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, 1999.
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. 33-69326
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, Virginia 24091
(Address of principal executive offices)
(540) 745-4191
(Issuer's telephone number, including area code)
-----------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since
last report)
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:
511,911 shares of common stock, $10.00 par value per share (the "Common
Stock"), issued and outstanding as of May 10, 1999.
Transitional Small Business Disclosure Format (check one): Yes No X
---- ----
There are no Exhibits
<PAGE>
CNB Holdings, Inc.
Form 10-QSB
INDEX
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PART 1. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
The financial statements of Cardinal Bankshares Corporation (the "Company") are
set forth in the following pages.
Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998 ...........................................................3
Consolidated Statements of Operations for the Three Months
Ended March 31, 1999 and 1998...............................................4
Consolidated Statements of Stockholders' Equity for the
Three Months Ended March 31, 1999 and the Year
Ended December 31, 1998......................................................5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998...............................................6
Notes to Consolidated Financial Statements.....................................7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................9
Item 2. Changes in Securities..................................................9
Item 3. Defaults Upon Senior Securities........................................9
Item 4. Submission of Matters to a Vote of Security Holders................... 9
Item 5. Other Information......................................................9
Item 6. Exhibits and Reports on Form 8-K...................................... 9
SIGNATURES....................................................................10
All schedules have been omitted because they are inapplicable or the required
information is provided in the financial statements, including the notes
thereto.
<PAGE>
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CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
- --------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
1999 1998
------ --------
ASSETS
Cash and due from banks $ 2,382,697 $ 2,985,331
Interest - bearing deposits with banks 5,220,148 7,100,000
Federal funds sold 11,500,000 11,825,000
Investment securities available for sale 27,727,358 25,981,443
Investment securities held to maturity 17,342,618 15,347,979
Loans, net of allowance for loan losses
of $1,696,639 in 1999 and $1,668,201 in 1998 83,105,396 85,809,506
Property and equipment, net 2,345,729 2,173,693
Accrued income 1,067,695 984,457
Other assets 1,353,522 1,202,294
------------ ------------
Total assets $152,045,163 $153,409,703
============ ============
LIABILITIES
Demand deposits $ 14,756,313 $ 15,553,868
Interest-bearing demand deposits 10,158,473 9,991,178
Savings deposits 14,169,590 18,476,177
Large denomination time deposits 18,152,311 15,666,927
Other time deposits 76,125,523 75,522,910
------------ ------------
Total deposits 133,362,210 135,211,060
Federal funds purchased -- --
Other borrowed funds -- --
Accrued interest payable 279,654 240,709
Other liabilities 662,916 636,809
------------ ------------
Total liabilities 134,304,780 136,088,578
------------ ------------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common stock, $10 par value; 5,000,000 shares
authorized; 511,911 shares outstanding
in 1999 and 1998, respectively 5,119,110 5,119,110
Surplus 2,925,150 2,925,150
Retained earnings 9,631,630 9,123,733
Unrealized depreciation on investment
securities available for sale 64,493 153,132
------------ ------------
Total stockholders' equity 17,740,383 17,321,125
------------ ------------
Total liabilities and stockholders' equity $152,045,163 $153,409,703
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
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CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
---------- ----------
INTEREST INCOME:
<S> <C> <C>
Loans and fees on loans $1,985,677 $2,040,553
Federal funds sold 121,941 82,053
Taxable investment securities 707,952 597,618
Investment securities exempt from federal tax 13,868 140,214
---------- ----------
Total interest income 2,829,438 2,860,438
---------- ----------
INTEREST EXPENSE:
Deposits 1,417,749 1,459,306
Federal funds purchased -- --
Other borrowed funds -- --
Total interest expense 1,417,749 1,459,306
---------- ----------
Net interest income 1,411,689 1,401,132
PROVISION FOR LOAN LOSSES 30,000 75,000
Net interest income after provision for loan losses 1,381,689 1,326,132
---------- ----------
NON INTEREST INCOME:
Service charges on deposit accounts 38,627 33,040
Net realized gains on sales of securities -- --
Other income 44,558 54,676
---------- ----------
Total non interest income 83,185 87,716
---------- ----------
NON INTEREST EXPENSE:
Salaries and employee benefits 466,387 424,870
Occupancy expense 37,946 30,687
Equipment expense 58,038 55,198
Other expense 215,937 173,228
---------- ----------
Total non interest expense 778,308 683,983
---------- ----------
Income before income taxes 686,566 729,865
Income tax expense 185,395 204,926
---------- ----------
Net Income (loss) $ 507,897 $ 524,939
========== ==========
BASIC EARNINGS PER SHARE $ .99 $ 1.03
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 511,911 511,911
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
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CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1998 AND THE THREE MONTHS ENDED MARCH 31, 1999
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<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK RETAINED OTHER
------------ EARNINGS COMPREHENSIVE
SHARES AMOUNT SURPLUS (DEFICIT) INCOME (LOSS) TOTAL
------ ------ ------- --------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1997 511,911 $ 5,119,110 $ 2,925,150 $ 7,727,506 $ 212,385 $ 15,984,151
------------ ------------ ------------ ------------ ------------ ------------
COMPREHENSIVE INCOME
Net income -- -- -- 1,938,852 -- 1,938,852
Net change in unrealized
depreciation on investment
securities available for sale, -- -- -- -- 10,910 10,910
net of taxes of $ (30,525) -- -- -- -- (31,938) (31,938)
Reclassification adjustment -- -- -- -- (27,315) (27,315)
------------
TOTAL COMPREHENSIVE INCOME 1,879,599
Dividends paid
($1.06 per share) -- -- -- (542,625) -- (542,625)
Common stock purchased (2,500) -- -- (11,000) -- (13,500)
Common stock reissued 2,500 -- -- 11,000 -- 13,500
------------ ------------ ------------ ------------ ------------ ------------
DECEMBER 31, 1998 511,911 $ 5,119,110 $ 2,925,150 $ 9,123,733 $ 153,132 $ 17,321,125
COMPREHENSIVE INCOME
Net income -- -- -- 507,897 -- 507,897
Net change in unrealized
depreciation on investment
securities available for sale -- -- -- -- (88,639) (88,639)
------------
TOTAL COMPREHENSIVE INCOME 419,258
------------ ------------ ------------ ------------ ------------ ------------
MARCH 31, 1999 511,911 $ 5,119,110 $ 2,925,150 $ 9,631,630 $ 64,493 $ 17,740,383
============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
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CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 507,897 $ 524,939
Adjustments to reconcile net income (loss)
to net cash used by operations:
Depreciation and amortization 38,895 34,833
Accretion of discount on securities, net 8,684 (2,418)
Amortization of loan fees (11,792) (24,811)
Provision for loan losses 30,000 75,000
Deferred income taxes - (3,357)
Net realized gains on securities - (11,809)
Deferred compensation and pension expense 21,805 16,346
Changes in assets and liabilities:
Accrued income (83,238) 77,113
Other assets (151,228) 12,505
Accrued interest payable 38,945 12,096
Other liabilities 4,302 35,967
------------ ------------
Net cash flows from operating activities 404,270 762,404
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in federal funds sold 325,000 (6,175,000)
Purchases of investment securities (10,450,997) (4,333,424)
Net decrease in interest - bearing deposits 1,879,852 -
Maturity of investment securities 6,613,120 5,526,262
Net (increase) decrease in loans 2,685,902 4,438,382
Purchases of property and equipment (210,931) (265,762)
------------ ------------
Net cash provided by (used in) investing activities 841,946 (799,542)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, NOW, and savings deposits (4,936,847) 1,125,853
Net increase (decrease) in time deposits 3,087,997 (789,604)
Net increase (decrease) in federal funds purchased - -
------------ ------------
Net cash provided by (used in) financing activities (1,848,850) 336,249
------------ ------------
Net increase (decrease) in cash and cash equivalents (602,634) 299,110
CASH AND CASH EQUIVALENTS, BEGINNING 2,985,331 1,941,494
------------ ------------
CASH AND CASH EQUIVALENTS, ENDING $ 2,382,697 $ 2,240,604
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 1,378,804 $ 1,431,210
============ ============
Income taxes paid $ 185,395 $ 168,069
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Other real estate acquired in settlement of loans $ - $ -
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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 June 30, 1996.
The Bank of Floyd and its wholly owned subsidiary, FBC, Inc., are incorporated
and operate 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. The Bank serves the counties
of Floyd, Carroll, Montgomery and Roanoke, Virginia and the City of Roanoke,
Virginia, through four banking offices. FBC, Inc.'s assets and operations
consist primarily of annuity sales and a minority interest in a title insurance
company.
The accounting and reporting policies of the Company, the Bank and FBC, Inc.
follow generally accepted accounting principles and general practices within the
financial services industry. Following is a summary of the more significant
policies.
BASIS OF PRESENTATION
The consolidated financial statements as of March 31, 1999 and for the periods
ended March 31, 1999 and 1998 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, 1998, included in the
Company's Annual Report for the fiscal year ended December 31, 1998.
All significant intercompany accounts and transactions have been eliminated in
consolidation. Certain prior year amounts have been reclassified to conform to
the current year presentation.
ALLOWANCES FOR CREDIT LOSSES
The following is an analysis of the allowance for credit losses for the three
months ended March 31.
1999 1998
--------------- -------------
Balance at January 1 $ 1,668,201 $ 1,452,126
Provision charged to operations 30,000 75,000
Loans charged off, net of recoveries (1,562) -
-------------- -------------
Balance at March 31 $ 1,696,639 $ 1,527,126
============= =============
<PAGE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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,
1999 and 1998 is as follows:
1999 1998
------------- ------------
Commitments to extend credit $ 7,097,000 $ 7,348,000
Standby letters of credit 132,000 307,000
------------ -----------
$ 7,229,000 $ 7,655,000
============= =============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the quarter ended March 31, 1999, the Bank earned $507,897 in net income
compared to $524,939 for the quarter ended March 31, 1998. The decrease of
$17,042 was due primarily to a decrease in net interest income.
Interest income was $2,829,438 for the quarter ended March 31, 1999, compared to
$2,860,438 for the same period of 1998. The quarterly decrease was due mainly to
a decrease of $1.8 million in average earning assets for the quarter ended March
31, 1999, as compared to the quarter ended March 31, 1998.
Interest expense for the quarter ended March 31, 1999 was $1,417,749, down
$41,557 from $1,459,306 for the quarter ended March 31, 1998. The decrease was
due primarily to a decrease in interest bearing deposits when compared to the
quarter ended March 31, 1998.
The provision for credit losses was $30,000 for the quarter ended March 31, 1999
and $75,000 for the quarter ended March 31, 1998. Management believes the
provision and the resulting allowance for credit losses is adequate.
CHANGES IN FINANCIAL CONDITION
Total assets at March 31, 1999 were $152,045,163 compared to $153,409,703 at
December 31, 1998. Net loans have decreased by $2.5 million.
CAPITAL ADEQUACY
Shareholder's equity amounted to $17,740,383 at March 31, 1999, an increase of
$419,258 over the December 31, 1998 balance of $17,321,125. 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.
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, 1999 the Bank had a ratio of Tier 1 capital to risk-weighted assets of
14.51%, a ratio of total risk-based capital to risk-weighted assets of 15.76%
and a leverage ratio of Tier 1 capital to average total assets for the quarter
ended March 31, 1999 of 8.61%.
<PAGE>
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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
At the Company's Annual Meeting of Shareholders held on April 28, 1999, the
shareholders of the Company voted upon the following matters with the following
results:
(1) The election of the following persons as directors of the Company to
serve until the next annual meeting following their election and
therefore until their successors have been elected and have qualified:
Name Votes for Votes withheld
K. Venson Bolt 393,586 714
Joseph H. Conduff 383,836 714
William R. Gardner, Jr. 393,586 714
C. W. Harman 393,586 714
Kevin D. Mitchell 393,586 714
Ronald Leon Moore 393,586 714
Dorsey H. Thompson 393,586 714
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>
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 12, 1999 By: Ronald Leon Moore
President, Chief Executive Officer, and
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,382,697
<INT-BEARING-DEPOSITS> 5,220,148
<FED-FUNDS-SOLD> 11,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,727,358
<INVESTMENTS-CARRYING> 17,342,618
<INVESTMENTS-MARKET> 16,907,465
<LOANS> 83,105,396
<ALLOWANCE> 1,696,639
<TOTAL-ASSETS> 152,045,163
<DEPOSITS> 133,362,210
<SHORT-TERM> 0
<LIABILITIES-OTHER> 942,570
<LONG-TERM> 0
0
0
<COMMON> 5,119,110
<OTHER-SE> 12,621,273
<TOTAL-LIABILITIES-AND-EQUITY> 152,045,163
<INTEREST-LOAN> 1,985,677
<INTEREST-INVEST> 721,820
<INTEREST-OTHER> 121,941
<INTEREST-TOTAL> 2,829,438
<INTEREST-DEPOSIT> 1,417,749
<INTEREST-EXPENSE> 1,417,749
<INTEREST-INCOME-NET> 1,411,689
<LOAN-LOSSES> 30,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 778,308
<INCOME-PRETAX> 686,566
<INCOME-PRE-EXTRAORDINARY> 185,395
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 507,897
<EPS-PRIMARY> .99
<EPS-DILUTED> .99
<YIELD-ACTUAL> 3.80
<LOANS-NON> 290,547
<LOANS-PAST> 841,538
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,668,201
<CHARGE-OFFS> 1,562
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,696,639
<ALLOWANCE-DOMESTIC> 1,696,639
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
