0001398344-11-001640.txt : 20110727 0001398344-11-001640.hdr.sgml : 20110727 20110727165152 ACCESSION NUMBER: 0001398344-11-001640 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20110727 DATE AS OF CHANGE: 20110727 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CARDINAL BANKSHARES CORP CENTRAL INDEX KEY: 0001022759 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 541804471 STATE OF INCORPORATION: VA FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-78777 FILM NUMBER: 11990688 BUSINESS ADDRESS: STREET 1: P O BOX 215 CITY: FLOYD STATE: VA ZIP: 24091 BUSINESS PHONE: 5407454191 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SCHALLER EQUITY PARTNERS, A North Carolina Limited Partnership CENTRAL INDEX KEY: 0001132503 IRS NUMBER: 000000000 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 324 INDERA MILLS COURT CITY: WINSTON-SALEM STATE: NC ZIP: 27101 BUSINESS PHONE: 336-774-1515 MAIL ADDRESS: STREET 1: 324 INDERA MILLS COURT CITY: WINSTON-SALEM STATE: NC ZIP: 27101 FORMER COMPANY: FORMER CONFORMED NAME: SCHALLER EQUITY PARTNERS DATE OF NAME CHANGE: 20010116 SC 13D/A 1 fp0003219_sc13da.htm fp0003219_sc13da.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 13D
 
Under the Securities Exchange Act of 1934
(Amendment No. 2)*
 
CARDINAL BANKSHARES CORPORATION

(Name of Issuer)
 
Common Stock, $10.00 par value
(Title of Class of Securities)
 
141478107
(CUSIP Number)
 
Mr. Douglas E. Schaller
Schaller Equity Partners, A North Carolina Limited Partnership
324 Indera Mills Court
Winston-Salem, NC 27101
(336) 774-1515

with copies to:

Jeffrey T. Skinner, Esq.
Kilpatrick Townsend & Stockton LLP
1001 West Fourth Street
Winston-Salem, NC 27101
(336) 607-7512



 (Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
 
July 27, 2011
(Date of Event which Requires Filing of this Statement)
 
If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box [   ].
 
Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See §240.13d-7 for other parties to whom copies are to be sent.
 
* The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.
 
The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).
 
Continued on following pages
Page 1 of 8 Pages
Exhibit Index:  Page 7
 
 

 
 
CUSIP No. 141478107
 
13D
 
Page 2 of 8 Pages

1.
 
 NAMES OF REPORTING PERSONS
 
 SCHALLER EQUITY PARTNERS, A NORTH CAROLINA LIMITED PARTNERSHIP
2.
 
 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
 (see instructions)
 (a)  [   ]
 (b)  [   ]
3.
 
 SEC USE ONLY
 
4.
 
 SOURCE OF FUNDS (see instructions)
 
 OO – Funds of investment advisory client
5.
 
 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)  [   ]
6.
 
 CITIZENSHIP OR PLACE OF ORGANIZATION
 
 NORTH CAROLINA
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON WITH
 
7.
 
 SOLE VOTING POWER
 
 N/A
 
8.
 
 SHARED VOTING POWER
 
 137,724
 
9.
 
 SOLE DISPOSITIVE POWER
 
 N/A
 
10.
 
 SHARED DISPOSITIVE POWER
 
 137,724
11.
 
 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
 
 137,724
12.
 
 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
 (see instructions)    ¨
13.
 
 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
 
 9.0%
14.
 
 TYPE OF REPORTING PERSON (see instructions)
 
 PN
 
 
 

 
 
CUSIP No. 141478107
 
13D
 
Page 3 of 8 Pages

1.
 
 NAMES OF REPORTING PERSONS
 
 SCHALLER INVESTMENT GROUP INCORPORATED
2.
 
 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
 (see instructions)
 (a)  [   ]
 (b)  [   ]
3.
 
 SEC USE ONLY
 
4.
 
 SOURCE OF FUNDS (see instructions)
 
 OO – Funds of investment advisory client
5.
 
 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)  [   ]
 
6.
 
 CITIZENSHIP OR PLACE OF ORGANIZATION
 
 NORTH CAROLINA
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON WITH
 
7.
 
 SOLE VOTING POWER
 
 N/A
 
8.
 
 SHARED VOTING POWER
 
 137,724
 
9.
 
 SOLE DISPOSITIVE POWER
 
 N/A
 
10.
 
 SHARED DISPOSITIVE POWER
 
 137,724
11.
 
 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
 
 137,724
12.
 
 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
 (see instructions)    ¨
13.
 
 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
 
 9.0%
14.
 
 TYPE OF REPORTING PERSON (see instructions)
 
 CO, IA

 
 

 
 
CUSIP No. 141478107
 
13D
 
Page 4 of 8 Pages

1.
 
 NAMES OF REPORTING PERSONS
 
 SCHALLER EQUITY MANAGEMENT, INC.
2.
 
 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
 (see instructions)
 (a)  [   ]
 (b)  [   ]
3.
 
 SEC USE ONLY
 
4.
 
 SOURCE OF FUNDS (see instructions)
 
 OO – Funds of investment advisory client
5.
 
 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)  [   ]
 
6.
 
 CITIZENSHIP OR PLACE OF ORGANIZATION
 
NORTH CAROLINA
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON WITH
 
7.
 
 SOLE VOTING POWER
 
 N/A
 
8.
 
 SHARED VOTING POWER
 
137,724
 
9.
 
 SOLE DISPOSITIVE POWER
 
 N/A
 
10.
 
 SHARED DISPOSITIVE POWER
 
137,724
11.
 
 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
 
 137,724
12.
 
 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
 (see instructions)    ¨
13.
 
 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
 
 9.0%
14.
 
 TYPE OF REPORTING PERSON (see instructions)
 
 CO
 
 
 

 
 
CUSIP No. 141478107
 
13D
 
Page 5 of 8 Pages

1.
 
 NAMES OF REPORTING PERSONS
 
 DOUGLAS E. SCHALLER
2.
 
 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
 (see instructions)
 (a)  [   ]
 (b)  [   ]
3.
 
 SEC USE ONLY
 
4.
 
 SOURCE OF FUNDS (see instructions)
 
 OO – Funds of investment advisory client
5.
 
 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)  [   ]
 
6.
 
 CITIZENSHIP OR PLACE OF ORGANIZATION
 
 UNITED STATES
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON WITH
 
7.
 
 SOLE VOTING POWER
 
 N/A
 
8.
 
 SHARED VOTING POWER
 
 137,724
 
9.
 
 SOLE DISPOSITIVE POWER
 
 N/A
 
10.
 
 SHARED DISPOSITIVE POWER
 
 137,724
11.
 
 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
 
 137,724
12.
 
 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
 (see instructions)    ¨
13.
 
 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
 
 9.0%
14.
 
 TYPE OF REPORTING PERSON (see instructions)
 
 IN

 
 

 
 
CUSIP No. 141478107
 
13D
 
Page 6 of 8 Pages
 
This Amendment No. 2 (this “Amendment No. 2”) amends and supplements the statement on Schedule 13D (the “Schedule 13D”), by (i) Schaller Equity Partners, A North Carolina Limited Partnership (the “Partnership"); (ii) Schaller Investment Group Incorporated, a North Carolina corporation (the “Adviser”); (iii) Schaller Equity Management, Inc., a North Carolina corporation (the “General Partner”) and (iv) Douglas E. Schaller, a United States citizen (“Mr. Schaller”) (collectively, the “Reporting Persons”), relating to the common stock (the “Common Stock”) of Cardinal Bankshares Corporation (the “Issuer”).  Unless otherwise defined herein, capitalized terms used herein shall have such defined meanings as previously used in the Schedule 13D filed by the Reporting Persons on February 17, 2011, as amended on June 6, 2011.

As of July 27, 2011, as reflected in this Amendment No. 2, the Reporting Persons are reporting beneficial ownership of 137,724 shares of Common Stock (approximately 9.0% of the outstanding shares) (the “Subject Shares”).
 
Item 4.  Purpose of Transaction.
 
Item 4 is hereby supplemented, as follows:
 
On July 27, 2011, Mr. Schaller, on behalf of the Partnership, sent a letter to the Board of Directors of the Issuer expressing, among other things, great concern about the leadership of the Issuer and the Board of Directors’ performance of its duties (the “Letter”). The Letter is attached hereto as Exhibit 99.2 and is incorporated herein by reference.
 
Item 5.  Interest in Securities of the Issuer.
 
Items 5(a) and (b) and are hereby amended and restated in their entirety, as follows:
 
(a) and (b) Based upon the Issuer's quarterly report on Form 10-Q filed on May 11, 2011, there were 1,535,733 Shares outstanding as of May 11, 2011. Based on the foregoing, the Subject Shares represent approximately 9.0% of the Shares issued and outstanding. The ownership of the Reporting Persons is as follows:
 
 
Schaller Equity
Partners
Schaller Investment
Group
Schaller Equity
Management, Inc.
Douglas E.
Schaller
(a)
Amount Beneficially Owned:
137,724
137,724
137,724
137,724
(b)
Percent of Class:
9.0%
9.0%
9.0%
9.0%
(c)
Number of Shares to Which Reporting Person Has:
   
 
(i)
Sole Voting Power:
N/A
N/A
N/A
N/A
 
(ii)
Shared Voting Power:
137,724
137,724
137,724
137,724
 
(iii)
Sole Dispositive Power:
N/A
N/A
N/A
N/A
 
(iv)
Shared Dispositive Power:
137,724
137,724
137,724
137,724
 
 
 

 
 
CUSIP No. 141478107
 
13D
 
Page 7 of 8 Pages
 
The Adviser, as the investment adviser to the Partnership, may be deemed to have the shared power to vote or direct the vote of (and the shared power to dispose or direct the disposition of) the Subject Shares. Furthermore, by virtue of Mr. Schaller’s position as President of the General Partner and the President of the Adviser, he could be deemed to share the power to vote or direct the vote of (and share power to dispose or direct the disposition of) the Subject Shares.

(c)  All of the Reporting Persons’ purchases in the Shares since the last Amendment to this Schedule 13D are set forth below. The Reporting Persons have not sold any Shares in the last 60 days. All of the following trades were effected on the OTCBB.

Purchaser
Date of Purchase
Quantity of Shares Purchased
Price Per Share
Schaller Equity Partners
06/09/2011
600
$14.40
Schaller Equity Partners
06/24/2011
1,000
$15.37
Schaller Equity Partners
07/11/2011
1,000
$15.50
Schaller Equity Partners
07/19/2011
1,000
$14.50
 
(d)  Not applicable.

(e)  Not applicable.
 
Item 7.  Material to Be Filed as Exhibits.
 
Exhibit 99.2  Letter from Douglas E. Schaller to the Board of Directors of the Issuer.
 
 
 

 

CUSIP No. 141478107
 
13D
 
Page 8 of 8 Pages
 
SIGNATURE
 
After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
 
 
Date: July 27, 2011
   
 
SCHALLER EQUITY PARTNERS, A NORTH CAROLINA LIMITED PARTNERSHIP
   
 
By:
Schaller Equity Management, Inc.,
   
General Partner
     
 
By:
/s/ Douglas E. Schaller
 
Name:
Douglas E. Schaller
 
Title:
President
     
 
Date:
July 27, 2011
   
 
SCHALLER EQUITY MANAGEMENT, INC.
   
 
By:
/s/ Douglas E. Schaller
 
Name:
Douglas E. Schaller
 
Title:
President
     
 
Date:
July 27, 2011
   
 
SCHALLER INVESTMENT GROUP INCORPORATED
   
 
By:
/s/ Douglas E. Schaller
 
Name:
Douglas E. Schaller
 
Title:
President
     
 
Date:
July 27, 2011
   
 
/s/ Douglas E. Schaller
 
Douglas E. Schaller

 
EX-99.2 2 fp0003219_ex99-2.htm fp0003219_ex99-2.htm
 
July 27, 2011

Board of Directors
Cardinal Bankshares Corporation
101 Jacksonville Circle
Floyd, Virginia 24091
Attn: Mr. Leon Moore, Chairman, President & CEO

Dear Sirs:

The purpose of this letter is, first, to express my deep disappointment in the Board of Directors ("Board") decision to appoint Michael Larrowe as Executive Vice President of the Bank of Floyd ("Bank") and, second, to reiterate my deep and broader concern about whether the Board is discharging faithfully its fiduciary duty to ensure high quality, continuity and stability in the management of Cardinal Bankshares Corporation ("Corporation") and the Bank.

Attending to management selection and orderly succession is one of the most important functions of a public companys board of directors.  Discharging that function with respect to the management team that leads the Bank compels the Board to demonstrate the care and loyalty that defines its fiduciary duties to the shareholders of the Corporation.  The Board has a fiduciary responsibility to ensure reasonable continuity as well as high quality in the Banks management in order to safeguard and enhance the shareholders' investment.

It is disturbing that Mr. Logue resigned as President of the Bank on May 31 of this year, after only seven months on the job, and with no explanation from the Corporation as to why Mr. Logue resigned.  Furthermore, the undersigned, a 9.0% shareholder in the Corporation, has twice requested records of the Corporation related to Mr. Logues departure.  While the undersigned is entitled under Virginia law to receive these records, the Corporation has denied each request, claiming that the resignation was a private employment matter to which the Board, ostensibly, believes a major shareholder has no right to understand.  Among other things, that behavior creates concern and speculation about the real reasons(s) for such a short tenure by such an important executive, and whether there may be improprieties going on at the Bank.  After all, the Corporation is not that far removed from a significant whistle-blower incident at the Bank that led to protracted litigation and infamy.

In announcing the appointment of Mr. Larrowe as Executive Vice President -- ostensibly to lead operations at the Bank and presumably to become its next President at some point -- the Corporations press release states:

"Mr. Larrowe has over 29 years of public accounting experience.  Mr. Larrowe was owner and managing partner of Larrowe & Company PLC, providing services to over 100 community banks, prior to merging with Elliott Davis LLC.  Mr. Larrowe has had practical banking experience through serving as Chief Operating Officer and Chief Financial Officer for two community banks."

My review of publicly available information indicates that, while Mr. Larrowe has had a long career as a public accountant, his so-called "practical banking experience" is quite questionable.  Mr. Larrowe's first banking position was just three years ago, as Chief Operating Officer ("COO") with Mocksville, NC-based Bank of the Carolinas.  Mr. Larrowe was a member of that banks organizing group, and had been a director of the bank since its founding in 1998. Nonetheless, in May of last year, after just two years on the job, Mr. Larrowe was fired as the banks COO.  During the period that Mr. Larrowe was COO of the bank, its stock price fell from approximately $7.80 per share to $4.00 per share, and currently trades at approximately $1.00 per share.
 
 
 

 
 
In November of last year, Mr. Larrowe started another position as Chief Administrative Officer and Executive Vice President with Whiteville, NC-based Waccamaw Bank.  In April, after just five months at that job, Mr. Larrowe resigned from Waccamaw Bank.

Frankly, and with due respect for Mr. Larrowe, those experiences hardly qualify as stellar or extensive for purposes of leading the Bank. As a result, they do not inspire confidence in this shareholder about the Boards commitment to ensuring that the Bank has the skilled leadership required to enhance value for the Corporations shareholders.  Moreover, in light of Mr. Larrowes role with the Corporations and Banks former audit firm (at the time of the events involved in the infamous whistle-blower incident), his appointment to lead the Bank now raises more questions than it answers.

More generally, the Banks management profile demonstrates a long history of discontinuity and instability, which does not speak well for the performance of the Board.  According to public filings with the Securities & Exchange Commission, the Bank has had eight chief financial officers since 1996, or on average a new chief financial officer approximately every 22.5 months.  On the other hand, with exception of Mr. Logue's seven months tenure, the Bank has had no separate officer specifically designated as its President, with customary chief executive responsibilities and authority.  Rather, Mr. Moore has held tightly to control of that function from his perch as Chairman of the Corporation and the Bank, with seemingly scant regard for the implications of that management structure for the Banks strategic non-performance.

With a track record like this, are the shareholders to believe that the Board is capable of and committed to selecting a qualified President to lead the Bank? Given the above biographical background of Mr. Larrowe, what were the chief factors behind the Boards decision to appoint Mr. Larrowe?  Does the Board's current decision just demonstrate poor judgment and incompetence, or is it a reckless disregard of the shareholders interests?

I continue to believe that shareholders would best be served by the sale of the Corporation to a more secure and stable community bank, with a deep bench of professional, high-quality managers, led by a board dedicated to serving the interest of its owners, employees and the community.  As the President of the General Partner of Schaller Equity Partners, I intend to explore all available options to protect and maximize the value of its investment (and that of all shareholders) in the Corporation.


Sincerly,

/s/  Douglas E. Schaller


Cc:
Dr. Joseph Howard Conduff, Jr.
William R. Gardner, Jr.
Kevin D. Mitchell
G. Harris Warner, Jr.
Jeffrey T. Skinner, Kilpatrick Townsend & Stockton LLP
 
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