Cardinal Bankshares Corporation Reports Results for the Quarter ended March 31, 2014

FLOYD, Va., April 22, 2014 /PRNewswire/ -- Cardinal Bankshares Corporation CDBK, parent company of Bank of Floyd, announced today its consolidated financial results for the first quarter of 2014 and reported net income of $87 thousand, or $0.06 per share versus $130 thousand, or $0.08 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 0.13% and an annualized return on average equity of 1.93% as compared to 0.19% and 1.74% for these measures in the same period last year.

Michael Larrowe, President and Chief Executive Officer added, "The Bank experienced increased net interest income, driven by additional loan income and a decrease in interest expense on deposit accounts relative to the same period in 2013. As a result, net interest margin for the quarter improved to 3.08% from 2.85% for the year in 2013. We believe these improved operating metrics coupled with our new product and service offerings will continue to bring improved value to our customers and shareholders. Due to substantial investment in both technology and personnel, the Bank's ability to be competitive has dramatically improved, while retaining capital levels well above required amounts."

Financial Highlights:

Total assets increased by $2.9 million from $268.8 million at December 31, 2013 to $271.7 million at March 31, 2014.
Total loans at March 31, 2014 were $146.2 million, which is an increase of $200 thousand compared to December 31, 2013.
A decrease in higher cost interest-bearing deposits of $2.9 million in the three-month period helped to improve the net interest margin.
The first quarter 2014 provision for loan losses of $22 thousand was an improvement of $278 thousand versus the same period in 2013 as losses from legacy loans continue to decrease.

Capital Levels

Both the Bank's and the Company's capital levels remain above the regulatory well-capitalized ratios. The Company's consolidated Tier 1 risk-based and total risk-based capital ratios were 12.25% and 13.50%, respectively, at March 31, 2014, down from the 12.63% and 13.89% reported at December 31, 2013.

Nonperforming Assets

The Company's ratio of nonperforming assets as a percentage of total assets decreased 169 basis points to 3.10% as compared to 4.79% one year earlier. Nonperforming assets decreased $5.1 million from $13.5 million at March 31, 2013 to $8.4 million at March 31, 2014. Nonperforming assets at March 31, 2014 consisted of nonaccrual loans of $6.2 million, foreclosed assets of $2.2 million, and loans that were past due greater than 90 days and still accruing interest of zero. Nonperforming assets at March 31, 2013 consisted of nonaccrual loans of $9.3 million, foreclosed assets of $2.7 million, and loans totaling $1.5 million that were past due greater than 90 days and still accruing interest.

The Company recorded a provision for loan losses for the first quarter of 2014 of $22 thousand, as compared to a provision of $300 thousand for the same period last year. Net charge-offs annualized as a percentage of average loans outstanding was (.043%) for the first quarter of 2014, compared to (.04%) for the same quarter in the prior year. Net charge-offs (recoveries) for the quarter ended March 31, 2014 were $(156) thousand, in comparison to $(11) thousand for the same quarter one year ago.

The allowance for loan losses as a percentage of total loans increased from 1.30% at March 31, 2013 to 2.08% at March 31, 2014. At March 31, 2014, the Company's total reserves were $3.0 million, which was comprised of $2.3 million in general reserves to cover estimated losses in the portfolio and $780 thousand that are allocated to specific credits.

Financial Position

At March 31, 2014, the Company's total assets were $271.7 million, total deposits were $237.0 million, total loans were $143.2 million and total stockholders' equity was $18.5 million. Compared with December 31, 2013, the Company's total assets increased $2.9 million or 1.1%.

Total deposits decreased by $4.7 million or 2.0%, while new advances of $7.0 million were drawn on the Federal Home Loan Bank of Atlanta during the first three months of 2014. 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.

Stockholders' equity increased $1.1 million to $18.4 million at March 31, 2014 compared to $17.3 at December 31, 2013. Reduction of unrealized portfolio losses resulted in an increase to total equity of $1.0 million as compared to December 31, 2013. Net income of $87 thousand accounts for the remaining increase to equity.

Net Interest Income

The Company's net interest income was $1.9 million for the three months ended March 31, 2014, an increase of $225 thousand or 13.1% 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 decreased $247 thousand for the three-month period ended March 31, 2014, compared to the same period last year, due to recognition of net realized gains on sales of securities of $296 thousand for the three-month period ended March 31, 2013. However, excluding gains taken on the sales of securities, noninterest income increased $50 thousand or 32.5%.

Noninterest Expense

Noninterest expense for the first quarter of 2014 totaled $2.0 million, up $226 thousand or 12.5% as compared to the quarter ended March 31, 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)

	March 31,	December 31,
	2014	2013
Assets
Cash and due from banks	$ 3,537	$ 3,339
Interest-bearing deposits in banks	8,240	6,757
Investment securities, available for sale	97,452	96,932
Investment securities, held to maturity	-	-
Restricted equity securities	1,314	999

Total loans	146,206	146,031
Allowance for loan losses	(3,040)	(2,862)
Net loans	143,166	143,169

Bank premises and equipment, net	4,951	4,971
Accrued interest receivable	795	910
Foreclosed assets	2,209	2,196
Bank owned life insurance	6,611	6,571
Deferred tax asset	6,351	6,891
Reserve deferred tax asset	(5,139)	(5,139)
Prepaid assets	947	800
Other assets	1,299	451
Total assets	$ 271,733	$ 268,847

Liabilities and Stockholders' Equity

*Liabilities*
Noninterest-bearing deposits	$ 39,020	$ 40,882
Interest-bearing deposits	197,976	200,861
Total deposits	236,996	241,743
FHLB advances	15,000	8,000
Accrued interest payable	67	65
Bank owned life insurance SERP	830	828
Other liabilities	383	891
Total liabilities	253,276	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	2,527	2,440
Accumulated other comprehensive income	(2,352)	(3,402)
Total stockholders' equity	18,457	17,320
Total liabilities and stockholders' equity	$ 271,733	$ 268,847

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

	Three Months Ended March 31,
	2014	2013
Interest and dividend income
Loans and fees on loans	$ 1,858	$ 1,723
Federal funds sold	-	-
Investment securities
Taxable	485	402
Exempt from federal income tax	81	191
Dividend income	5	5
Deposits with banks	3	6
Total interest income	2,432	2,327

*Interest expense*
Deposits	489	611
Borrowings	4	2
Total interest expense	493	613
Net interest income	1,939	1,714

*Provision for loan losses*	22	300
Net interest income after provision
for loan losses	1,917	1,414

*Noninterest income*
Service charges on deposit accounts	38	42
Other service charges and fees	27	26
Net realized gains on sales of securities	(1)	296
Income on bank owned life insurance	40	43
Other income	99	43
Total noninterest income	203	450

*Noninterest expense*
Salaries and employee benefits	1,138	1,065
Occupancy and equipment	287	202
Legal and professional	68	120
Bank franchise tax	42	36
Data processing services	124	71
FDIC insurance premiums	91	91
Foreclosed assets, net	19	34
Other operating expense	265	189
Total noninterest expense	2,034	1,808
Income (loss) before income taxes	86	56
Income tax expense (benefit)	(1)	(74)
*Net income (loss)*	$ 87	$ 130
*Basic earnings (loss) per share*	$ 0.06	$ 0.08

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

Per Share
Earnings per share, basic and diluted	$ 0.06	$ 0.08
Book value	$ 12.02	$ 18.41

Financial Ratios
Annualized Return on Average Assets	0.13%	0.19%
Annualized Return on Average Equity	1.93%	1.74%
Annualized Net Interest Margin for the quarter ended¹	3.08%	3.25%
Efficiency Ratio²	94.03%	97.39%

Capital Ratios
Tier 1 risk-based capital - Bank only	11.15%	12.19%
Total risk-based capital - Bank only	12.40%	13.22%

Tier 1 risk-based capital - consolidated	12.25%	15.33%
Total risk-based capital - consolidated	13.50%	16.42%

Allowance for Loan Losses at Beginning of Period	$ 2,862	$ 1,514
Loans Charged-off, net of Recoveries	156	11
Provision for Loan Losses	22	300
Allowance for Loan Losses at End of Period	$ 3,040	$ 1,825

Credit Quality Ratios
Nonperforming Assets as a % of Total Assets	3.10%	4.79%
Total Allowance for Loan Losses as a % of Total Loans	2.08%	1.30%
Total Allowance for Loan Losses as a % of Nonperforming Loans	48.97%	16.87%
Annualized Net Charge-offs as a % of Average Loans	-0.43%	-0.04%

Nonperforming Assets
Nonaccrual Loans	$ 6,192	$ 9,271
Loans Past Due 90 Days+, still accruing	16	1,547

*Total Nonperforming Loans*	6,208	10,818
Other Real Estate Owned	2,209	2,671
Total Nonperforming Assets	$ 8,417	$ 13,489

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).

SOURCE Cardinal Bankshares Corporation

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