CARDINAL BANKSHARES CORP 
By FLOYD, Va., Nov. 22, 2013 /PRNewswire/ -- Cardinal Bankshares Corporation (OTC: CDBK), parent company of Bank of Floyd, announced today its consolidated financial results for the third quarter of 2013 and reported a net loss of $1.3 million, or $0.88 per share, for the quarter. The quarterly net loss represents an increase from the net loss of $841 thousand, or $0.55 per share, reported for the quarter ended September 30, 2012. However, the Company's net loss for the nine-month period ended at that date of $1.4 million represents a $2.4 million improvement from the net loss of $3.8 million incurred for the comparable period of 2012.
Michael Larrowe, President and Chief Executive Officer added, "Although not yet reflecting in financial results, our Board and Management remain confident in the positive direction of the Bank and the continued efforts to achieve our long-term goals. The Bank is delivering more services by way of additional delivery channels, improving efficiencies by leveraging technology, dealing with the remaining issues of legacy credits while maintaining strong capital levels and continuing to build loan loss reserves."
Larrowe continued, "Fundamentally the Bank was later in the recent economic downturn to recognize credit losses from our borrowers' financial challenges than most of our peer institutions. And while improvement is happening, that delay combined with the expense associated with necessary systems and skills development undertaken by the Bank over the last 16 months has caused our financial results to improve more slowly than any of us would like."
Financial Highlights
Results for the three-month period ending September 30, 2013 included losses recognized on legacy credits of $971 thousand, a deferred tax asset write-down of $482 thousand and additions to general reserves of $275 thousand. Net interest income for the period increased an encouraging 26.0% over the comparable 2012 period as income from loans continues to increase while interest expense on deposits continues to decline. Capital remains well above required levels.
Net loss for the nine-month period ended September 30, 2013 was $1.4 million compared to a net loss of $3.8 million for the same period last year. Net loss per share was $0.90 for the nine-month period ended September 30, 2013, compared to a net loss per share of $2.49 for the same period last year.
Other highlights include:
-- Total assets decreased by $11.1 million from $282.1 million at December
31, 2012 to $271.0 million at September 30, 2013.
-- The net loss for the third quarter of 2013 was $1.3 million, or $0.88
per share, increasing from a net loss of $841 thousand for the
comparable quarter of 2012. The net loss of $1.4 million for the
nine-month period ending September 30, 2013 decreased by $2.4 million
from a net loss of $3.8 million for the nine-months ended September 30,
2012.
-- Decreases in interest bearing deposits and investment securities of
$24.3 million were used to fund increases in loans of $8.9 million or
6.9% over year-end balances and offset the decrease in total deposits of
$14.4 million or 5.7% over year-end balances.
-- Total loans at September 30, 2013 were $137.6 million, which is an
increase of $8.9 million from December 31, 2012.
-- An increase in noninterest-bearing deposits of $3.0 million from
December 31, 2012.
-- A decrease in higher cost interest-bearing deposits of $17.4 million in
the nine-month period helped to improve net interest margin.
-- An increase in the third quarter 2013 provision for loan losses of $274
thousand relative to the comparable period of 2012 as losses from legacy
loans continue to work through the system.
-- Noninterest expense increased $113 thousand or 5.6% when compared to the
prior year's third quarter. This resulted primarily from increased
salaries and employee benefits associated with the addition of personnel
in key positions.
-- Income (loss) before income taxes improved over both the three and
nine-month periods ended September 30, 2013 relative to the comparable
periods from 2012. The loss before income taxes decreased by $2
thousand and $4.5 million in the three and nine-month periods,
respectively.
-- A write-down of the deferred tax asset of $482 thousand was taken in the
quarter ended September 30, 2013 and is reflected in the income tax
expense (benefit) line of the Consolidated Statements of Operations.
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 13.53% and 14.77%, respectively, at September 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 increased 35 basis points to 3.64% as compared to 3.29% one year earlier. Nonperforming assets increased $675 thousand from $9.2 million at September 30, 2012 to $9.9 million at September 30, 2013. Nonperforming assets at September 30, 2013 consisted of nonaccrual loans of $4.3 million, foreclosed assets of $3.9 million, and loans that were past due greater than 90 days and still accruing interest of $1.7 million. Nonperforming assets at September 30, 2012 consisted of nonaccrual loans of $547 thousand and foreclosed assets of $8.7 million.
The Company recorded a provision for loan losses for the third quarter of 2013 of $1.2 million, as compared to a provision of $897 thousand for the same period last year. Net charge-offs annualized as a percentage of average loans outstanding was 1.65% for the third quarter of 2013, compared to 7.05% for the same quarter in the prior year. Net charge-offs for the quarter ended September 30, 2013 were $925 thousand, in comparison to $2.5 million for the same quarter one year ago.
The ratio of allowance for loan losses as a percentage of total loans increased from 1.26% at September 30, 2012 to 1.53% at September 30, 2013. The increase in the allowance from September 30, 2012 is primarily due to the addition of $700 thousand added to the allowance in the form of general reserves. At September 30, 2013, the Company's total reserves amounted to $2.1 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 September 30, 2013, the Company's total assets were $271.0 million, total deposits were $237.8 million, total loans stood at $137.6 million and total stockholders' equity was $23.9 million. Compared with December 31, 2012, the Company's total assets decreased $11.1 million or 3.9% while total loans increased $8.9 million. A shift in the mix of interest-earning assets funded the increase in loans.
Total deposits decreased by $14.4 million or 5.7%, while new advances of $8.0 million were drawn on the Federal Home Loan Bank of Atlanta during the first nine 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 deposits.
Rising interest rates created an unrealized loss in the investment portfolio that was recognized as a decrease to equity in the amount of $3.1 million at September 30, 2013. Dividends paid of $154 thousand and net loss of $1.4 million account for the remaining reduction to equity for a total decrease in equity of $4.7 million for the period ending September 30, 2013.
Net Interest Income
The Company's net interest income was $1.7 million for the three months ended September 30, 2013, an increase of $361 thousand or 26.0% compared to same period last year. The increase is a result of interest income from new loan originations combined with lower-costs on deposits and debt.
Noninterest Income
Noninterest income increased $28 thousand for the three-month period ended September 30, 2013, compared to the same period last year, from $152 thousand to $180 thousand.
Noninterest Expense
Noninterest expense for the third quarter of 2013 totaled $2.1 million, up $113 thousand or 5.6% as compared to the quarter ended September 30, 2012.
Larrowe commented further, "The rapid change in technology and the costs of an ever increasing regulatory burden require more resources to adapt in the short-term while also requiring us to take advantage of available efficiencies over the longer-term. Although these changes are difficult, we are working through those as quickly as possible after much deliberate consideration of the needs of the Bank, its customers, its employees, and long-term shareholder reward.
Forward Looking Statements
Information in this press release contains "forward-looking statements." These statements involve risks and uncertainties that could cause actual results to differ materially, including without limitation, the effects of future economic conditions, governmental fiscal and monetary policies, legislative and regulatory changes, the risks of changes in interest rates and the effects of competition.
Consolidated Balance Sheets
(in thousands, except share data)
September 30, December 31,
2013 2012
---- ----
Assets
Cash and due from banks $3,378 $3,069
Interest-bearing deposits in banks 6,808 14,600
Investment securities, available for sale 101,001 106,576
Investment securities, held to maturity - 11,380
Restricted equity securities 1,179 693
Total loans 137,567 128,635
Allowance for loan losses (2,102) (1,514)
------ ------
Net loans 135,465 127,121
Bank premises and equipment, net 4,157 3,385
Accrued interest receivable 808 938
Foreclosed assets 3,902 2,763
Bank owned life insurance 6,529 6,401
Deferred tax asset 5,592 3,681
Accrued taxes receivable 20 -
Other assets 2,207 1,505
----- -----
Total assets $271,046 $282,112
======== ========
Liabilities and Stockholders' Equity
Liabilities
Noninterest-bearing deposits $37,545 $34,555
Interest-bearing deposits 200,238 217,613
------- -------
Total deposits 237,783 252,168
Accrued interest payable 68 81
FHLB Advances 8,000 -
Other liabilities 1,341 1,325
----- -----
Total liabilities 247,192 253,574
------- -------
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 8,285 9,826
Accumulated other comprehensive income (2,713) 430
------ ---
Total stockholders' equity 23,854 28,538
------ ------
Total liabilities and stockholders' equity $271,046 $282,112
======== ========
Consolidated Statements of Operations
(in thousands, except share data)
Three Months Ended September 30, Nine Months Ended September 30,
2013 2012 2013 2012
---- ---- ---- ----
Interest and dividend income
Loans and fees on loans $1,782 $1,577 $5,354 $4,974
Federal funds sold - 1 - 22
Investment securities 509 553 1,613 1,687
Dividend income 9 5 18 15
Deposits with banks 5 27 21 29
--- --- --- ---
Total interest income 2,305 2,163 7,006 6,727
----- ----- ----- -----
Interest expense
Deposits 553 777 1,745 2,361
Borrowings 5 - 11 -
--- --- --- ---
Total interest expense 558 777 1,756 2,361
--- --- ----- -----
Net interest income 1,747 1,386 5,250 4,366
Provision for loan losses 1,171 897 2,289 4,885
----- --- ----- -----
Net interest income after provision for loan losses 576 489 2,961 (519)
--- --- ----- ----
Noninterest income
Service charges on deposit accounts 50 46 132 133
Other service charges and fees 32 30 84 89
Net realized gains on sales of securities (1) 1 813 27
Income on bank owned life insurance 40 47 128 132
Other income 59 28 125 100
--- --- --- ---
Total noninterest income 180 152 1,282 481
--- --- ----- ---
Noninterest expense
Salaries and employee benefits 1,104 884 3,226 3,084
Occupancy and equipment 259 306 670 620
Legal and professional 186 109 433 614
Data processing services 111 64 276 188
FDIC insurance premiums 78 91 262 258
Foreclosed assets, net 79 114 275 502
Other operating expense 308 444 777 839
--- --- --- ---
Total noninterest expense 2,125 2,012 5,919 6,105
----- ----- ----- -----
Income (loss) before income taxes (1,369) (1,371) (1,676) (6,143)
Income tax expense (benefit) (25) (530) (289) (2,317)
--- ---- ---- ------
Net income (loss) $(1,344) $(841) $(1,387) $(3,826)
======= ===== ======= =======
Basic earnings (loss) per share $(0.88) $(0.55) $(0.90) $(2.49)
====== ====== ====== ======
Cardinal Bankshares Corporation
Financial Highlights (Unaudited)
(in thousands)
Three Months Ended Nine Months Ended
------------------ -----------------
September September September September
30, 2013 30, 2012 30, 2013 30, 2012
-------- -------- -------- --------
Per Share
Earnings
per
share,
basic and
diluted $(0.88) $(0.55) $(0.90) $(2.49)
====== ====== ====== ======
Book value as of September 30, 2013 $15.53 $19.50
====== ======
Financial Ratios
Annualized
Return on
Average
Assets -1.93% -1.13% -0.66% -1.88%
===== ===== ===== =====
Annualized
Return on
Average
Equity -21.61% -10.45% -6.92% -15.96%
====== ====== ===== ======
Annualized
Net
Interest
Margin for
the period
ended(1) 2.69% 2.77% 2.72% 2.60%
==== ==== ==== ====
Efficiency
Ratio(2) 106.12% 223.77% 98.67% 222.94%
====== ====== ===== ======
as of September 30,
2013 2012
---- ----
Capital Ratios
Tier 1 risk-based capital - Bank
only 12.18% 14.76%
===== =====
Total risk-based capital - Bank only 13.35% 15.66%
===== =====
Tier 1 risk-based capital -
consolidated 13.53% 18.42%
===== =====
Total risk-based capital -
consolidated 14.77% 19.40%
===== =====
Three Months Ended Nine Months Ended
------------------ -----------------
September September September September
30, 2013 30, 2012 30, 2013 30, 2012
-------- -------- -------- --------
Allowance
for Loan
Losses at
Beginning
of Period $1,889 $2,998 $1,514 $2,867
Loans
Charged-
off, net
of
Recoveries (925) (2,511) (1,668) (6,368)
Provision
for Loan
Losses 1,138 897 2,256 4,885
Allowance
for Loan
Losses at
End of
Period $2,102 $1,384 $2,102 $1,384
====== ====== ====== ======
as of September 30,
Credit Quality Ratios 2013 2012
---- ----
Nonperforming Assets as a % of Total Assets 3.64% 3.29%
==== ====
Total Allowance for Loan Losses as a % of Total Loans 1.53% 1.26%
==== ====
Total Allowance for Loan Losses as a % of Nonperforming Loans 35.17% 253.02%
===== ======
Annualized Net Charge-offs as a % of Average Loans 1.65% 7.05%
==== ====
Nonperforming Assets
Nonaccrual Loans $4,321 $547
Loans Past Due 90 Days+, still accruing 1,656 -
----- ---
Total Nonperforming Loans 5,977 547
Other Real Estate Owned 3,902 8,657
Total Nonperforming Assets $9,879 $9,204
====== ======
1 Net interest margin equals net interest income divided by interest-earning average assets.
2 Efficiency 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).
For Further Information Contact:
Michael D. Larrowe, President and Chief Executive Officer
Alan Dickerson, Chief Financial Officer
(540) 745-4191
SOURCE Cardinal Bankshares Corporation
