Cardinal Bankshares Corporation Reports Results for the Quarter ended June 30, 2014

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Jul 17, 2014, 06:49 ET

FLOYD, Va., July 17, 2014 /PRNewswire/ -- Cardinal Bankshares Corporation (OTC-QB: CDBK), parent company of Bank of Floyd, announced today its consolidated financial results for the second quarter of 2014 and reported net income of $983 thousand, or $0.64 per share versus a $(173) thousand net loss, or $(0.11) per share for the same quarter in 2013. The Company's net income for the three-month period produced an annualized return on average assets of 1.48% and an annualized return on average equity of 21.03% as compared to (0.25)% and (2.50)% for these measures in the same period last year. Net income for the six-month period ended June 30, 2014 amounted to $1.1 million compared to a net loss of $43 thousand in 2013.

Michael Larrowe, President and Chief Executive Officer added, "We are encouraged that the Bank's business development activities are combining positively with the infrastructure that has been placed over the last several quarters. These are leading to increased net interest income and to an increase in net interest margin for the quarter from 2.76% in the second quarter of 2013 to 3.07% in the quarter ended June 30, 2014. As a result, we are experiencing continuing increases in revenue associated with our core operation. However, credit related charges have clearly been the largest driver of operating results over the last two years, including the current quarter. We are extremely pleased to have experienced a substantial reduction in non-performing assets and a significant recovery during the quarter. We believe the investment in skilled credit production and analysis teams are beginning to deliver the results we expect."

Financial Highlights:

Total assets decreased by $2.6 million from $268.8 million at December 31, 2013 to $266.2 million at June 30, 2014.
Total loans at June 30, 2014 were $154.0 million, representing an increase of $7.8 and $8.0 million, or 5.3% and 5.5% compared to March 31, 2014 and December 31, 2013, respectively.
Deposits remained relatively stable for the quarter decreasing $587 thousand from March 31, 2014.
Net interest income increased 6.8% and 9.9% for the three and six-month periods ended June 30, 2014, respectively.
The provision (negative provision) for loan losses for the three and six-month periods of $(1.58) million and $(1.56) million, respectively, was an improvement of $2.40 million and $2.68 million compared to the same periods in 2013 as credit related charges continue to decline.

Capital Levels

Both Bank and Company capital levels increased during the second quarter of 2014 and remain above regulatory defined well-capitalized ratios. The Company's consolidated Tier 1 risk-based and total risk-based capital ratios were 12.55% and 13.80%, respectively, at June 30, 2014, up from the 12.25% and 13.50% reported at March 31, 2014.

Nonperforming Assets

The Company's ratio of nonperforming assets as a percentage of total assets at June 30, 2014, decreased to 2.07% compared to 4.15% one year earlier. Nonperforming assets decreased $6.1 million from $11.6 million at June 30, 2013 to $5.5 million at June 30, 2014. Nonperforming assets at June 30, 2014 consisted of nonaccrual loans of $4.7 million, foreclosed assets of $759 thousand, and no loans that were past due greater than 90 days and still accruing interest. Nonperforming assets at June 30, 2013 consisted of nonaccrual loans of $7.5 million, foreclosed assets of $2.5 million, and loans totaling $1.6 million that were past due greater than 90 days and still accruing interest.

The Company recorded a provision (negative provision) for loan losses for the second quarter of 2014 of $(1,582) thousand, as compared to a provision of $818 thousand for the same period last year. Net charge-offs (recoveries) annualized as a percentage of average loans outstanding was (3.89%) for the second quarter of 2014, compared to 2.22% for the same quarter in the prior year. Net charge-offs (recoveries) for the quarter ended June 30, 2014 were $(1,427) thousand, in comparison to $754 thousand for the same quarter one year ago.

The allowance for loan losses as a percentage of total loans increased from 1.32% at June 30, 2013 to 1.87% at June 30, 2014. At June 30, 2014, the Company's total reserves were $2.9 million, which was comprised of $1.9 million in general reserves to cover estimated losses in the portfolio and $1.0 million that are allocated to specific credits.

Financial Position

At June 30, 2014, the Company's total assets were $266.2 million, total deposits were $236.4 million, total loans were $154.0 million and total stockholders' equity was $20.5 million. Compared with December 31, 2013, the Company's total assets decreased $2.6 million or 1.0%.

Total deposits decreased by $5.3 million or 2.2%, while advances from Federal Home Loan Bank of Atlanta remained stable compared to December 31, 2013.

Stockholders' equity increased $3.2 million to $20.5 million at June 30, 2014 compared to $17.3 at December 31, 2013. Reduction of unrealized portfolio losses resulted in an increase to total equity of $2.1 million as compared to December 31, 2013. Net income of $1.1 million accounts for the remaining increase to equity.

Net Interest Income

The Company's net interest income was $1.9 and $3.8 million for the three and six-month periods ended June 30, 2014, an increase of $121 and $346 thousand 6.8% and 9.9% compared to same periods of 2013. The increase is a resulted from an increase in interest income from new loan originations combined with lower-costs on deposits and debt.

Noninterest Income

Noninterest income decreased $542 thousand for the three-month period ended June 30, 2014, compared to the same period last year, due to a net change in recognition of realized gains (losses) on sales of securities of $573 thousand between the respective the three month periods ended June 30. However, excluding gains (losses) taken on the sales of securities, noninterest income increased $31 thousand or 23.0%.

Noninterest Expense

Noninterest expense for the second quarter of 2014 totaled $2.6 million, up $377 thousand (exclusive of foreclosed asset charges) compared to the quarter ended June 30, 2013. The increase in noninterest expense is due to salaries and employee benefits as a result of experienced personnel additions, occupancy and equipment expense as building improvements are ongoing, data processing services as technology services offered continue to expand and other operating expenses related to increased data transmission speeds.

For Further Information Contact:
Michael D. Larrowe, President and Chief Executive Officer
Alan Dickerson, Chief Financial Officer
(540) 745-4191

Consolidated Balance Sheets
(in thousands, except share data)

	June 30,	December 31,
	2014	2013
Assets
Cash and due from banks	$3,990	$3,339
Interest-bearing deposits in banks	6,379	6,757
Investment securities, available for sale	86,209	96,932
Investment securities, held to maturity	-	-
Restricted equity securities	1,175	999

Total loans	154,008	146,031
Allowance for loan losses	(2,884)	(2,862)
Net loans	151,124	143,169

Bank premises and equipment, net	4,937	4,971
Accrued interest receivable	660	910
Foreclosed assets	759	2,196
Bank owned life insurance	6,655	6,571
Deferred tax asset	5,826	6,891
Reserve deferred tax asset	-5,139	-5,139
Prepaid assets	1,142	800
Other assets	2,454	451
Total assets	$266,171	$268,847

Liabilities and Stockholders' Equity

*Liabilities*
Noninterest-bearing deposits	$38,764	$40,882
Interest-bearing deposits	197,645	200,861
Total deposits	236,409	241,743
FHLB advances	8,000	8,000
Accrued interest payable	59	65
Bank owned life insurance SERP	833	828
Other liabilities	410	891
Total liabilities	245,711	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	3,509	2,440
Accumulated other comprehensive income	(1,331)	(3,402)
Total stockholders' equity	20,460	17,320
Total liabilities and stockholders' equity	$266,171	$268,847

Consolidated Statements of Operations
(in thousands, except share data)
	Three Months Ended June 30,		Six Months Ended June 30,
	2014	2013	2014	2013
Interest and dividend income
Loans and fees on loans	$1,893	$1,849	$3,751	$3,572
Federal funds sold	-	-	-	-
Investment securities	481	511	1,047	1,104
Dividend income	12	4	17	9
Deposits with banks	4	10	7	16
Total interest income	2,390	2,374	4,822	4,701

*Interest expense*
Deposits	475	581	964	1,192
Borrowings	5	4	9	6
Total interest expense	480	585	973	1,198
Net interest income	1,910	1,789	3,849	3,503

*Provision for loan losses*	(1,582)	818	(1,560)	1,118
Net interest income after provision
for loan losses	3,492	971	5,409	2,385

*Noninterest income*
Service charges on deposit accounts	45	40	83	82
Other service charges and fees	34	26	61	52
Net realized gains on sales of securities	(55)	518	(56)	814
Income on bank owned life insurance	44	45	84	88
Other income	43	24	142	67
Total noninterest income	111	653	314	1,103

*Noninterest expense*
Salaries and employee benefits	1,254	1,057	2,392	2,122
Occupancy and equipment	280	209	567	411
Legal and professional	74	127	142	247
Data processing services	141	94	265	165
FDIC insurance premiums	90	93	181	184
Foreclosed assets, net	420	162	439	196
Other operating expense	362	244	669	469
Total noninterest expense	2,621	1,986	4,655	3,794
Income (loss) before income taxes	982	(362)	1,068	(306)
Income tax expense (benefit)	(1)	(189)	(2)	(263
*Net income (loss)*	983	(173)	1,070	(43)
*Basic earnings (loss) per share*	0.64	(0.11)	0.70	(0.03)

Cardinal Bankshares Corporation
Financial Highlights (Unaudited)
(in thousands)
	Three Months Ended		Six Months Ended
	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013

Per Share
Earnings per share, basic and diluted	$ 0.64	$ (0.11)	$ 0.70	$ (0.03)
Book value			$ 13.32	$ 16.69

Financial Ratios
Annualized Return on Average Assets	1.48%	-0.25%
Annualized Return on Average Equity	21.03%	-2.50%
Annualized Net Interest Margin for the quarter ended¹	3.07%	2.76%
Efficiency Ratio²	106.02%	98.49%

Capital Ratios
Tier 1 risk-based capital - Bank only	11.44%	11.57%
Total risk-based capital - Bank only	12.69%	12.61%

Tier 1 risk-based capital - consolidated	12.55%	14.47%
Total risk-based capital - consolidated	13.80%	15.57%

Allowance for Loan Losses at Beginning of Period			$ 3,040	$ 1,825
Loans Charged-off, net of Recoveries			1,427	(754)
Provision for Loan Losses			(1,583)	818
Allowance for Loan Losses at End of Period			$ 2,884	$ 1,889

Credit Quality Ratios
Nonperforming Assets as a % of Total Assets			2.07%	4.15%
Total Allowance for Loan Losses as a % of Total Loans			1.87%	1.32%
Total Allowance for Loan Losses as a % of Nonperforming Loans			60.82%	20.82%
Annualized Net Charge-offs as a % of Average Loans			-3.89%	2.22%

Nonperforming Assets
Nonaccrual Loans			$ 4,742	$ 7,505
Loans Past Due 90 Days+, still accruing			-	1,566

*Total Nonperforming Loans*			4,742	9,071
Other Real Estate Owned			759	2,547
Total Nonperforming Assets			$ 5,501	$ 11,618

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).