Cardinal Bankshares Corporation Reports Results for the Quarter ended June 30, 2013

News provided by

Aug 05, 2013, 07:41 ET

FLOYD, Va., Aug. 5, 2013 /PRNewswire/ -- Cardinal Bankshares Corporation (OTC: CDBK), parent company of Bank of Floyd, announced today its consolidated financial results for the second quarter of 2013 and reported a net loss of $173 thousand, or $0.11 per share, for the quarter. The quarterly results represent an improvement from the net loss of $3.3 million, or $2.13 per share, reported for the quarter ended June 30, 2012. The Company's net loss for the three-month period produced an annualized net loss on average total assets of (0.25) % and an annualized net loss on average stockholders' equity of (2.50) % as compared to (2.30) % and (18.22) % for these measures in the same period last year.

Michael Larrowe, President and Chief Executive Officer added, "We continue to pursue the operational path set forth in our strategic plan, and believe that the Bank is making good progress measured against those objectives. We believe these efforts have positioned the Bank to bring value to our customers and shareholders through our vastly improved product and service offerings. Our ability to be competitive has substantially improved, while retaining capital levels well above required amounts."

Financial Highlights:

Total assets remain relatively stable, decreasing by $2 million from $282 million at December 31, 2012 to $280 million at June 30, 2013.
The net loss for the second quarter of 2013 was $173 thousand, or $0.11 per share, improving from a net loss of $3.2 million for the comparable quarter of 2012. The net loss of $43 thousand for the six-month period ending June 30, 2013 compared to a net loss of $3.0 million for the six-months ended June 30, 2012.
Decreases in Federal funds sold and investment securities of $20.0 million were used primarily to fund increases in loans of $14.4 million or 11.2% over year-end balances.
Total loans at June 30, 2013 were $143.0 million, which is an increase of $2.2 million and $14.4 million from March 31, 2013 and December 31, 2012, respectively.
We experienced an increase in noninterest-bearing deposits of $1.1 and $1.3 million from March 31, 2013 and December 31, 2012, respectively.
A decrease in higher cost interest-bearing deposits of $12.8 million in the six-month period helped to improve the net interest margin.
We experienced a decrease in the second quarter 2013 provision for loan losses of $3.2 million relative to the comparable period of 2012 as losses from legacy loans continue to decrease.
Noninterest expense decreased $718 thousand or 26.5% when compared to the prior year's second quarter. This resulted primarily from decreased legal and other non-recurring expenses associated with the 2012 proxy contest and decreased expenses associated with foreclosed assets

Net loss for the six-month period ended June 30, 2013 was $43 thousand compared to a net loss of $3.0 million for the same period last year. Net loss per share was $0.03 for the six-month period ended June 30, 2013, compared to a net loss per share of $1.94 per share for the same period last year.

Capital Levels

Both the Bank's and the Company's capital levels remain well above the regulatory well-capitalized ratios. The Company's consolidated Tier 1 risk-based and total risk-based capital ratios were 14.47% and 15.57%, respectively, at June 30, 2013, down from the 16.49% and 17.48% reported at December 31, 2012. The decline reported in capital ratios relates primarily to the increase in risk-weighted assets associated with increased loans.

Nonperforming Assets

The Company's ratio of nonperforming assets as a percentage of total assets decreased 57 basis points to 4.15% as compared to 4.72% one year earlier. Nonperforming assets decreased $1.5 million from $13.1 million at June 30, 2012 to $11.6 million at June 30, 2013. Nonperforming assets at June 30, 2013 consisted of nonaccrual loans of $7.5 million, foreclosed assets of $2.5 million, and loans that were past due greater than 90 days and still accruing interest of $1.6 million. Nonperforming assets at June 30, 2012 consisted of nonaccrual loans of $8.9 million, foreclosed assets of $3.5 million, and loans totaling $680 thousand that were past due greater than 90 days and still accruing interest.

The Company recorded a provision for loan losses for the second quarter of 2013 of $818 thousand, as compared to a provision of $4.0 million for the same period last year. Net charge-offs annualized as a percentage of average loans outstanding was 2.22% for the second quarter of 2013, compared to 6.17% for the same quarter in the prior year. Net charge-offs for the quarter ended June 30, 2013 were $754 thousand, in comparison to $3.9 million for the same quarter one year ago.

The ratio of allowance for loan losses as a percentage of total loans decreased from 2.50% at June 30, 2012 to 1.32% at June 30, 2013. The reduction in the allowance from June 30, 2012 is primarily due to the charge-off of reserves approximating $1.8 million which were identified with specific credits. At June 30, 2013, the Company's total reserves amounted to $1.9 million, all of which were general reserves to cover estimated losses in the portfolio and none of which are allocated to specific credits.

Financial Position

At June 30, 2013, the Company's total assets were $279.7 million, total deposits were $240.6 million, total loans stood at $143.0 million and total stockholders' equity was $25.6 million. Compared with December 31, 2012, the Company's total assets decreased $2.4 million or 0.8% while total loans increased $14.4 million. A shift in the mix of interest-earning assets funded the increase in loans.

Total deposits decreased by $11.6 million or 4.6%, while new advances of $12.0 million were drawn on the Federal Home Loan Bank of Atlanta during the first six months of 2013. This shift allowed the Bank to reduce its cost of funds as rates paid on these borrowings are lower than rates paid on most of our deposits.

In anticipation of a possible rising interest rate environment, management made a strategic decision to sell its held-to-maturity investment portfolio in the second quarter of 2013. This action resulted in the realization of gains on those securities. The recognition of those gains and the rising interest rate levels late in the second quarter, combined to increase an unrealized loss in the portfolio to $2.3 million at June 30, 2013. Recognition of the gains and the increased unrealized portfolio losses resulted in a reduction to total equity of $2.7 million as compared to December 31, 2012. Dividends paid of $154 thousand and net loss of $43 thousand account for the remaining reduction to equity.

Net Interest Income

The Company's net interest income was $1.8 million for the three months ended June 30, 2013, an increase of $347 thousand or 24.1% compared to same period last year. The increase is a result interest income from new loan originations combined with lower-costs on deposits and debt.

Noninterest Income

Noninterest income increased $491 thousand for the three-month period ended June 30, 2013, compared to the same period last year, from $162 thousand to $653 thousand. However, excluding gains taken on the sales of securities, noninterest income decreased $18 thousand or 11.8%.

Noninterest Expense

Noninterest expense for the second quarter of 2013 totaled $2.0 million, down $718 thousand or 26.5% as compared to the quarter ended June 30, 2012. These expenses for 2013 compare favorably with both the three and the six-months ended June 30, 2012. However, the six-month period ended June 30, 2012 contains approximately $800,000 associated with that year's proxy contest, while 2013 contains non-recurring product and service development costs of approximately $175,000 associated with the Bank's continuing infrastructure improvement.

Consolidated Balance Sheets
(in thousands, except share data)
	June 30,	December 31,
	2013	2012
Assets
Cash and due from banks	$ 3,463	$ 3,069
Interest-bearing deposits in banks	7,233	14,600
Investment securities, available for sale	105,336	106,576
Investment securities, held to maturity	-	11,380
Restricted equity securities	1,012	693

Total loans	143,004	128,635
Allowance for loan losses	(1,889)	(1,514)
Net loans	141,115	127,121

Bank premises and equipment, net	3,854	3,385
Accrued interest receivable	837	938
Foreclosed assets	2,547	2,763
Bank owned life insurance	6,488	6,401
Other assets	7,839	5,186
Total assets	$ 279,724	$ 282,112

Liabilities and Stockholders' Equity

*Liabilities*
Noninterest-bearing deposits	$ 35,826	$ 34,555
Interest-bearing deposits	204,745	217,613
Total deposits	240,571	252,168
Accrued interest payable	73	81
FHLB Advances	12,000	-
Other liabilities	1,441	1,325
Total liabilities	254,085	253,574

*Stockholders' Equity*
Common stock, $10 par value; 5,000,000
shares authorized; 1,535,733 shares issued
and outstanding	15,357	15,357
Additional paid-in capital	2,925	2,925
Retained earnings	9,629	9,826
Accumulated other comprehensive income	(2,272)	430
Total stockholders' equity	25,639	28,538
Total liabilities and stockholders' equity	$ 279,724	$ 282,112

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

	Three Months Ended June 30,		Six Months Ended June 30,
	2013	2012	2013	2012
Interest and dividend income
Loans and fees on loans	$ 1,848	$ 1,623	$ 3,572	$ 3,397
Federal funds sold	-	10	-	21
Investment securities	511	597	1,104	1,133
Dividend income	5	6	9	11
Deposits with banks	10	1	16	2
Total interest income	2,374	2,237	4,701	4,564

*Interest expense*
Deposits	581	795	1,192	1,584
Borrowings	4	-	6	-
Total interest expense	585	795	1,198	1,584
Net interest income	1,789	1,442	3,503	2,980

*Provision for loan losses*	818	3,995	1,118	3,988
Net interest income after provision
for loan losses	971	(2,553)	2,385	(1,008)

*Noninterest income*
Service charges on deposit accounts	36	43	82	87
Other service charges and fees	26	31	52	59
Net realized gains on sales of securities	519	10	814	26
Income on bank owned life insurance	45	47	88	85
Other income	27	31	67	72
Total noninterest income	653	162	1,103	329

*Noninterest expense*
Salaries and employee benefits	1,057	1,361	2,122	2,200
Occupancy and equipment	208	156	411	314
Legal and professional	127	410	247	505
Data processing services	95	58	165	124
FDIC insurance premiums	93	88	184	167
Foreclosed assets, net	162	407	196	388
Other operating expense	245	225	469	395
Total noninterest expense	1,987	2,705	3,794	4,093
Income (loss) before income taxes	(363)	(5,096)	(306)	(4,772)
Income tax expense (benefit)	(190)	(1,818)	(263)	(1,787)
*Net income (loss)*	$ (173)	$ (3,278)	$ (43)	$ (2,985)
*Basic earnings (loss) per share*	$ (0.11)	$ (2.13)	$ (0.03)	$ (1.94)

Cardinal Bankshares Corporation
Financial Highlights (Unaudited)
(in thousands)
	Three Months Ended		Six Months Ended
	June 30, 2013	June 30, 2012	June 30, 2013	June 30, 2012

Per Share
Earnings per share, basic and diluted	$ (0.11)	$ (2.13)	$ (0.03)	$ (1.94)
Book value			$ 16.69	$ 19.70

Financial Ratios
Annualized Return on Average Assets	0.25%	-2.30%
Annualized Return on Average Equity	-2.50%	-18.22%
Annualized Net Interest Margin for the quarter ended¹	2.76%	2.83%
Efficiency Ratio²	94.90%	144.17%

Capital Ratios
Tier 1 risk-based capital - Bank only	11.57%	15.65%
Total risk-based capital - Bank only	12.61%	16.90%

Tier 1 risk-based capital - consolidated	14.47%	19.41%
Total risk-based capital - consolidated	15.57%	20.57%

Allowance for Loan Losses at Beginning of Period			$ 1,825	$ 2,873
Loans Charged-off, net of Recoveries			(754)	(3,869)
Provision for Loan Losses			818	3,995
Allowance for Loan Losses at End of Period			$ 1,889	$ 2,999

Credit Quality Ratios
Nonperforming Assets as a % of Total Assets			4.15%	4.72%
Total Allowance for Loan Losses as a % of Total Loans			1.32%	2.50%
Total Allowance for Loan Losses as a % of Nonperforming Loans			20.82%	31.21%
Annualized Net Charge-offs as a % of Average Loans			2.22%	6.17%

Nonperforming Assets
Nonaccrual Loans			$ 7,505	$ 8,929
Loans Past Due 90 Days+, still accruing			1,566	680

*Total Nonperforming Loans*			9,071	9,609
Other Real Estate Owned			2,547	3,517
Total Nonperforming Assets			$ 11,618	$ 13,126

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).