Cardinal Bankshares Corporation Reports Results for the Quarter and Year ended December 31, 2014

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Feb 26, 2015, 05:00 ET

FLOYD, Va., Feb. 26, 2015 /PRNewswire/ -- Cardinal Bankshares Corporation (OTC-QB: CDBK), parent company of Bank of Floyd, announced today its consolidated financial results for the fourth quarter and year ended December 31, 2014. A net loss of $916 thousand was reported for the fourth quarter 2014 versus a $5.8 million loss for the same quarter in 2013. The fourth quarter 2014 loss was the result of $938 thousand in non-recurring expenses of which the largest component was a provision for $762 thousand related primarily to a single non-performing asset. Net income for the twelve-month period ended December 31, 2014 totaled $286 thousand or $0.19 per share compared to a net loss of $7.2 million or $(4.17) per share in 2013. Net income in 2013 was adversely impacted by reserves of $3.9 million against the company's deferred tax asset.

The improvements in net income, year over year, are driven by the effects of asset quality improvement and increased lending activity.

Financial Highlights:

Revenue and growth initiatives produce results

Total loans increased 16.46% from $146.0 million at the end of 2013 to $170.1 million at the end of 2014.
Interest and fees on loans increased 11.82% in the fourth quarter of 2014 when compared to the same quarter in 2013 and increased 5.47% in 2014 when compared to 2013.
Net interest income increased 8.30% in the fourth quarter of 2014 when compared to the same quarter in 2013 and increased 7.36% in 2014 when compared to 2013.

According to Mark A. Smith, Interim President & CEO, "2014 marked a transition for the Bank. Following the Board and Management transition in the spring of 2012, the Bank embarked upon an aggressive program to develop the products, technology and teams needed to expand the total number of businesses and households we serve. In 2014, the Bank began to fully execute on its customer acquisition strategies utilizing the rebuilt infrastructure. As a result, the Bank was able to favorably impact interest income through growth in its loan portfolio in addition to other important metrics within the Bank. An analysis of 2014 loan production indicates that it was approximately equally distributed among the Bank's four primary markets of Floyd, Hillsville/Galax, The New River Valley, and The Roanoke Valley. These results indicate that the Bank has evolved into a regional commercial bank serving a population spread over a seven plus county area. While we are pleased with the directional change the Bank was able to accomplish in 2014, there is still work to be done in 2015 to sustain and improve the positive trends in the core metrics of the Bank."

Initiatives to grow households produce results

664 net new checking accounts in 2014 which equated to a 10.42% increase during the year.
76.74% increase in fees earned on deposit accounts during the fourth quarter of 2014 when compared to the same period in 2013 and a 29.14% increase in 2014 when compared to 2013.

"New customers continued to take advantage of the Bank's multiple delivery channels in 2014 and enjoyed the WOW customer service delivered by our team members. The Bank's installation of our interactive teller machines known as TellerVision™ has been completed and we look forward to expanding our customers' access to teller assisted transactions with this leading edge technology solution. In 2015 we anticipate using TellerVision™ to expand our hours to better serve customer needs," said Smith.

Credit quality improves and we remain well capitalized.

The Company's ratio of nonperforming assets as a percentage of total assets at December 31, 2014, decreased to 1.34% compared to 2.23% one year earlier.
Total classified loans (Substandard, Doubtful and Loss) declined by 53.30% during 2014.
Both Bank and Company capital levels remain above regulatory defined well-capitalized ratios.

According to Smith, "Considerable progress has been made in reducing problem credits. In addition to investing in production staff, the Bank has strengthened its capabilities in the areas of ongoing credit administration, portfolio management and initial underwriting. We are making good headway in driving the metrics that favorably impact our profitability, but there is still work to be done."

Capital Levels

Both Bank and Company capital levels remain above regulatory defined well-capitalized ratios. The Company's consolidated Tier 1 risk-based and total risk-based capital ratios were 11.73% and 12.99%, respectively, at December 31, 2014.

Nonperforming and Classified Assets

The Company's ratio of nonperforming assets as a percentage of total assets at December 31, 2014, decreased to 1.34% compared to 2.23% one year earlier. Nonperforming assets decreased $2.27 million from $5.99 million at December 31, 2013 to $3.72 million at December 31, 2014.

Total classified loans (Substandard, Doubtful and Loss) declined 53.30% from $9.19 million at year end 2013 to $4.29 million at December 31, 2014.

The company recorded a negative provision for loan losses in 2014 of $853 thousand compared to a provision of $3.13 million in 2013. The Total Allowance for Loan Losses as a percentage of Nonperforming Loans increased from 75.51% at December 31, 2013 to 103.72% at December 31, 2014.

Financial Position

Total assets at December 31, 2014 were $276.8 million, an increase of $8.0 million over December 31, 2013. The increase was primarily the result of an increase in total loans of $24.0 million from $146.0 million on December 31, 2013 to $170.0 million on December 31, 2014. Total deposits declined by $6.6 million during the year as higher priced CD's were allowed to run off. Funding needs created by the decline in deposits and increased total loans were met by a $12.0 million increase in FHLB advances.

Stockholders' equity increased $3.0 million to $20.3 million at December 31, 2014 compared to $17.3 million at December 31, 2013. In addition to the net income reported the increase primarily resulted from a reduction in unrealized bond portfolio losses if $2.7 million.

Net Interest Income

The Company's net interest income was $2.0 million and $7.6 million for the three and twelve-month periods ended December 31, 2014, an increase of $152 thousand and $522 thousand or 8.30% and 7.36% compared to same periods of 2013. The increase resulted from an increase in interest income from new loan originations combined with lower-costs on deposits and debt.

Noninterest Income

Noninterest income excluding net realized gains/losses on sale of securities increased by $99 thousand for the twelve-month period ended December 31, 2014, compared to the same period last year, due to increased service charges. Service charges increased as a result of the net increases in the number of checking accounts.

Noninterest Expense

Noninterest expense for 2014 totaled $8.9 million, up $150 thousand compared to 2013. The largest component of the expense, Salaries and Employee benefits remained relatively flat with a decrease of $47 thousand.

A Warning about Forward-Looking Statements

This news release contains forward-looking statements. The Company may also make written forward-looking statements in proxy statements, offering circulars and prospectuses, press releases and other written materials and oral statements made by Cardinal Bankshares' officers, directors or employees to third parties. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. These statements are based on beliefs and assumptions of the Company's management, and on information currently available to such management. Forward-looking statements include statements preceded by, followed by or that include the words "believes," "expects," "estimates," "anticipates," "plans," or similar expressions. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events.

Forward-looking statements involve inherent risks and uncertainties. Management cautions the readers that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to, the following: competitive pressures among depository and other financial institutions may increase significantly; changes in the interest rate environment may reduce margins; general economic or business conditions may lead to a deterioration in credit quality or a reduced demand for credit; legislative or regulatory changes, including changes in accounting standards, may adversely affect the business in which Cardinal is engaged; changes may occur in the securities markets; and competitors of the Company may have greater financial resources and develop products that enable such competitors to compete more successfully than Cardinal.

Other factors that may cause actual results to differ from the forward-looking statements include the following: the timely development of competitive new products and services by the Company and the acceptance of such products and services by customers; changes in consumer spending and savings habits; the effects of competitors' pricing policies; the Company's success in managing the costs associated with the expansion of existing distribution channels and developing new ones, and in realizing increased revenues from such distribution channels, including cross-selling initiatives; and mergers and acquisitions and their integration into the Company and management's ability to manage these other risks.

Management of Cardinal believes these forward-looking statements are reasonable; however undue reliance should not be placed on such forward-looking statements, which are based on current expectations. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. The future results and stockholder values of Cardinal may differ materially from those expressed in forward-looking statements contained in this report. Many of the factors that will determine these results and values are beyond the Company's ability to control or predict.

For Further Information Contact:
Mark A. Smith, Interim President and Chief Executive Officer
J. Alan Dickerson, Chief Financial Officer
(540) 745-4191

Consolidated Balance Sheets
(in thousands, except share data)

	December 31,		December 31,
	2014		2013
Assets
Cash and due from banks	$	3,578	$	3,339
Interest-bearing deposits in banks		6,034		6,757
Investment securities, available for sale		82,845		96,932
Investment securities, held to maturity		-		-
Restricted equity securities		1,535		999

Total loans		170,062		146,031
Allowance for loan losses		(3,098)		(2,862)
Net loans		166,964		143,169

Bank premises and equipment, net		5,776		4,971
Accrued interest receivable		669		910
Foreclosed assets		735		2,196
Bank owned life insurance		6,737		6,571
Deferred tax asset		5,487		6,891
Reserve deferred tax asset		(5,139)		(5,139)
Prepaid assets		490		800
Other assets		1,105		451
Total assets	$	276,816	$	268,847

Liabilities and Stockholders' Equity

*Liabilities*
Noninterest-bearing deposits	$	39,785	$	40,882
Interest-bearing deposits		195,325		200,861
Total deposits		235,110		241,743
FHLB advances		20,000		8,000
Accrued interest payable		57		65
Bank owned life insurance SERP		727		828
Other liabilities		589		891
Total liabilities		256,483		251,527

*Stockholders' Equity*
Common stock, $10 par value; 5,000,000
Shares authorized; 1,535,733 shares issued
Issued and outstanding		15,357		15,357
Additional paid-in capital		2,925		2,925
Retained earnings		2,726		2,440
Accumulated other comprehensive income		(675)		(3,402)
Total stockholders' equity		20,333		17,320
Total liabilities and stockholders' equity	$	276,816	$	268,847

Consolidated Statements of Operations
(in thousands, except share data)

	Three Months Ended December 31,				Twelve Months Ended December 31,
	2014		2013		2014		2013
Interest and dividend income
Loans and fees on loans	$	1,987	$	1,777	$	7,537	$	7,146
Federal funds sold		-		-		-		-
Investment securities		438		563		1,924		2,176
Dividend income		36		11		51		29
Deposits with banks		(16)		5		14		26
Total interest income		2,445		2,356		9,526		9,377

*Interest expense*
Deposits		453		520		1,885		2,265
Borrowings		8		4		22		15
Total interest expense		461		524		1,907		2,280
Net interest income		1,984		1,832		7,619		7,097

*Provision for loan losses*		884		845		(853)		3,134
Net interest income after provision
for loan losses		1,100		987		8,472		3,963

*Noninterest income*
Service charges on deposit accounts		76		43		226		175
Other service charges and fees		32		24		117		92
Net realized gains on sales of securities		3		-		(53)		813
Income on bank owned life insurance		41		42		166		170
Other income		47		59		211		184
Total noninterest income		199		168		667		1,434

*Noninterest expense*
Salaries and employee benefits		1,165		1,378		4,565		4,612
Occupancy and equipment		211		186		1,052		856
Legal and professional		135		207		374		640
Data processing services		175		146		594		422
FDIC insurance premiums		86		90		360		352
Foreclosed assets, net		37		461		513		736
Other operating expense		404		308		1,395		1,085
Total noninterest expense		2,213		2,776		8,853		8,703
Income (loss) before income taxes		(914)		(1,621)		286		(3,306)
Income tax expense (benefit)		2		4,225		-		3,927
*Net income (loss)*	$	(916)	$	(5,846)	$	286	$	(7,233)
*Basic earnings (loss) per share*	$	(0.60)	$	(3.81)	$	0.19	$	(4.71)

Cardinal Bankshares Corporation
Financial Highlights (Unaudited)
(in thousands)
	Three Months Ended		Year Ended
	December 31, 2014	December 31, 2013	December 31, 2014	December 31, 2013

Per Share
Earnings per share, basic and diluted	$ (0.60)	$ (3.81)	$ 0.19	$ (4.71)
Book value			$ 13.24	$ 11.28

Financial Ratios
Annualized Return on Average Assets			0.11%	-2.62%
Annualized Return on Average Equity			1.46%	-28.31%
Annualized Net Interest Margin¹			3.00%	2.75%
Efficiency Ratio²			100.01%	93.39%

Capital Ratios
Tier 1 risk-based capital - Bank only			10.65%	11.56%
Total risk-based capital - Bank only			11.90%	12.81%

Tier 1 risk-based capital - consolidated			11.73%	12.63%
Total risk-based capital - consolidated			12.99%	13.89%

Allowance for Loan Losses at Beginning of Period			$ 2,199	$ 2,102
Loans Charged-off, net of Recoveries			14	(85)
Provision for Loan Losses			885	845
Allowance for Loan Losses at End of Period			$ 3,098	$ 2,862

Credit Quality Ratios
Nonperforming Assets as a % of Total Assets			1.34%	2.23%
Total Allowance for Loan Losses as a % of Total Loans			1.82%	1.96%
Total Allowance for Loan Losses as a % of Nonperforming Loans			103.72%	75.51%
Annualized Net Charge-offs as a % of Average Loans			-0.04%	0.24%

Nonperforming Assets
Nonaccrual Loans			$ 2,987	$ 2,226
Loans Past Due 90 Days+, still accruing			-	1,564

*Total Nonperforming Loans*			2,987	3,790
Other Real Estate Owned			735	2,196
Total Nonperforming Assets			$ 3,722	$ 5,986

¹Net interest margin equals net interest income divided by interest-earning average assets.
²Efficiency ratio equals noninterest expense (excluding OREO valuations and OREO operating expenses) divided by net interest income plus noninterest income (excluding net realized gains on sales of securities).