10QSB 1 d10qsb.txt FORM 10-QSB Quarterly Report for Period Ending 03-31-02 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 March 31, 2002 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 May 10, 2002 was 1,535,733. Transitional Small Business Disclosure Format (check one):Yes No X 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 March 31, 2002 and December 31, 2001 ............................................. 3 Consolidated Statements of Operations for the Three Months Ended March 31, 2002 and 2001 ........................... 4 Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2002 and the Year Ended December 31, 2001 ................................................................................................ 5 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2001 .................................................................................... 6-7 Notes to Consolidated Financial Statements ......................................................................... 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .................................................................................. 9-10 PART II. OTHER INFORMATION .............................................................................................. 11
All schedules have been omitted because they are inapplicable or the required information is provided in the financial statements, including the notes thereto. 2 CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets March 31, 2002 and December 31, 2001 ________________________________________________________________________________
March 31, December 31, 2002 2001 ----------------- ------------------ ASSETS Cash and due from banks $ 4,168,404 $ 3,986,448 Interest-bearing deposits with banks 5,000,000 - Federal funds sold 8,844,733 18,990,000 Investment securities available for sale 25,640,411 23,651,152 Investment securities held to maturity 19,344,816 19,255,289 Restricted equity securities 2,123,900 2,125,700 Loans, net of allowance for credit losses of $1,432,374 in 2002 and $1,300,148 in 2001 111,926,525 113,206,493 Property and equipment, net 2,312,089 2,302,243 Accrued income 1,218,712 1,070,693 Foreclosed assets 63,428 58,428 Other assets 4,080,880 1,151,297 ----------------- ------------------ Total assets $ 184,723,898 $ 185,797,743 ================= ================== LIABILITIES Noninterest-bearing deposits $ 18,927,450 $ 20,107,070 Interest-bearing deposits 142,955,229 143,360,505 ----------------- ------------------ Total deposits 161,822,679 163,467,575 Accrued interest payable 285,000 297,772 Other liabilities 573,643 578,099 ----------------- ------------------ Total liabilities 162,741,322 164,343,446 ----------------- ------------------ Commitments and contingencies STOCKHOLDERS'EQUITY Common stock, $10 par value, authorized 5,000,000 shares, issued 1,535,733 shares in 2002 and in 2001 15,357,330 15,357,330 Surplus 2,925,150 2,925,150 Retained earnings 3,524,571 2,971,630 Unrealized appreciation (depreciation) on investment securities available for sale 175,525 200,187 ----------------- ------------------ Total stockholders' equity 21,982,576 21,454,297 ----------------- ------------------ Total liabilities and stockholders' equity $ 184,723,898 $ 185,797,743 ================= ==================
3 CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations For the Three Months ended March 31, 2002 and 2001 (Unaudited) ________________________________________________________________________________
Three Months Ended March 31, 2002 2001 (Unaudited) (Unaudited) ----------- ----------- INTEREST INCOME Loans and fees on loans $ 2,252,721 $ 2,165,254 Federal funds sold 46,637 73,353 Taxable investment securities 393,063 575,311 Investment securities exempt from federal tax 249,336 237,674 Deposits with banks 20,808 - --------------- --------------- Total interest income 2,962,565 3,051,592 --------------- --------------- INTEREST EXPENSE ON DEPOSITS Deposits 1,422,156 1,617,880 Other borrowed funds - - --------------- --------------- Total interest expense 1,422,156 1,617,880 --------------- --------------- Net interest income 1,540,409 1,433,712 PROVISION FOR CREDIT LOSSES 150,000 97,500 --------------- --------------- Net interest income after provision for loan loss 1,390,409 1,336,212 --------------- --------------- NON INTEREST INCOME Service charges on deposit accounts 63,708 68,890 Other service charges and fees 18,159 17,609 Net realized gains on sales of securities 8,497 3,420 Other income 57,711 41,258 --------------- --------------- Total non interest income 148,075 131,177 --------------- --------------- NON INTEREST EXPENSE Salaries and employee benefits 462,009 451,700 Occupancy expense 50,382 53,483 Equipment expense 73,941 69,567 Foreclosed assets, net - 1,878 Other expense 203,464 219,824 --------------- --------------- Total non interest expense 789,796 796,452 --------------- --------------- Income before income taxes 748,688 670,937 Income tax expense 195,747 129,696 --------------- --------------- Net income $ 552,941 $ 541,241 =============== =============== BASIC EARNINGS PER SHARE $ 0.36 $ 0.35 =============== ===============
4 CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES Consolidated Statement of Changes in Stockholders' Equity For the Three Months ended March 31, 2002 (Unaudited) and the Year ended December 31, 2001 (Audited) ________________________________________________________________________________
ACCUMULATED OTHER TOTAL COMPREHENSIVE STOCK- COMMON RETAINED INCOME HOLDERS' STOCK SURPLUS EARNINGS (LOSS) EQUITY ---------------- ---------------- --------------- -------------- --------------- January 1, 2001 $ 5,119,110 $ 2,925,150 $ 11,764,483 $ (130,655) $19,678,088 Net income - - 2,090,375 - 2,090,375 Net change in unrealized depreciation on investment securities available for sale, net of income taxes - - - 330,842 330,842 --------------- 2,421,217 Dividends paid ($0.42 per share) - - (645,008) - (645,008) Stock split (3 for 1) effected in the form of a dividend 10,238,220 - (10,238,220) - - --------------- ---------------- --------------- ------------- --------------- December 31, 2001 15,357,330 2,925,150 2,971,630 200,187 21,454,297 Net income - - 552,941 - 552,941 Net change in unrealized depreciation on investment securities available for sale, net of income taxes - - (24,662) (24,662) --------------- 528,279 --------------- ---------------- --------------- ------------- --------------- March 31, 2002 $ 15,357,330 $ 2,925,150 $ 3,524,571 $ 175,525 $21,982,576 =============== ================ =============== ============= ===============
5 CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows For the Three Months ended March 31, 2002 and 2001 (Unaudited) ________________________________________________________________________________
Three Months Ended March 31, 2002 2001 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 552,941 $ 541,241 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 58,481 61,208 Accretion of discounts on securities (5,659) (3,126) Provision for loan losses 150,000 97,500 Deferred income taxes - 108,138 Net realized gains on securities (8,497) 3,420 Deferred compensation & pension expense 25,000 25,689 Changes in assets and liabilities: Accrued income (148,019) 183,065 Other assets 67,592 662,210 Accrued interest payable (12,772) 29,237 Other liabilities (18,928) (98,585) --------------- --------------- Net cash provided by operating activities 660,139 1,609,997 --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES Net (increase) decrease in federal funds sold 10,145,267 (9,080,000) Purchases of investment securities (5,569,325) (3,945,111) Sale of investment securities - - Net (increase) decrease in interest-bearing deposits (5,000,000) - Maturity of investment securities 3,469,128 11,512,924 Net (increase) decrease in loans 1,129,969 (3,935,031) Proceeds from sale of other real estate - - Purchases of properties and equipment (68,326) (14,546) Investment in BOLI (3,000,000) - --------------- --------------- Net cash (used) in investing activities 1,106,713 (5,461,764) --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) noninterest- bearing deposits (1,179,620) 171,407 Net increase (decrease) in interest- bearing deposits (405,276) 3,802,446 Dividends paid - - Common Stock Purchased - - Common Stock Reissued - - --------------- --------------- Net cash used in financing activities (1,584,896) 3,973,853 --------------- --------------- Net decrease in cash & cash equivalents 181,956 122,086 CASH AND CASH EQUIVALENTS, BEGINNING 3,986,448 2,631,298 --------------- --------------- CASH AND CASH EQUIVALENTS, ENDING $ 4,168,404 $ 2,753,384 =============== ===============
6 CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows, continued For the Three Months ended March 31, 2002 and 2001 (Unaudited) ________________________________________________________________________________
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: 2002 2001 --------------- --------------- Interest paid $ 1,434,928 $ 1,588,643 Income taxes paid $ 193,399 $ - SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES: Other real estate acquired in settlement of loans $ - $ -
________________________________________________________________________________ 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 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 March 31, 2002 and for the periods ended March 31, 2002 and 2001 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, 2001, included in the Company's Annual Report for the fiscal year ended December 31, 2001. 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 annuity sales and minority interests in an insurance company and a title insurance company. The Bank serves the counties of Floyd, Carroll, Montgomery, and Roanoke, Virginia and the City of Roanoke, Virginia through five banking offices. All significant intercompany accounts and transactions have been eliminated 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 three months ended March 31.
2002 2001 --------------- --------------- Balance at January 1 $ 1,300,148 $ 1,133,993 Provision charged to operations 150,000 97,500 Loans charged off, net of recoveries (17,774) (59,193) --------------- --------------- Balance at March 31 $ 1,432,374 $ 1,172,300 =============== ===============
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 March 31, 2002 and 2001 is as follows: 2002 2001 --------------- --------------- Commitments to extend credit $ 7,959,000 $ 18,678,000 Standby letters of credit 863,000 941,000 --------------- --------------- $ 8,822,000 $ 19,619,000 =============== =============== 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Bank earned $552,941 or $0.36 basic net income per share for the three months ended March 31, 2002 compared to $541,241 or $0.35 basic net income per share for the first quarter of 2001. Total interest income of $2,962,565 less interest expense of $1,422,156 resulted in net interest income of $1,540,409 for the quarter, an increase of 7.4% over the first quarter of 2001. Provision for loan losses charged to operations was $150,000 for the three months ending March 31, 2002 compared to $97,500 in the same period of 2001. Noninterest income and expenses amounted to $148,075 and $789,796, respectively for the first three months of 2002 and $131,177 and $796,452 for the same period in 2001. Total assets at March 31, 2002 were $184,723,898 compared to $185,797,743 at December 31, 2001. The decrease in assets was primarily due to the $1,279,968 decrease in net loans. Loans At March 31, 2002, gross loans totaled $113,358,899 and represented 61.4% of total assets compared to $114,506,641 or 61.6% of total assets at December 31, 2001. The loan-to-deposit ratios for both March 31, 2002 and December 31, 2001 was 70.0%. Allowance for Loan Losses The allowance for loan losses was $1,432,374 or 1.26% of outstanding loans at March 31, 2002 compared to $1,300,148 or 1.14% of outstanding loans at December 31, 2001. The allowance for loan losses represents management's estimate of an amount adequate to provide for potential losses inherent in the loan portfolio. The adequacy for loan losses and the related provision are based upon management's evaluation of the risk characteristics of the loan portfolio under current economic conditions with consideration to such factors as financial condition of the borrowers, collateral values, growth and composition of the loan portfolio, the relationship of the allowance for loan losses to outstanding loans, and delinquency trends. Management believes that the allowance for loan losses is adequate. While management uses all available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. Various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Deposits Total deposits decreased from $163,467,575 at December 31, 2001 to $161,822,679 at March 31, 2002, a decrease of $1,644,896 or 1.0%. As of March 31, 2002, the Bank had $25,647,055 in time deposits of $100,000 or more. Stockholders' Equity and Capital Adequacy Total stockholders' equity was $21,982,576 at March 31, 2002, compared to $21,454,297 at December 31, 2001, an increase of $528,279. The increase is attributed to net earnings for the first quarter of $552,941 and the change in the unrealized loss on available for sale securities of $(24,662). The Bank's regulators define risk-based capital guidelines as "core," or Tier 1 capital, and "supplementary," or Tier 2 capital. Core capital consists of common stockholders' equity while "supplementary," or Tier 2 capital, consists of the allowance for loan losses, subject to certain limitations. These amounts are referred to collectively as total qualifying capital. Banks are expected to meet a minimum ratio of total qualifying capital to risk adjusted assets of 8.0%. The Bank's risk-based capital ratio exceeded 10% at March 31, 2002. 9 Stockholders' Equity and Capital Adequacy, continued In addition to the risk-based capital guidelines mentioned above, banking regulatory agencies have adopted leverage capital ratio requirements. The leverage ratio - or core capital to assets ratio - works in tandem with the risk-based capital guidelines. The minimum leverage ratios range from three to five percent. At March 31, 2002, the Bank's leverage capital ratio was in excess of 7%. Management is not presently aware of any current recommendations to the Bank by regulatory authorities, which if they were to be implemented, would have a material effect on the Bank's liquidity, capital resources, or operations. Interest Rate Risk Management Interest rate risk is the sensitivity of interest income and interest expense to changes in interest rates. Management continues to structure its assets and liabilities in an attempt to protect net interest income from large fluctuations associated with changes in interest rates. Forward-Looking Statements This document contains forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, changes in the interest rate environment, management's business strategy, national, regional, and local market conditions and legislative and regulatory conditions. Readers should not place undue reliance on forward-looking statements, which reflect management's view only as to the date hereof. The Bank undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. Liquidity The liquidity of a bank measures its access to or ability to raise funds. Sustaining adequate liquidity requires a bank to ensure the availability of funds to satisfy reserve requirements, loan demand, deposit withdrawals, and maturing liabilities while funding asset growth and producing appropriate earnings. Liquidity is provided through maturities and repayments of loans and investments, deposit growth, and access to sources of funds other than deposits, such as the federal funds market or other borrowing sources. The Bank's primary liquid assets are Cash and due from banks, Interest-bearing deposits with banks, Federal funds sold and Investment securities. At March 31, 2002, the ratio of liquid assets to total deposits was 40.2% compared to a ratio of 41.6% at December 31, 2001. 10 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. 11 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: May 10, 2002 By: /s/ Ronald Leon Moore --------------------- President, Chief Executive Officer, and Principal Financial Officer 12