Cardinal Bankshares reports second quarter earnings

FLOYD, Va., Aug. 14, 2012 /PRNewswire/ -- Cardinal Bankshares Corporation (OTC BB: CDBK), the parent company of the Bank of Floyd, today reported a second quarter 2012 net loss of $3.28 million, or a net loss of $2.13 per diluted share, attributable to common shareholders, as company officials elected to use the reporting period ended June 30, 2012, to clean its balance sheet of extraordinary one-time charges and weaker assets.

The result compared to a net profit of $321,000, or $0.21 per diluted share, for the second quarter of 2011. For the first six months of 2012, the company reported a net loss of $2.98 million, or a loss of $1.94 per diluted share, compared to a profit of $644,000, or $0.42 per diluted share for the same period in 2011.

Cardinal reported in the second quarter of 2012 nonrecurring items, or one-time charges, of $3.17 million relating to proxy contest expenses, legal fees, subordinated debt charge-offs, and  outstanding litigation settlement costs.

"Our management team and board of directors made the decision to clean our balance sheet of weaker assets that were diverting our attention from where we really needed to focus," said President and Chief Executive Officer Michael Larrowe, who was part of a leadership change following the shareholders' annual meeting in May that included the election of three new directors. "Addressing these charges now provides a more accurate, conservative view of our current financial position.

"Based on our current analysis of our loan portfolio, we believe that any remaining problems of significance have been identified and properly reserved against," he said. "Our management of the second quarter was clearly intended to put these concerns behind us and set our company on a course of future improvement, profitability and growth."

Total revenues, net of interest expense, were $1.60 million for the second quarter of 2012, compared to $2.01 million for the same period a year ago. Revenues were impacted by an increase in interest expense, soft credit demand, and a decline in total loans as customers continue to pay down debt. Deposits have steadily grown over the past several quarters as customers seek the security of the bank's financial strength and safety. At June 30, 2012, total deposits were $246.4 million, up 6 percent compared to year-end 2011.

Despite second-quarter charges, capital ratios remain robust and twice the level classified as "well-capitalized," based on federal capital guidelines. The company reported at June 30, 2012, leverage capital ratio of 10.09%, Tier 1 risk-based capital ratio of 19.41%, and total risk-based capital ratio of 20.67%. To be classified as "well-capitalized," financial institutions must maintain a leverage ratio of 5% and Tier 1 risk-based and total risk-based ratios of 6% and 10%, respectively.

Asset quality showed improvement in the second quarter of 2012 as nonperforming assets, which include foreclosed property and nonaccrual loans, were $13.1 million at June 30, 2012, compared to $15.4 million at Dec. 31, 2011.

In early 2012, a group of shareholders formed the "Coalition to Improve the Bank of Floyd," in an effort to make leadership changes. The coalition elected three new directors to the company and bank boards of directors while a new president was named. The company also re-elected three directors. However, two of the three re-elected board members immediately resigned.

The new board and management team, coming together for the first time in late May, spent much of the remaining second quarter reviewing bank operations and policies, from credit practices to technology issues to lines of businesses for retail and commercial clients. Leadership also evaluated financial statements and quickly agreed that the company would gain greater traction by eliminating weaker assets from its balance sheet that bank officials said would be detrimental to the bank's future momentum and performance.

"Since the annual shareholders' meeting, our board and management team have been working extremely hard; their efforts are having a real and significant impact on our operations," Larrowe said. "Among our priorities is to better leverage our liquidity to generate more loans and deploy more funds for investment. We are completely transforming our lending capabilities."

Since early June, the Bank of Floyd has hired two senior-level executives: Chief Lending Officer Stephen B. Munro, and Chief Credit Officer David T. (Tommy) Semler, both senior-level credit executives responsible for establishing and refining the bank's lending practices and risk management policies. Plans also include hiring an additional commercial lender and placing small business and consumer loan officers in six of the bank's seven banking offices. Bank officials believe that with its strong liquidity and capital position the Bank of Floyd is capable of building one of the strongest lending programs in its markets.

Contact:
Michael D. Larrowe
President and CEO
Bank of Floyd
(540) 745-5210

SOURCE Cardinal Bankshares Corporation