-----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, IX/bGpoba66A5ZeCqbL4jwAlm/WkDn5aNg1kILjW4PcLFh3L0+ovJZh+g8p1uwVw gqGYiTyOMLWWqdg15NwAeg== 0000950144-96-007869.txt : 19961113 0000950144-96-007869.hdr.sgml : 19961113 ACCESSION NUMBER: 0000950144-96-007869 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARDINAL BANCSHARES INC CENTRAL INDEX KEY: 0000888184 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 611128205 STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20494 FILM NUMBER: 96658910 BUSINESS ADDRESS: STREET 1: 400 E VINE ST STE 300 CITY: LEXINGTON STATE: KY ZIP: 40507 BUSINESS PHONE: 6062558300 MAIL ADDRESS: STREET 1: 400 E VINE ST STREET 2: STE 300 CITY: LEXINGTON STATE: KY ZIP: 40507 10-Q 1 CARDINAL BANCSHARES, INC. FORM 10-Q 09-30-96 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 September 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 October 31, 1996: 1,584,468 shares of common stock, no par value. 2 CARDINAL BANCSHARES, INC. AND SUBSIDIARIES INDEX Page ---- 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 7-14 Part II Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 3 Cardinal Bancshares, Inc. and Subsidiaries Consolidated Balance Sheets (In thousands, except share data)
September 30, December 31, 1996 1995 ------------ ------------ (Unaudited) Assets Cash and due from banks $ 20,029 22,172 Interest bearing deposits in banks 186 8,001 Federal funds sold 6,865 10,075 Securities available for sale ( amortized cost of $110,059 in 1996 and $137,126 in 1995) 110,632 139,372 Loans 464,214 481,136 Less: Allowance for loan losses 5,685 5,789 Unearned income 3,295 13,035 --------- --------- Net loans 455,234 462,312 Premises and equipment 8,191 12,300 Goodwill and other intangible assets, less accumulated amortization of $3,170 in 1996 and $2,789 in 1995 5,485 5,866 Accrued interest receivable and other assets 8,363 8,391 --------- --------- Total assets $ 614,985 668,489 ========= ========= Liabilities and Stockholders' Equity Deposits: Non-interest bearing $ 43,310 50,155 Interest bearing 489,961 520,579 --------- --------- Total deposits 533,271 570,734 Securities sold under agreements to repurchase 5,660 6,930 Notes payable 2,193 25,643 Advances from the Federal Home Loan Bank 16,841 18,167 Accrued interest payable and other liabilities 7,188 5,865 --------- --------- Total liabilities 565,153 627,339 Stockholders' equity: Common stock, without par value. Authorized 5,000,000 shares; issued and outstanding 1,584,338 voting and 1,878 non-voting shares in 1996 and 1,474,087 voting and 1,969 non-voting shares in 1995 34,331 28,918 Retained earnings 15,966 11,593 Net unrealized gain (loss) on securities available for sale net of tax 378 1,482 ESOP and MRP loan obligations (843) (843) --------- --------- Total stockholders' equity 49,832 41,150 --------- --------- Total liabilities and stockholders' equity $ 614,985 668,489 ========= =========
1 4 Cardinal Bancshares, Inc. and Subsidiaries Consolidated Statements of Operations (In thousands, except per share data) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 ------- ------ ------ ----- Interest income: Loans, including fees $10,708 11,622 33,839 31,937 Securities: Taxable 1,961 2,633 6,528 7,435 Tax-exempt 44 40 121 101 Federal funds sold 151 235 624 640 Deposits in banks 37 131 264 263 ------- ------ ------ ------ Total interest income 12,901 14,661 41,376 40,376 Interest expense: Deposits 5,670 6,393 18,102 16,991 Notes payable 51 539 799 1,466 Advances from the Federal Home Loan Bank 299 299 925 937 Securities sold under agreements to repurchase 57 87 176 153 ------- ------ ------ ------ Total interest expense 6,077 7,318 20,002 19,547 ------- ------ ------ ------ Net interest income 6,824 7,343 21,374 20,829 Provision for loan losses 700 532 2,407 1,399 ------- ------ ------ ------ Net interest income after provision for loan losses 6,124 6,811 18,967 19,430 Noninterest income: Service charges on deposits 322 321 944 926 Insurance commissions 51 100 352 442 Car club fees -- 93 86 239 Trust income 114 19 325 79 Gains on sales of loans 45 39 8,570 327 Securities gains (losses), net 39 111 77 109 Loan servicing fees 48 14 157 66 Other 89 158 437 473 ------- ------ ------ ------ Total noninterest income 708 855 10,948 2,661 Noninterest expense: Salary and employee benefits 2,488 3,476 9,389 10,079 Net occupancy expense 331 457 1,307 1,272
2 5 Cardinal Bancshares, Inc. and Subsidiaries Consolidated Statements of Operations (In thousands, except per share data) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 ------- ------ ------ ------ Furniture and equipment expenses 430 441 1,710 1,291 Professional fees 191 528 520 1,035 Bank shares tax 130 121 401 364 FDIC insurance 884 87 1,131 638 Amortization of goodwill and other intangible assets 127 126 381 383 Data processing services 242 277 943 843 Operating supplies 138 221 521 692 Telephone expense 101 198 488 522 Postage and courier expense 161 185 549 507 Advertising and business development 258 329 858 835 Transportation, meals and lodging 55 222 340 429 Termination of business of subsidiary - - 564 - Other 582 551 2,038 1,629 ------- ------ ------ ------ Total noninterest expense 6,118 7,219 21,140 20,519 Income before income taxes 714 447 8,775 1,572 Income taxes 276 213 4,108 627 ------- ------ ------ ------ Net income $ 438 234 4,667 945 ======= ====== ====== ====== Net income per share: Primary $ 0.26 0.15 2.79 0.62 ------- ------ ------ ------ Fully diluted $ 0.26 0.15 2.79 0.61 ======= ====== ====== ======
3 6 Cardinal Bancshares, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Nine Months Ended September 30, 1996 1995 ------- ------ Cash flows from operating activities: Net income $ 4,667 945 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 2,407 1,399 Depreciation, amortization and accretion, net 1,935 139 Deferred income tax (benefit) expense 298 (92) Gain on sales of securities and loans (8,647) (436) Increase in accrued interest receivable and other assets (841) (3,982) Increase in accrued interest payable and other liabilities 2,461 2,921 ------ ----- Net cash provided by operating activities 2,280 894 Cash flows from investing activities: Net (increase) decrease in interest bearing deposits in banks 4,158 (5,290) Net decrease in federal funds sold 3,210 1,658 Purchase of securities: Available for sale (53,202) (101,871) Held to maturity - (1,469) Proceeds from sales of securities: Available for sale 29,980 52,194 Proceeds from maturities of securities: Available for sale 36,179 42,309 Held to maturity - 1,272 Net increase in loans (40,298) (76,346) Purchases of premises and equipment (2,105) (1,708) Proceeds from sales of loans 33,552 - Spin-off of subsidiary (Note 2) (764) - ------- ------- Net cash used in investing activities 10,710 (89,251) Cash flows from financing activities: Net increase in deposits 5,202 83,943 Net increase (decrease) in securities sold under agreements to repurchase (1,270) 1,613 Net increase (decrease) in notes and advances payable (23,546) 3,756 Repayment of obligations under capital lease - (48) Dividends (932) (845) Issuance of common stock 5,413 929 -------- ------ Net cash provided by financing activities (15,133) 89,348 -------- ------ Net increase (decrease) in cash and cash equivalents (2,143) 991 Cash and cash equivalents at beginning of period 22,172 17,847 -------- ------ Cash and cash equivalents at end of period $ 20,029 18,838 -------- ------
4 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 nine months and the three months ended September 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 nine months ended September 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:
(Dollars in thousands) ---------------------- 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 Stockholder's equity (638) ======
5 8 3. Cardinal Credit Corporation 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 was invested in short-term securities. 4. Allowance for Loan Losses Changes in the allowance for loan losses are as follows:
(Dollars in thousands) September 30, December 31, 1996 1995 Balance, January 1 $ 5,789 5,214 Provisions for loan losses 2,407 1,994 Recoveries 322 292 Loans charged-off (1,499) (1,711) Adjustments for sale of Cardinal Credit Corporation and Spin-Off of SFNB (1,334) -------- ------ Balance, end of period $ 5,685 5,789 ======= ======
5. On September 30, 1996 the Deposit Insurance Funds Act of 1996 was signed into law. As a result of this law, the FDIC will collect a special assessment of 65.7 basis points on Savings Association Insurance Fund ("SAIF") assessable deposits as of March 31, 1995. Cardinal recorded an expense of $726,000 for the special assessment. 6 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CARDINAL Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30, 1995. RESULTS OF OPERATIONS Net income for the nine months ended September 30, 1996 was $4.667 million or $2.79 primary earnings per share as compared to net income of $945,000 and $0.62 primary earnings per share for the same period in 1995. Annualized return on average stockholders' equity and average assets for the first nine months of 1996 and 1995 were 13.45%, 0.95%, 3.26% and 0.19%, 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 nine months ended September 30, 1996 and 1995:
(Dollars in thousands) Nine months ended September 30 1996 1995 -------- -------- Interest income, including loan fees $ 41,376 40,376 Interest expense 20,002 19,547 -------- -------- Net interest income $ 21,374 20,829 ======== ======== Average earning assets $614,065 $620,211 Net interest margin (annualized) 4.64% 4.48%
Net interest income was relatively flat from 1995 to 1996 with the increase in the net interest margin offsetting the decline in average earning assets. The comparison of net interest income between reporting periods is and will continue to be effected by the sale of Cardinal Credit Corporation and the spin-off of SFNB. Below is the same table as above, but eliminating the interest income, interest expense and average assets of Cardinal Credit Corporation and SFNB.
(Dollars in thousands) Nine months ended September 30 1996 1995 ------- ------- Interest income, including loan fees $ 37,885 33,312 Interest expense 18,790 16,948 -------- -------- Net interest income $ 19,095 16,364 ======== ======== Average earning assets $579,488 $539,369 Net interest margin (annualized) 4.39% 4.04%
7 10 Management provided $2,407,000 in provision for loan losses for the first nine months of 1996 compared to $1,399,000 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 and growth in the loan portfolio. Net charge-offs for the nine months ended September 30, 1996 were $1,177,000 compared to $876,000 for the same period in 1995. Net charge-offs primarily resulted from losses in the consumer finance portfolio, principally of Cardinal Credit Corporation, which totaled $663,000 for the first nine months in 1996 as compared to $637,000 for the same period in 1995. In addition, net charge-offs in the indirect automobile loan portfolio increased from $167,000 for the nine months in 1995 to $488,000 for the same period in 1996. As discussed above at Note 3 to Consolidated Financial 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." . Noninterest income increased $8.3 million for the first nine 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 $681,000 for the nine months in 1995 to $438,000 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 $438,000 of such commissions and fees earned in the first nine months of 1996, approximately $299,000 is attributable to the operations of Cardinal Credit Corporation. Trust income increased from $79,000 for the first nine months of 1995 to $325,000 for the same period in 1996. Assets under management for the trust division increased from $70.4 million at September 30, 1995 to $93.3 million at September 30, 1996. Loan servicing fees increased as a result of an increase in the size of the loan servicing portfolio. Noninterest expenses increased $621,000 or 3.0% during the first nine months of 1996 compared to the prior year. The most significant causes of the increase was 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 nor Cardinal Credit Corporation since the SFNB spin-off was effected May 23, 1996 and Cardinal Credit Corporation was sold May 14, 1996. Eliminating the effect of Cardinal Credit Corporation's and SFNB's noninterest expenses for 1996 and 1995, noninterest expenses would have increased from $14.5 million for the first nine months of 1995 to $16.4 million for the same period in 1996. In the fourth quarter of 1996, Cardinal expects to contract for Internet banking services from SFNB's subsidiary, Security First Technologies. Cardinal intends to begin offering its Internet banking product through Vine Street Trust during the first quarter of 1997. In connection with the spin-off of SFNB, Cardinal and SFNB agreed with the Board of Governors of the Federal Reserve System that, among other things, Cardinal and SFNB would terminate its various management and director interlocks. Accordingly, on September 20, 1996, Robert W. Copelan, Howard J. Runnion, Jr. and James S. Mahan, III, resigned from the board of 8 11 directors of Cardinal (as well as all other positions at Cardinal and its subsidiaries), and Robert F. Stockwell resigned as treasurer of Cardinal. On July 19, 1996 and October 24, 1996 Samuel A. B. (Alex) Boone and James M. Hill, IV, respectively, were elected to the board of directors of Cardinal. In connection with the resignations of Messrs. Mahan and Stockwell the Cardinal shareholders approved amendments to the 1992 Limited Stock Option Plan and 1989 Restricted Stock Option Plan which accelerated the vesting of options previously granted to Mahan and Stockwell. The amendments, together with amendments to the 1994 Restricted Stock Option Plan, will result in a non-cash charge against earnings, net of applicable tax benefits, for Cardinal's fourth quarter and fiscal 1996 equal to approximately $1,134,000. On October 24, 1996, Cardinal's board of directors elected John S. Penn to the position of President and Chief Executive Officer. Mr. Penn had been Cardinal's President and Chief Operating Officer. Set forth below is a condensed income statement reflecting Cardinal's earnings for the nine months ending September 30, 1996 without the effect of Cardinal Credit Corporation, SFNB and the one-time SAIF special assessment. [CAPTION] Cardinal Cardinal as Credit SAIF Cardinal Reported Corporation SFNB Assessment as Adjusted ----------- ----------- ------ ---------- ----------- (Dollars in thousands) Interest income $ 41,376 2,303 1,188 37,885 Interest expense 20,002 446 766 18,790 -------- ----- ----- ------ Net interest income 21,374 1,857 422 19,095 Provision for loan losses 2,407 607 - 1,800 -------- ----- ----- ------ Net interest income after provision for loan losses 18,967 1,250 422 17,295 Non-interest income 10,948 8,575 (1) 81 2,292 Non-interest expense 21,140 2,761 1,985 726 15,668 -------- ----- ----- --- ------ Income before (1,482) (726) 3,919 income taxes 8,775 7,064 Income taxes 4,108 2,807 (1) 123 (2) (247) 1,425 -------- ----- ----- --- ----- Net income $ 4,667 4,257 (1) (1,605) (479) 2,494 ======== ===== ===== === =====
(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. 9 12 After eliminating the effect of the one-time SAIF special assessment of $726,000, FDIC deposit insurance declined from $638,000 to $405,000 due to the change in deposit insurance rates. Deposit accounts at the Banks are insured to applicable limits by the Bank 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. Since the one-time assessment will capitalize the SAIF fund at the appropriate 1.25 percent ratio, the FDIC must establish a new premium schedule and reduce SAIF premiums to an amount necessary to maintain that ratio. It is expected that the reduction will occur as of October 1, 1996. Since fourth quarter SAIF premiums have already been paid at the higher rate, as of September 30, SAIF institutions will be entitled to a refund of the premiums paid at the higher rate. For SAIF institutions not all of fourth quarter premiums will be refunded because approximately $200 million of it has already been earmarked for FICO payments. It is expected that the fourth quarter premiums will be netted against the next quarterly payment due the first business day in January of 1997. Beginning January 1, 1997, BIF institutions will be required to pay a portion of the $780 million in annual FICO interest payments. For the first three years, the BIF assessment rates for FICO payments must be one-fifth of that for SAIF institutions. It is currently estimated that this will equal an amount of 1.29 cents per $100 in deposits on BIF-insured deposits and 6.44 cents for SAIF deposits. After January 1, 2000, the FICO assessment will be spread evenly among all BIF and SAIF deposits which is estimated to be at the rate of 2.43 cents per $100 in deposits. It is important to note that these assessments are only for FICO interest payments and that further premiums could be assessed in order to maintain the BIF and SAIF funds at the required 1.25 percent ratio. Cardinal had income tax expense of $4.1 million for the first nine months of 1996 compared to $627,000 for the same period in 1995, which yielded effective tax rates of 46.8% for 1996 and 39.9% 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. 10 13 CONSOLIDATED BALANCE SHEET Total assets decreased $53.5 million from December 31,1995 to September 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 as net loans declined $7 million between December 31, 1995 and September 30, 1996, total deposits declined $37.5 million and total borrowings declined $26 million. RISK ELEMENTS IN LOAN PORTFOLIO A summary of nonperforming loans and assets follows:
(Dollars in thousands) September 30, December 31, 1996 1995 Non-accrual loans $ 899 782 90 days or more past due 274 616 -------- ----- Total non-performing loans 1,173 1,398 Other real estate owned 20 93 ------- ----- Total non-performing assets $ 1,193 1,491 ======= ===== Total non-performing loans as a percentage of period-end net loans 0.25% 0.30% Total non-performing assets as a per- centage of period-end net loans and OREO 0.26% 0.32% Allowance for loan losses to period end net loans 1.23% 1.24% Allowance for loan losses to non-performing loans 484.7% 414.1%
At September 30, 1996, total impaired loans as recognized under SFAS No. 114 was $796,000 as compared to $717,000 at December 31, 1995. Non-accrual loans at September 30, 1996 totaled $899,000 which represented a $117,000 increase from December 31, 1995. Non- 11 14 performing assets at September 30, 1996 totaled $1,193,000 or 0.26% of total loans which compares favorably with peer levels of 0.67%. At September 30, 1996, Cardinal's loan portfolio was comprised of the following:
(Dollars in thousands) Percentage --------------------- ---------- Commercial $ 89,132 19.3% SBA 67,499 14.6% Commercial Real Estate 111,793 24.3% Residential Real Estate 133,137 28.9% Consumer 59,358 12.9% -------- ------ Totals $460,919 100.0%
The chart above illustrates the diversity in the Cardinal loan portfolio as evidenced by the fact that no one category comprises more that 29% of the total. Cardinal's loan portfolio is fairly equally distributed between commercial, SBA, real estate and consumer loans. The commercial loans are primarily locally generated and represent lower middle market business loans. The commercial real estate loans are primarily owner-occupied facilities. The SBA portfolio is largely real estate related. Approximately 75% of the SBA portfolio is related to the hospitality industry. These loans are typically to owner operators of franchised middle or economy class hotels. The hospitality portfolio has been generated utilizing various SBA programs which significantly limit Cardinal's risk related to this industry. Approximately 54% of the SBA loan portfolio is guaranteed by the SBA. The consumer loan portfolio is comprised of direct installment loans and indirect automobile loans which are generated and serviced in the local markets served by Cardinal subsidiaries. The indirect loan portfolio at September 30, 1996 totaled approximately $41 million and consisted mainly of used car paper generated in south central and eastern Kentucky. Of the $1,177,000 in net charge-offs for the nine months ended September 30, 1996, $488,000 was attributable to the indirect automobile portfolio or 1.6% of the indirect automobile portfolio (annualized). 12 15 CAPITAL ADEQUACY As of September 30, 1996 stockholders' equity totaled $49,832,000, an increase of $8,682,000 since December 31, 1995. Below is a statement of the changes in stockholders' equity between December 31, 1995 and September 30, 1996.
(Dollars in thousands) Balance, December 31, 1995 $ 41,150 Issuance of common stock 5,413 Net Income 4,667 Dividends paid (932) Decrease in net unrealized gain on securities available for sale (1,104) Spin-Off of SFNB 638 -------- Balance, September 30, 1996 $ 49,832 ========
At September 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 10.40%, 11.65% and 7.14%, respectively. All capital ratios are in compliance with regulatory minimum requirements. 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 SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995 Net income for the three months ended September 30, 1996 was $438,000 as compared to $234,000 for the same period in 1995. Net interest income for the three months ended September 30, 1996 was $6,824,000 as compared to $7,343,000 for the same period in 1995. The net interest margin declined slightly between reporting periods from 4.77% to 4.63%. Average earning assets decreased from $616.3 million in 1995 to $586.7 million in 1996. The decline in net interest margin and average earning assets are largely attributable to the sale of Cardinal Credit Corporation and the spin-off of SFNB. Management provided $700,000 in provision for loan losses for the three months ended September 30, 1996 as compared to $532,000 for the same period in 1995. The increase between 13 16 periods is primarily the result of providing adequate loan loss reserves for growth in net loans. Net charge-offs for the three months ended September 30, 1996 were $212,000 compared to $392,000 for the same period in 1995. Net loans increased $25.5 million from June 30, 1996 to September 30, 1996. Noninterest income decreased $147,000 for the three months ended September 30, 1996 as compared to the same period in 1995. Insurance commissions and car club fees decreased $142,000 primarily the result of termination of business of Cardinal Credit Corporation. Trust income increased $95,000 as a result of increased assets under management. Loan servicing fees increased $34,000 as a result of an increase in the size of the loan servicing portfolio. Noninterest expense for the three months ended September 30, 1996 was $6.1 million as compared to $7.2 million for the same period in 1995. In the third quarter of 1996, Cardinal expensed $726,000 in connection with the FDIC one-time special assessment of 65.7 basis points on SAIF deposits. The decreases between reporting periods for other line items principally was the result of the sale of Cardinal Credit Corporation and the spin-off of SFNB. 14 17 Part II. Other Information 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 -- There were no reports on Form 8-K filed for three months ended September 30, 1996. 15 18 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 Executive Officer /s/ Jack H. Brown ----------------------------------- Jack H. Brown Chief Financial Officer Principal Accounting Officer Date: November 14, 1996 16 EX-27 2 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 AND CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q. 1,000 U.S. DOLLARS 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 1 21,560 186 6,865 0 110,632 0 0 460,919 5,685 614,985 533,271 9,066 7,188 15,628 0 0 34,331 15,501 614,985 33,839 6,649 888 41,376 18,102 20,002 21,374 2,407 77 21,140 8,775 8,775 0 0 4,667 2.79 2.79 4.64 899 274 0 0 5,789 1,499 322 5,685 3,409 0 2,276
-----END PRIVACY-ENHANCED MESSAGE-----