Cardinal Bankshares, Floyd, VA (CDBK)

The Case of an Unmotivated Straggler in Floyd

Don't you think it's time Leon Moore got his spine back and took another shot at selling Cardinal Bankshares? I have no doubt shareholders would support selling the bank, given how far its performance has fallen behind other community banks since they voted down Moore's proposed sale in 2002 to Mountain Bank.

Disclosure: As of this posting, I own significant shares of CDBK and may subsequently either dispose of them or purchase more.

Prospective Buyers
CDBK would make a nice "fill-in" for any of these three franchises:
Carter Bank & Trust, Martinsville,VA (CARE)
First Citizens BancShares, Raleigh, NC (FCNCA)
National Bancshares, Blacksburg,VA (NKSH)
Financial Snapshot
(as of 12/31/2011)

Total assets:
Tangible book value per share:
NPAs to assets:
Price to book:
Market cap:
Dividend yield:
Trailing 12-month return on assets:
Trailing 12-month return on equity:
Leon Moore, Chairman
Leon Moore, President
Leon Moore, CEO
Red Flags
In June, 2002 Cardinal agreed to sell to Mountain Bank for $24 per share. Ten years of executive salaries and board fees later, the stock is barely half that price.

Triple-threat executive Leon Moore only owns 3,086 shares directly. A sale of Cardinal at $24 per share would net Moore a mere $21,000—not even 10% of the $224,701 he pulled down in compensation last year.

Rarely does one see such a brazen case of a CEO lying about the true state of affairs of a company in the Annual Report:
  • Leon's Lie #1: The "Fortress balance sheet." Since 2007, NPL's have leapt from .69% of loans and REO to the current 15.2%. Hardly a fortress. The moat around it perhaps.  
  • Leon's Lie #2: "Solid results" in 2011. According to the Notes to the Financial Statements, bad loans nearly doubled from $10.5M to over $19M, while the provision for the year dropped from $661K in the prior year to $592K and the allowance also dropped below $3M, one of the lowest allowances to NPAs in the entire industry. By comparison, National Bancshares (NKSH) has an allowance of over $8M versus NPL's of $5.2M. Had Cardinal provided for just half the increase in bad loans, pre-tax income would have gone from $1.1M to a loss of $3.2M
  • Leon's Lie #3: "We don't make bad loans, but loans do occasionally go bad." An additional 7% ($8.5M) in loans going bad in one year out of only $130M hardly qualifies as an "occasional" experience. Why are Cardinal's loans suddenly going bad so fast, now that the economy is showing signs of life and other banks are recovering? Has Cardinal been hiding bad loans? Are Directors burying their heads in the sand and not admitting just how much the bank stands to lose on these loans?
* NOTE: Although public companies usually readily post their annual reports and proxy statements on their websites, Cardinal chooses not to. If you'd like your own copy, you'll apparently need to contact J. Alan Dickerson, CFO or call 1-888-562-4130.


  1. Congratulations to The Coalition to Improve the Bank of Floyd, Doug Schaller, and ALL the shareholders who voted against Leon Moore in favor of installing three worthy candidates to CDBK's board.

    I'm interested to see whether the current Directors fulfill Leon's recent threat that they would stand unanimous against shareholder action and resign. Or perhaps that will turn out to be Leon's Lie #4 (or more).

    I hope the new board will rescind the motion Leon's Board approved obligating Cardinal to pay for Leon's wife's dental care through 2017 (announced in CDBK's May 28 8-K). I'm sure she has a pretty enough smile already. Is it really appropriate for shareholders to have to foot bills of this sort so far out into the future, and for non-employees for that matter?

  2. In the two quarters since Lying Leon's departure, Cardinal has reported $6.3 Million in pre-tax losses, proving to me that he allowed the bank to avoid taking proper reserves and thus inflating reported results under his tenure.

  3. They appear to have turned the corner (or at least are turning the corner); would you agree?