10QSB 1 0001.txt FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) X Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 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 November 10, 2000 was 492,400. Transitional Small Business Disclosure Format (check one):Yes No X Page 1 of 14. CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES FORM 10-QSB INDEX ----------------------------------------------------------------------------- PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The consolidated financial statements of Cardinal Bankshares Corporation (the "Company") are set forth in the following pages. Consolidated Balance Sheets as of September 30, 2000 and December 31,1999........................................................3 Consolidated Statements of Operations for the Nine Months Ended September 30, 2000 and 1999.................................4 Consolidated Statements of Operations for the Three Months Ended September 30, 2000 and 1999................................5 Consolidated Statements of Stockholders' Equity for the Nine Months Ended September 30, 2000 and the Year Ended December 31, 1999.......................................................6 Consolidated Statements of Cash Flows for the Nine Months Ended September 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.....................................11-12 PART II. OTHER INFORMATION................................................12 All schedules have been omitted because they are inapplicable or the required information is provided in the financial statements, including the notes thereto. CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets September 30, 2000 and December 31, 1999 --------------------------------------------------------------------------------
September 30, December 31, 2000 1999 ------------ ------------ (Unaudited) (Audited) ASSETS Cash and due from banks $ 2,849,789 $ 3,775,280 Interest-bearing deposits with banks 0 2,000,000 Federal funds sold 4,600,000 6,975,000 Investment securities available for sale 35,351,397 33,213,933 Investment securities held to maturity 20,934,150 19,169,099 Loans, net of allowance for credit losses of $1,119,968 in 2000 and $1,661,521 in 1999 89,434,404 87,684,925 Property and equipment, net 2,548,676 2,444,355 Accrued income 1,178,125 1,173,115 Other assets 2,382,625 1,704,778 ____________ ____________ Total assets $159,279,166 $158,140,485 ============ ============ LIABILITIES Demand deposits $ 17,728,964 $ 16,783,239 Interest-bearing deposits 10,170,009 10,767,129 Savings deposits 19,918,075 18,901,235 Large denomination time deposits 17,560,767 18,142,525 Other time deposits 74,844,674 75,213,536 ----------- ----------- Total deposits 140,222,489 139,807,664 Federal funds purchased 0 0 Other borrowed funds 0 0 Accrued interest payable 271,713 237,075 Other liabilities 507,120 338,149 ----------- ----------- Total liabilities 141,001,322 140,382,888 ----------- ----------- Commitments and contingencies STOCKHOLDERS'EQUITY: Common stock, $10 par value, authorized 5,000,000 shares, issued 492,411 shares in 2000 and 511,771 in 1999 4,924,110 5,117,710 Surplus 2,925,150 2,925,150 Retained earnings 11,016,258 10,514,759 Unrealized appreciation (depreciation) on investment securities available for sale (587,674) (800,022) ----------- ----------- Total stockholders' equity 18,277,844 17,757,597 ----------- ----------- Total liabilities and stockholders' equity $159,279,166 $158,140,485 ============ ============
See Notes to Consolidated Financial Statements 3 CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations For the Nine Months ended September 30, 2000 and 1999 (Unaudited) --------------------------------------------------------------------------------
Nine Months Ended September 30, 2000 1999 (Unaudited) (Unaudited) INTEREST INCOME: Loans and fees on loans $ 5,852,543 $5,762,139 Federal funds sold 214,545 362,913 Taxable investment securities 1,778,975 1,364,165 Investment securities exempt from federal tax 710,348 564,854 Deposits with banks 21,995 187,741 ----------- ---------- Total interest income 8,578,406 8,241,812 INTEREST EXPENSE ON DEPOSITS: Deposits 4,403,829 4,201,647 Federal funds purchased 0 0 Other borrowed funds 0 0 ---------- ---------- Total interest expense 4,403,829 4,201,647 ---------- ---------- Net interest income 4,174,577 4,040,165 PROVISION FOR CREDIT LOSSES 400,000 96,721 ---------- ---------- Net interest income after provision for loan loss 3,774,577 3,943,444 NON INTEREST INCOME: Service charges on deposit accounts 159,467 141,667 Other service charges and fees 40,889 36,288 Net realized gains on sales of securities 0 4,768 Gains on sales of other real estate 0 10,000 Other income 55,189 111,495 ---------- ---------- Total non interest income 255,545 304,218 NON INTEREST EXPENSE: Salaries and employee benefits 1,295,096 1,443,120 Occupancy expense 132,770 111,740 Equipment expense 217,912 214,471 Other expense 692,535 548,405 ---------- ---------- Total non interest expense 2,338,313 2,317,736 ---------- ---------- Income before income taxes 1,691,809 1,929,926 Income tax expense 358,875 500,087 ---------- ---------- Net income $1,332,934 $1,429,839 ========== ========== BASIC EARNINGS PER SHARE $ 2.65 $ 2.79 ========== ==========
See Notes to Consolidated Financial Statements 4 CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations For the Three Months ended September 30, 2000 and 1999 (Unaudited) --------------------------------------------------------------------------------
Three Months Ended September 30, 2000 1999 (Unaudited) (Unaudited) INTEREST INCOME: Loans and fees on loans $ 2,036,034 $1,909,501 Federal funds sold 44,275 128,570 Taxable investment securities 582,964 136,946 Investment securities exempt from federal tax 254,239 537,585 Deposits with banks 1,704 0 ----------- ---------- Total interest income 2,919,216 2,712,602 INTEREST EXPENSE ON DEPOSITS: Deposits 1,499,325 1,386,150 Federal funds purchased 0 0 Other borrowed funds 0 0 ----------- ---------- Total interest expense 1,499,325 1,386,150 ----------- ---------- Net interest income 1,419,891 1,326,452 PROVISION FOR CREDIT LOSSES 150,000 40,000 ---------- ---------- Net interest income after provision for loan loss 1,269,891 1,286,452 NON INTEREST INCOME: Service charges on deposit accounts 57,585 58,109 Other service charges and fees 17,759 36,288 Net realized gains on sales of securities 0 4,768 Gains on sales of other real estate 0 10,000 Other income 15,415 21,534 ---------- ---------- Total non interest income 90,759 130,699 NON INTEREST EXPENSE: Salaries and employee benefits 437,216 409,830 Occupancy expense 50,086 39,960 Equipment expense 87,074 88,781 Other expense 221,830 199,777 ---------- ---------- Total non interest expense 796,206 738,348 ---------- ---------- Income before income taxes 564,444 678,803 Income tax expense 120,561 188,534 ---------- ---------- Net income $ 443,883 $ 490,269 ========== ========== BASIC EARNINGS PER SHARE $ 0.90 $ 0.96 ========== ==========
See Notes to Consolidated Financial Statements 5 CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES Consolidated Statement of Changes in Stockholders' Equity For the Nine Months ended September 30, 2000 (Unaudited) and the year ended December 31, 1999 (Audited) --------------------------------------------------------------------------------
ACCUMULATED TOTAL OTHER STOCK- COMMON RETAINED COMPREHENSIVE HOLDERS' STOCK SURPLUS EARNINGS INCOME(LOSS) EQUITY ---------- ---------- ----------- ----------- ------------ 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 - - 1,332,934 - 1,332,934 Net change in unrealized depreciation on investment securities available for sale, net of income taxes - - - 212,348 212,348 ------------ - 1,545,282 Dividends paid ($0.55 per share) - - (271,816) - (271,816) Common stock purchased (200,460) - (584,160) - (784,620) Common stock reissued 6,860 - 24,541 - 31,401 ---------- ---------- ----------- ----------- ------------ September 30, 2000 $4,924,110 $2,925,150 $11,016,258 $ (587,674) $ 18,277,844 ========== ========== =========== =========== ============
See Notes to Consolidated Financial Statements 6 CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows For the Nine Months ended September 30, 2000 and 1999 (Unaudited) -------------------------------------------------------------------------------
Nine Months Ended September 30, 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,332,934 $ 1,429,839 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 169,304 145,885 Accretion of discounts on securities 40,551 53,333 Amortization of loan fees 0 (81,636) Provision for loan losses 400,000 96,721 Deferred income taxes (109,392) 399,080 Net realized gains on securities 0 (4,768) Deferred compensation & pension expense 71,215 (1,351) Changes in assets and liabilities: Accrued income (5,010) (113,535) Other assets (677,847) (1,294,604) Accrued interest payable 34,638 26,907 Other liabilities 97,756 (93,117) ---------- ---------- Net cash provided by operating activities 1,354,149 562,754 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Net decrease in federal funds sold 2,375,000 4,615,000 Purchases of investment securities (8,295,085) (23,426,058) Sale of investment securities 0 493,672 Net decrease in int-bearing deposits 2,000,000 7,100,000 Maturity of investment securities 4,673,759 12,754,199 Net (increase) decrease in loans (2,149,479) 350,937 Proceeds from sale of other real estate 0 10,000 Purchases of properties and equipment (273,625) (414,473) ---------- ---------- Net cash (used) in investing activities (1,669,430) 1,483,277 ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in demand, NOW, and savings deposits 1,365,445 1,958,192 Net (decrease) in time deposits (950,620) (3,068,181) Dividends paid (271,816) (271,239) Net (decrease) fed funds purchased 0 0 Common Stock Purchased (784,620) (7,329) Common Stock Reissued 31,401 0 ---------- ---------- Net cash used in financing activities (610,210) (1,388,557) ---------- ---------- Net decrease in cash & cash equivalents (925,491) 657,474 CASH AND CASH EQUIVALENTS, BEGINNING 3,775,280 _2,985,331 ---------- ---------- CASH AND CASH EQUIVALENTS, ENDING $ 2,849,789 $ 3,642,805 ========== ==========
See Notes to Consolidated Financial Statements 7 CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows, continued For the Nine Months ended September 30, 2000 and 1999 (Unaudited) -------------------------------------------------------------------------------
2000 1999 ---- ---- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid $ 4,369,191 $ 4,174,740 =============== =============== Income taxes paid $ 269,495 $ 438,077 =============== =============== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES: Other real estate acquired in settlement of loans $ 625,454 $ 0 =============== ===============
See Notes to Consolidated Financial Statements 8 CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- ITEM 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION NOTE 1. BASIS OF PRESENTATION: Cardinal Bankshares Corporation (the Company) was incorporated as a Virginia corporation on March 12, 1996 to acquire the stock of The Bank of Floyd (the Bank). The Bank was acquired by the Company on July 1, 1996 and used the pooling of interests accounting method. The consolidated financial statements as of September 30, 2000 and for the periods ended September 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 five banking offices. All significant intercompany accounts and transactions have been elimi- nated in consolidation. Certain prior year amounts have been reclassified to conform to the current year presentation. NOTE 2. ALLOWANCES FOR CREDIT LOSSES The following is an analysis of the allowance for credit losses for the nine months ended September 30.
2000 1999 ---- ---- Balance at January 1 $ 1,661,521 $ 1,668,201 Provision charged to operations 400,000 96,721 Loans charged off, net of recoveries (941,553) (139,066) ----------- ----------- Balance at September 30 $ 1,119,968 $ 1,625,856 =========== ===========
9 NOTE 3. COMMITMENTS AND CONTINGENCIES The Bank's exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as for on-balance-sheet instruments. A summary of the Bank's commitments at September 30, 2000 and 1999 is as follows:
2000 1999 ---- ---- Commitments to extend credit $10,370,000 $ 5,284,424 Standby letters of credit 647,102 30,000 ----------- ----------- $11,017,102 $ 5,314,424 =========== ===========
10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Comparision of nine months ended September 30, 2000 and 1999 Net income for the nine months ended September 30, 2000 was $1,332,934, a decrease of 6.7% compared to September 30, 1999. This decrease was a result of a credit loss provision of $400,000 in 2000 compared to $96,721 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 $336,594 from September 30, 2000 to 1999 as interest expense increased $202,182 over 1999. Net interest income for the nine months ended September 30, 2000 increased by 3.3% of net interest income for the nine months ended September 30, 1999. Comparison of three months ended September 30, 2000 and 1999. For the three months ended September 30, 2000, the Bank earned $443,883 in net income compared to $490,269 for the quarter ended September 30, 1999. Interest income was $2,919,216 for the quarter ended September 30, 2000, compared to $2,712,602 for the same period of 1999. Interest expense for the quarter ended September 30, 2000 was $1,499,325, up $113,175 from $1,386,150 for the quarter ended September 30, 1999. The provision for credit losses was $150,000 for the quarter ended September 30, 2000 and $40,000 for the quarter ended September 30, 1999. Management believes the provision and the resulting allowance for credit losses is adequate. CHANGES IN FINANCIAL CONDITION Total assets at September 30, 2000 were $159,279,166 compared to $158,140,485 at December 31, 1999, an increase of $1,138,681. Cash and due from Banks decreased $925,491 during the nine-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 $4,375,000. The company is using these funds to invest in long-term, high-yield securities. Other assets increased by $677,847 for the period. Foreclosures of real estate and repossessions of equipment have attributed to this increase. CAPITAL ADEQUACY Shareholder's equity amounted to $18,277,844 at September 30, 2000, an increase of $520,247 compared to the December 31, 1999 balance of $17,757,597. The increase resulted from earnings for the nine months offset by a decrease in the market value of securities, dividends paid, and shares of stock repurchased. 11 Regulatory guidelines relating to capital adequacy provide minimum risk- based ratios at the Bank level which assess capital adequacy while encompassing all credit risks, including those related to off-balance sheet activities. The Bank of Floyd (a wholly owned subsidiary of Cardinal Bankshares Corporation) exceeds all regulatory capital guidelines and is considered to be well capitalized. At September 30, 2000 the Bank had a ratio of Tier 1 capital to risk-weighted assets of 14.6%, a ratio of total risk-based capital to risk-weighted assets of 15.7% and a leverage ratio of Tier 1 capital to average total assets for the quarter ended September 30, 2000 of 9.2%. 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. SIGNATURES Pursuant to the requirements of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CARDINAL BANKSHARES CORPORATION Date: November 10, 2000 By: s/Ronald Leon Moore President, Chief Executive Officer, and Principal Financial Officer 12