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, 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. -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, 1999 was 511,771.
<PAGE>
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, 1999 and
December 31,1998........................................................3
Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 1999 and 1998......................4
Consolidated Statements of Stockholders' Equity for the
Periods Ended September 30, 1999 and 1998...............................5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998.....................................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.............................................10-11
All schedules have been omitted because they are inapplicable or the
required information is provided in the financial statements, including the
notes thereto.
<PAGE>
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
________________________________________________________________________________
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
____________ ____________
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,603,846 $ 2,985,331
Interest-bearing deposits with banks 1,038,959 7,100,000
Federal funds sold 7,210,000 11,825,000
Investment securities available for sale 32,813,437 25,981,443
Investment securities held to maturity 17,727,932 15,347,979
Loans, net of allowance for credit losses
of $1,625,857 in 1999 and $1,648,316 in
1998 85,439,297 85,809,506
Property and equipment, net 2,442,281 2,173,693
Accrued income 1,097,992 984,457
Other assets 2,266,018 1,202,294
___________ ___________
Total assets $152,639,762 $153,409,703
___________ ___________
LIABILITIES
Demand deposits $ 16,131,229 $ 15,553,868
Interest-bearing deposits 10,190,700 9,991,178
Savings deposits 20,233,007 18,476,177
Large denomination time deposits 15,704,270 15,666,927
Other time deposits 71,841,866 75,522,910
___________ ___________
Total deposits 134,101,072 135,211,060
Federal funds purchased 0 0
Other borrowed funds 0 0
Accrued interest payable 267,616 240,709
Other liabilities 579,976 636,809
___________ ___________
Total liabilities 134,948,664 136,088,578
___________ ___________
Commitments and contingencies (Note 3)
STOCKHOLDERS'EQUITY:
Common stock, $10 par value, authorized
5,000,000 shares, issued 511,771
shares in 1999 and 511,911 in 1998 5,117,830 5,119,110
Surplus 2,925,070 2,925,150
Retained earnings 10,275,751 9,123,733
Unrealized appreciation (depreciation) on
investment securities available for sale (621,553) 153,132
___________ ___________
Total stockholders' equity 17,691,098 17,321,125
___________ ___________
Total liabilities and stockholders'
equity $152,639,762 $153,409,703
___________ ___________
</TABLE>
See Notes to Consolidated Financial Statements 3
<PAGE>
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Quarter and Nine Months ended September 30, 1999 and 1999 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
Nine Nine
Quarter Quarter Months Months
Ended Ended Ended Ended
Sept 30, Sept 30, Sept 30, Sept 30,
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and fees on loans $ 1,878,711 $ 2,019,731 $ 5,731,348 $ 6,012,184
Federal funds sold 128,570 126,766 362,913 320,749
Taxable investment securities 706,568 662,224 2,112,539 2,116,448
Investment securities exempt
from federal tax 12,850 15,384 44,340 46,732
__________ __________ __________ __________
Total interest income 2,726,699 2,824,105 8,251,140 8,496,113
INTEREST EXPENSE ON DEPOSITS:
Deposits 1,386,150 1,451,341 4,201,647 4,354,720
Federal funds purchased 0 0 0 0
Other borrowed funds 0 0 0 0
__________ __________ __________ __________
Total interest expense 1,386,150 1,451,341 4,201,647 4,354,720
__________ __________ __________ __________
Net interest income 1,340,549 1,372,764 4,049,493 4,141,393
PROVISION FOR CREDIT LOSSES 40,000 70,000 96,721 205,000
__________ __________ __________ __________
Net interest income after
provision for loan loss 1,300,549 1,302,764 3,952,772 3,936,393
NON INTEREST INCOME:
Service charges on deposit
accounts 45,857 33,678 129,415 95,967
Net realized gains on sales of
Securities 0 7,607 4,768 34,964
Other income 118,183 141,426 208,144 233,192
__________ __________ __________ __________
Total non interest income 164,040 182,711 342,327 354,123
NON INTEREST EXPENSE:
Salaries and employee benefits 486,965 470,392 1,520,255 1,339,295
Occupancy expense 42,525 36,434 114,306 100,935
Equipment expense 74,245 61,473 199,935 181,641
Other expense 207,483 197,576 556,110 557,944
__________ __________ __________ __________
Total non interest expense 811,218 765,875 2,390,606 2,179,815
__________ __________ __________ __________
Income before income taxes 653,371 719,600 1,904,493 2,110,701
__________ __________ __________ __________
Income tax expense 160,613 193,972 472,164 576,997
__________ __________ __________ __________
Net income $ 492,758 $ 525,628 $ 1,432,329 $ 1,533,704
BASIC EARNINGS PER SHARE $ 0.96 $ 1.03 $ 2.80 $ 3.00
</TABLE>
See Notes to Consolidated Financial Statements 4
<PAGE>
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the Nine Months ended September 30, 1999 and 1998 (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, 1998 $5,119,110 $2,925,150 $ 7,727,506 $ 212,385 $15,984,151
Net income 1,938,852 1,938,852
Change in market value
of investment securities
available for sale, net
of income taxes (31,938) (31,938)
Reclassification adjustment (27,315) (27,315)
__________
1,879,599
Dividends paid
($1.06 per share) (542,625) (542,625)
Common stock purchased (11,000) (11,000)
Common stock reissued 11,000 11,000
_________ _________ __________ ________ __________
December 31, 1998 $5,119,110 $2,925,150 $ 9,123,733 $ 153,132 $17,321,125
_________ _________ __________ ________ __________
Net income 1,432,329 1,432,329
Net change in unrealized
Depreciation on investment
Securities available for
Sale (784,685) (784,685)
_________ _________ __________ ________ __________
Total Comprehensive Income 1,432,329 (774,685) 657,644
Dividends paid ($.53 per share) (271,313) (271,313)
Common stock purchased (3,000) (12,600) (15,600)
Common stock reissued 1,600 6,720 8,320
_________ _________ __________ ________ __________
Sept 30, 1999 $5,117,710 $2,919,270 $10,284,749 $(621,553)$ 17,700,176
_________ _________ __________ ________ __________
</TABLE>
See Notes to Consolidated Financial Statements 5
<PAGE>
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months ended September 30, 1999 and 1998 (Unaudited)
_______________________________________________________________________________
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1999 1998
____ ____
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,432,329 $ 1,542,717
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 145,886 117,463
Accretion of discounts on securities (21,472) 38,130
Amortization of loan fees (25,345) (91,438)
Provision for loan losses 96,554 205,000
Deferred income taxes 0 8,122
Net realized gains on securities (4,768) (27,190)
Deferred compensation & pension expense 8,378 49,038
Changes in assets and liabilities:
Accrued income (113,535) 14,674
Other assets (1,324,580) (199,106)
Accrued interest payable 26,907 22,969
Other liabilities (61,025) (147,944)
__________ ___________
Net cash provided by operating activities 159,329 1,532,425
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) in federal funds sold 4,615,000 (6,935,000)
Purchases of investment securities (22,177,556)(12,236,454)
Sale of investment securities 493,672 12,125
Net decrease in int-bearing deposits 4,645,119 (99,231)
Maturity of investment securities 12,759,033 17,381,446
Net decrease in loans 433,622 1,044,418
Proceeds from sale of other real estate 0 177,979
Purchases of properties and equipment (414,474) (612,837)
__________ __________
Net cash (used) in investing activities 354,416 (1,267,554
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, NOW,
and savings deposits 1,958,193 2,296,966
Net (decrease) in time deposits (3,068,180) (1,933,001)
Dividends paid (271,313) (266,195)
Net (decrease) fed funds purchased 0 0
__________ __________
Net cash used in financing activities (1,381,300) 97,770
__________ __________
Net decrease in cash & cash equivalents (867,555) 362,641
CASH AND CASH EQUIVALENTS, BEGINNING 2,985,331 1,941,494
__________ __________
CASH AND CASH EQUIVALENTS, ENDING $ 2,117,776 $ 2,304,135
__________ __________
</TABLE>
See Notes to Consolidated Financial Statements 6
<PAGE>
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
For the Nine Months ended September 30, 1999 and 1998 (Unaudited)
_______________________________________________________________________________
<TABLE>
<CAPTION>
1999 1998
____ ____
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 4,174,740 $ 4,322,749
__________ __________
Income taxes paid $ 548,968 $ 724,089
__________ __________
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Other real estate acquired in
settlement of loans $ - $ -
</TABLE>
See Notes to Consolidated Financial Statements 7
<PAGE>
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 September 30, 1999 and for
the periods ended September 30, 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.
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
Nine Months ended September 30.
<TABLE>
<CAPTION>
1999 1998
____ ____
<S> <C> <C>
Balance at January 1 $ 1,668,201 $ 1,452,126
Provision charged to operations 96,721 205,000
Loans charged off, net of recoveries (139,065) 31,075
__________ __________
Balance at September 30 $ 1,625,857 $ 1,688,201
</TABLE>
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, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
____ ____
<S> <C> <C>
Commitments to extend credit $ 6,612,140 $ 8,387,307
Standby letters of credit 30,000 368,600
__________ __________
$ 6,642,140 $ 8,755,907
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the quarter ended September 30, 1999, the Bank earned $492,758 in net
income compared to $525,628 for the quarter ended September 30, 1998. The de-
crease of $32,870 was due primarily to a decrease in net interest income.
Interest income was $2,726,699 for the quarter ended September 30, 1999,
compared to $2,824,105 for the same period of 1998. The quarterly decrease
was due mainly to a decrease in yields on average earning assets.
<PAGE>
Interest expense for the quarter ended September 30, 1999 was $1,386,150,
down $65,191 from $1,451,341 for the quarter ended September 30, 1998. The
decrease was due to a decrease in interest bearing deposits and lower
interest rates when compared to the quarter ended September 30, 1998.
The provision for credit losses was $40,000 for the quarter ended September
30, 1999 and $70,000 for the quarter ended September 30, 1998. Management
believes the provision and the resulting allowance for credit losses is
adequate.
CHANGES IN FINANCIAL CONDITION
Total assets at September 30, 1999 were $152,639,762 compared to
$153,409,703 at December 31, 1998. Net loans have decreased by $370,209.
CAPITAL ADEQUACY
Shareholder's equity amounted to $17,691,098 at September 30, 1999, an
increase of $369,973 over the December 31, 1998 balance of $17,321,125. The
increase was a result of the earnings for the Nine Months offset by a decrease
in the market value of securities that are classified as available for sale
and the payment of $271,313 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 September 30, 1999 the Bank had a ratio of Tier 1 capital to
risk-weighted assets of 14.80%, a ratio of total risk-based capital to
risk-weighted assets of 16.06% and a leverage ratio of Tier 1 capital to
average total assets for the quarter ended September 30, 1999 of 9.17%.
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.
<PAGE>
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 15, 1999 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 SEPTEMBER
30, 1999 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 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-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,603,846
<INT-BEARING-DEPOSITS> 1,038,959
<FED-FUNDS-SOLD> 7,210,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 32,813,437
<INVESTMENTS-CARRYING> 32,779,031
<INVESTMENTS-MARKET> 31,824,586
<LOANS> 87,065,154
<ALLOWANCE> (1,625,857)
<TOTAL-ASSETS> 152,639,762
<DEPOSITS> 134,101,072
<SHORT-TERM> 267,616
<LIABILITIES-OTHER> 579,976
<LONG-TERM> 0
0
0
<COMMON> 5,117,830
<OTHER-SE> 10,275,751
<TOTAL-LIABILITIES-AND-EQUITY> 152,639,762
<INTEREST-LOAN> 5,731,348
<INTEREST-INVEST> 2,519,792
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 8,251,140
<INTEREST-DEPOSIT> 4,201,647
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 4,049,493
<LOAN-LOSSES> 96,721
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,390,606
<INCOME-PRETAX> 1,904,493
<INCOME-PRE-EXTRAORDINARY> 1,904,493
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,432,329
<EPS-BASIC> 2.80
<EPS-DILUTED> 2.80
<YIELD-ACTUAL> 3.85
<LOANS-NON> 0
<LOANS-PAST> 1,556,052
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,643,316
<CHARGE-OFFS> 149,157
<RECOVERIES> 10,092
<ALLOWANCE-CLOSE> 1,625,857
<ALLOWANCE-DOMESTIC> 1,625,857
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
