SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
Commission file number 0-19209 .
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Cardinal Bancorp, Inc.
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(Exact Name of Registrant as Specified in its charter)
Pennsylvania 25-1537130
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(State of Incorporation) (I.R.S. Employer ID No.)
140 East Main Street, Everett, Pennsylvania 15537
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(Address of Principal Executive Office) (Zip Code)
(814) 652-2131
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name, Former Address and Former Fiscal Year,
if changes since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS: N/A
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes _____ No _____
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. 990,000 shares of $.50
-----------------------
par common stock were outstanding as of May 1, 1997.
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<PAGE>
CARDINAL BANCORP, INC. AND SUBSIDIARY
EVERETT, PENNSYLVANIA
FORM 10-Q INDEX
Page
PART I FINANCIAL INFORMATION:
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote 15
of Security Holders
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature Page 17
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
CARDINAL BANCORP, INC. AND SUBSIDIARY
(dollars in thousands)
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,882 $ 6,452
Interest earning balances 531 14
Federal funds sold 0 0
Securities available-for-sale 50,207 51,446
Loans 71,295 70,104
Less: Unearned discount 2,745 2,931
Allowance for loan losses 966 957
------- -------
Net Loans 67,584 66,216
Accrued interest receivable 966 1,161
Premises and equipment, net 2,762 2,757
Foreclosed assets 212 229
Other assets 1,464 1,282
-------- --------
TOTAL ASSETS $129,608 $129,557
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand (non-interesting bearing) $ 14,549 $ 13,356
NOW, money market and savings 36,485 36,521
Time, less than $100,000 47,391 45,761
Time, $100,000 and over 14,881 10,117
------- -------
Total Deposits 113,306 105,755
Securities sold under agreements
to repurchase 161 106
Short term borrowings 0 7,561
Accrued interest payable 550 531
Other liabilities 307 380
------- -------
Total Liabilities 114,324 114,333
------- -------
SHAREHOLDERS' EQUITY
Common stock, par value $.50,
2,000,000 shares authorized,
990,000 shares issued and outstanding 495 495
Surplus 2,264 2,264
Retained earnings 13,319 12,965
Net unrealized securities losses (794) (500)
------- -------
Total Shareholders' Equity 15,284 15,224
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $129,608 $129,557
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
CARDINAL BANCORP, INC. AND SUBSIDIARY
(dollars in thousands)
<CAPTION>
Three Months ended
March 31,
1997 1996
(Unaudited)
<S> <C> <C>
INTEREST INCOME
Loans, including fees $1,527 $1,458
Depository institutions 11 19
Federal funds sold 6 24
Securities:
Taxable 689 729
Tax-exempt 149 130
Dividends 8 8
----- -----
Total Interest Income 2,390 2,368
----- -----
INTEREST EXPENSE
Deposits
NOW, money market and savings 200 248
Time, less than $100,000 651 617
Time, $100,000 and over 173 179
Interest on securities sold under
agreements to repurchase 5 0
Short-term borrowings 15 4
----- -----
Total Interest Expense 1,044 1,048
----- -----
Net Interest Income 1,346 1,320
Provision for Loan Losses 0 0
----- -----
Net Interest Income after
Provision for Loan Losses 1,346 1,320
----- -----
OTHER INCOME
Service charges on
deposit accounts 104 84
Other service charges and fees 34 34
Net security gains 0 11
Other noninterest income 1 0
----- -----
Total Other Income 139 129
----- -----
OTHER EXPENSES
Salaries and employee benefits 502 490
Occupancy and equipment expenses 107 106
Other operating expenses 282 275
----- -----
Total Other Expenses 891 871
----- -----
Income before income taxes 594 578
Income tax expense 141 105
----- -----
NET INCOME $ 453 $ 473
===== =====
EARNINGS PER SHARE $ .46 $ .48
===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
CARDINAL BANCORP, INC. AND SUBSIDIARY
(dollars in thousands)
<CAPTION>
Three Months Ended
March 31,
1997 1996
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 453 $ 473
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 51 52
Net amortization of premiums and discounts 3 20
Net securities gains 0 (11)
Decrease in accrued interest and other assets 181 239
Decrease in accrued interest
and other liabilities (54) (210)
------ ------
Net Cash Provided by Operating Activities 634 563
------ ------
INVESTING ACTIVITIES
Proceeds from sales of available-for-sale
securities 0 9,538
Redemption of Federal Home Loan Bank Stock 74 51
Proceeds from maturities of available-for-sale
securities 716 2,289
Purchase of available-for-sale securities 0 (17,336)
Net loans (originated) repaid by customers (1,368) 366
Premises and equipment purchases (56) (59)
------ ------
Net Cash Used by Investing Activities (634) (5,151)
------ ------
FINANCING ACTIVITIES
Net increase in deposit accounts 1,158 1,292
Net increase (decrease) in time deposits 6,394 (1,088)
Dividends paid (99) (74)
Decrease in other borrowings (7,506) 0
------ ------
Net Cash Provided (Used) by Financing Activities (53) 130
Decrease in Cash and Cash Equivalents (53) (4,458)
------ ------
Cash and Cash Equivalents at January 1 6,466 8,246
------ ------
Cash and Cash Equivalents at March 31 $ 6,413 $ 3,788
====== ======
SUPPLEMENTAL INFORMATION
Interest paid on deposits $ 1,009 $ 1,032
Income taxes paid 0 0
Loans transferred to foreclosed assets 3 37
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
CARDINAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of Cardinal Bancorp, Inc., includes its
wholly-owned subsidiary, First American National Bank of Pennsylvania. All
significant intercompany items have been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do
not necessarily include all information that would be included in audited
financial statements. The information furnished reflects all adjustments
which are, in the opinion of management, necessary for a fair statement of
the results of operations. All such adjustments are of a normal recurring
nature. The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
These statements should be read in conjunction with notes to the financial
statements contained in the 1996 Annual Report to Shareholders.
NOTE 2 - ACCOUNTING FOR EARNINGS PER SHARE
On March 3, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings Per Share." Statement No.
128 will become effective for the Corporation beginning in 1998. This
statement re-defines the standards for computing earnings per share (EPS)
previously found in Accounting Principles Board Opinion No. 15, Earnings Per
Share. Statement No. 128 establishes new standards for computing and
presenting EPS and requires dual presentation of "basic" and "diluted" EPS on
the face of the income statement for all entities with complex capital
structures. Under Statement No. 128, basic EPS is to be computed based upon
income available to common shareholders and the weighted average number of
common shares outstanding for the period. Diluted EPS is to reflect the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the Corporation.
Statement No. 128 also requires the restatement of all prior-period EPS data
presented. The Corporation will adopt Statement No. 128 on December 31, 1997,
and based on current estimates, does not believe the effect of adoption will
have a significant impact on the Corporation's financial position or results
of operations.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR MARCH 31, 1997.
FINANCIAL CONDITION
Total assets at March 31, 1997, were $129,608,000, an increase of $51,000
from the $129,557,000 balance at December 31, 1996. The increase was
primarily the result of an increase in the balance of net loans which was
partially offset by a decrease in securities available-for-sale. Net loans
increased $1,368,000 while investments in securities decreased in the
aggregate amount of $1,239,000 in the first quarter of 1997. Short term
borrowings were $7,561,000 at December 31, 1996, but the Bank had no such
borrowings at March 31, 1997. The reduction in short term borrowings was
accomplished through an increase in total deposits of $7,551,000. On an
individual basis, demand accounts increased $1,193,000, time deposits of less
than $100,000 increased $1,630,000 and time deposits of $100,000 and over
increased $4,764,000.
Shareholders' equity increased slightly by $60,000 or .4% despite an
additional decline in the fair value of the Corporation's available-for-sale
securities portfolio. Unrealized losses in the available-for-sale securities
portfolio net of tax effect increased $294,000 from $500,000 at December 31,
1996, to $794,000 at March 31, 1997. This negative impact on capital was
offset by earnings of $453,000 for the first three months of 1997, of which
$354,000 was retained as part of the Corporation's equity capital with the
balance having been distributed to shareholders as dividends.
Excluding the change in the investment portfolio attributable to the
decrease in the fair value of securities, the investment portfolio of the
Corporation decreased $793,000 in the first three months of 1997, primarily as
the result of paydowns on mortgage-backed securities in the amount of
$716,000. The securities paydowns were used to assist in funding the increase
in the volume of loans net of unearned discount of $1,377,000.
RESULTS OF OPERATIONS
Cardinal Bancorp, Inc. realized a net profit of $453,000 for the first
three months of 1997 as compared to a net profit of $473,000 for the first
three months of 1996. On a per share basis, net income for the first quarter
of 1997 was $.46 per share while net income for the first quarter of 1996 was
$.48 per share.
5
<PAGE>
Net income may be analyzed by reviewing seven major elements: interest
income which consists primarily of income earned on loans and investments;
interest expense which generally consists of interest paid on deposits and
borrowed funds; the provision for loan losses which represents amounts set
aside in the allowance for loan losses to provide reserves for future losses
on loans; other noninterest operating income which is made up primarily of
safe deposit rentals, fee income derived from sales activities and service
charges on deposit accounts; gains or losses on securities; noninterest
expenses which consist primarily of salaries, expenses of premises and fixed
assets and other operating expenses; and income taxes. Each of these elements
is reviewed in greater detail in the following discussion.
INTEREST INCOME
Interest income for the first three months of 1997 was $2,390,000 up
$22,000 or .9% above the $2,368,000 earned during the same period of 1996.
The increase was due to an increase in the volume of interest earning assets,
the average volume of which increased from $117,653,000 for the first quarter
of 1996 to $120,126,000 for the first quarter of 1997, an increase of
$2,473,000 or 2.1%. The yield on interest earning assets was nearly unchanged
from the first quarter 1996 yield of 8.02% to the first quarter 1997 yield of
8.03%. Interest rates declined in the first quarter of 1996 and remained
fairly stable through the remainder of 1996 and the first part of 1997,
however, interest rates began to increase in the latter part of the first
quarter of 1997.
The Bank converted some variable rate securities into fixed rate
securities early in 1996 and despite the general decline in rates, the yield
on investments for the first quarter of 1997 was 6.53% as compared to a yield
of 6.49% for the same period of 1996. Due to competitive pressures and to
repricing characteristics of the Bank's loan portfolio which caused yields on
loans to decline as a result of a general decline in rates in February 1996,
the yield on the loan portfolio declined from 9.48% for the first quarter of
1996 to 9.16% for the first quarter of 1997. The Bank also reduced the level
of its lowest yielding assets, federal funds sold and interest bearing
balances at the Federal Home Loan Bank, from an average balance of $3,098,000
for the first quarter of 1996 to an average of $1,264,000 for the first
quarter of 1997. The changes in investment and loan yields when applied to
the volumes in each category coupled with a reduction of lower yielding assets
resulted in a minimal change in the total yield on earning assets from the
first three months of 1996 compared to the first three months of 1997, as
noted above.
6
<PAGE>
The Bank has structured many of its loans with variable interest rates in
order to be able to react to nationwide changes in rates over which the Bank
has no control. Furthermore, a portion of the investment portfolio contains
securities with rates which adjust according to indexes which generally track
with changes in the rate environment. As a result, the Bank is able to reduce
interest rate risk and is more effectively able to maintain a necessary
interest spread in a changing economy. Although during periods of increasing
interest rates the Bank's interest income will be positively affected, a
general increase in interest rates will have a corresponding impact on
increasing interest expense.
Fluctuating interest rates can, however, have a temporary positive or
negative impact upon the interest spread between interest earning assets and
interest bearing liabilities. For example, one segment of the Bank's loan
portfolio is tied to the Wall Street Journal Prime Rate and reprices
immediately upon a change in that index. In periods of increasing interest
rates, the immediate repricing of such interest earning assets results in an
immediate increase in interest income while the repricing of interest bearing
liabilities will often not occur as quickly due to factors such as maturity
distributions and competition. Through properly balancing repricing
opportunities the effect of changing interest rates is minimized but temporary
fluctuations can occur. As noted above, after a decline in February 1996,
interest rates remained fairly stable during 1996 but increased in the latter
part of the first quarter of 1997. Due to the relative slowness with which
deposits reprice, the rate paid on deposits continued to decline throughout
much of 1996 which resulted in a rate paid on interest bearing deposits of
4.28% for the first quarter of 1997, compared to a rate of 4.33% for the same
period of 1996. As a result, the Bank's interest spread for the first three
months of 1997 was 3.75% as compared to 3.69% for the first three months of
1996.
The increase in interest spread also has had a positive effect on the
Corporation's net interest margin. The Corporation's interest spread for the
first three months of 1997 increased 6 basis points from the first three
months of 1996, the Corporation's net interest margin comparison for the same
periods shows an increase of 5 basis points from 4.45% to 4.50%.
INTEREST EXPENSE
Interest expense for the first three months of 1997 was $1,044,000, down
$4,000 or .4% below the $1,048,000 expense for the same period of the previous
year. The fairly stable interest rates in 1996 and the first part of 1997
resulted in the average cost of funds on deposits declining only slightly to
4.28% for the first quarter of 1997 as compared to 4.32% for the first quarter
of 1996.
7
<PAGE>
The decreased interest expense resulting from slightly lower interest
rates paid on deposits was offset by an increase in the average balance of
interest bearing liabilities outstanding. An evaluation of deposits by type
for the first quarter of 1997 as compared to the same period of 1996 shows the
Bank experienced an increase in the average balance only in the category of
time deposits of less than $100,000. However, the increase in time deposits
of less than $100,000 exceeded the aggregate of all the decreases in the other
deposit categories. Average interest bearing deposits for the first three
months of 1997 were $97,863,000 as compared to $96,815,000 for the first three
months of 1996, an increase of $1,048,000 or 1.1%. This increase in deposit
volumes largely offset the reduction in interest expense caused by a decline
in rates. As a result, interest expense decreased only $4,000.
As noted above, the Bank has maintained a net interest margin of 4.50%
for the first three months of 1997 as compared to 4.45% for the first three
months of 1996. Net interest income for the first quarter of 1997 was
$1,346,000 as compared to $1,320,000 for the same period during 1996, a
$26,000 or 2.0% increase.
PROVISION FOR LOAN LOSSES
The provision for loan losses is an addition to the allowance for loan
losses which is based upon an analysis of the adequacy of the allowance. The
allowance is maintained at a level deemed adequate to absorb potential future
loan losses contained in the portfolio and is formally reviewed by Management.
The level of the allowance and the provision for loan losses is based upon a
quarterly evaluation of the loan portfolio using a consistent methodology.
The tables which follow this discussion provide information regarding
nonperforming and past due loans, and an analysis of the allowance for loan
losses. Nonperforming assets totaled $813,000 at December 31, 1996, a decline
of $1,388,000 from December 31, 1995. During the first quarter of 1997,
nonperforming assets declined further by $23,000 or 2.8% of the balance at
December 31, 1996. Additionally, during the first three months of 1997, the
Corporation realized a net recovery on charged-off loans of $9,000 as compared
to total net charge-offs of $376,000 for the full year of 1996. Although
nonperforming assets have been reduced in recent years, future losses on loans
may be expected to continue. The allowance for loan losses as a multiple of
nonperforming loans was 1.67 at March 31, 1997, as compared to 1.64 at
December 31, 1996.
As noted above, ongoing evaluations of the allowance are being performed.
Based upon the current evaluation of the allowance, no provision for loan
losses was necessary in the first quarter of 1997. Similarly, there was no
provision required in the first quarter of 1996.
8
<PAGE>
NONINTEREST INCOME AND GAINS ON SECURITIES
Noninterest income for the first three months of 1997 was $139,000, up
$10,000 over the same period of the previous year. The primary reason for the
increase was due to a rise in income from service charges on deposit accounts
which totaled $104,000 in the first quarter of 1997 compared to $84,000 in the
first quarter of 1996. No income was realized from other real estate owned or
from gains upon sales of loan collateral repossessed during the first quarter
of 1997 and 1996. Finally, the Corporation realized no gains or losses on
sales of securities during the first three months of 1997 while the
Corporation realized net gains on sales of securities of $11,000 during the
same period of 1996.
NONINTEREST EXPENSE
Noninterest expense for the first three months of 1997 was $891,000, a
$20,000 increase from the $871,000 expense incurred in the first three months
of 1996. The most significant factor in the increase in noninterest expense
is related to an increase in employee benefits during the first quarter of
1997 in the amount of $8,000. The additional expense was due to the Bank
increasing in November of 1996 the Bank's contribution toward the premium for
employee's family health insurance benefits from 50% to 80%. Another area in
which noninterest expense increased from the 1996 level was in FDIC Insurance
which rose $6,000. The FDIC Bank Insurance Fund had been fully funded since
midway of 1995 and significant decreases had taken place in 1996. However, in
the first quarter of 1997 the FDIC increased assessments which resulted in
increased expense. Data processing expense increased $6,000 from $42,000 in
the first three months of 1996 to $48,000 for the same period of 1997. The
increase was due in part to increased transaction volume originated by several
new large volume customers. With the exception to the categories above,
noninterest expense remained fairly stable when comparing the first three
months of 1997 to the first three months of 1996.
INCOME TAXES
Income tax expense increased $36,000 for the first three months of 1997
over the same period of 1996 primarily as a result of a change in a temporary
difference which affected deferred income taxes. As noted above, net income
after income taxes totaled $453,000 for the first quarter of 1997 as compared
to $473,000 for the first quarter of 1996.
9
<PAGE>
CAPITAL
Capital adequacy is critical to the Corporation's well being and future
growth. Capital for the period ended March 31, 1997, was $15,284,000 while
capital at the end of 1996 totalled 15,224,000. Despite a decrease in the
fair value of securities held by the Bank which are held as available-for-
sale, the Corporation's earnings during the first three months of 1997 of
$453,000 resulted in an increase in capital. Under Statement No. 115 of the
Financial Accounting Standards Board which has been adopted by the
Corporation, increases and decreases in the fair value of securities held
which are available-for-sale must be reported as equity capital adjustments
net of tax effects. During the first quarter of 1997, the equity capital
adjustment required by SFAS No. 115 was a decrease of $294,000.
Capital was also reduced during the first quarter of 1997 by dividend
distributions of $99,000. Management believes the Corporation's current
capital and liquidity positions are adequate to support its operations.
Additionally, the Corporation's capital adequacy as measured by capital ratios
defined by Federal regulators is considered adequate.
The Corporation has capital ratios exceeding regulatory requirements.
Federal regulators have adopted risk-based capital adequacy guidelines under
which the components of capital are referred to as Tier 1 and Tier 2 capital.
For the Corporation, Tier 1 capital is shareholder's equity and Tier 2 capital
is the allowance for loan losses. The risk-based capital ratios are computed
by dividing the components of capital by risk-adjusted assets. Risk-adjusted
assets are determined by assigning credit risk weighing factors from 0% to
100% to various categories of assets and off-balance-sheet financial
instruments.
Minimum risk-based capital ratios are 4.0% for the Tier 1 capital ratio
and 8.0% for the total capital ratio. At March 31, 1997, the Corporation's
Tier 1 risk-adjusted capital ratio was 18.9% and the total capital ratio was
20.1%. National banks must also have and maintain a total assets leverage
ratio of at least 3.0%. The total assets leverage ratio is the ratio between
Tier 1 capital and adjusted total assets (the quarterly average of total
assets). The Corporation's leverage ratio at March 31, 1997, was 11.8%.
CREDIT RISK AND LOAN QUALITY
Table 1 - Nonperforming Assets, reveals that nonperforming loans were
$578,000 as of March 31, 1997, representing a decrease of $6,000 since
December 31, 1996. As noted in the table, nonperforming loans decreased
significantly in 1996. Approximately $1,067,000 of such decrease was
attributable to the liquidation
10
<PAGE>
from nonaccrual status of loans to related entities of one individual for
which provision for potential losses had been previously made. Included
within the classification of nonperforming loans at March 31, 1997, are loans
classified as impaired under Statement of Financial Accounting Standards
("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by SFAS No. 118. Under this Standard, a loan is considered impaired
when, based upon current information and events, it is probable that the
Corporation will be unable to collect all principal and interest amounts due
according to the contractual terms of the loan agreement. At March 31, 1997,
the Corporation's impaired loans totalled approximately $33,000 or 5.7% of the
total nonperforming loans. All of these loans were on a nonaccrual basis and
have a related allowance for loan losses allocation of $17,000. The average
recorded investment in impaired loans in the first quarter of 1997 was
approximately $33,000.
Table 1 also reflects a decrease in foreclosed assets in each year since
1993. As noted, foreclosed assets have decreased from $1,334,000 at December
31, 1993 to $212,000 at March 31, 1997, which includes a decline of $17,000 in
the first quarter of 1997.
Table 2 - Analysis of Allowance for Loan Losses, indicates a $9,000
increase in the allowance since December 31, 1996. The Corporation had a net
recovery on charged-off loans in the first quarter of 1997 in the amount of
$9,000 and it was not necessary to make a provision to the allowance during
that period. Provisions are made to the allowance for loan losses based upon
periodic analyses of the entire loan portfolio which includes a thorough
review of nonperforming loans. As nonperforming loans have shown a favorable
decline as noted above, based upon the analyses, it is the opinion of
Management that the level of the allowance is adequate. As noted in the
table, net charge-offs for 1996 totalled 376,000 as compared to $161,000 in
1995. The large increase in net charge offs in 1996 was due to a $256,000
charge off of loans to related entities of one individual. At March 31, 1997,
the level of the allowance was at 1.41% of period-end loans.
LIQUIDITY
Liquidity is a measure of the ability of the Corporation to meet its
obligations and cash needs on a timely basis. For a bank, liquidity requires
the ability to meet the day-to-day demands of deposit customers, along with
the ability to fulfill the needs of borrowing customers. Generally, the
Corporation arranges its mix of cash, securities and loans in order to match
the volatility, interest sensitivity and growth trends of its deposit funds.
Federal funds sold and excess funds held in an interest bearing account with
the Federal Home Loan Bank of Pittsburgh averaged $1,264,000 during the first
three months of 1997.
11
<PAGE>
To provide an additional source of liquidity, the Bank's securities
portfolio has been deemed available-for-sale. Although the Corporation's
securities are generally purchased with the intention of holding them until
maturity, by holding the investments as available-for-sale the Corporation's
liquidity position is improved. In addition, a portion of the Corporation's
investment portfolio consists of securities, such as U.S. Government Agency
and other mortgage-backed securities, on which a portion of the principal
amount is repaid each month. Payments on these securities, together with
payments on loans and overnight investments in federal funds sold provide
additional sources of liquidity. If needed, the Bank also has alternative
sources of liquidity in the forms of borrowings from the Federal Reserve Bank
and lines of credit with several financial institutions and the Federal Home
Loan Bank of Pittsburgh.
There are no known trends or known demands, commitments, events or
uncertainties that will result in or that are reasonably likely to result in
liquidity increasing or decreasing in any material way.
12
<PAGE>
<TABLE>
CARDINAL BANCORP, INC. AND SUBSIDIARY
TABLE 1 - NONPERFORMING ASSETS
Nonaccruing, Restructured and Past Due Loans
(dollars in thousands)
<CAPTION>
March 31, ---------- December -----------
1997 1996 1995 1994 1993
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccruing loans $ 578 $ 584 $1,674 $ 620 $ 921
Restructured troubled
debt 0 0 170 0 0
Accrual Loans 90 days
or more past due 0 0 0 1 38
---------------------------------------------
Total Nonperforming Loans $ 578 $ 584 $1,844 $ 621 $ 959
Foreclosed Assets 212 229 357 836 1,334
---------------------------------------------
Total Nonperforming Assets $ 790 $ 813 $2,201 $1,457 $2,293
=============================================
Ratios:
Nonperforming loans as a
percent of period-end loans .84% .87% 2.99% 1.02% 1.48%
Nonperforming loans as a
percent of total period-end
stockholders' equity 3.78% 3.84% 12.44% 5.12% 7.96%
Allowance as multiple
of nonperforming loans 1.67x 1.64x .72x 2.41x 2.04x
</TABLE>
13
<PAGE>
<TABLE>
CARDINAL BANCORP, INC. AND SUBSIDIARY
TABLE 2 - ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)
<CAPTION>
March 31, ----------- December -----------
1997 1996 1995 1994 1993
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance - beginning of period $ 957 $1,333 $1,494 $1,953 $2,239
Provision charged to
operating expense 0 0 0 (300) 125
Loans charged off:
Commercial and Agricultural 0 328 15 38 500
Real estate mortgage 0 13 0 23 0
Consumer 3 149 180 155 18
---------------------------------------------
Total loans charged off 3 490 195 216 518
Recoveries:
Commercial and Agricultural 5 76 27 51 86
Real estate mortgage 7 23 0 0 0
Consumer 0 15 7 6 21
---------------------------------------------
Total recoveries 12 114 34 57 107
---------------------------------------------
Net charge-offs (recoveries) (9) 376 161 159 411
Balance - end of period $ 966 $ 957 $1,333 $1,494 $1,953
============================================
Ratios:
Net charge-offs to
average loans * .61% .27% .26% .60%
Allowance to period-end
loans 1.41% 1.42% 2.16% 2.46% 3.01%
Allowance as multiple of
net charge-offs * 2.54x 8.28x 9.40x 4.75x
* A net recovery was realized during this period.
</TABLE>
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
- ---------------------------
Management and the Corporation's legal counsel are not aware of any
litigation that would have a material adverse effect on the consolidated
financial position of the Corporation. There are no proceedings pending other
than the ordinary routine litigation incident to the business of the
Corporation and its subsidiary, First American National Bank of Pennsylvania.
In addition, no material proceedings are pending or are known to be threatened
or contemplated against the Corporation or the Bank by government authorities.
Item 2. Changes in Securities.
- -------------------------------
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 security holders was held on April 8, 1997.
(b), (c) At the April 8, 1997, annual meeting, the shareholders of
Cardinal Bancorp, Inc. elected two Class C Directors to serve for a three year
term and until their successors are elected and qualified. The following
individuals were elected and the votes cast are set forth opposite their
names.
Individuals Elected For Authority Withheld
------------------- ----- ------------------
Ray E. Koontz 650,360 46,931
Darrell Dodson 649,845 47,446
Additionally, following is a list of each other director whose term of
office as director continued after the meeting.
Merle W. Helsel Robert E. Ritchey
Donald W. DeArment James C. Vreeland
William B. Zimmerman Clyde R. Morris
The shareholders of Cardinal Bancorp, Inc. also voted to ratify the
selection of S.R. Snodgrass, A.C., Certified Public
15
<PAGE>
Accountants, of Wexford, Pennsylvania, as the auditors for the Corporation for
the year ending December 31, 1997. There were 678,765 votes for ratification,
14,880 votes against and 3,646 abstentions. No other matters were considered.
(d) Not applicable.
Item 5. Other Information.
- ---------------------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
(a) Exhibits:
None
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
16
<PAGE>
CARDINAL BANCORP, INC. AND SUBSIDIARY
EVERETT, PENNSYLVANIA
Signatures
------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Cardinal Bancorp, Inc.
----------------------
(Registrant)
By: /s/ Merle W. Helsel
-------------------------------------
Merle W. Helsel
President and Chief Executive Officer
Date: May 14, 1997
By: /s/ Robert F. Lafferty
------------------------------------
Robert F. Lafferty
Chief Financial Officer
(principal financial and accounting officer)
Date: May 14, 1997
17
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,882
<INT-BEARING-DEPOSITS> 531
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 50,207
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 68,550
<ALLOWANCE> 966
<TOTAL-ASSETS> 129,608
<DEPOSITS> 113,306
<SHORT-TERM> 161
<LIABILITIES-OTHER> 857
<LONG-TERM> 0
0
0
<COMMON> 2,759
<OTHER-SE> 12,525
<TOTAL-LIABILITIES-AND-EQUITY> 129,608
<INTEREST-LOAN> 1,527
<INTEREST-INVEST> 846
<INTEREST-OTHER> 17
<INTEREST-TOTAL> 2,390
<INTEREST-DEPOSIT> 1,024
<INTEREST-EXPENSE> 20
<INTEREST-INCOME-NET> 1,346
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 891
<INCOME-PRETAX> 594
<INCOME-PRE-EXTRAORDINARY> 453
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 453
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
<YIELD-ACTUAL> 4.50
<LOANS-NON> 578
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 957
<CHARGE-OFFS> 3
<RECOVERIES> 12
<ALLOWANCE-CLOSE> 966
<ALLOWANCE-DOMESTIC> 647
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 319
</TABLE>
