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, 2000
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 August 10, 2000 was 492,411.
<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, 2000 and
December 31, 1999.......................................................3
Consolidated Statements of Operations for the Six
Months Ended June 30, 2000 and 1999.....................................4
Consolidated Statements of Operations for the Three
Months Ended June 30, 2000 and 1999.....................................5
Consolidated Statements of Stockholders' Equity for the
Six Months Ended June 30, 2000 and the Year Ended
December 31, 1999.......................................................6
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999..........................................7-8
Notes to Consolidated Financial Statements............................9-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.....................................10-11
PART II. OTHER INFORMATION.............................................11-12
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, 2000 and December 31, 1999
________________________________________________________________________________
<TABLE>
<CAPTION> June 30, December 31,
2000 1999
____________ ____________
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,547,428 $ 3,775,280
Interest-bearing deposits with banks 0 2,000,000
Federal funds sold 3,125,000 6,975,000
Investment securities available for sale 36,549,889 33,213,933
Investment securities held to maturity 19,886,872 19,169,099
Loans, net of allowance for credit losses
of $1,110,245 in 2000 and $1,661,521 in
1999 87,730,891 87,684,925
Property and equipment, net 2,538,191 2,444,355
Accrued income 1,235,278 1,173,115
Other assets 2,717,932 1,704,778
____________ ____________
Total assets $156,331,481 $158,140,485
============ ============
LIABILITIES
Demand deposits $ 17,919,231 $ 16,783,239
Interest-bearing deposits 9,989,835 10,767,129
Savings deposits 20,208,133 18,901,235
Large denomination time deposits 16,882,949 18,142,525
Other time deposits 73,108,608 75,213,536
___________ ___________
Total deposits 138,108,756 139,807,664
Federal funds purchased 0 0
Other borrowed funds 0 0
Accrued interest payable 228,782 237,075
Other liabilities 461,460 338,149
___________ ___________
Total liabilities 138,798,998 140,382,888
____________ ____________
Commitments and contingencies
STOCKHOLDERS'EQUITY:
Common stock, $10 par value, authorized
5,000,000 shares, issued 494,211
shares in 2000 and 511,771 in 1999 4,942,110 5,117,710
Surplus 2,925,150 2,925,150
Retained earnings 10,614,839 10,514,759
Unrealized appreciation (depreciation) on
investment securities available for sale (949,616) (800,022)
___________ ___________
Total stockholders' equity 17,532,483 17,757,597
___________ ___________
Total liabilities and stockholders'
equity $156,331,481 $158,140,485
============ ============
</TABLE>
See Notes to Consolidated Financial Statements 3
<PAGE>
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Six Months ended June 30, 2000 and 1999 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
(Unaudited) (Unaudited)
<S> <C> <C>
INTEREST INCOME:
Loans and fees on loans $ 3,816,509 $3,852,638
Federal funds sold 170,270 234,343
Taxable investment securities 1,196,011 1,414,960
Investment securities exempt
from federal tax 456,109 27,269
Deposits with banks 20,291 0
___________ __________
Total interest income 5,659,190 5,529,210
INTEREST EXPENSE ON DEPOSITS:
Deposits 2,904,504 2,815,497
Federal funds purchased 0 0
Other borrowed funds 0 0
___________ __________
Total interest expense 2,904,504 2,815,497
___________ __________
Net interest income 2,754,686 2,713,713
PROVISION FOR CREDIT LOSSES 250,000 56,721
__________ __________
Net interest income after
provision for loan loss 2,504,686 2,656,992
NON INTEREST INCOME:
Service charges on deposit
accounts 101,882 83,558
Other service charges and fees 23,130 0
Net realized gains on sales of
Securities 0 0
Other income 39,774 89,961
__________ __________
Total non interest income 164,786 173,519
NON INTEREST EXPENSE:
Salaries and employee benefits 857,880 1,033,290
Occupancy expense 82,684 71,780
Equipment expense 130,838 125,690
Other expense 470,705 348,628
__________ __________
Total non interest expense 1,542,107 1,579,388
__________ __________
Income before income taxes 1,127,365 1,251,123
Income tax expense 238,314 311,553
__________ __________
Net income $ 889,051 $ 939,570
=========== ===========
BASIC EARNINGS PER SHARE $ 1.75 $ 1.84
</TABLE>
See Notes to Consolidated Financial Statements 4
<PAGE>
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Three Months ended June 30, 2000 and 1999 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
Three Months Ended
June 30,
2000 1999
(Unaudited) (Unaudited)
<S> <C> <C>
INTEREST INCOME:
Loans and fees on loans $ 1,857,884 $1,866,961
Federal funds sold 59,227 112,402
Taxable investment securities 607,356 707,008
Investment securities exempt
from federal tax 236,282 13,401
Deposits with banks 1,471 0
___________ __________
Total interest income 2,762,220 2,699,772
INTEREST EXPENSE ON DEPOSITS:
Deposits 1,449,690 1,397,748
Federal funds purchased 0 0
Other borrowed funds 0 0
__________ __________
Total interest expense 1,449,690 1,397,748
__________ __________
Net interest income 1,312,530 1,302,024
PROVISION FOR CREDIT LOSSES 130,000 26,721
__________ __________
Net interest income after
provision for loan loss 1,182,530 1,275,303
NON INTEREST INCOME:
Service charges on deposit
accounts 53,276 46,931
Other service charges and fees 13,357 0
Net realized gains on sales of
Securities 0 0
Other income 20,203 43,403
__________ __________
Total non interest income 86,836 90,334
NON INTEREST EXPENSE:
Salaries and employee benefits 467,927 566,903
Occupancy expense 41,708 33,834
Equipment expense 60,546 67,652
Other expense 258,115 132,691
__________ __________
Total non interest expense 828,296 801,080
__________ __________
Income before income taxes 441,070 564,557
Income tax expense 77,765 132,884
__________ __________
Net income $ 363,305 $ 431,673
========== ===========
BASIC EARNINGS PER SHARE $ 0.72 $ 0.84
</TABLE>
See Notes to Consolidated Financial Statements 5
<PAGE>
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the Six Months ended June 30, 2000 (Unaudited) and the year
ended December 31, 1999 (Audited)
________________________________________________________________________________
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
OTHER STOCK-
COMMON RETAINED COMPREHENSIVE HOLDERS'
STOCK SURPLUS EARNINGS INCOME(LOSS) EQUITY
__________ _______ __________ ____________ ________
<S> <C> <C> <C> <C> <C>
January 1, 1999 $5,119,110 $2,925,150 $ 9,123,733 $ 153,132 $17,321,125
Net income - - 1,965,133 - 1,965,133
Net change in unrealized
depreciation on investment
securities available for
sale, net of income taxes - - - (953,154) (953,154)
1,011,979
Dividends paid
($1.11 per share) - - (568,147) - (568,147)
Common stock purchased (4,300) - (18,385) - (22,685)
Common stock reissued 2,900 - 12,425 - 15,325
_________ _________ __________ _________ __________
December 31, 1999 $5,117,710 $2,925,150 $10,514,759 $ (800,022) $17,757,597
_________ _________ __________ _________ __________
Net income - - 889,051 - 889,051
Net change in unrealized
depreciation on investment
securities available for
sale, net of income taxes - - - (149,594) (149,594)
- 739,457
Dividends paid
($0.57 per share) - - (281,551) - (281,551)
Common stock purchased (182,460) - (531,961) - (714,421)
Common stock reissued 6,860 - 24,541 - 31,401
__________ __________ ___________ ___________ ___________
June 30, 2000 $4,942,110 $2,925,150 $10,614,839 $ (949,616) $17,532,483
========== ========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements 6
<PAGE>
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months ended June 30, 2000 and 1999 (Unaudited)
_______________________________________________________________________________
<TABLE>
<CAPTION>
Six Months
Ended June 30,
2000 1999
____ ____
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 889,051 $ 939,570
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 86,929 80,790
Accretion of discounts on securities (25,765) 41,205
Amortization of loan fees 0 (11,792)
Provision for loan losses 250,000 56,721
Deferred income taxes 77,063 312,104
Net realized gains on securities 0 0
Deferred compensation & pension expense 0 (43,610)
Changes in assets and liabilities:
Accrued income (62,163) (61,318)
Other assets (1,013,154) (453,966)
Accrued interest payable (8,293) 22,979
Other liabilities 123,311 (153,375)
__________ __________
Net cash provided by operating activities 316,979 729,308
__________ __________
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in federal funds sold 3,850,000 1,000,000
Purchases of investment securities (6,377,490) (17,503,142)
Sale of investment securities 0 493,672
Net decrease in int-bearing deposits 2,000,000 1,430,184
Maturity of investment securities 2,122,869 10,789,912
Net decrease in loans (295,966) 2,406,565
Proceeds from sale of other real estate 0 0
Purchases of properties and equipment (180,765) (387,312)
__________ __________
Net cash (used) in investing activities 1,118,648 (1,770,121)
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, NOW,
and savings deposits 1,665,596 3,196,201
Net (decrease) in time deposits (3,364,504) (4,063,604)
Dividends paid (281,551) (271,313)
Net (decrease) fed funds purchased 0 0
Common Stock Purchased (714,421) (15,600)
Common Stock Reissued 31,401 8,320
__________ _________
Net cash used in financing activities (2,663,479) (1,145,996)
__________ _________
Net decrease in cash & cash equivalents (1,227,852) (2,186,809)
CASH AND CASH EQUIVALENTS, BEGINNING 3,775,280 2,985,331
__________ _________
CASH AND CASH EQUIVALENTS, ENDING $ 2,547,428 $ 798,522
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements 7
<PAGE>
CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
For the Six Months ended June 30, 2000 and 1999 (Unaudited)
_______________________________________________________________________________
<TABLE>
<CAPTION>
2000 1999
____ ____
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 2,912,797 $ 2,792,518
__________ __________
Income taxes paid $ 160,000 $ 185,395
__________ __________
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Other real estate acquired in
settlement of loans $ 652,554 $ 0
</TABLE>
See Notes to Consolidated Financial Statements 8
<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, 2000 and for
the periods ended June 30, 2000 and 1999 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,
1999, included in the Company's Annual Report for the fiscal year ended December
31, 1999.
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 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>
2000 1999
____ ____
<S> <C> <C>
Balance at January 1 $ 1,661,521 $ 1,668,201
Provision charged to operations 250,000 56,721
Loans charged off, net of recoveries (801,276) (95,259)
__________ __________
Balance at June 30 $ 1,110,245 $ 1,629,663
=========== ===========
</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 June 30,
2000 and 1999 is as follows:
<TABLE>
<CAPTION>
2000 1999
____ ____
<S> <C> <C>
Commitments to extend credit $ 6,697,608 $ 4,297,274
Standby letters of credit 638,000 131,600
___________ ___________
$ 7,335,608 $ 4,428,874
=========== ===========
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparision of Six Months Ended June 30, 2000 and 1999
Net income for the six months ended June 30, 2000 was $889,501, a decrease
of 5.4% compared to June 30, 1999. This decrease was a result of a credit loss
provision of $250,000 in 2000 compared to $56,721 in 1999. The provision
increased due to a higher amount of loans placed on nonaccrual. Management
believes the provision and the resulting allowance for credit losses to be
adequate.
Interest income increased $129,980 from June 30, 1999 to 2000 as interest
expense increased $89,007 over 1999. Net interest income for the six months
ended June 30, 2000 increased by 1.5% of net interest income for the six months
ended June 30, 1999.
Comparison of three months ended June 30, 2000 and 1999.
For the three months ended June 30, 2000, the Bank earned $363,305 in net
income compared to $431,673 for the quarter ended June 30, 1999. This is due in
part to an increase in the provision for credit losses of $103,790 from June 30,
1999 to June 30, 2000.
Interest income was $2,762,220 for the quarter ended June 30, 2000,
compared to $2,699,772 for the same period of 1999.
Interest expense for the quarter ended June 30, 2000 was $1,449,690,
up $51,942 from $1,397,748 for the quarter ended June 30, 1999.
The provision for credit losses was $130,000 for the quarter ended June
30, 2000 and $26,721 for the quarter ended June 30, 1999. Management believes
the provision and the resulting allowance for credit losses is adequate.
CHANGES IN FINANCIAL CONDITION
Total assets at June 30, 2000 were $156,331,481 compared to $158,140,485
at December 31, 1999, a decrease of $1,809,004. Cash and due from Banks
decreased $1,227,852 during the six-month period as excess cash reserves, which
had been accumulated for Y2K concerns, were eliminated. Interest-bearing
deposits with banks and federal funds sold decreased collectively by $5,850,000.
The company is using these funds to invest in long-term, high-yield securities.
Other assets increased by $1,013,154 for the period. Foreclosures of real estate
and repossessions of equipment have attributed to this increase.
CAPITAL ADEQUACY
Shareholder's equity amounted to $17,532,483 at June 30, 2000, a decrease
of $225,114 compared to the December 31, 1999 balance of $17,757,597. The
decrease was a result of the earnings for the six months offset by a decrease in
the market value of securities, dividends paid, and shares of stock repurchased.
10
<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, 2000 the Bank had a ratio of Tier 1 capital to
risk-weighted assets of 14.2%, a ratio of total risk-based capital to
risk-weighted assets of 15.3% and a leverage ratio of Tier 1 capital to
average total assets for the quarter ended June 30, 2000 of 8.9%.
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
(a) The annual Meeting of Stockholders was held on April 26, 2000.
(b) The following directors were elected to serve a one-year term to the
date of the 2001 Annual Meeting of Stockholders with at least 354, 660
votes: K. Venson Bolt, Joseph H. Conduff, William R. Gardner, Jr.,
C.W. Harman, Kevin D. Mitchell, Ronald Leon Moore, and
Dorsey H. Thompson.
(c) The independent auditors, Larrowe & Company, PLC, were elected with at
least 352, 345 votes.
(d) N/A
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
11
<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 10, 2000 By: s/Ronald Leon Moore
President, Chief Executive
Officer, and Principal Financial
Officer
12
