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, 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 June 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 June 30, 1999 and
December 31,1998........................................................3
Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 1999 and 1998............................4
Consolidated Statements of Stockholders' Equity for the
Periods Ended June 30, 1999 and 1998....................................5
Consolidated Statements of Cash Flows for the Six Months
Ended June 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
June 30, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 798,522 $ 2,985,331
------------ ------------
Interest-bearing deposits with banks 5,669,816 7,100,000
Federal funds sold 10,825,000 11,825,000
Investment securities available for sale 29,553,913 25,981,443
Investment securities held to maturity 17,035,910 15,347,979
Loans, net of allowance for credit losses
of $1,629,663 in 1999 and $1,668,201 in
1998 83,358,012 85,809,506
Property and equipment, net 2,480,215 2,173,693
Accrued income 1,045,775 984,457
Other assets 1,656,260 1,202,294
------------ ------------
Total assets $152,423,423 $153,409,703
------------ ------------
LIABILITIES
Demand deposits $ 19,185,525 $ 15,553,868
Interest-bearing deposits 9,697,461 9,991,178
Savings deposits 18,334,438 18,476,177
Large denomination time deposits 15,786,512 15,666,927
Other time deposits 71,339,718 75,522,910
------------ ------------
Total deposits 134,343,657 135,211,060
Federal funds purchased 0 0
Other borrowed funds 0 0
Accrued interest payable 263,688 240,709
Other liabilities 439,824 636,809
------------ ------------
Total liabilities 135,047,169 136,088,578
------------ ------------
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 5,117,710 5,119,110
Surplus 2,919,270 2,925,150
Retained earnings 9,791,990 9,123,733
Unrealized appreciation (depreciation) on
investment securities available for sale (452,716) 153,132
------------ ------------
Total stockholders' equity 17,376,254 17,321,125
------------ ------------
Total liabilities and stockholders'
equity $152,423,423 $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 six months ended June 30, 1999 and 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Six
Quarter Quarter Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and fees on loans $ 1,866,961 $ 1,983,332 $ 3,852,638 $ 4,023,885
Federal funds sold 112,402 111,929 234,343 193,982
Taxable investment securities 707,008 573,269 1,414,960 1,170,887
Investment securities exempt
from federal tax 13,401 150,897 27,269 291,111
----------- ----------- ----------- -----------
Total interest income 2,699,772 2,819,427 5,529,210 5,679,865
INTEREST EXPENSE ON DEPOSITS:
Deposits 1,397,748 1,444,072 2,815,497 2,903,378
Federal funds purchased 0 0 0 0
Other borrowed funds 0 0 0 0
----------- ----------- ----------- -----------
Total interest expense 1,397,748 1,444,072 2,815,497 2,903,378
----------- ----------- ----------- -----------
Net interest income 1,302,024 1,375,355 2,713,713 2,766,487
PROVISION FOR CREDIT LOSSES 26,721 60,000 56,721 135,000
----------- ----------- ----------- -----------
Net interest income after
provision for loan loss 1,275,303 1,315,355 2,656,992 2,641,487
NON INTEREST INCOME:
Service charges on deposit
accounts 46,931 36,949 83,558 69,989
Net realized gains on sales of
Securities 0 7,774 0 19,583
Other income 43,403 22,970 89,961 65,837
----------- ----------- ----------- -----------
Total non interest income 90,334 67,693 173,519 155,409
NON INTEREST EXPENSE:
Salaries and employee benefits 566,903 444,083 1,033,290 868,903
Occupancy expense 33,834 29,205 71,780 59,892
Equipment expense 67,652 64,971 125,690 120,169
Other expense 132,691 183,601 348,628 356,829
----------- ----------- ----------- -----------
Total non interest expense 801,080 721,810 1,579,388 1,405,793
Income before income taxes 564,557 661,238 1,251,123 1,391,103
----------- ----------- ----------- -----------
Income tax expense 126,158 178,098 311,553 383,024
----------- ----------- ----------- -----------
Net income $ 431,673 $ 483,140 $ 939,570 $ 1,008,079
BASIC EARNINGS PER SHARE $ 0.84 $ 0.94 $ 1.84 $ 1.97
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the six months ended June 30, 1999 and June 30, 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 $17,321,125
---------- ---------- ----------- --------- -----------
Net income 939,570 939,570
Net change in unrealized
Depreciation on investment
Securities available for
Sale (605,848) (605,848)
---------- ---------- ----------- --------- -----------
Total Comprehensive Income 939,570 (605,848) 333,722
Dividends paid ($.53 per share) (271,313) (271,313)
Common stock purchased (15,600) (15,600)
Common stock reissued 8,320 8,320
---------- ---------- ----------- --------- -----------
June 30, 1999 $5,117,710 $2,919,270 $ 9,791,990 $(452,716)$ 17,376,254
---------- ---------- ----------- --------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the six months ended June 30, 1999 and 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 939,570 $ 1,008,079
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 80,790 71,513
Accretion of discounts on securities (16,927) 16,724
Amortization of loan fees (11,792) (51,216)
Provision for loan losses 56,721 135,000
Deferred income taxes 0 0
Net realized gains on securities 0 (19,583)
Deferred compensation & pension expense 43,610 32,692
Changes in assets and liabilities:
Accrued income (61,318) (52,740)
Other assets (453,960) (208,521)
Accrued interest payable 22,979 6,297
Other liabilities (76,508) 236,567
----------- -----------
Net cash provided by operating activities 671,175 1,174,812
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) in federal funds sold 1,000,000 (4,345,797)
Purchases of investment securities (18,774,545) (7,457,125)
Sale of investment securities 0 12,125
Net decrease in int-bearing deposits 1,430,184 0
Maturity of investment securities 6,615,120 9,799,762
Net decrease in loans 2,406,505 3,525,049
Proceeds from sale of other real estate 0 51,772
Purchases of properties and equipment (387,312) (449,169)
----------- -----------
Net cash (used) in investing activities (1,711,988) 1,136,617
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, NOW,
and savings deposits 3,196,204 834,409
Net (decrease) in time deposits (4,063,607) (2,293,500)
Dividends paid (271,313) (266,195)
Net (decrease) fed funds purchased (7,280) 0
----------- -----------
Net cash used in financing activities (1,145,996) (1,725,286)
----------- -----------
Net decrease in cash & cash equivalents (2,186,809) 586,143
CASH AND CASH EQUIVALENTS, BEGINNING 2,985,331 1,941,494
----------- -----------
CASH AND CASH EQUIVALENTS, ENDING $ 798,522 $ 2,527,637
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
For the six months ended June 30, 1999 and 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 2,792,518 $ 2,897,081
----------- -----------
Income taxes paid $ 185,395 $ 398,309
----------- -----------
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 June 30, 1999 and for the
periods ended June 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 six
months ended June 30.
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Balance at January 1 $ 1,668,201 $ 1,452,126
Provision charged to operations 56,721 135,000
Loans charged off, net of recoveries (95,259) 1,572
----------- -----------
Balance at June 30 $ 1,629,663 $ 1,588,698
</TABLE>
8
<PAGE>
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,
1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Commitments to extend credit $ 4,297,274 $ 4,352,232
Standby letters of credit 131,600 250,000
----------- -----------
$ 4,428,874 $ 4,602,232
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the quarter ended June 30, 1999, the Bank earned $431,673 in net income
compared to $483,140 for the quarter ended June 30, 1998. The decrease of
$51,467 was due primarily to a decrease in net interest income.
Interest income was $2,699,772 for the quarter ended June 30, 1999,
compared to $2,819,427 for the same period of 1998. The quarterly decrease was
due mainly to a decrease in yields on average earning assets.
Interest expense for the quarter ended June 30, 1999 was $1,275,302, down
$40,052 from $1,315,355 for the quarter ended June 30, 1998. The decrease was
due to a decrease in interest bearing deposits and lower interest rates when
compared to the quarter ended June 30, 1998.
The provision for credit losses was $26,721 for the quarter ended June 30,
1999 and $60,000 for the quarter ended June 30, 1998. Management believes the
provision and the resulting allowance for credit losses is adequate.
CHANGES IN FINANCIAL CONDITION
Total assets at June 30, 1999 were $152,423,423 compared to $153,409,703 at
December 31, 1998. Net loans have decreased by $2.4 million.
CAPITAL ADEQUACY
Shareholder's equity amounted to $17,376,254 at June 30, 1999, an increase
of $55,129 over the December 31, 1998 balance of $17,321,125. 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
$271,313 in dividends.
9
<PAGE>
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, 1999 the Bank had a ratio of Tier 1 capital to
risk-weighted assets of 14.66%, a ratio of total risk-based capital to
risk-weighted assets of 15.91% and a leverage ratio of Tier 1 capital to average
total assets for the quarter ended June 30, 1999 of 8.84%.
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.
10
<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: August 12, 1999 By: s/Ronald Leon Moore
President, Chief Executive
Officer, and Principal Financial
Officer
11
<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, 1999 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1999 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-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 798,522
<INT-BEARING-DEPOSITS> 5,669,816
<FED-FUNDS-SOLD> 10,825,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,624,198
<INVESTMENTS-CARRYING> 16,755,504
<INVESTMENTS-MARKET> 16,658,502
<LOANS> 84,987,675
<ALLOWANCE> (1,629,663)
<TOTAL-ASSETS> 152,423,423
<DEPOSITS> 134,343,657
<SHORT-TERM> 263,688
<LIABILITIES-OTHER> 439,824
<LONG-TERM> 0
0
0
<COMMON> 5,117,710
<OTHER-SE> 9,791,990
<TOTAL-LIABILITIES-AND-EQUITY> 152,423,423
<INTEREST-LOAN> 3,852,638
<INTEREST-INVEST> 1,676,572
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,529,210
<INTEREST-DEPOSIT> 2,815,497
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 2,713,713
<LOAN-LOSSES> 56,721
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,579,388
<INCOME-PRETAX> 1,251,123
<INCOME-PRE-EXTRAORDINARY> 939,571
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 939,571
<EPS-BASIC> 1.84
<EPS-DILUTED> 1.84
<YIELD-ACTUAL> 7.37
<LOANS-NON> 0
<LOANS-PAST> 300,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,643,202
<CHARGE-OFFS> 72,360
<RECOVERIES> 2,154
<ALLOWANCE-CLOSE> 1,629,663
<ALLOWANCE-DOMESTIC> 1,629,663
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
