10KSB 1 d10ksb.htm FORM 10-KSB Form 10-KSB

U.S. Securities And Exchange Commission
Washington, D.C.  20549

Form 10-KSB

(Mark One)

 

x

 

Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee required)

 

 

 

 

 

For the fiscal year ended December 31, 2002

 

or

 

o

 

Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee required)

 

 

 

 

 

For the transition period from ________to ________

 

 

 

 

 

Commission file no. 0-28780

 

Cardinal Bankshares Corporation

 


 

(Name of small business issuer in its charter)

 

Virginia

 

54-1804471


 


(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

 

 

101 Jacksonville Circle
Floyd, Virginia

 

24091


 


(Address of principal executive offices)

 

(Zip Code)

 

(540) 745-4191

 


 

Issuer’s telephone number, including area code

 

Securities registered pursuant to Section 12(b) of the Act:  None

 

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $10.00 per share

 


Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for past 90 days.

Yes
x

No

o

Check if there is no disclosure of delinquent filers in response to Item 405 of regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.

The issuer’s revenues for its most recent fiscal year were $12,211,000.

The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $28,177,103 as of March 20, 2003.

1,535,733 shares of the Issuer’s common stock were issued and outstanding as of March 20, 2003.

Transitional Small Business Disclosure Format. (Check one):

Yes
o

No

x

DOCUMENTS INCORPORATED BY REFERENCE

The annual report to security holders for fiscal year ended December 31, 2002 is incorporated by reference into Form 10-KSB Part II, Items 7 and 8, and Part III, Item 13.  The issuer’s Proxy Statement for the 2003 Annual Meeting is incorporated by reference into Form 10-KSB Part III, Items 9, 10, 11 and 12.



PART I

ITEM 1.

DESCRIPTION OF BUSINESS

 

 

(A) BUSINESS DEVELOPMENT

 

 

 

Cardinal Bankshares Corporation (the Company) was incorporated as a Virginia corporation on March 12, 1996 to acquire the stock of Bank of Floyd (the Bank).  The Bank was acquired by the Company on June 30, 1996.

 

 

 

The Bank was organized as a state chartered bank on February 24, 1951 through the consummation of a plan of consolidation between two state chartered community banks then operating in Floyd County, Virginia.

 

 

 

The Bank and its wholly-owned subsidiary, FBC, Inc., are incorporated and operate under the laws of the Commonwealth of Virginia.  As a state chartered Federal Reserve member, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions and the Federal Reserve.  FBC, Inc.’s assets and operations consist primarily of annuity sales and minority interests in title insurance companies.

 

 

 

(B) DESCRIPTION OF THE BUSINESS

 

 

 

The principle business of the Company and Bank is to provide comprehensive individual and corporate banking services through the Bank’s main office in Floyd, Virginia, and branch offices in Hillsville, Christiansburg, Roanoke and Willis, Virginia.  The Bank’s wholly-owned subsidiary, FBC, Inc., has interests in Virginia Title Center, LLC as well as Virginia Bankers Insurance Center, LLC, both of which act as title insurance companies.  FBC, Inc. also has an interest in VBA Investment Services, LLC.

 

 

 

(1) SERVICES

 

 

 

The Bank is a full service retail commercial bank offering a wide range of services, including demand and time deposits as well as installment, mortgage and other consumer lending services.  The Bank makes seasonal and term commercial loans, both alone and in conjunction with other banks or governmental agencies.

 

 

 

(2) COMPETITIVE CONDITIONS

 

 

 

The bank business is highly competitive.  The Company competes as a financial intermediary with other commercial banks, savings and loan associations, credit unions and money market mutual funds operating in its trade area and elsewhere.  As of December 31, 2002, there were two commercial banks (one of which is the Bank) operating a total of three offices in Floyd County, Virginia.  The competing institution is not locally owned.

2


 

Floyd County generates approximately 80% of the Bank’s total deposits.  In the other parts of the Bank’s trade area (the Virginia counties of Roanoke, Montgomery, and Carroll and the City of Roanoke, Virginia), there are a number of locally owned community banks, statewide banking organizations, and affiliate banks of southeast regional bank holding companies in operation.

 

 

 

(3) MATERIAL CUSTOMERS

 

 

 

Deposits are derived from a broad base of customers in its trade area.  No material portion of deposits have been obtained from a single person or a few persons (including Federal, State, and local governments and agencies thereunder), the loss of which would have a materially adverse effect on the business of the Bank.

 

 

 

The majority of loans, commitments to extend credit, and standby letters of credit have been granted to customers in the Company’s market area.  The majority of such customers are depositors.  The Company generally does not extend credit to any single borrower or group of related borrowers in excess of approximately $2 million.  Although the Company has a reasonably diversified loan portfolio, it has a loan concentration relating to customers who are motel and bed-and-breakfast owners and operators.  Total loans and loan commitments to this industrial group amounted to approximately $17.7 million and $16.6 million at December 31, 2002 and 2001, respectively.

 

 

 

(4) RIGHTS

 

 

 

No patents, trademarks, licenses, franchises or concessions held are of material significance to the Company.

 

 

 

(5) NEW SERVICES

 

 

 

The Company has expended no material dollars on research activities relating to new lines of business in the last two years.  However, in the year 2003, the Company will continue to weigh the opportunities now available after passage of the Gramm-Leach-Bliley Act in 1999.  Some of the products and services that now may be offered by the Company are property, casualty, life, automobile, disability, and group insurance products as well as brokerage services and others.

 

 

 

(6) ENVIRONMENTAL LAWS

 

 

 

Compliance with Federal, State, or Local provisions regulating the discharge of materials into the environment has not had, nor is it expected to have in the future, a material effect upon the Company’s capital expenditures, earnings or competitive position.

 

 

 

(7) EMPLOYEES

 

 

 

The Bank had 21 officers, 45 full-time employees and 3 part-time employees as of December 31, 2002.  Employee relations have been good.

 

 

ITEM 2.

DESCRIPTION OF PROPERTY

 

 

 

The present headquarters of the Company consists of a three-story brick building, with approximately 21,200 square feet of floor space located at 101 Jacksonville Circle, Floyd, Virginia.  The Bank also owns its branch offices in Hillsville and Roanoke, Virginia, which have drive-up facilities.  The Bank’s Willis and Christiansburg, Virginia offices operate from leased facilities.

 

 

 

The Bank also owns a three-story brick building adjacent to its main office which serves as the Bank’s conference room, training room and which provides space for expansion of the financial services now offered.

3


ITEM 3.

LEGAL PROCEEDINGS

 

 

 

Neither the Company nor the Bank or its subsidiary are a party to, nor is any of their property the subject of, any material pending legal proceedings incidental to the business of the Company or the Bank or its subsidiary.

 

 

ITEM 4.

SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS

 

 

 

No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

 

 

PART II

 

ITEM 5.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

 

 

(A)

Beginning in 1997, the Company’s stock was traded on the OTC Bulletin Board under the symbol CDBK.  Prior to 1997, no active public market existed for the common stock of the bank.  Transfer of the common stock occurred from time to time, but management had no direct access to the prices realized in those trades.  Based on information available to the Bank concerning such trading, the following table shows the trading ranges of the Common Stock for the previous five years.  The table has been adjusted for the effects of a 3-for-1 stock split in 2001.

 

Year

 

High

 

Low

 


 



 



 

2002
 

$

23.47

 

$

14.80

 

2001
 

$

16.00

 

$

12.00

 

2000
 

$

12.25

 

$

10.33

 

1999
 

$

17.00

 

$

13.33

 

1998
 

$

18.00

 

$

16.17

 

 

 

(B)

The approximate number of holders of the Bank’s 1,535,733 Common Stock Securities as of December 31, 2002, is 710.

 

 

 

 

(C)

Dividends paid for 2002 were $0.45 and 2001 were $0.42 per share owned.  The Company’s ability to declare and pay dividends in the future are dependent upon its consolidated  net income, fiscal and general business condition.  Subject to these considerations, as well as, laws and regulations governing the payment of dividends, the Company may declare dividends at the discretion of the Board of Directors only.  The Company currently expects that dividends will continue to be paid in the foreseeable future.

 

 

 

ITEM 6.

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

 

 

The information required by Item 6 of Form 10-KSB appears in the Company’s Proxy Statement for the 2003 Annual Meeting and is incorporated herein by reference.

 

 

ITEM 7.

FINANCIAL STATEMENTS

 

 

 

The information required by Item 7 of Form 10-KSB appears in the Company’s 2002 Annual Report to Stockholders and is incorporated herein by reference.

 

 

ITEM 8.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

 

 

NONE

4


 

 

 

 

ITEM 9.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

 

 

 

The information required by Item 9 of Form 10-KSB appears in the Company’s Proxy Statement for the 2003 Annual Meeting and is incorporated herein by reference.

 

 

ITEM 10.

EXECUTIVE COMPENSATION

 

 

 

The information required by Item 10 of Form 10-KSB appears in the Company’s Proxy Statement for the 2003 Annual Meeting and is incorporated herein by reference.

 

 

ITEM 11.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

 

 

The information required by Item 11 of Form 10-KSB appears in the Company’s Proxy Statement for the 2003 Annual Meeting and is incorporated herein by reference.

 

 

ITEM 12.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

 

 

The information required by Item 12 of Form 10-KSB appears in the Company’s Proxy Statement for the 2003 Annual Meeting and is incorporated herein by reference.

5


PART IV

 

 

ITEM 13.

EXHIBITS AND REPORTS ON FORM 8-K

 

 

 

(a)

The following documents are filed as part of the report:

 

 

 

2002 Annual Report
To Stockholders Pages (s)*

 

 

 

 

 


 

 

 

 
1.

Financial Statements:

 

 

 

 

 

 

 

 

Independent Auditors’ Report

 

4

 

 

 

 

 

 

 

 

 

 

 
Consolidated Balance Sheets - December 31, 2002 and 2001

 

5

 

 

 

 
 

 

 

 

 

 

 
Consolidated Statements of Income - Years ended December 31, 2002, 2001 and 2000

 

6

 

 

 

 
 

 

 

 

 

 

 
Consolidated Statements of Stockholders’ Equity - Years ended
December 31, 2002, 2001 and 2000

 

7

 

 

 

 
 

 

 

 

 

 

 
Consolidated Statements of Cash Flows - Years ended December 31, 2002, 2001 and 2000

 

8

 

 

 

 
 

 

 

 

 

 

 
Notes to Consolidated Financial Statements

 

9-26

 

 

 

 
 

 

 

 

 

 

*   Incorporated by reference from the indicated pages of the 2002 Annual Report to Stockholders
 
 
2.

Financial Statement Schedules:

 
 

 

 
 

All schedules are omitted as the required information is inapplicable or the information is presented in the Consolidated Financial Statements or related notes.

 
 

 

 
3.

Exhibits:

 
 

 

 
 

The exhibits filed as part of this report and exhibits incorporated herein by reference to other documents are listed in the Index to Exhibits to this Annual Report on Form 10-KSB.

 
 

 

 
 

REPORTS ON FORM 8-K filed during the fourth quarter of 2002:

 
 

 

 
 

None.

6


ITEM 13.

EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED

 

 

 

 

 

EXHIBITS

 

 

 

 

 

See Item 13(a)3 above.

 

 

 

 

 

FINANCIAL STATEMENT SCHEDULES

 

 

 

 

 

See Item 13(a)2 above.

7


SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CARDINAL BANKSHARES CORPORATION

/s/ RONALD LEON MOORE

 

/s/ RAY A. FLEMING

 


 

 

Ronald Leon Moore
Chairman, President and
Chief Executive Officer

 

Ray A. Fleming
Executive Vice President and
Chief Financial Officer

 

Date:  March 26, 2003
 

Date:  March 26, 2003

 

In accordance with the Exchange Act, this report has to be signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

 

Title

 

Date


 

 


 
 

 

 

 

/s/ RONALD LEON MOORE

 

Director, Chairman, President &

 

March 26, 2003


 

Chief Executive Officer

 

 

Ronald Leon Moore

 

 

 

 

 
 

 

 

 

 
 

 

 

 

/s/ K. VENSON BOLT

 

Director

 

March 26, 2003


 

 

 

 

K. Venson Bolt

 

 

 

 

 
 

 

 

 

 
 

 

 

 

/s/ JOSEPH HOWARD CONDUFF

 

Director

 

March 26, 2003


 

 

 

 

Joseph Howard Conduff

 

 

 

 

 
 

 

 

 

 
 

 

 

 

/s/ W. R. GARDNER, JR.

 

Director

 

March 26, 2003


 

 

 

 

W. R. Gardner, Jr.

 

 

 

 

 
 

 

 

 

 
 

 

 

 

/s/ C. W. HARMAN

 

Director

 

March 26, 2003


 

 

 

 

C. W. Harman

 

 

 

 

 
 

 

 

 

 
 

 

 

 

/s/ KEVIN D. MITCHELL

 

Director

 

March 26, 2003


 

 

 

 

Kevin D. Mitchell

 

 

 

 

 
 

 

 

 

 
 

 

 

 

/s/ DORSEY H. THOMPSON

 

Director

 

March 26, 2003


 

 

 

 

Dorsey H. Thompson

 

 

 

 

8


CERTIFICATION

I, Ronald Leon Moore, certify that:

 

1.

I have reviewed this annual report on Form 10-KSB of Cardinal Bankshares Corporation;

 

 

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

 

 

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

 

 

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 

 

 

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 

 

 

 

b)

evaluated the effectiveness of the registrant’s disclosures controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

 

 

 

 

c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

 

 

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

 

 

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

 

 

 

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

 

 

6.

The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date:  March 26, 2003

/s/ RONALD LEON MOORE

 

 


 

 

Ronald Leon Moore
Chairman, President & Chief Executive Officer

 

9


CERTIFICATION

I, Ray A. Fleming, certify that:

 

1.

I have reviewed this annual report on Form 10-KSB of Cardinal Bankshares Corporation;

 

 

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

 

 

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

 

 

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 

 

 

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 

 

 

 

b)

evaluated the effectiveness of the registrant’s disclosures controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

 

 

 

 

c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

 

 

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

 

 

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

 

 

 

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

 

6.

The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date:  March 26, 2003

/s/ RAY A. FLEMING

 

 


 

 

Ray A. Fleming
Executive Vice President & Chief Financial Officer

 

10


CERTIFICATION
(Pursuant to 18 U.S.C. Section 1350)

          The undersigned hereby certifies that (i) the foregoing Annual Report on Form 10-KSB filed by March 31, 2003 (the “Registrant”) for the year ended December 31, 2002, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in that Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date:  March 26, 2003

/s/ RONALD LEON MOORE

 

 


 

 

Ronald Leon Moore
Chairman, President & Chief Executive Officer

 

 

 

 

Date:  March 26, 2003

/s/ RAY A. FLEMING

 

 


 

 

Ray A. Fleming
Executive Vice President & Chief Financial Officer

 

11


INDEX TO EXHIBITS

Exhibit No.

 

Description

 

Page No. In
Equential System


 


 


13.1

 

2002 Annual Report to Stock-holders (Such Report, except to the extent incorporated herein by reference, is being furnished for the information of the Commission only and is not deemed to be filed as part of this Report on Form 10-KSB)

 

12