<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
Form 10-Q
( X ) Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the quarter ended June 30, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the transition period from . . . . . to . . . . .
Commission File Number 34-0-20494
CARDINAL BANCSHARES, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Kentucky 61-1128205
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East Vine St., Suite 300 Lexington, Kentucky 40507
-------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (606) 255-8300
--------------
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, No Par Value
--------------------------
(Title of Class)
Indicate by check mark whether 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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
---
The number of shares outstanding of the issuer's class of common stock, as of
July 31, 1996: 1,584,338 shares of common stock, no par value.
<PAGE> 2
CARDINAL BANCSHARES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C>
Part I Financial Information
Item 1. Consolidated Balance Sheets 1
Consolidated Statements of Operation 2-3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-12
Part II
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
<PAGE> 3
Cardinal Bancshares, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
Assets
Cash and due from banks $ 21,560 22,172
Interest bearing deposits in banks 1,345 8,001
Federal funds sold 9,895 10,075
Securities available for sale ( amortized cost of
$137,539 in 1996 and $137,126 in 1995) 137,984 139,372
Loans 439,478 481,136
Less: Allowance for loan losses 5,197 5,789
Unearned income 4,021 13,035
-------- --------
Net loans 430,260 462,312
Premises and equipment 8,181 12,300
Goodwill and other intangible assets, less accumulated
amortization of $3,043 in 1996 and $2,789 in 1995 5,612 5,866
Accrued interest receivable and other assets 8,139 8,391
-------- --------
Total assets $622,976 668,489
======== ========
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing $ 42,155 50,155
Interest bearing 495,692 520,579
-------- --------
Total deposits 537,847 570,734
Securities sold under agreements to repurchase 5,620 6,930
Notes payable 3,943 25,643
Advances from the Federal Home Loan Bank 16,905 18,167
Accrued interest payable and other liabilities 9,035 5,865
-------- --------
Total liabilities 573,350 627,339
Stockholders' equity:
Common stock, without par value. Authorized
5,000,000 shares; issued and outstanding
1,584,338 voting and 2,029 non-voting shares in 1996 and
1,474,087 voting and 1,969 non-voting shares in 1995. 34,331 28,918
Retained earnings 15,845 11,593
Net unrealized gain (loss) on securities available for sale
net of tax 293 1,482
ESOP and MRP loan obligations (843) (843)
-------- --------
Total stockholders' equity 49,626 41,150
-------- --------
Total liabilities and stockholders' equity $622,976 668,489
======== ========
</TABLE>
1
<PAGE> 4
Cardinal Bancshares, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $11,262 10,686 23,131 20,315
Securities:
Taxable 2,241 2,474 4,567 4,802
Tax-exempt 37 32 77 61
Federal funds sold 200 247 473 405
Deposits in banks 124 74 227 132
------- ------ ------ ------
Total interest income 13,864 13,513 28,475 25,715
Interest expense:
Deposits 6,051 5,784 12,432 10,598
Notes payable 232 473 748 927
Advances from the Federal Home
Loan Bank 311 322 626 638
Securities sold under agreements
to repurchase 59 38 119 66
------- ------ ------ ------
Total interest expense 6,653 6,617 13,925 12,229
------- ------ ------ ------
Net interest income 7,211 6,896 14,550 13,486
Provision for loan losses 869 532 1,707 867
------- ------ ------ ------
Net interest income after
provision for loan losses 6,342 6,364 12,843 12,619
Noninterest income:
Service charges on deposits 312 303 622 605
Insurance commissions 122 228 301 342
Car club fees 24 84 86 146
Trust income 122 52 211 60
Gains on sales of loans 8,436 86 8,525 288
Securities gains (losses), net (11) 13 38 (2)
Loan servicing fees 62 17 109 52
Other 180 133 348 315
------- ------ ------ ------
Total noninterest income 9,247 916 10,240 1,806
Noninterest expense:
Salary and employee benefits 3,287 3,445 6,901 6,603
Net occupancy expense 470 421 976 815
Furniture and equipment expenses 594 448 1,280 850
Professional fees 143 328 329 507
Bank shares tax 135 122 271 243
</TABLE>
2
<PAGE> 5
Cardinal Bancshares, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
FDIC insurance 120 276 247 551
Amortization of goodwill and other
intangible assets 127 127 254 257
Data processing services 305 188 701 566
Operating supplies 178 239 383 471
Telephone expense 188 170 387 324
Postage and courier expense 170 170 388 322
Advertising and business development 270 302 600 506
Transportation, meals and lodging 146 123 285 207
Termination of business of subsidiary 564 - 564 -
Other 721 612 1,456 1,078
------ ----- ------ ------
Total noninterest expense 7,418 6,971 15,022 13,300
Income before income taxes 8,171 309 8,061 1,125
Income taxes 3,838 99 3,832 414
------ ----- ------ ------
Net income $4,333 210 4,229 711
====== ===== ====== ======
Net income per share:
Primary $ 2.56 0.14 2.55 0.47
------ ----- ------ ------
Fully diluted $ 2.56 0.14 2.55 0.46
====== ===== ====== ======
</TABLE>
3
<PAGE> 6
Cardinal Bancshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,229 711
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 1,707 867
Depreciation, amortization and accretion, net 1,489 (3)
Deferred income tax expense 211 6
Gain on sales of securities and loans (8,425) (286)
(Increase) decrease in accrued interest receivable
and other assets (618) (1,750)
Increase in accrued interest payable
and other liabilities 4,495 2,087
------- ------
Net cash provided by operating activities 3,088 1,632
------- ------
Cash flows from investing activities:
Net (increase) decrease in interest bearing deposits
in banks 2,999 (5,163)
Net (increase) decrease in federal funds sold 180 (6,982)
Purchase of securities:
Available for sale (47,839) (69,568)
Held to maturity - (1,169)
Proceeds from sales of securities:
Available for sale 7,577 47,372
Proceeds from maturities of securities:
Available for sale 25,564 14,620
Held to maturity - 986
Net increase in loans (14,758) (52,649)
Purchases of premises and equipment (1,745) (1,087)
Proceeds from sales of loans 33,552 -
Spin-off of subsidiary (Note 2) (764) -
------- ------
Net cash used in investing activities 4,766 (73,640)
------- ------
Cash flows from financing activities:
Net increase in deposits 9,778 74,091
Net increase (decrease) in securities sold under
agreements to repurchase (1,310) 1,700
Net increase (decrease) in notes and advances payable (21,732) 2,336
Repayment of obligations under capital lease - (32)
Dividends (615) (560)
Issuance of common stock 5,413 675
------- ------
Net cash provided by financing activities (8,466) 78,210
------- ------
Net increase (decrease) in cash and cash equivalents (612) 6,202
Cash and cash equivalents at beginning of period 22,172 17,847
------- ------
Cash and cash equivalents at end of period $21,560 24,049
======= ======
</TABLE>
4
<PAGE> 7
Cardinal Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accounting and reporting policies of Cardinal Bancshares, Inc.
("Cardinal") and its wholly-owned subsidiaries, The Vine Street Trust Company,
HNB Bank, NA, First & Peoples Bank, Alliance Bank, FSB, and Jefferson Banking
Company, conform to generally accepted accounting principles and, in
management's view, general practices within the banking industry.
The consolidated financial statements include the accounts of Cardinal
and its subsidiaries. Significant intercompany accounts and transactions have
been eliminated in consolidation. The consolidated financial statements for
the six months and the three months ended June 30, 1996 and 1995 are unaudited
and do not include information or footnotes necessary for a complete
presentation of financial condition, results of operations and statements of
cash flow. The interim financial statements include all adjustments,
consisting only of normal recurring accruals, which in the opinion of
management are necessary in order to make the financial statements not
misleading. The results of operations for the six months ended June 30, 1996
are not necessarily indicative of the results to be expected for the entire
year ending December 31, 1996.
2. Security First Network Bank Spin-Off
On May 23, 1996 Cardinal effected the spin-off of its wholly-owned
subsidiary, Security First Network Bank ("SFNB"). Cardinal stockholders
received on a pro rata basis the distribution of 2,398,908 shares. The terms
and conditions of the spin-off are set forth in the First Amended and Restated
Plan of Distribution adopted by the Board of Directors of Cardinal on October
5, 1995. Cardinal no longer has any ownership interest in SFNB. SFNB's Common
Stock is traded on NASDAQ's National Market System under the trading symbol
"SFNB." Summary balance sheet information of SFNB as of the spin-off date is
as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
--------------------
<S> <C>
Cash $ 764
Interest-bearing deposits 3,657
Securities 14,216
Net loans 20,637
Premises 3,959
Other assets 870
Deposits 42,644
FHLB advances 1,230
Other liabilities 867
Stockholders' equity (638)
====
</TABLE>
5
<PAGE> 8
3. Cardinal Credit Corportion Sale of Assets
On May 14, 1996 Cardinal completed the sale of substantially all of
the assets of its subsidiary, Cardinal Credit Corporation, to Norwest Financial
Kentucky, Inc. Cardinal recorded an after-tax gain of approximately $4.6
million in connection with such sale and the related termination of Cardinal
Credit Corporation's business. As part of the agreement with Norwest, Cardinal
agreed that for three years it would not engage in the consumer finance
business in the same or substantially similar manner in which Cardinal Credit
Corporation engaged in that business. Such agreement does not, however,
preclude any Cardinal subsidiary from engaging in its banking business,
including the origination of consumer loans, as currently conducted. The cash
proceeds of the sale were invested in short-term securities.
4. Allowance for Loan Losses
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
--------------------
June 30, December 31,
1996 1995
<S> <C> <C>
Balance, January 1 5,789 5,214
Provisions for loan losses 1,707 1,994
Recoveries 242 292
Loans charged-off (1,207) (1,711)
Adjustments for sale of
Cardinal Credit Corporation and
Spin-Off of SFNB (1,334)
------- ------
Balance, end of period 5,197 5,789
===== ======
</TABLE>
6
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF CARDINAL
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995.
RESULTS OF OPERATIONS
Net income for the six months ended June 30, 1996 was $4.229 million
or $2.55 primary earnings per share as compared to net income of $711,000 and
$0.47 primary earnings per share for the same period in 1995. Annualized
return on average stockholders' equity and average assets for the first six
months of 1996 and 1995 were 19.10%, 3.81%, 1.25% and 0.24%, respectively.
Net interest income is the difference between interest earned and
interest expensed plus any loan fees earned. Net interest margin is net
interest income divided by average earning assets. The following table
summarizes the above for the six months ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
(Dollars in thousands)
Six months ended June 30
1996 1995
------- ------
<S> <C> <C>
Interest income, including loan fees $28,475 25,715
Interest expense 13,925 12,229
------ ------
Net interest Income $14,550 13,486
======= ======
Average earning assets $627,914 $564,912
Net interest margin (annualized) 4.63% 4.77%
</TABLE>
Growth in net interest income from 1995 to 1996 was primarily due to a
11.2% increase in average earning assets and offset slightly by a decline in
the net interest margin from 4.77% in 1995 to 4.63% in 1996. The increase in
average earning assets was primarily due to investing funds received from
increases in deposits at The Vine Street Trust Company and Jefferson Banking
Company. Average deposits increased 24.9% between reporting periods.
Management provided $1,707,000 in provision for loan losses for the
first six months of 1996 compared to $867,000 for the same period in 1995.
Management provides a level of reserves based upon an evaluation of the loan
portfolio's quality, growth, mix and prior loan loss experience. The increase
in the level of provision for loan losses between reporting periods is
primarily the result of increases in level of net charge-offs. Net charge-offs
for the six months ended June 30, 1996 were $965,000 compared to $484,000 for
the same period in 1995. The significant increase in net charge-offs primarily
resulted from losses in the consumer finance portfolio, principally of Cardinal
Credit Corporation, which totaled $663,000 for the first six months in 1996 as
compared to $396,000 for the same period in 1995. In addition, net charge-offs
in the indirect automobile loan portfolio increased from $108,000 for the six
months in 1995 to $333,000 for the same period in 1996. As discussed above at
Note 3 to Consolidated Financial
7
<PAGE> 10
Statements, on May 14, 1996 Cardinal sold substantially all of the assets of
Cardinal Credit Corporation, including $26 million of consumer finance
loans. See "Notes to Consolidated Financial Statements." See "Risk Elements
in Loan Portfolio."
<TABLE>
<CAPTION>
(Dollars in thousands)
Six Months Ended June 30
1996 1995
------ ------
<S> <C> <C>
Balance, beginning of period $5,789 $5,214
Provision for loan losses 1,707 867
Loans charged off (1,207) (677)
Less: Recoveries 242 193
------ ------
Net charge-offs (965) (484)
Adjustments for sale of Cardinal
Credit Corp. and Spin-Off of SFNB (1,334)
------ ------
Balance, end of period $5,197 $5,597
====== ======
</TABLE>
Noninterest income increased $8.4 million for the first six months of
1996 as compared to same period in 1995. Of this increase, $8.2 million is
attributable to the gain on the sale of $26 million of Cardinal Credit
Corporation loans. See Note 3 of "Notes to Consolidated Financial Statements."
Insurance commissions and car club fees declined from $488,000 for the six
months in 1995 to $387,000 for the same period in 1996. This decline was
primarily the result of the termination of business of Cardinal Credit
Corporation on May 14, 1996. Of the $387,000 of such commissions and fees
earned in the first six months of 1996, approximately $299,000 is attributable
to the operations of Cardinal Credit Corporation. Trust income increased from
$60,000 for the first six months of 1995 to $211,000 for the same period in
1996. Assets under management for the trust division increased from $52.9
million at June 30, 1995 to $103.6 million at June 30, 1996. Loan servicing
fees increased as a result of an increase in the size of the loan servicing
portfolio.
Noninterest expenses increased $1.7 million or 12.9% during the first
half of 1996 compared to the prior year. The most significant causes of the
increase were expenses incurred in terminating the operations of Cardinal Credit
Corporation ($564,000) and expenses incurred to establish the Internet banking
operations (approximately $1.3 million) at SFNB. Cardinal's noninterest
expenses are no longer impacted by the SFNB Internet banking operations since
the SFNB spin-off was effected May 23, 1996. Commencing in the fourth quarter
of 1996, Cardinal expects to contract for Internet banking services from SFNB's
subsidiary, Five Paces, Inc. Cardinal intends to offer its Internet banking
product through Vine Street Trust and Jefferson Banking Company.
In connection with the spin-off of SFNB, Cardinal and SFNB agreed with
federal banking regulators that, among other things, Cardinal would terminate
its various management and director interlocks with SFNB. Accordingly, during
the third quarter of 1996, Robert W. Copelan, James S. Mahan, III and Howard J.
Runnion, Jr. will resign from the board of directors of Cardinal (as well as
all other positions at Cardinal and its subsidiaries), and Mr. Robert F.
Stockwell will resign as treasurer of Cardinal. In connection with those
resignations, the board of directors of Cardinal has determined that options
outstanding to Messrs. Mahan and Stockwell, which have not yet been fully
vested, should in fact be vested because, but for the requirements that the
interlock be terminated in connection with the spin-off of SFNB, such persons
would have continued their positions in Cardinal. The accelerated vesting of
such options is subject to approval of Cardinal stockholders. If the Cardinal
stockholders approve the anticipated change in the options held by Messrs.
Mahan and Stockwell, Cardinal expects to have an additional $1.0 million of
non-cash compensation expense before year-end 1996.
Set forth below is a condensed income statement reflecting Cardinal's
earnings for the six months ending June 30, 1996 without the effect of Cardinal
Credit Corporation and SFNB.
<TABLE>
<CAPTION>
Cardinal as Cardinal Cardinal as
Reported Credit SFNB Adjusted
Corporation
----------- ----------- ----- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest income $28,475 2,303 1,188 24,984
Interest expense 13,925 446 766 12,713
------- ----- ----- ------
Net interest income 14,550 1,857 422 12,271
Provision for loan losses 1,707 607 - 1,100
------- ----- ----- ------
Net interest income after
provision for loan losses 12,843 1,250 422 11,171
Non-interest income 10,240 8,583(1) 81 1,576
Non-interest expense 15,022 2,691 1,985 10,346
------- ----- ----- ------
Income before income taxes 8,061 7,142 (1,482) 2,401
Income taxes 3,832 2,834(1) 123 (2) 875
------- ----- ----- ------
Net Income $ 4,229 4,308(1) (1,605) 1,526
======= ===== ===== ======
</TABLE>
(1) Includes the gain on the sale of substantially all of the assets of
Cardinal Credit Corporation of $8.2 million and the related federal,
state, and local income tax effect of $3.4 million.
(2) Includes $625,000 related to a dividend Cardinal received from SFNB in
excess of Cardinal's tax basis in SFNB upon SFNB's spin-off from
Cardinal.
FDIC deposit insurance declined from $551,000 to $247,000 due to the
change in deposit insurance rates. Deposit accounts at the Banks are insured to
applicable limits by the Bank
8
<PAGE> 11
Insurance Fund ("BIF") of the FDIC and deposit accounts at the Thrift are
insured to applicable limits by the Savings Association Insurance Fund
("SAIF"). Deposit insurance premiums are paid to the FDIC on a quarterly
basis. The FDIC has a risk-based deposit insurance premium assessment system
pursuant to which member institutions pay deposit insurance assessment rates
depending on the risk classification assigned to each institution. The FDIC
places each institution into one of nine assessment risk classifications based
on the institution's capital and supervisory classification.
Deposit insurance premiums for the BIF and the SAIF are set to
facilitate each fund achieving a designated reserve ratio. In August 1995, the
FDIC determined that the BIF had achieved its designated reserve ratio and
lowered BIF deposit insurance premiums for all but the riskiest institutions.
Effective January 1, 1996, BIF deposit insurance premiums for well capitalized
banks were further reduced to the statutory minimum of $2,000 per institution
per year. See "Capital Adequacy." Because the SAIF remains significantly
below its designated reserve ratio, SAIF deposit insurance premiums were not
reduced and remain at 0.23% to 0.31% of deposits based upon an institution's
supervisory evaluations and capital levels.
The current financial condition of the SAIF has resulted in various
legislative and other proposals to recapitalize the SAIF, including proposals
to have a one-time special assessment of SAIF-insured institutions such as
Alliance Bank, FSB. Cardinal is unable to predict whether any proposed
legislation will be enacted or the amount, if any, of assessments which may be
levied on Cardinal's subsidiary financial institutions.
Cardinal had income tax expense of $3,832,000 for the first six months
of 1996 compared to $414,000 for the same period in 1995, which yielded
effective tax rates of 47.5% for 1996 and 36.8% for 1995. The income tax
expense for 1996 includes $625,000 in tax expense related to a dividend
received from SFNB in excess of Cardinal's tax basis in SFNB upon SFNB's
spin-off from Cardinal and $543,000 in tax expense for the elimination of
deferred tax assets for Cardinal Credit Corporation.
CONSOLIDATED BALANCE SHEET
Total assets decreased $45.5 million from December 31,1995 to June 30,
1996 primarily reflecting the effects of the spin-off of SFNB and the sale of
assets at Cardinal Credit Corporation. These events had a similar effect on
total loan loans, total deposits and borrowings
9
<PAGE> 12
as net loans declined $32 million between December 31, 1995 and June 30, 1996,
total deposits declined $32.9 million and total borrowings declined $23
million.
RISK ELEMENTS IN LOAN PORTFOLIO
A summary of nonperforming loans and assets follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, December 31,
1996 1995
<S> <C> <C>
Non-accrual loans 1,228 782
90 days or more past due 389 616
----- -----
Total non-performing loans 1,617 1,398
Other real estate owned 50 93
----- -----
Total non-performing Assets 1,667 1,491
===== =====
Total non-performing loans as a
percentage of period-end net loans 0.37% 0.30%
Total non-performing assets as a per-
centage of period-end net loans
and OREO 0.38% 0.32%
Allowance for loan losses to
period end net loans 1.19% 1.24%
Allowance for loan losses to
non-performing loans 321.4% 414.1%
</TABLE>
At June 30, 1996, the recorded investment in loans considered impaired
under SFAS No. 114 was $633,000. At December 31, 1995, impaired loans were
$717,000.
Of the $1,228,000 in non-accrual loans on June 30, 1996, $662,000 was
one SBA loan, 83% guaranteed by the SBA. Cardinal received payment on the
guaranteed portion of this loan in July. Management expects no material loss
on the remaining unguaranteed portion of this SBA loan. Cardinal considers the
level of non-performing loans in its evaluation of the adequacy of the
allowance for loan losses.
10
<PAGE> 13
CAPITAL ADEQUACY
As of June 30, 1996 stockholders' equity totaled $49,626,000, an
increase of $8,476,000 since December 31, 1995. Below is a statement of the
changes in stockholders' equity between December 31, 1995 and June 30, 1996.
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Balance, December 31, 1995 41,150
Issuance of common stock 5,413
Net Income 4,229
Dividends paid (615)
Decrease in net unrealized gain on
securities available for sale (1,189)
Spin-Off of SFNB 638
------
Balance, June 30, 1996 49,626
======
</TABLE>
At June 30, 1996, each of Cardinal's financial institution
subsidiaries met all applicable regulatory capital requirements. Also at that
date, Cardinal had Tier I risk-based capital, total risk-based capital and
leverage ratios of 10.96%, 12.21% and 7.08%, respectively. All capital ratios
are in compliance with regulatory minimum requirements. As of year end 1995,
Vine Street Trust was "undercapitalized" under the prompt corrective action
regulations of the Federal Deposit Insurance Corporation ("FDIC"). In March
1996 while the sale of Cardinal Credit Corporation was pending, Vine Street
received notice from the FDIC that it was subject to certain provisions
applicable to undercapitalized institutions under the Federal Deposit Insurance
Act ("FDIA"). However, after the sale of Cardinal Credit Corporation, Vine
Street became a "Well-Capitalized" institution. On July 24, 1996, the FDIC
deemed Vine Street "Well-Capitalized" and rescinded its prompt corrective
action notice.
On April 15, 1996, Cardinal sold 85,246 shares of common stock at
$61.00 per share in a private placement. After fees and expenses, Cardinal
netted $4,955,000.
COMPARATIVE RESULTS FOR THREE MONTHS ENDED
JUNE 30, 1996 AND JUNE 30, 1995
Net income for the three months ended June 30, 1996 was $4,333,000 as
compared to $210,000 for the same period in 1995.
Net interest income for the three months ended June 30, 1996 was
$7,211,000 as compared to $6,896,000 for the same period in 1995. The net
interest margin declined slightly
11
<PAGE> 14
between reporting periods from 4.70% to 4.63%. Average earning assets
increased from $586.6 million in 1995 to $623.2 million in 1996.
Management provided $869,000 in provision for loan losses for the
three months ended June 30, 1996 as compared to $532,000 for the same period in
1995. The increase between periods is primarily the result of providing
adequate loan loss reserves after net charge-offs. Net charge-offs for the
three months ended June 30, 1996 were $524,000 compared to $376,000 for the
same period in 1995.
Noninterest income increased $8.3 million for the three months ended
June 30, 1996 as compared to the same period in 1995. The vast majority of
this increase is attributable to the gain on the sale of loans of Cardinal
Credit Corporation. Insurance commissions and car club fees decreased $166,000
primarily the result of termination of business of Cardinal Credit Corporation.
Trust income increased $70,000 as a result of increased assets under
management. Loan servicing fees increased $45,000 as a result of an increase
in the size of the loan servicing portfolio.
Noninterest expense for the three months ended June 30, 1996 was $7.4
million as compared to $7.0 million for the same period in 1995. The most
significant cause of the increase was expenses incurred in terminating the
operation of Cardinal Credit Corporation ($564,000). Expenses incurred to
initiate Internet banking operations were offset by decreased FDIC deposit
insurance and operating supplies expense.
12
<PAGE> 15
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
On May 10, 1996, Cardinal held a special meeting of
stockholders. At the meeting, stockholders approved and adopted
Cardinal's Amended and Restated Plan of Distribution, pursuant to
which, among other things, Cardinal's stock in SFNB was distributed to
Cardinal stockholders. At the special meeting, 924,462 votes were cast
in favor of the proposal, and 5,370 votes were cast against the
proposal. There were 3,897 abstentions and broker non-votes.
On June 5, 1996, Cardinal held an annual meeting of
stockholders to elect eight directors for a one year term. Set
forth below is a list of the directors elected, along with the number
of votes cast for or withheld for each nominee. There were no
abstentions or broker non-votes.
Vernon J. Cole For: 1,379,959
Withheld: 1,234
Robert W. Copelan For: 1,379,959
Withheld: 1,234
Loyd G. Jasper For: 1,379,959
Withheld: 1,234
James S. Mahan, III For: 1,379,959
Withheld: 1,234
Ryan R. Mahan For: 1,379,949
Withheld: 1,244
John S. Penn For: 1,379,959
Withheld: 1,234
Howard J. Runnion, Jr. For: 1,379,959
Withheld: 1,234
Ronald C. Switzer For: 1,379,959
Withheld: 1,234
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K -- Cardinal Bancshares, Inc. filed five
reports on Form 8-K during the quarter ending June 30, 1996.
- The report dated April 8, 1996 announced agreements to
extend through the end of June 1996 the date after which
parties may terminate the stock purchase agreements
pursuant to which Huntington Bancshares Incorporated,
Wachovia Corporation and Area Bancshares Corporation
agreed to purchase capital stock of Security First
Network Bank, FSB.
- The report dated April 19, 1996 announced the completion
of the sale of 85,246 shares of Cardinal common stock,
no par value per share, in private placement at a per
share rate of $61.00.
- The report dated April 25, 1996 announced that Security
First Network Bank had agreed to sell 17,143 shares of
SFNB's common stock for $1.0 million in a private
placement to National Commerce Bancorporation. The sale
of shares by SFNB was subject to certain conditions
including consummation of the distribution of SFNB's
common stock in a spin-off to the Cardinal shareholders.
- The report dated May 29, 1996 announced the completion of
the sale of substantially all of the assets of
Cardinal's subsidiary, Cardinal Credit Corporation to
Norwest Financial, Kentucky.
- The report dated June 7, 1996 announced Cardinal had
effected the spin-off of its wholly-owned subsidiary,
Security First Network Bank.
13
<PAGE> 16
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 BANCSHARES, INC.
/s/ John S. Penn
-----------------
John S. Penn
President & Chief Operating Officer
/s/ Jack H. Brown
-----------------
Jack H. Brown
Chief Financial Officer
Principal Accounting Officer
Date: August 14, 1996
14
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1996 AND DECEMBER 31, 1995 AND
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE
30, 1996 AND 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-Q
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY>U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 21,560
<INT-BEARING-DEPOSITS> 1,345
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0
0
<COMMON> 34,331
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