-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KlnxWG0AAb+R9L+pZzfn+w6+XjAFw+HubcaNxv4VonCfpde0AsKL66hsHr1aDeC2 oTkhWL+sf+MaauJChc9gxg== 0001046249-98-000024.txt : 19981113 0001046249-98-000024.hdr.sgml : 19981113 ACCESSION NUMBER: 0001046249-98-000024 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARDINAL BANKSHARES CORP CENTRAL INDEX KEY: 0001022759 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 541804471 STATE OF INCORPORATION: VA FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-28780 FILM NUMBER: 98745104 BUSINESS ADDRESS: STREET 1: P O BOX 215 CITY: FLOYD STATE: VA ZIP: 24091 BUSINESS PHONE: 5407454191 10QSB 1 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, 1998 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 September 30, 1998 was 511,911. Transitional Small Business Disclosure Format (check one):Yes No X Page 1 of 13. 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, 1998 and December 31,1997........................................................3 Consolidated Statements of Operations for the Three and Six Months Ended September 30, 1998 and 1997.......................4 Consolidated Statements of Stockholders' Equity for the Periods Ended September 30, 1998 and 1997...............................5 Consolidated Statements of Cash Flows for the Periods Ended September 30, 1998 and 1997.....................................6-7 Notes to Consolidated Financial Statements.............................8-9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................................9-11 PART II. OTHER INFORMATION................................................11 SIGNATURES.................................................................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, 1998 and December 31, 1997 ________________________________________________________________________________
September 30, December 31, 1998 1997 ____________ ____________ (Unaudited) (Audited) ASSETS Cash and due from banks $ 2,304,135 $ 1,941,494 Interest-bearing deposits with banks 5,099,231 5,000,000 Federal funds sold 10,760,000 3,825,000 Investment securities available for sale 24,191,724 31,663,068 Investment securities held to maturity; market value of $16,089,806 in 1998 and $13,614,488 in 1997 15,738,217 13,430,624 Loans, net of allowance for credit losses of $1,648,316 in 1998 and $1,452,126 in 1997 84,158,220 85,304,739 Premises and equipment 2,093,233 1,687,859 Accrued income 1,078,389 1,093,063 Other assets 1,229,475 1,126,470 ___________ ___________ Total assets $146,652,624 $145,072,317 ___________ ___________ LIABILITIES Demand deposits $ 14,768,229 $ 12,229,167 NOW deposits 8,876,281 8,923,777 Savings deposits 17,312,578 17,507,178 Large denomination time deposits 12,163,058 15,120,658 Other time deposits 75,432,545 74,407,946 ___________ ___________ Total deposits 128,552,691 128,188,726 Short-term debt - - Long-term debt - - Accrued interest payable 292,001 269,032 Other liabilities 531,502 630,408 ___________ ___________ Total liabilities 129,376,194 129,088,166 ___________ ___________ Commitments and contingencies (Note 3) STOCKHOLDERS'EQUITY: Common stock, $10 par value, authorized 5,000,000 shares, issued 511,911 shares in 1998 and 1997 5,119,110 5,119,110 Surplus 2,925,150 2,925,150 Retained earnings 9,004,018 7,727,506 Unrealized appreciation (depreciation) on investment securities available for sale, net of income taxes 228,152 212,385 ___________ ___________ Total stockholders' equity 17,276,430 15,984,151 ___________ ___________ Total liabilities and stockholders' equity $146,652,624 $145,072,317 ___________ ___________
See Notes to Consolidated Financial Statements 3 CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations For the quarter and nine months ended September 30, 1998 and 1997 (Unaudited) ________________________________________________________________________________
Nine Nine Quarter Quarter Months Months Ended Ended Ended Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 1998 1997 1998 1997 ____ ____ ____ ____ (Unaudited) (Unaudited) (Unaudited) (Unaudited) INTEREST INCOME: Loans and fees on loans $ 2,035,113 $ 2,027,228 $ 6,058,998 $ 6,022,325 Federal funds sold 126,767 115,529 320,749 196,914 Taxable investment securities 492,524 517,421 1,663,411 1,616,004 Investment securities exempt from federal tax 169,700 114,109 460,811 363,852 __________ __________ __________ __________ Total interest income 2,824,104 2,774,287 8,503,969 8,199,095 INTEREST EXPENSE ON DEPOSITS 1,442,340 1,451,389 4,345,718 4,190,984 __________ __________ __________ __________ Net interest income 1,381,764 1,322,898 4,158,251 4,008,111 PROVISION FOR CREDIT LOSSES 70,000 275,000 205,000 425,000 __________ __________ __________ __________ Net interest income after provision for credit losses 1,311,764 1,047,898 3,953,251 3,583,111 OTHER INCOME: Service charges on deposit accounts 37,662 38,331 107,651 109,838 Other service charges and fees 9,393 6,473 21,651 19,929 Securities gains 7,606 (1,706) 27,189 5,102 Other real estate owned gains - 231,494 - 231,494 Other income 124,308 51,916 177,887 169,608 __________ __________ __________ __________ Total other income 178,969 326,508 334,378 535,971 OTHER EXPENSE: Salaries and employee benefits 470,391 455,793 1,339,294 1,200,898 Occupancy expense 32,798 28,245 92,690 77,777 Equipment expense 61,474 65,480 181,643 175,434 Other expense 197,470 212,475 554,299 717,158 __________ __________ __________ __________ Total other expense 762,133 761,993 2,167,926 2,171,267 __________ __________ __________ __________ Income before income taxes 728,600 612,413 2,119,703 1,947,815 Income tax expense 193,972 185,397 576,996 550,397 __________ __________ __________ __________ Net income $ 534,628 $ 427,016 $ 1,542,707 $ 1,397,418 __________ __________ __________ __________ BASIC AND DILUTED EARNINGS PER SHARE $ 1.04 $ 0.83 $ 3.01 $ 2.73 __________ __________ __________ __________
See Notes to Consolidated Financial Statements 4 CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES Consolidated Statement of Changes in Stockholders' Equity For the nine months ended September 30, 1998 and September 30, 1997 (Unaudited) ________________________________________________________________________________
ACCUMULATED TOTAL OTHER STOCK- COMMON RETAINED COMPREHENSIVE HOLDERS' STOCK SURPLUS EARNINGS INCOME (LOSS) EQUITY __________ _______ _________ _____________ ________ January 1, 1997 $4,655,360 $1,200,000 $ 8,585,007 $ 94,552 $14,534,919 Comprehensive income Net income 1,397,418 1,397,418 Net change in unrealized appreciation on investment securities available for sale, net of income taxes 102,928 102,928 Total comprehensive __________ income 1,500,346 __________ Dividends paid ($.51 per share) (237,423) (237,423) _________ _________ __________ ________ __________ September 30, 1997 $4,655,360 $1,200,000 $ 9,745,002 $ 197,480 $15,797,842 _________ _________ __________ ________ __________ January 1, 1998 $5,119,110 $2,925,150 $ 7,727,506 $ 212,385 $15,984,151 Comprehensive income Net income 1,542,707 1,542,707 Net change in unrealized appreciation on investment securities available for sale, net of income taxes 15,767 15,767 Total comprehensive __________ income 1,558,474 __________ Dividends paid ($.52 per share) (266,195) (266,195) _________ _________ __________ ________ __________ September 30, 1998 $5,119,110 $2,925,150 $ 9,004,018 $ 228,152 $ 17,276,430 _________ _________ __________ ________ __________
See Notes to Consolidated Financial Statements 5 CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows For the nine months ended September 30, 1998 and 1997 (Unaudited) _______________________________________________________________________________
1998 1997 ____ ____ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,542,707 $ 1,397,418 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 117,463 131,949 Accretion of discounts on securities, net of amortization of premiums 38,130 (7,491) Amortization of loan fees (91,438) (75,991) Provision for credit losses 205,000 425,000 Deferred income taxes - (86,000) Net realized gains on securities (27,189) (5,102) Net realized gains on sale of ORE - (231,494) Deferred compensation & pension expense 49,038 - Changes in assets and liabilities: Accrued income 14,674 72,241 Other assets (199,106) 117,219 Accrued interest payable 22,969 32,017 Other liabilities (147,944) 55,186 __________ ___________ Net cash provided by operating activities 1,524,304 1,824,952 __________ ___________ CASH FLOWS FROM INVESTING ACTIVITIES: Net (increase) decrease in interest-bearing deposits in banks (99,231) - Net (increase) decrease in federal funds sold (6,935,000) (8,200,000) Purchases of securities (12,216,872) (7,806,029) Sale of securities 12,125 2,075,318 Maturities of securities 17,381,446 8,389,634 Net (increase) decrease in loans 1,032,957 (839,827) Proceeds from sale of other real estate 87,979 408,358 Proceeds from sale of bank land 90,000 - Purchases of properties and equipment (612,837) (211,253) __________ __________ Net cash used in investing activities (1,259,433) (6,183,799) __________ __________ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in demand, NOW, and savings deposits 2,296,966 (551,582) Net increase (decrease) in time deposits (1,933,001) 4,913,186 Dividends paid (266,195) (237,423) Net decrease in short-term debt - (400,000) __________ __________ Net cash provided (used) by financing activities 97,770 3,724,181 __________ __________ Net increase (decrease) in cash and cash equivalents 362,641 (634,666)
See Notes to Consolidated Financial Statements 6 CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows, continued For the nine months ended September 30, 1998 and 1997 (Unaudited) _______________________________________________________________________________
1998 1997 ____ ____ CASH AND CASH EQUIVALENTS, BEGINNING 1,941,494 2,749,552 __________ __________ CASH AND CASH EQUIVALENTS, ENDING $ 2,304,135 $ 2,114,886 __________ __________ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid $ 4,322,749 $ 4,158,967 __________ __________ Income taxes paid $ 724,089 $ 584,830 __________ __________ SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES: Other real estate acquired in settlement of loans $ - $ -
See Notes to Consolidated Financial Statements 7 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, 1998 and for the periods ended September 30, 1998 and 1997 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, 1997, included in the Company's Annual Report for the fiscal year ended December 31, 1997. 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 Bank 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, Carroll, and Roanoke, Virginia and the City of Roanoke and Radford, Virginia through four banking offices. All significant intercompany accounts and transactions have been elimi- nated in consolidation. Certain prior year amounts have been reclassified to conform to the current year presentation. NOTE 2. ALLOWANCES FOR CREDIT LOSSES The following is an analysis of the allowance for credit losses for the nine months ended September 30.
1998 1997 ____ ____ Balance at January 1 $ 1,452,126 $ 1,002,455 Provision charged to operations 205,000 425,000 Loans charged off, net of recoveries (8,810) (35,795) __________ __________ Balance at September 30 $ 1,648,316 $ 1,391,660
8 NOTE 3. COMMITMENTS AND CONTINGENCIES The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instruments 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, 1998 and 1997 is as follows:
1998 1997 ____ ____ Commitments to extend credit $ 4,980,531 $ 5,602,000 Standby letters of credit 368,600 188,000 __________ __________ $ 5,349,131 $ 5,790,000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS For the nine month period ended September 30, 1998, the Bank earned $1,542,707, an increase of $145,289 or 10.4% over the $1,397,418 earned for the nine months ended September 30, 1997. The increase was primarily due to an increase in net interest income and a slight reduction in total other expense. For the quarter ended September 30, 1998, the Bank earned $534,628 in net income compared to $427,016 for the quarter ended September 30, 1997. The increase of $107,612 or 25.2% was due primarily to an increase in net interest income while maintaining other noninterest expenses. Interest income was $8,503,969 for the nine month period ending September 30, 1998, compared to $8,199,095 for the nine month period ending September 30, 1997. The increase was due mainly to increases in the volume of interest bearing deposits at other banks, increases in the volume of federal funds sold, and increases in the volume of investments in municipal bonds. Also contributing to the increase in interest income was an increase in the yeilds on total loans. Interest expense for the nine month period ending September 30, 1998, was $4,345,718 compared to $4,190,984 for the prior period in 1997. The increase was due primarily to increases in the volume and rates paid on time deposits. CHANGES IN FINANCIAL CONDITION Total assets at September 30, 1998 were $146,652,624 compared to $145,072,317 at December 31, 1997. Net loans have decreased $1,146,519. These funds have been invested in federal funds to fund future loans. 9 CAPITAL ADEQUACY Shareholder's equity totaled $17,276,430 at September 30, 1998, an increase of $1,292,279 over the December 31, 1997 balance of $15,984,151. The increase was a result of earnings for the six months and an increase in the market value of securities that are classified available for sale offset by dividends paid of $266,195. 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, 1998, the Bank had a ratio of Tier 1 capital to risk-weighted assets of 15.4%, a ratio of total risk-based capital to risk-weighted assets of 16.7% and a leverage ratio of Tier 1 capital to average total assets for the quarter ended September 30, 1998 of 9.4%. YEAR 2000 (Y2K) ISSUES Y2K refers to the potential disruption to computers lacking the ability to recognize years beyond 1999. During September 1997, management of the Bank formed a Y2K committee to identify, monitor, and control the potential risks associated with the Y2K computer problem. These risks include the inability to process loan and deposit transations such as payment and computation of interest due to a computer failure. Another risk is a possible disruption to bank operations due to the failure of equipment that relies on embedded technology such as microprocessors. Other risks include disruptions in operations of the bank's service vendors and large loan and deposit customers. Total estimated expenses to assess and control Y2K risks are $159,000 for the time period from September 1997 to March 2000. These expenses include the following: (1) management time involved during risk assessment and testing, (2) expenses for Y2K training conferences attended by management, (3) expenses for seminars held by The Bank of Floyd for bank customers, (4) expenses for hardware and software upgrades, (5) and potential increases in legal expenses. Bank management has established a Y2K plan with the following five phases: awareness, assessment, renovation, validation and implementation. During the awareness phase, management and the board of directors became aware of the Y2K issue and potential risks. During the assessment phase, management identified all hardware, software, and environmental systems such as security systems, elevators, vaults and customer/vendor interdependencies affected by the Y2K date change. These items and systems were prioritized by assigning a significance rating of mission critical, mission necessary, mission desirable, or mission unrelated. During the renovation phase management performed necessary computer hardware and software upgrades and other system replacements. Application testing will occur during the validation phase with all mission critical applications tested by December 31, 1998. During the implementation phase, all mission critical systems will be certified as Y2K compliant and accepted by the users by March 31, 1999. The Y2K risks involved in a worst case scenario involve malfunctions with mission critical or mission desirable applications and systems. For example, if certain systems such as the mainframe computer were to malfunction, it would by almost impossible to operate the bank without a backup system. If certain loan and deposit processing software were to malfunction, it would be difficult to extend loans and open deposit accounts without an alternate process. 10 To deal with the worst case possibilities, bank management has established a Y2K contingency plan. This contingency plan includes identifying and using other vendors who are fully Y2K compliant for critical functions, and maintaining supplies necessary to perform functions manually. 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: November 12, 1998 By: s/Ronald Leon Moore President, Chief Executive Officer, and Principal Financial Officer Date: November 12, 1998 By: s/Christopher B. Snodgrass Chief Financial Officer 12 EX-27 2 ART. 9 FIN. DATA SCHEDULE FOR 3RD QUARTER 10QSB
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CARDINAL BANKSHARES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1998 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 9-MOS DEC-31-1998 SEP-30-1998 2,304,135 5,099,231 10,760,000 0 24,191,724 15,738,217 16,089,806 85,806,536 (1,648,316) 146,652,624 128,552,691 0 823,503 0 0 0 5,119,110 12,157,320 146,652,624 6,058,998 2,124,222 320,749 8,503,969 4,345,718 0 4,158,251 205,000 27,189 2,167,926 2,119,703 1,542,707 0 0 1,542,707 3.01 3.01 3.75 351,571 19,363 0 0 1,452,126 36,686 27,876 1,648,316 1,648,316 0 0
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