and fees 5,833 6,929
Securities gains 11,809 6,808
Other real estate owned gains - -
Other income 37,034 47,751
__________ __________
Total other income 87,716 93,390
OTHER EXPENSE:
Salaries and employee benefits 424,870 376,202
Occupancy expense 30,687 22,790
Equipment expense 55,198 58,279
Other expense 173,228 284,849
__________ __________
Total other expense 683,983 742,120
__________ __________
Income before income taxes 729,865 624,352
Income tax expense 204,926 167,150
__________ __________
Net income $ 524,939 $ 457,202
__________ __________
BASIC AND DILUTED EARNINGS PER SHARE $ 1.03 $ 0.89
__________ __________
</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, 1998 and March 31, 1997 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
UNREALIZED TOTAL
APPRECIATION STOCK-
COMMON RETAINED (DEPRECIATION) HOLDERS'
STOCK SURPLUS EARNINGS SECURITIES 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 457,202 457,202
Net change in unrealized
appreciation on investment
securities available for
sale, net of income
taxes (217,109) (217,109)
__________
Total comprehensive
income 240,093
_________ _________ __________ ________ __________
March 31, 1997 $4,655,360 $1,200,000 $ 9,042,209 $(122,557) $14,775,012
_________ _________ __________ ________ __________
January 1, 1998 $5,119,110 $2,925,150 $ 7,727,506 $ 212,385 $15,984,151
Comprehensive income
Net income 524,939 524,939
Net change in unrealized
appreciation on investment
securities available for
sale, net of income
taxes (6,517) (6,517)
__________
Total comprehensive
income 518,422
_________ _________ __________ ________ __________
March 31, 1998 $5,119,110 $2,925,150 $ 8,252,445 $ 205,868 $16,502,573
_________ _________ __________ ________ __________
</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, 1998 and 1997 (Unaudited)
_______________________________________________________________________________
<TABLE>
<CAPTION>
1998 1997
____ ____
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 524,939 $ 457,202
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 34,833 43,891
Accretion of discounts on securities,
net of amortization of premiums (2,418) (24,967)
Amortization of loan fees (24,811) (25,000)
Provision for credit losses 75,000 75,000
Deferred income taxes (3,357) -
Net realized gains on securities (11,809) (5,039)
Net realized gains on sale of ORE - -
Deferred compensation & pension expense 16,346 9,356
Changes in assets and liabilities:
Accrued income 77,113 91,746
Other assets 12,505 2,764
Accrued interest payable 28,096 23,799
Other liabilities 35,967 141,479
__________ ___________
Net cash provided by operating activities 762,404 790,231
__________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) in federal funds sold (6,175,000) (1,450,000)
Purchases of securities (4,333,424) -
Sale of securities - 938,526
Maturities of securities 5,536,262 957,375
Net (increase) decrease in loans 4,438,382 (1,654,383)
Proceeds from sale of other real estate - -
Purchases of properties and equipment (265,763) (1,829)
__________ __________
Net cash used in investing activities (799,543) (1,210,311)
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, NOW,
and savings deposits 1,125,853 (225,093)
Net increase (decrease) in time deposits (789,604) 719,420
Dividends paid - -
Principal paid on short-term debt - (400,000)
__________ __________
Net cash provided (used) by financing
activities 336,249 94,327
__________ __________
Net decrease in cash and cash equivalents 299,110 (325,753)
CASH AND CASH EQUIVALENTS, BEGINNING 1,941,494 2,749,552
__________ __________
CASH AND CASH EQUIVALENTS, ENDING $ 2,240,604 $ 2,423,799
__________ __________
</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, 1998 and 1997 (Unaudited)
_______________________________________________________________________________
<TABLE>
<CAPTION>
1998 1997
____ ____
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 1,431,210 $ 1,314,136
__________ __________
Income taxes paid $ 168,069 $ 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, 1998 and for
the periods ended March 31, 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
Bank's audited financial statements and the notes thereto as of December 31,
1997, included in the Bank'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 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.
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>
1998 1997
____ ____
<S> <C> <C>
Balance at January 1 $ 1,452,126 $ 1,002,455
Provision charged to operations 75,000 75,000
Loans charged off, net of recoveries 14,842 (14,899)
__________ __________
Balance at March 31 $ 1,541,968 $ 1,062,556
</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,
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
____ ____
<S> <C> <C>
Commitments to extend credit $ 4,105,966 $ 4,638,538
Standby letters of credit 257,000 197,100
__________ __________
$ 4,362,966 $ 4,835,638
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the quarter ended March 31, 1998, the Bank earned $524,939 in net
income compared to $457,202 for the quarter ended March 31, 1997. The in-
crease of $67,737 was due to decreases in noninterest expense and increases
in interest income.
Interest income was $2,860,438 for the quarter ended March 31, 1998,
compared to $2,686,017 for the same period of 1997. The quarterly increase was
due mainly to an increase of $9.5 million in average earning assets for the
quarter ended March 31, 1998, as compared to the quarter ended March 31, 1997.
Interest expense for the quarter ended March 31, 1998 was $1,459,306,
up $121,371 from $1,337,935 for the quarter ended March 31, 1997. The
increase was due to an increase of $9.4 million in average interest bearing
liabilities.
The provision for credit losses was $75,000 for the quarters ended
March 31, 1998 and March 31, 1997, respectively. Management believes the
provision and the resulting allowance for credit losses is adequate.
CHANGES IN FINANCIAL CONDITION
Total assets at March 31, 1998 were $146,007,398 compared to $145,072,317
at December 31, 1997. Net loans have decreased by $4.5 million. These funds
have been invested in federal funds to fund future loans.
CAPITAL
Shareholder's equity totaled $16,502,573 at March 31, 1998, an increase
of $518,422 over the December 31, 1997 balance of $15,984,151. The increase
was the result of earnings for the three months offset by a decrease in the
market value of securities that are classified as available for sale.
9
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, 1998 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, 1998 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1998 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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,240,604
<INT-BEARING-DEPOSITS> 5,000,000
<FED-FUNDS-SOLD> 10,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,804,860
<INVESTMENTS-CARRYING> 13,090,347
<INVESTMENTS-MARKET> 13,275,298
<LOANS> 82,361,495
<ALLOWANCE> 1,541,968
<TOTAL-ASSETS> 146,007,398
<DEPOSITS> 128,524,975
<SHORT-TERM> 0
<LIABILITIES-OTHER> 979,849
<LONG-TERM> 0
0
0
<COMMON> 5,119,110
<OTHER-SE> 11,383,463
<TOTAL-LIABILITIES-AND-EQUITY> 146,007,398
<INTEREST-LOAN> 2,040,553
<INTEREST-INVEST> 737,832
<INTEREST-OTHER> 82,053
<INTEREST-TOTAL> 2,860,438
<INTEREST-DEPOSIT> 1,459,306
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 1,401,132
<LOAN-LOSSES> 75,000
<SECURITIES-GAINS> 11,809
<EXPENSE-OTHER> 683,983
<INCOME-PRETAX> 729,865
<INCOME-PRE-EXTRAORDINARY> 729,865
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 524,939
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.03
<YIELD-ACTUAL> 3.84
<LOANS-NON> 283,049
<LOANS-PAST> 100,125
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,452,126
<CHARGE-OFFS> 7,000
<RECOVERIES> 21,842
<ALLOWANCE-CLOSE> 1,541,968
<ALLOWANCE-DOMESTIC> 1,541,968
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
