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
       1934 (Fee required).  For the fiscal year ended December 31, 1997.
                                         or
_____  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                (IRS Employer
       of incorporation or organization            Identification No.)
 
                101 Jacksonville Circle, Floyd, Virginia  24091
                   (Address of principal executive offices)

                               (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
                    ________________________________________
                                  Title of Class
     
     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_____

     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 the Form
10-KSB or any amendment to this Form 10-KSB.  [X]

     The issuer's revenues for its most recent fiscal year were $11,621,000

     The aggregate market value of the voting stock as of March 26, 1997, 
held by non-affiliates of the registrant computed by reference to the price
at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within the last 60 days was $21,010,410.

     511,911 shares of the Issuer's common stock were issued and outstanding
as of March 23, 1998.

     Transitional Small Business Disclosure Format.  (Check one):
         Yes_____  No__X__

                       DOCUMENTS INCORPORATED BY REFERENCE
The annual report to security holders for fiscal year ended December 31, 1997
is incorporated by reference into Form 10-KSB Part II, Items 7 and 8, and
Part III, Item 13.  The issuer's Proxy Statement dated March 27, 1998 is
incorporated by reference into Form 10-KSB Part III, Items 9, 10, 11, and 12.

<PAGE>1  

                                     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 The
    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 
    a minority interest in a title insurance company.

    (B)  DESCRIPTION OF THE BUSINESS

    The principal business of the Company and Bank is to provide compre-
    hensive individual and corporate banking services through its main
    office in Floyd, Virginia, and its branch offices in Roanoke and Willis,
    Virginia.  Effective April 6, 1994, the Bank acquired a 7-1/2% interest in
    Virginia Title Center, LLC (a title insurance company) through its
    acquisition by FBC, Inc. (a wholly owned subsidiary of the Bank). FBC, Inc.
    has no significant assets or operations other than annuity sales and its
    interest in Virginia Title Center, 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 banking 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, 1997, 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.

    Floyd County generates approximately 70% of the Bank's total deposits.
    In the other parts of the Bank's trade area (the Virginia Counties of
    Roanoke and Montgomery 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 $1,750,000.  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 $6,400,000 and $5,600,000 at December 31, 1997 
    and 1996, respectively.

<PAGE>2

    (B)  DESCRIPTION OF BUSINESS, CONTINUED

    (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 and has not
    announced any new line of business which will require an investment
    of material assets.

    (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 24 officers, 29 full-time employees and 7 part-time
    employees as of December 31, 1997.  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 operates a
    branch office in Roanoke, Virginia.  These facilities are owned by the 
    Bank and each has drive-up facilities.  The Bank's Willis, Virginia
    office operates from a leased facility.

    The Bank also owns a three-story brick building adjacent to its main
    office which serves primarily as community meeting rooms and off-site
    data backup storage.

<PAGE>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 listed on the NASDAQ
         Bulletin Board under the symbol CDBK.  Prior to 1997, no active
         public market existed for the common stock of the Bank.  Transfers
         of the common stock occured 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 four for one stock split in 1995 and a 10% stock
         dividend in 1997.
<TABLE>
<CAPTION>
                Year               High              Low
                ____              ______            ______
</CAPTION>
                <S>               <C>               <C>      
                1997              $47.00            $44.00
                1996              $44.00            $35.45
                1995              $35.45            $21.59
                1994              $21.59            $20.45
                1993              $20.90            $20.45
</TABLE>

    (B)  The approximate number of holders of the Bank's 511,911 Common Stock
         Securities as of December 31, 1997, is 583.

    (C)  Dividends paid for 1997 were $1.00 and 1996 were $0.94 per share
         (adjusted for the effects of a four for one stock split in 1995 and a
         10% stock dividend in 1997) owned.  The Company's ability to declare
         and pay dividends in the future will be dependent upon its consolidated
         income and fiscal condition, tax considerations, and general business
         condition.  Subject to these considerations, dividends may be declared
         only in the discretion of the Board of Directors. The Company presently
         expects that dividends will continue to be paid in the future.
<PAGE>4

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS
____________________________________________

    The information required under this item is incorporated by reference to
    the Company's Annual Report to Stockholders, Exhibit 13.1, pages 23-41
    and inside front cover.

ITEM 7.  FINANCIAL STATEMENTS
_____________________________

    The following consolidated financial statements of the registrant and the
    independent Auditor's Report set forth on pages 2 through 21 of the 
    Company's 1997 Annual Report to Stockholders are incorporated herein by
    reference:

    (1)  Independent Auditor's Report

    (2)  Consolidated Balance Sheets as of December 31, 1997 and 1996

    (3)  Consolidated Statements of Income for the years ended December 
         31, 1997, 1996, and 1995

    (4)  Consolidated Statements of Stockholders' Equity for the years
         ended December 31, 1997, 1996, and 1995

    (5)  Consolidated Statements of Cash Flows for the years ended 
         December 31, 1997, 1996, and 1995

    (6)  Notes to Consolidated Financial Statements

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
________________________________________________________________________
         FINANCIAL DISCLOSURE       
         ____________________

    NONE
                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:
______________________________________________________________________
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
         _________________________________________________

    The Executive Officer of the Company as of December 31, 1997 is listed 
    on page 3 of the Company's Proxy statement dated March 27, 1998 and is 
    incorporated herein by reference.  Information with respect to the 
    directors of the Company is set out under the caption "Election of
    Directors" on page 2 of The Company's Proxy statement dated March 27, 
    1998, which information is incorporated herein by reference.

    The disclosure required by item 405 of regulation S-K is set out under
    the caption "Beneficial Ownership Reporting Compliance" section 16(a)
    on page 5 of the Company's Proxy Statement dated March 27, 1998, which
    information is incorporated by reference.

<PAGE>5

ITEM 10.  EXECUTIVE COMPENSATION
________________________________

    The information set forth under "Executive Compensation" and "Directors
    Meetings, Committees and Fees" on page 4 of the Company's Proxy State-
    ment dated March 27, 1998 is incorporated herein by reference.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
________________________________________________________________________

    The information set forth under "Ownership of Common Stock" on pages
    3, 4 and 5 of the Company's Proxy Statement dated March 27, 1998 is 
    incorporated herein by reference.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
________________________________________________________

    The information contained under "Certain Transactions" on page 5 of the
    Company's Proxy Statement dated March 27, 1998 is incorporated herein by
    reference.

                                     PART IV

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K
__________________________________________

    (a)  The following documents are filed as part of the report:
<TABLE>
<CAPTION>
                                            1997 Annual Report
                                         To Stockholders Pages(s)*
                                         _________________________
</CAPTION>
    <S>                                              <C>
    1.  Financial Statements:
        ____________________
        Independent Auditors' Report                 2

        Consolidated Balance Sheets
        December 31, 1997 and 1996                   3

        Consolidated Statements of Income
        Years ended December 31, 1997,
        1996, and 1995                               4

        Consolidated Statements of Stock-
        holders' Equity-Years ended
        December 31, 1997, 1996, and 1995            5

        Consolidated Statements of Cash
        Flows-Years ended December 31,
        1997, 1996, and 1995                         6

        Notes to Consolidated Financial
        Statements                                 7 - 21

*Incorporated by reference from the indicated pages of the 1997 Annual Report
 to Stockholders
</TABLE>
<PAGE>6

   
ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED
_____________________________________________________

    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
        ___________________

        None.

        EXHIBITS
        ________

        See Item 13(a)3 above.

        FINANCIAL STATEMENT SCHEDULES
        _____________________________

        See Item 13(a)2 above.

<PAGE>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

Date:  March 27, 1998                   By: s/ Ronald Leon Moore
                                            ____________________
                                            Ronald Leon Moore
                                            President and CEO


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.
<TABLE>
<CAPTION>

       Signature                     Title                    Date
       _________                     _____                    ____
</CAPTION>
<S>                         <C>                              <C>
                            Director, President and
                            Chief Executive Officer
                            (principal financial and
s/Ronald Leon Moore          accounting officer).            3/27/98
___________________
Ronald Leon Moore

s/K. Venson Bolt                      Director               3/27/98
________________
K. Venson Bolt

s/J. H. Conduff                       Director               3/27/98
_______________
J. H. Conduff

s/W. R. Gardner, Jr.                  Director               3/27/98
____________________
W. R. Gardner, Jr.

s/C. W. Harman                        Director               3/27/98
______________
C. W. Harman

s/Kevin D. Mitchell                   Director               3/27/98
___________________
Kevin D. Mitchell

s/Dorsey H. Thompson                  Director               3/27/98
____________________
Dorsey H. Thompson

</TABLE>
<PAGE>8


                                INDEX TO EXHIBITS
<TABLE>
<CAPTION>

                                                           PAGE NO. IN
EXHIBIT NO.               DESCRIPTION                   SEQUENTIAL SYSTEM
___________               ___________                   _________________
</CAPTION>
   <S>              <C>                                 <C>
   13.1             1997 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).              ---

    3.1             Cardinal Bankshares Corporation,     Incorporated by 
                    Articles of Incorporation            reference to the
                                                         Company's Registration
                                                         on Form 8-A, filed
                                                         August 16, 1996

    3.2             Cardinal Bankshares Corporation      Incorporated by
                    by-laws                              reference to the
                                                         Company's 1996 Annual
                                                         Report filed on Form
                                                         10-KSB on March 26,
                                                         1997

   21.1             Subsidiaries of Cardinal
                    Bankshares Corporation                       ---

   27.1             Financial Data Schedule                      ---

</TABLE>
<PAGE>9                     
________________________________________________________________________________

1997 Annual Report
________________________________________________________________________________


Table of Contents

Letter to Stockholders                                          1

Independent Auditor's Report                                    2

Consolidated Balance Sheets                                     3

Consolidated Statements of Income                               4

Consolidated Statements of Changes in Stockholders' Equity      5

Consolidated Statements of Cash Flows                           6

Notes to Consolidated Financial Statements                      7

Management's Discussion of Financial Condition and Results of
Operations                                                     23

Staff                                                          42

Directors and Officers                                         43

Stockholder Information                         Inside Back Cover

<PAGE>
________________________________________________________________________________

Financial Highlights Summary<F1>
________________________________________________________________________________
<TABLE>
<CAPTION>
                                  1997     1996     1995     1994    1993
                                  ____     ____     ____     ____    ____
Summary of Operations<F2>
</CAPTION>
<S>                             <C>      <C>      <C>      <C>      <C>
 Interest income                $11,078  $10,289  $10,003  $ 8,724  $ 7,975
 Interest expense                 5,681    5,307    5,060    3,887    3,609
                                _______  _______  _______  _______  _______
     Net interest income          5,397    4,982    4,943    4,837    4,366
 Provision for loan losses          500      325      136      255      300
 Other income                       543      343      225      233      169
 Other expense                    2,934    2,823    3,088    2,811    2,570
 Income taxes                       652      594      548      564      447
                                _______  _______  _______  _______  _______
     Net income                 $ 1,854  $ 1,583  $ 1,396  $ 1,440  $ 1,218
                                _______  _______  _______  _______  _______
Per Share Data<F3>

 Basic earnings per share       $  3.62 $   3.09 $   2.73  $  2.81  $  2.38
 Cash dividends declared           1.00      .94      .88      .86      .82
 Book value                       31.22    28.38    26.62    23.59    22.53

Year-end Balance Sheet Summary

 Loans, net                     $85,305  $85,372  $78,630 $ 79,635 $ 73,187
 Securities                      45,094   43,722   43,998   31,449   34,752
 Total assets                   145,072  136,422  130,901  122,097  119,598
 Deposits                       128,189  118,424  116,537  109,299  107,313
 Stockholders' equity            15,984   14,535   13,631   12,081   11,537

 Interest earning assets       $140,397 $130,458 $125,121 $115,872 $112,881
 Interest bearing liabilities   115,960  108,639  105,669   98,394   96,283

Selected Ratios

 Return on average assets          1.3%     1.2%     1.1%     1.2%     1.1%
 Return on average equity         12.0%    11.6%    10.7%    12.7%    10.9%
 Dividends declared as percent of
  net income                      27.7%    30.3%    32.4%    29.3%    34.4%




<FN>
____________________________
  <F1>  In thousands of dollars, except per share data.
  <F2>  Reflects Bank of Floyd operations prior to formation of
        Cardinal Bankshares Corporation on  March 12, 1996.
  <F3>  Adjusted for the effects of a four for one stock split in
        1995 and 10% stock dividend in 1997.
</FN>
</TABLE>
<PAGE>
                   CARDINAL BANKSHARES CORPORATION
                        POST OFFICE BOX 215
                       FLOYD, VIRGINIA 24091

Dear Shareholders:

We  are  pleased to present our second financial  report  on
Cardinal  Bankshares Corporation.  Our financial  statements
are  audited and certified by the accounting  firm  Larrowe,
Cardwell & Company, L.C.

Cardinal  Bankshares  Corporation  experienced  record   net
earnings  in  1997.   After tax income  was  $1,853,684,  an
increase of $270,764 over 1996 earnings of $1,582,920.  This
is a 17.1% increase over 1996.

Net  income per share increased from $3.09 in 1996 to  $3.62
in  1997.  Our dividend also increased from $.94 in 1996  to
$1.00  in  1997  (adjusted for the effects of  a  10%  stock
dividend  in 1997.) This was the sixth consecutive  year  of
increased  dividends to our shareholders.  Market  value  of
our stock continues to be strong.  Information is listed  on
the  Bulletin Board under the call symbol CDBK.  Your broker
can handle your needs.

Return  on  average  assets was 1.3% and return  on  average
equity was 12.0% reflecting a strong performance.  An equity
to average assets ratio of 10.9% indicates that your company
has sufficient capital to support both growth and safety  in
the  future.  Overall asset growth continued at  a  moderate
pace  while net loan balances declined slightly and  deposit
balances  increased.  There continues to  be  both  moderate
growth  in the county and intense competition for loans  and
deposits.

During July we opened our Willis branch, and construction is
progressing well with the Hillsville branch.  We  anticipate
opening  the  Hillsville branch during Spring of  1998.   We
continue to study locations that will enhance our growth and
franchise value.

Many of you have heard and read about the potential problems
facing the computer systems January 1, 2000.  Management  is
actively  taking steps to address the Year  2000  issue.   A
management  committee has been assessing the risks  relating
to  the  Year 2000 issue and will ensure that all  necessary
steps are taken to address any potential problems.

We  appreciate the continued support of our shareholders and
Board  of  Directors.  The accomplishments of the past  year
reflect well on them as well as our dedicated staff.  To all
these  and  the many friends and customers of the  Bank  who
helped   make  1997  a  successful  year,  we  express   our
gratitude.

Sincerely,



Leon Moore                         J. H. Conduff
President and CEO                  Chairman of the Board             

<PAGE>1
                   LARROWE, CARDWELL & COMPANY, LC
                         POST OFFICE BOX 760
                        GALAX, VIRGINIA 24333

  
                     Independent Auditor's Report



Board of Directors and Stockholders
Cardinal Bankshares Corporation
Floyd, Virginia

We  have  audited  the consolidated balance  sheets  of  Cardinal
Bankshares Corporation and subsidiaries as of December  31,  1997
and  1996  and  the  related consolidated statements  of  income,
changes  in stockholders' equity and cash flows for each  of  the
three  years  in  the  period ended  December  31,  1997.   These
consolidated financial statements are the responsibility  of  the
Company's  management.   Our  responsibility  is  to  express  an
opinion on these financial statements based on our audits.

We  conducted  our  audits in accordance with generally  accepted
auditing  standards.  Those standards require that  we  plan  and
perform  the  audit to obtain reasonable assurance about  whether
the  financial statements are free of material misstatement.   An
audit  includes  examining, on a test basis, evidence  supporting
amounts  and disclosures in the financial statements.   An  audit
also  includes  assessing  the  accounting  principles  used  and
significant  estimates made by management, as well as  evaluating
the  overall  financial statement presentation.  We believe  that
our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above  present  fairly, in all material respects,  the  financial
position  of Cardinal Bankshares Corporation and subsidiaries  at
December  31, 1997 and 1996, and the results of their  operations
and  their  cash flows for each of the three years in the  period
ended  December  31, 1997, in conformity with generally  accepted
accounting principles.



Larrowe, Cardwell & Company, LC
Galax, Virginia
January 9, 1998
<PAGE>2


Consolidated Balance Sheets
December 31, 1997 and 1996
________________________________________________________________________________
<TABLE>
<CAPTION>
                                                         1997         1996
</CAPTION>                                               ----         ---- 
<S>                                                   <C>          <C>
Assets
Cash and due from banks                               $1,941,494   $2,749,552
Interest-bearing deposits with banks                   5,000,000            -
Federal funds sold                                     3,825,000      500,000
Investment securities available for sale              31,663,068   30,338,456
Investment securities held to maturity                13,430,624   13,383,394
Loans, net of allowance for loan losses $1,452,126
 in 1997 and $1,002,455 in 1996                       85,304,739   85,372,459
Property and equipment, net                            1,687,859    1,560,582
Accrued income                                         1,093,063    1,053,576
Other assets                                           1,126,470    1,463,702
                                                    ____________ ____________ 
                                                    $145,072,317 $136,421,721
                                                    ____________ ____________
Liabilities and Stockholders' Equity

Liabilities
Demand deposits                                     $ 12,229,167 $ 12,585,858
NOW deposits                                           8,923,777    8,572,681
Savings deposits                                      17,507,178   17,905,685
Large denomination time deposits                      15,120,658   10,693,230
Other time deposits                                   74,407,946   68,666,993
                                                    ____________ ____________ 
  Total deposits                                     128,188,726  118,424,447

Short-term debt                                                -      400,000
Long-term debt                                                 -    2,400,000
Accrued interest payable                                 269,032      247,000
Other liabilities                                        630,408      415,355
                                                    ____________ ____________
                                                     129,088,166  121,886,802
                                                    ____________ ____________
Commitments and contingencies

Stockholders' equity
Common stock, $10 par value; 5,000,000 shares
 authorized; 511,911 and 465,536 shares issued
  in 1997 and 1996, respectively                       5,119,110    4,655,360
Surplus                                                2,925,150    1,200,000
Retained earnings                                      7,727,506    8,585,007
Unrealized appreciation on investment securities
 available for sale, net of income taxes                 212,385       94,552
                                                    ____________ ____________
                                                      15,984,151   14,534,919
                                                    ____________ ____________
                                                    $145,072,317 $136,421,721
                                                    ____________ ____________
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>3

Consolidated Statements of Income
Years ended December 31, 1997, 1996 and 1995
________________________________________________________________________________
<TABLE>
<CAPTION>                                       1997        1996       1995
                                                ____        ____       ____
</CAPTION>
<S>                                          <C>        <C>         <C>
Interest income
 Loans and fees on loans                   $ 8,074,494 $ 7,472,380 $ 7,255,003
 Federal funds sold and securities purchased
  under agreements to resell                   315,065     169,334     323,657
 Investment securities:
  Taxable                                    2,159,381   2,177,067   2,086,981
  Exempt from federal income tax               491,074     469,751     337,088
 Deposits with banks                            38,009           -           -
                                           __________  ___________ ___________
                                            11,078,023  10,288,532  10,002,729
                                           ___________ ___________ ___________
Interest expense
 Deposits                                    5,538,989   5,288,779   5,059,503
 Borrowings                                    142,467      17,812           -
                                           ___________ ___________ ___________
                                             5,681,456   5,306,591   5,059,503
                                           ___________ ___________ ___________
     Net interest income                     5,396,567   4,981,941   4,943,226

Provision for loan losses                      500,000     325,000     135,958
                                           ___________ ___________ ___________
     Net interest income after provision
      for loan losses                        4,896,567   4,656,941   4,807,268
                                           ___________ ___________ ___________
Noninterest income
 Service charges on deposit accounts           143,794     114,280     120,521
 Other service charges and fees                 36,128      27,411      13,493
 Net realized gains on sales of securities       7,018       5,856       4,728
 Gain on sale of other real estate owned       232,732           -           -
 Other income                                  123,313     195,741      86,304
                                           ___________ ___________ ___________
                                               542,985     343,288     225,046
                                           ___________ ___________ ___________
Noninterest expense
 Salaries and employee benefits              1,760,878   1,754,020   1,576,139
 Occupancy expense                             115,612     122,006     104,082
 Equipment expense                             273,026     230,367     183,223
 Other expense                                 783,882     717,169   1,225,139
                                           ___________ ___________ ___________
                                             2,933,398   2,823,562   3,088,583
                                           ___________ ___________ ___________
     Income before income taxes              2,506,154   2,176,667   1,943,731

Income tax expense                             652,470     593,747     548,151
                                           ___________ ___________ ___________
     Net income                            $ 1,853,684 $ 1,582,920 $ 1,395,580
                                           ___________ ___________ ___________

Basic earnings per share                   $      3.62 $      3.09 $      2.73
                                           ___________ ___________ ___________
Weighted average shares outstanding            512,090     512,090     512,090
                                           ___________ ___________ ___________

</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>4

Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995
________________________________________________________________________________
<TABLE>
<CAPTION>
                                                       Accumulated
                                                          Other
                       Common               Retained  Comprehensive
                       Stock     Surplus    Earnings  Income (Loss)   Total
                    __________ __________  ___________ _________  ___________
</CAPTION>
<S>                 <C>        <C>         <C>         <C>        <C>
Balance, December
  31, 1994          $1,163,840 $1,200,000  $10,029,100 $(311,538) $12,081,402

Comprehensive income
Net income                   -          -    1,395,580         -    1,395,580
Net change in unrealized
 appreciation on investment
 securities available for
 sale, net of income taxes   -          -            -   606,067      606,067
                                                                  ___________
Total comprehensive income   -          -            -         -    2,001,647
                                                                  
Dividends paid
 ($.97 per share)            -          -     (451,571)        -     (451,571)
Stock split (4 for 1),
 effected in the form
 of a dividend       3,491,520          -   (3,491,520)        -            -
                    __________ __________  ___________ _________  ___________
Balance, December
  31, 1995           4,655,360  1,200,000    7,481,589   294,529   13,631,478

Comprehensive income
Net income                   -          -    1,582,920         -    1,582,920
Net change in unrealized
 appreciation on investment
 securities available for
 sale, net of income taxes   -          -            -  (199,977)    (199,977)
                                                                  ___________
Total comprehensive income   -          -            -         -    1,382,943

Dividends paid
 ($1.03 per share)           -          -     (479,502)        -     (479,502)

Balance, December   __________ __________  ___________ _________  ___________
  31, 1996           4,655,360  1,200,000    8,585,007    94,552   14,534,919

Comprehensive income
Net income                   -          -    1,853,684         -    1,853,684
Net change in unrealized
 appreciation on investment
 securities available for
 sale, net of income taxes   -          -            -   117,833      117,833
                                                                  ___________
Total comprehensive income   -          -            -         -    1,971,517

Dividends paid
   ($.51 per share)          -          -     (237,423)        -     (237,423)
10% stock dividend     465,540  1,731,790   (2,197,330)        -            -
Redemption of
 fractional shares      (1,790)    (6,640)           -         -       (8,430)
Dividends paid
 ($.54 per share)            -          -     (276,432)        -     (276,432)
                    __________ __________  ___________ _________  ___________
Balance, December
  31, 1997          $5,119,110 $2,925,150  $ 7,727,506 $ 212,385  $15,984,151
                    __________ __________  ___________ _________  ___________
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>5

Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
________________________________________________________________________________
<TABLE>
<CAPTION>
                                              1997        1996         1995
                                              ____        ____         ____
</CAPTION>
<S>                                     <C>          <C>          <C>
Cash flows from operating activities
 Net income                             $  1,853,684 $  1,582,920 $  1,395,580
 Adjustments to reconcile net income
  to net cash provided by operations:
   Depreciation and amortization             190,065      166,307      155,058
   Accretion of discount on securities, net
     of amortization of premiums                 176      (73,699)     (72,053)
   Provision for loan losses                 500,000      325,000      135,958
   Deferred income taxes                    (213,850)     168,713      (27,821)
   Net realized (gains) losses on securities  (7,018)      (5,857)      (4,728)
   Deferred compensation and pension expense  70,748       38,989      (22,352)
   Changes in assets and liabilities:
     Accrued income                          (39,487)      15,908     (223,256)
     Other assets                            494,783      529,779      811,262
     Accrued interest payable                 22,032       (5,957)     (60,599)
     Other liabilities                       144,305     (103,546)      99,652
                                        ____________ ____________ ____________
      Net cash provided by operating
        activities                         3,015,438    2,638,557    2,186,701
                                        ____________ ____________ ____________
Cash flows from investing activities
 Net increase in interest-bearing
   deposits                               (5,000,000)           -            -
 Net (increase) decrease in federal
   funds sold                             (3,325,000)   1,250,000    2,300,000
 Purchases of investment securities      (15,236,219) (19,551,812) (24,972,526)
 Sales of investment securities            2,075,317    3,466,994            -
 Maturities of investment securities      11,974,853   16,137,232   13,418,835
 Net (increase) decrease in loans           (437,099)  (7,106,355)      97,732
 Purchases of property and equipment        (317,342)    (200,586)    (120,646)
      Net cash used in investing        ____________ ____________ ____________
        activities                       (10,265,490)  (6,004,527)  (9,276,605)
                                        ____________ ____________ ____________
Cash flows from financing activities
 Net increase (decrease) in demand, NOW,
  and savings deposits                      (404,102)   1,318,505   (4,948,210)
 Net increase in time deposits            10,168,381      569,304   12,185,716
 Net increase (decrease) in
   short-term debt                          (400,000)     400,000            -
 Net increase (decrease) in
   long-term debt                         (2,400,000)   2,400,000
 Redemption of fractional shares              (8,430)           -            -
 Dividends paid                             (513,855)    (479,502)    (451,571)
                                        ____________ ____________ ____________
      Net cash provided by financing
        activities                         6,441,994    4,208,307    6,785,935
                                        ____________ ____________ ____________
      Net increase (decrease) in cash and
       cash equivalents                     (808,058)     842,337     (303,969)

Cash and cash equivalents, beginning       2,749,552    1,907,215    2,211,184
                                        ____________ ____________ ____________
Cash and cash equivalents, ending       $  1,941,494 $  2,749,552 $  1,907,215
                                        ____________ ____________ ____________

Supplemental disclosures of cash flow information
 Interest paid                          $  5,659,424 $  5,312,548 $  5,046,091
                                        ____________ ____________ ____________
 Income taxes paid                      $    750,470 $    357,964 $    622,455
                                        ____________ ____________ ____________
Supplemental disclosure of noncash investing activities
 Other real estate acquired in
   settlement of loans                  $      4,819 $     39,194 $    770,553
                                        ____________ ____________ ____________
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>6

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note  1.  Organization  and  Summary  of  Significant  Accounting
Policies

Organization

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

The Bank of Floyd 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.  The  Bank  serves  the
counties of Floyd, Montgomery and Roanoke, Virginia and the  City
of Roanoke, Virginia, through three banking offices.  FBC, Inc.'s
assets  and operations consist primarily of annuity sales  and  a
minority interest in a title insurance company.

The  accounting and reporting policies of the Company,  the  Bank
and FBC, Inc. follow generally accepted accounting principles and
general   practices  within  the  financial  services   industry.
Following is a summary of the more significant policies.

Principles of Consolidation

The consolidated financial statements include the accounts of the
Company,  the  Bank  and  FBC, Inc..  All  material  intercompany
accounts and transactions are eliminated in consolidation.

Use of Estimates

The  preparation  of  financial  statements  in  conformity  with
generally  accepted accounting principles requires management  to
make  estimates and assumptions that affect the reported  amounts
of  assets  and liabilities, disclosure of contingent assets  and
liabilities  at  the  date of the financial statements,  and  the
reported  amounts of revenues and expenses during  the  reporting
period.  Actual results could differ from those estimates.

Material   estimates   that  are  particularly   susceptible   to
significant  change relate to the determination of the  allowance
for  loan  losses  and the valuation of real estate  acquired  in
connection  with foreclosures or in satisfaction  of  loans.   In
connection with the determination of the allowances for loan  and
foreclosed  real  estate losses, management  obtains  independent
appraisals for significant properties.

The majority of the Company's loan portfolio consists of loans in
Southwest Virginia.  Accordingly, the ultimate collectibility  of
a  substantial  portion of the Company's loan portfolio  and  the
recovery  of  a  substantial portion of the  carrying  amount  of
foreclosed real estate are susceptible to changes in local market
conditions.   The regional economy is diverse, but is  influenced
by the agricultural, textile and governmental segments.

While management uses available information to recognize loan and
foreclosed real estate losses, future additions to the allowances
may  be  necessary based on changes in local economic conditions.
In  addition,  regulatory agencies, as a part  of  their  routine
examination process, periodically review the Company's allowances
for  loan  and foreclosed real estate losses.  Such agencies  may
require  the Bank to recognize additions to the allowances  based
on  their  judgments about information available to them  at  the
time  of  their  examinations.  Because of these factors,  it  is
reasonably  possible that the allowances for loan and  foreclosed
real estate losses may change materially in the near term.

Cash and Cash Equivalents

For  purpose  of presentation in the consolidated  statements  of
cash  flows,  cash  and  cash equivalents are  defined  as  those
amounts included in the balance sheet caption "cash and due  from
banks."
<PAGE>7

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note  1.  Organization  and  Summary  of  Significant  Accounting
Policies, continued

Trading Securities

The  Company does not hold securities for short-term  resale  and
therefore does not maintain a trading securities portfolio.

Securities Held to Maturity

Bonds,  notes,  and  debentures for which  the  Company  has  the
positive  intent and ability to hold to maturity are reported  at
cost, adjusted for premiums and discounts that are recognized  in
interest  income  using the interest method over  the  period  to
maturity or to call dates.

Securities Available for Sale

Available-for-sale  securities are reported  at  fair  value  and
consist   of   bonds,  notes,  debentures,  and  certain   equity
securities  not classified as trading securities or  as  held-to-
maturity securities.

Unrealized holding gains and losses, net of tax, on available-for-
sale  securities  are  reported as a net  amount  in  a  separate
component of stockholders' equity.  Realized gains and losses  on
the  sale  of available-for-sale securities are determined  using
the  specific-identification method.  Premiums and discounts  are
recognized in interest income using the interest method over  the
period to maturity or to call dates.

Declines  in  the  fair value of individual held-to-maturity  and
available-for-sale  securities below cost  that  are  other  than
temporary   are  reflected  as  write-downs  of  the   individual
securities  to fair value.  Related write-downs are  included  in
earnings as realized losses.

Loans Receivable and Allowance for Loan Losses

Loans  receivable that management has the intent and  ability  to
hold for the foreseeable future or until maturity or pay-off  are
reported at their outstanding principal amount adjusted  for  any
charge-offs, the allowance for loan losses, and any deferred fees
or   costs  on  originated  loans  and  unamortized  premiums  or
discounts on purchased loans.

Loan  origination fees and certain direct origination  costs  are
capitalized and recognized as an adjustment of the yield  of  the
related   loan.    Discounts  and  premiums  on   any   purchased
residential real estate loans are amortized to income  using  the
interest   method  over  the  remaining  period  to   contractual
maturity,  adjusted for anticipated prepayments.   Discounts  and
premiums on any purchased consumer loans are recognized over  the
expected  lives  of the loans using methods that approximate  the
interest method.

Interest is accrued and credited to income based on the principal
amount outstanding.  The accrual of interest on impaired loans is
discontinued when, in management's opinion, the borrower  may  be
unable  to  meet  payments  as they become  due.   When  interest
accrual is discontinued, all unpaid accrued interest is reversed.
Interest  income is subsequently recognized only  to  the  extent
cash payments are received.

The  allowance for loan losses is increased by charges to  income
and  decreased  by  charge-offs, net of recoveries.  Management's
periodic evaluation of the adequacy of the allowance is based  on
the Company's past loan loss experience, known and inherent risks
in   the  portfolio,  adverse  situations  that  may  affect  the
borrower's  ability  to  repay,  the  estimated  value   of   any
underlying collateral, and current economic conditions.
<PAGE>8

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note  1.  Organization  and  Summary  of  Significant  Accounting
Policies, continued

Property and Equipment

Land  is carried at cost.  Bank premises, furniture and equipment
are   carried   at   cost,  less  accumulated  depreciation   and
amortization  computed  principally by the  straight-line  method
over the following estimate useful lives:

                                        Years
          Buildings and improvements    20-40
          Furniture and equipment        5-20

Foreclosed Properties

Real  estate  properties acquired through, or in  lieu  of,  loan
foreclosure  are  to be sold and are initially recorded  at  fair
value less cost to sell at the date of foreclosure establishing a
new  cost  basis.  After foreclosure, valuations are periodically
performed  by  management and the real estate is carried  at  the
lower  of  carrying  amount  or fair value  less  cost  to  sell.
Revenue and expenses from operations and changes in the valuation
allowance  are included in loss on foreclosed real  estate.   The
historical  average  holding period for  such  properties  is  in
excess of 36 months.

Pension Plan

The Bank maintains a noncontributory defined benefit pension plan
covering all employees who meet eligibility requirements.  To  be
eligible,  an employee must be 21 years of age and have completed
one  year  of service.  Plan benefits are based on final  average
compensation  and  years of service.  The funding  policy  is  to
contribute   the  maximum  deductible  for  Federal  income   tax
purposes.

Income Taxes

Provision  for income taxes is based on amounts reported  in  the
statements of income (after exclusion of non-taxable income  such
as  interest  on state and municipal securities) and consists  of
taxes  currently due plus deferred taxes on temporary differences
in  the  recognition of income and expense for tax and  financial
statement  purposes.   Deferred tax assets  and  liabilities  are
included in the financial statements at currently enacted  income
tax  rates  applicable to the period in which  the  deferred  tax
assets or liabilities are expected to be realized or settled.  As
changes  in tax laws or rates are enacted, deferred taxes  assets
and  liabilities  are adjusted through the provision  for  income
taxes.

Deferred income tax liability relating to unrealized appreciation
(or   the   deferred  tax  asset  in  the  case   of   unrealized
depreciation)  on  investment securities available  for  sale  is
recorded   in   other  liabilities  (assets).   Such   unrealized
appreciation  or  depreciation is recorded as  an  adjustment  to
equity  in  the financial statements and not included  in  income
determination   until  realized.   Accordingly,   the   resulting
deferred  income tax liability or asset is also  recorded  as  an
adjustment to equity.

Basic Earnings per Share

Basic earnings per share is computed by dividing income available
to  common stockholders by the weighted average number of  common
shares  outstanding  during the period, after giving  retroactive
effect to stock splits and dividends.

Diluted Earning per Share

The  computation of diluted earnings per share is similar to  the
computation  of  basic  earnings  per  share  except   that   the
denominator  is  increased to include the  number  of  additional
common  shares  that  would  have been  outstanding  if  dilutive
potential  common  shares  had been  issued.   The  numerator  is
adjusted for any changes in income or loss that would result from
the assumed conversion of those potential common shares.  For the
years   presented,  the  Company  has  no  potentially   dilutive
securities outstanding.
<PAGE>9

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note  1.  Organization  and  Summary  of  Significant  Accounting
Policies, continued

Comprehensive Income

Annual  comprehensive income reflects the change in the Company's
equity during the year arising from transactions and events other
than  investments  by  and  distributions  to  stockholders.   It
consists  of net income plus certain other changes in assets  and
liabilities   that  are  reported  as  separate   components   of
stockholders' equity rather than as income or expense.

Financial Instruments

All  derivative  financial instruments  held  or  issued  by  the
Company are held or issued for purposes other than trading.

In  the ordinary course of business the Company has entered  into
off-balance-sheet financial instruments consisting of commitments
to  extend  credit and commercial and standby letters of  credit.
Such   financial  instruments  are  recorded  in  the   financial
statements  when they are funded or related fees are incurred  or
received.

The  Bank  does not utilize interest-rate exchange agreements  or
interest-rate futures contracts.

Fair Value of Financial Instruments

Statement  of Financial Accounting Standards No. 107, Disclosures
about Fair Value of Financial Instruments, requires disclosure of
fair  value  information about financial instruments, whether  or
not  recognized  in  the balance sheet.  In  cases  where  quoted
market  prices  are  not  available, fair  values  are  based  on
estimates  using  present  value or other  valuation  techniques.
Those  techniques are significantly affected by  the  assumptions
used,  including the discount rate and estimates of  future  cash
flows.   In that regard, the derived fair value estimates  cannot
be  substantiated by comparison to independent  markets  and,  in
many cases, could not be realized in immediate settlement of  the
instruments.   Statement  No.  107  excludes  certain   financial
instruments and all nonfinancial instruments from its  disclosure
requirements.   Accordingly,  the aggregate  fair  value  amounts
presented do not represent the underlying value of the Company.

The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:

Cash and cash equivalents:  The carrying amounts reported in  the
balance  sheet  for  cash and cash equivalents approximate  their
fair values.

Interest-bearing  deposits  with banks:   Fair  values  for  time
deposits are estimated using a discounted cash flow analysis that
applies  interest  rates currently offered on certificates  to  a
schedule  of  aggregated  contractual  maturities  on  such  time
deposits.

Available-for-sale and held-to-maturity securities:  Fair  values
for securities, excluding restricted equity securities, are based
on  quoted  market  prices, where available.   If  quoted  market
prices  are not available, fair values are based on quoted market
prices  of  comparable  instruments.   The  carrying  values   of
restricted equity securities approximate fair values.

Loans   receivable:    For  variable-rate  loans   that   reprice
frequently  and with no significant change in credit  risk,  fair
values are based on carrying amounts.  The fair values for  other
loans are estimated using discounted cash flow analysis, based on
interest  rates  currently being offered for loans  with  similar
terms  to  borrowers of similar credit quality.  Loan fair  value
estimates  include  judgments  regarding  future  expected   loss
experience  and risk characteristics.  Fair values  for  impaired
loans  are  estimated  using discounted  cash  flow  analysis  or
underlying  collateral  values, where applicable.   The  carrying
amount  of  accrued  interest receivable  approximates  its  fair
value.

Deposit  liabilities:  The fair values disclosed for  demand  and
savings  deposits are, by definition, equal to the amount payable
on   demand   at  the  reporting  date.   The  fair  values   for
certificates  of  deposit are estimated using a  discounted  cash
flow  calculation  that  applies interest rates  currently  being
offered  on  certificates to a schedule of aggregated contractual
maturities on such time deposits.  The carrying amount of accrued
interest payable approximates fair value.
<PAGE>10

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note  1.  Organization  and  Summary  of  Significant  Accounting
Policies, continued

Fair Value of Financial Instruments, continued

Short-term  and long-term debt:  The carrying amounts  of  short-
term debt approximate their fair values. The fair values for long-
term  debt  are  estimated using discounted cash  flow  analysis,
based  on  interest rates currently being offered for loans  with
similar terms.

Other  liabilities:  For fixed-rate loan commitments, fair  value
considers the difference between current levels of interest rates
and   the  committed  rates.   The  carrying  amounts  of   other
liabilities approximates fair value.

Reclassification

Certain  reclassifications have been made  to  the  prior  years'
financial statements to place them on a comparable basis with the
current  year.   Net  income and stockholders' equity  previously
reported were not affected by these reclassifications.

Note 2.  Restrictions on Cash and Due from Banks

To  comply  with banking regulations, the Company is required  to
maintain  certain  average  cash  reserve  balances.   The  daily
average  cash reserve requirement was approximately $576,000  and
$537,000 for the two week periods including December 31, 1997 and
1996, respectively.

Note 3.  Securities

Debt   and  equity  securities  have  been  classified   in   the
consolidated  balance  sheets according to  management's  intent.
The  carrying  amount  of securities and their  approximate  fair
values at December 31 follow:
<TABLE>
<CAPTION>
                                  Amortized  Unrealized Unrealized    Fair
                                     Cost       Gains     Losses      Value
                                     ____       _____     ______      _____
</CAPTION>
<S>                             <C>           <C>        <C>      <C>
1997

Available for sale
 U.S. Government agency
   securities                   $ 15,613,575  $  40,349  $ 5,320  $ 15,648,604
 State and municipal securities      561,886      5,106        -       566,992
 Mortgage-backed securities       13,676,416    233,482   36,217    13,873,681
 Other securities                  1,488,980     84,811        -     1,573,791
                                ____________  _________  _______  ____________
                                $ 31,340,857  $ 363,748  $41,537  $ 31,663,068
                                ____________  _________  _______  ____________
Held to maturity
 U.S. Government agencies
   securities                   $    498,191  $   1,809  $     -  $    500,000
 State and municipal securities   11,165,507    183,311        -    11,348,818
 Mortgaged-backed securities       1,156,601      5,762    7,018     1,155,345
 Other securities                    610,325          -        -       610,325
                                ____________  _________  _______  ____________
                                $ 13,430,624  $ 190,882  $ 7,018  $ 13,614,488
                                ____________  _________  _______  ____________
1996

Available for sale
 U.S. Treasury securities       $    979,311  $       -  $   745  $    978,566
 U.S. Government agency
   securities                     13,868,779     25,966  103,282    13,791,463
 Mortgage-backed securities       13,665,654    156,777   51,827    13,770,604
 Other securities                  1,681,452    116,371        -     1,797,823
                                ____________  _________ ________  ____________
                                $ 30,195,196  $ 299,114 $155,854  $ 30,338,456
                                ____________  _________ ________  ____________
Held to maturity
 U.S. Government agencies
   securities                   $    497,949  $       -  $ 2,299  $    495,650
 State and municipal securities   10,609,943     17,535   33,707    10,593,771
 Mortgaged-backed securities       1,706,802     12,012   15,359     1,703,455
 Other securities                    568,700          -        -       568,700
                                ____________  _________  _______  ____________
                                $ 13,383,394  $  29,547  $51,365  $ 13,361,576
                                ____________  _________  _______  ____________
</TABLE>
<PAGE>11

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note 3.  Securities, continued

Investment   securities  with  amortized  cost  of  approximately
$4,337,036  and  $4,083,039  at  December  31,  1997  and   1996,
respectively, were pledged as collateral on public  deposits  and
for other purposes as required or permitted by law.

Gross realized gains and losses for the years ended December  31,
1997, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                       1997      1996      1995
                                       ____      ____      ____
</CAPTION>
<S>                                  <C>       <C>       <C>
Realized gains                       $  8,855  $  7,000  $  4,728
Realized losses                        (1,837)   (1,144)        -
                                     ________  ________  ________
                                     $  7,018  $  5,856  $  4,728
                                     ________  ________  ________
</TABLE>

The  scheduled  maturities of securities  available-for-sale  and
held-to-maturity at December 31, 1997, were as follows:
<TABLE>
<CAPTION>

                               Available for Sale           Held to Maturity
                              ____________________        ____________________
                              Amortized      Fair         Amortized       Fair
                                Cost         Value           Cost         Value
</CAPTION>                      ____         _____           ____         _____
<S>                        <C>           <C>           <C>          <C>
Due in one year or less   $ 11,660,030  $ 11,700,353  $  1,841,240  $  1,855,931
Due after one year through
 five years                 11,981,646    12,132,318     5,903,549     5,981,914
Due after five years
 through ten years           3,545,476     3,602,551     4,975,668     5,065,556
Due after ten years          4,153,705     4,227,846        99,842       100,762
Restricted equity securities         -             -       610,325       610,325
                          ____________  ____________  ____________  ____________
                          $ 31,340,857  $ 31,663,068  $ 13,430,624  $ 13,614,488
                          ____________  ____________  ____________  ____________
</TABLE>

Note 4.  Loans Receivable

The  major components of loans in the consolidated balance sheets
at December 31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
                                                 1997      1996
                                                 ____      ____
</CAPTION>
<S>                                            <C>       <C>
Commercial                                     $  6,208  $  6,219
Real estate:
 Construction and land development                4,888     5,610
 Residential, 1-4 families                       25,629    25,717
 Residential, 5 or more families                  1,785     1,519
 Farmland                                         3,905     4,143
 Nonfarm, nonresidential                         30,795    30,970
Agricultural                                      1,815     1,766
Consumer                                          7,689     8,999
Other                                             4,383     1,898
                                               ________  ________
                                                 87,097    86,841

Unearned discount                                   (44)     (190)
Unearned net loan origination costs, net of fees   (296)     (277)
                                               ________  ________
                                                 86,757    86,374

Allowance for loan losses                        (1,452)   (1,002)
                                               ________  ________
                                               $ 85,305  $ 85,372
                                               ________  ________
</TABLE>
<PAGE>12

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note 4.  Loans Receivable, continued

Nonperforming assets at December 31, 1997 and 1996  are  detailed
as follows:
<TABLE>
<CAPTION>
                                                 1997         1996
                                                 ____         ____
</CAPTION>
<S>                                          <C>          <C>
Nonaccrual loans                             $  278,782   $   139,161
Restructured loans                                    -             -
Loans past due 90 days or more                  312,332       215,000
                                             __________   ___________
     Total nonperforming loans                  591,114       354,161

Foreclosed, repossessed and idled properties    210,709       838,130
                                             __________   ___________
     Total nonperforming assets              $  801,823   $ 1,192,291
                                             __________   ___________
</TABLE>

Gross  interest income that would have been recognized  for  each
year  if  the  nonaccrual loans and restructured loans  had  been
current  in  accordance with their original terms  and  had  been
outstanding throughout the period or since origination,  if  held
part  of  the  period,  is detailed below.   Applicable  interest
income that was actually collected and included in net income for
each year is also summarized below:
<TABLE>
<CAPTION>
                                       1997      1996      1995
                                       ____      ____      ____
</CAPTION>
<S>
Nonaccrual loans:                    <C>       <C>       <C>
 Interest income, original terms     $ 27,239  $ 13,033  $ 31,687
                                     ________  ________  ________
 Interest income recognized          $ 20,840  $  3,212  $      -
                                     ________  ________  ________
Restructured loans:
 Interest income, original terms     $      -  $      -  $      -
                                     ________  ________  ________
 Interest income recognized          $      -  $      -  $      -
                                     ________  ________  ________
</TABLE>

An  allowance determined in accordance with SFAS No. 114 and  No.
118  is  provided  for all impaired loans.   The  total  recorded
investment in impaired loans and the related allowance  for  loan
losses at December 31, the average annual recorded investment  in
impaired loans, and interest income recognized on impaired  loans
for the year (all approximate) are summarized below.
<TABLE>
<CAPTION>
                                         1997      1996       1995
                                         ____      ____       ____
</CAPTION>
<S>                                  <C>        <C>        <C>
Recorded investment at December 31   $1,467,636 $2,205,464 $1,794,000
                                     __________ __________ __________
Allowance for loan losses            $  594,105 $  271,538 $  117,050
                                     __________ __________ __________
Average recorded investment for the
  year                               $  453,875 $1,674,412 $  384,000
                                     __________ __________ __________
Interest income recognized for
 the year                            $  133,973 $  147,742 $   32,000
                                     __________ __________ __________
</TABLE>

The  Company is not committed to lend additional funds to debtors
whose loans have been modified.

Note 5.  Allowance for Loan Losses

Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
                                                 1997      1996
                                                 ____      ____
</CAPTION>
<S>                                          <C>         <C>
Balance, beginning                           $1,002,455  $1,134,182

Provision charged to expense                    500,000     325,000
Recoveries of amounts charged off                17,920      38,474
Amounts charged off                             (68,249)   (495,201)
                                             __________  __________
Balance, ending                              $1,452,126  $1,002,455
                                             __________  __________
</TABLE>
<PAGE>13

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note 6.  Property and Equipment

Components  of  property  and  equipment  and  total  accumulated
depreciation at December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
                                                 1997        1996
                                                 ____        ____
</CAPTION>
<S>                                          <C>          <C>
Land                                         $   407,245  $   407,245
Bank premises                                  1,719,754    1,678,505
Furniture and equipment                        1,593,952    1,480,196
Construction in progress                         162,337            -
                                             ___________  ___________
                                               3,883,288    3,565,946
Less accumulated depreciation                 (2,195,429)  (2,005,364)
                                             ___________  ___________
                                             $ 1,687,859  $ 1,560,582
                                             ___________  ___________
</TABLE>

Note 7.  Debt

Short-term Debt

Short-term  debt consists of short-term borrowings  from  Federal
Home  Loan Bank of Atlanta.  Additional information for the years
ended December 31, 1997 and 1996 is summarized below:
<TABLE>
<CAPTION>
                                                         1997      1996
                                                         ____      ____
</CAPTION>
<S>                                                   <C>        <C>
Outstanding balance at December 31                    $       -  $ 400,000
                                                      _________  _________
Year-end weighted average rate                                -       6.89%
                                                      _________  _________
Daily average outstanding during the year             $  63,561  $  44,930
                                                      _________  _________
Average rate for the year                                  6.89%      5.46%
                                                      _________  _________
Maximum outstanding at any month-end during the year  $ 400,000  $ 400,000
                                                      _________  _________
</TABLE>

The  Bank  has established various credit facilities  to  provide
additional  liquidity if and as needed.  These include  unsecured
lines of credit with correspondent banks totaling $6,500,000  and
a  secured  line  of credit with the Federal Home  Loan  Bank  of
Atlanta  of  approximately $15,000,000.  Additional  amounts  are
available  from  the  Federal  Home Loan  Bank,  with  additional
collateral.

Long-term Debt

At  December  31, 1996 the Company had long-term indebtedness  to
Federal  Home  Loan Bank of Atlanta in the amount of  $2,400,000.
This  note  bears  interest, adjustable monthly,  at  the  London
Interbank  Offered Rate plus seventeen basis points  (5.8263%  at
December 31, 1996).  This note was repaid on December 22, 1997.

Note 8.  Employee Benefit Plan

The Bank has a qualified noncontributory, defined benefit pension
plan  which  covers  substantially  all  of  its  employees.  The
benefits  are  primarily based on years of service and  earnings.
The  following  is a summary of the plan's funded  status  as  of
December 31, 1997 and 1996.
<TABLE>
<CAPTION>
                                                   1997        1996
                                                   ____        ____
</CAPTION>                                                   
<S>                                            <C>          <C>
Plan assets at estimated fair value            $ 1,156,480  $  970,764
Projected  benefit obligation, including
the accumulated  benefit obligation             (1,167,829)   (984,721)
                                               ___________  __________
                                                   (11,349)    (13,957)

Unrecognized net gain and prior service cost      (207,294)   (129,958)
Unrecognized net asset at January 1, 1988          (48,341)    (52,369)
                                               ___________   _________
Accrued pension cost included in other
 liabilities                                   $  (266,984)  $(196,284)
                                               ___________   _________
Actuarial present value of benefit obligations:
  Vested benefit obligation                    $   668,524   $ 523,686
                                               ___________   _________
  Accumulated benefit obligation               $   687,636   $ 546,486
                                               ___________   _________
</TABLE>
<PAGE>14

Notes to Financial Statements
________________________________________________________________________________

Note 8. Employee Benefit Plan, continued

The  weighted  average  discount rate and  rate  of  increase  in
compensation  levels  used in determining the  actuarial  present
value of the projected benefit obligation were 7.5% and 6.0%  for
all  years  presented.  The weighted average  expected  long-term
rate  of return on assets was 9.0% for 1997, 1996 and 1995.   Net
pension cost includes the following components:
<TABLE>
<CAPTION>                              1997      1996      1995
                                       ____      ____      ____
</CAPTION>
<S>                                  <C>       <C>       <C>
Service cost                         $ 86,171  $ 79,707  $ 71,848
Interest cost on projected benefit
 obligation                            73,837    71,032    61,179
Actual return on plan assets         (194,215) (105,080) (140,943)
Originating unrecognized asset gain   109,015    21,974    73,153
Amortization                           (4,108)   (5,532)   (3,203)
                                     ________  ________  ________
                                     $ 70,700  $ 62,101  $ 62,034
                                     ________  ________  ________
</TABLE>

Note 9.  Deferred Compensation and Life Insurance

Deferred compensation plans have been adopted for certain members
of   the   Board  of  Directors  for  future  compensation   upon
retirement.   Under  plan  provisions aggregate  annual  payments
ranging  from $1,568 to $8,482 are payable for ten years certain,
generally   beginning   at  age  65.    Liability   accrued   for
compensation  deferred  under the plan amounts  to  $117,410  and
$117,362 at December 31, 1997 and 1996, respectively.

Charges  to  income  are based on present value  of  future  cash
payments,  discounted at 8%, and amounted to $9,404,  $9,310  and
$4,024 for 1997, 1996 and 1995, respectively.

The  Bank is owner and beneficiary of life insurance policies  on
these  directors.   Policy  cash values,  net  of  policy  loans,
totaled   $21,530  and $22,956 at December  31,  1997  and  1996,
respectively.

Note 10.  Fair Value of Financial Instruments

The  estimated fair values of the Company's financial instruments
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
                              December 31, 1997   December 31, 1996
                              __________________  __________________
                               Carrying   Fair    Carrying    Fair
                                Amount    Value    Amount     Value
                                ______    _____    ______     _____
</CAPTION>
<S>                            <C>      <C>       <C>       <C>
Financial Assets
 Cash and cash equivalents    $  1,941  $  1,941  $  2,750  $  2,750
 Interest-bearing deposits
  with banks                     5,000     5,000         -         -
 Federal funds sold              3,825     3,825       500       500
 Securities, available-for-sale 31,663    31,663    30,338    30,338
 Securities, held to maturity   13,431    13,614    13,383    13,362
 Loans, net of allowance for
  loan losses                   85,305    87,934    85,372    86,527

Financial Liabilities
 Deposits                      128,189   128,845   118,424   118,076
 Short-term debt                     -         -       400       400
 Long-term debt                      -         -     2,400     1,841

Off-Balance-Sheet Assets (Liabilities)
 Commitments to extend credit and
  standby letters of credit          -         -         -         -
 Commercial letters of credit        -         -         -         -
</TABLE>
<PAGE>15

Notes to Consolidated Financial Statements
__________________________________________________________________________

Note 11.  Income Taxes

Current and Deferred Income Tax Components

The  components of income tax expense (substantially all Federal)
are as follows:
<TABLE>
<CAPTION>
                                       1997      1996      1995
                                       ____      ____      ____
</CAPTION>                                       
<S>                                  <C>       <C>       <C>
Current                              $866,320  $425,034  $575,972
Deferred                             (213,850)  168,713   (27,821)
                                     ________  ________  ________
                                     $652,470  $593,747  $548,151
                                     ________  ________  ________
</TABLE>

Rate Reconciliation

A  reconciliation of the expected income tax expense computed  at
34% to income tax expense included in the statements of income is
as follows:
<TABLE>
<CAPTION>
                                       1997      1996      1995
                                       ____      ____      ____
</CAPTION>                                       
<S>                                  <C>       <C>       <C>
Expected tax expense                 $852,092  $740,067  $660,869
Tax exempt interest                  (186,555) (178,641) (135,266)
Other                                 (13,067)   32,321    22,548
                                     ________  ________  ________
                                     $652,470  $593,747  $548,151
                                     ________  ________  ________
</TABLE>

Deferred Tax Analysis

The  components  of  net deferred tax assets  (substantially  all
Federal) at December 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
                                                 1997      1996
                                                 ____      ____
</CAPTION>
<S>                                            <C>       <C>
Deferred tax assets                            $653,399  $435,732
Deferred tax liabilities                       (185,515) (120,580)
                                               ________  ________
                                               $467,884  $315,152
                                               ________  ________
</TABLE>

The  tax effects of each significant item creating deferred taxes
are summarized below:
<TABLE>
<CAPTION>
                                                  1997       1996
                                                  ____       ____
</CAPTION>
<S>                                             <C>        <C>
Net unrealized appreciation on           
 securities available for sale                  $(109,826) $(48,708)
Allowance for loan losses                         324,499   154,499
Other valuation reserves                           89,370    67,552
Deferred compensation and accrued pension costs   130,694   106,640
Depreciation                                      (37,718)  (43,358)
Accretion of discount on investment securities    (37,971)  (28,514)
Deferred loan fees                                108,836   107,041
                                                _________  ________
                                                $ 467,884  $315,152
                                                _________  ________
</TABLE>

Note 12.  Commitments and Contingencies

Litigation

In  the  normal  course of business, the Company is  involved  in
various   legal  proceedings.   After  consultation  with   legal
counsel,  management believes that any liability  resulting  from
such  proceedings  will  not  be  material  to  the  consolidated
financial statements.
<PAGE>16

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note 12.  Commitments and Contingencies, continued

Financial Instruments with Off-Balance-Sheet Risk

The Bank is party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs
of   its   customers.    These  financial   instruments   include
commitments  to  extend  credit and standby  letters  of  credit.
These  instruments involve, to varying degrees,  credit  risk  in
excess  of  the  amount  recognized in the  consolidated  balance
sheets.

The  Bank's  exposure to loan loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual amount of those instruments.  The Bank uses the  same
credit policies in making commitments and conditional obligations
as  for  on-balance-sheet instruments.  A summary of  the  Bank's
commitments at December 31, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
                                         1997      1996
                                         ____      ____
</CAPTION>
<S>                                  <C>         <C>
Commitments to extend credit         $7,348,000  $5,428,210
Standby letters of credit               307,000     197,100
                                     __________  __________
                                     $7,655,000  $5,625,310
                                     __________  __________
</TABLE>

Commitments to extend credit are agreements to lend to a customer
as  long as there is no violation of any condition established in
the  contract.  Commitments generally have fixed expiration dates
or  other termination clauses and may require payment of  a  fee.
Since  many  of  the commitments are expected to  expire  without
being drawn upon, the total commitment amounts do not necessarily
represent  future  cash requirements.  The  Bank  evaluates  each
customer's creditworthiness on a case-by-case basis.  The  amount
of  collateral  obtained, if deemed necessary by  the  Bank  upon
extension  of credit, is based on management's credit  evaluation
of  the  party.  Collateral held varies, but may include accounts
receivable, crops, livestock, inventory, property and  equipment,
residential   real   estate  and  income   producing   commercial
properties.

Standby  letters of credit are conditional commitments issued  by
the  Bank to guarantee the performance of a customer to  a  third
party.   Those guarantees are primarily issued to support  public
and private borrowing arrangements.  The credit risk involved  in
issuing  letters  of  credit  is essentially  the  same  as  that
involved  in  extending loan facilities to customers.  Collateral
held varies as specified above and is required in instances which
the Bank deems necessary.

Concentrations of Credit Risk

The  majority  of  the  Company's 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 of the Bank. Investments in  state  and
municipal  securities involve governmental  entities  within  and
outside the Company's market area.  The concentrations of  credit
by  type  of  loan are set forth in Note 4.  The distribution  of
commitments  to  extend credit approximates the  distribution  of
loans   outstanding.   Standby  letters  of  credit  are  granted
primarily  to commercial borrowers.  The Company, as a matter  of
policy, does not extend credit to any single borrower or group of
related   borrowers   in  excess  of  approximately   $1,750,000.
Although the Bank has a reasonably diversified loan portfolio,  a
substantial  portion  of  its debtors'  ability  to  honor  their
contracts  is  dependent upon economic conditions in  and  around
Floyd,  Montgomery and Roanoke Counties and the City of  Roanoke,
Virginia.   A  significant amount of the real  estate  loans  set
forth  in  Note  4  are secured by commercial  real  estate.   In
addition,  the  Company  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 $6,439,303 and  $5,575,261  at
December 31, 1997 and 1996, respectively.

The  Company  has  cash  and  cash equivalents  on  deposit  with
financial institutions which exceed federally-insured limits.

Leases

During  1997 the bank leased a building used as a branch location
under  an  operating  lease.  Rent expense in  1997  was  $1,125.
Future  minimum lease payments are $1,500 in 1998 and  1999,  and
$375 in 2000.
<PAGE>17

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note 13.  Regulatory Restrictions

Dividends

The  Company's dividend payments are made from dividends received
from the Bank.  The Bank, as a Virginia banking corporation,  may
pay  dividends  only  out  of  its retained  earnings.   However,
regulatory authorities may limit payment of dividends by any bank
when  it  is  determined that such a limitation is in the  public
interest  and is necessary to ensure financial soundness  of  the
Bank.

Intercompany Transactions

The  Bank's  legal  lending limit on loans  to  the  Company  are
governed  by  Federal  Reserve Act 23A,  and  differ  from  legal
lending limits on loans to external customers.  Generally, a bank
may  lend up to 10% of its capital and surplus to its Parent,  if
the  loan  is secured.  If collateral is in the form  of  stocks,
bonds,  debentures or similar obligations, it must have a  market
value  when the loan is made of at least 20% more than the amount
of  the  loan,  and  if  obligations  of  a  state  or  political
subdivision or agency thereof, it must have a market value of  at
least  10%  more than the amount of the loan.  If such loans  are
secured  by obligations of the United States or agencies thereof,
or  by  notes, drafts, bills of exchange or bankers'  acceptances
eligible  for  rediscount or purchase by a Federal Reserve  Bank,
requirements for collateral in excess of the loan amount  do  not
apply.   Under this definition, the legal lending limit  for  the
Bank  on  loans  to the Company was approximately  $1,215,000  at
December  31,  1997.  No 23A transactions were  deemed  to  exist
between the Company and the Bank at December 31, 1997.

Capital Requirements

The Company is subject to various regulatory capital requirements
administered  by  federal  banking  agencies.   Failure  to  meet
minimum capital requirements can initiate certain mandatory  (and
possibly additional discretionary) actions by regulators that, if
undertaken, could have a direct material effect on the  Company's
consolidated   financial  statements.   Under  capital   adequacy
guidelines  and  the regulatory framework for  prompt  corrective
action,  the  Bank  must  meet specific capital  guidelines  that
involve  quantitative measures of the Bank's assets, liabilities,
and   certain   off-balance-sheet  items  as   calculated   under
regulatory accounting practices.  The Bank's capital amounts  and
classification are also subject to qualitative judgments  by  the
regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and  ratios
(set  forth  in the table below) of total and Tier I  capital  to
risk-weighted assets, and of Tier I capital to average assets, as
all  those  terms  are  defined in the  regulations.   Management
believes,  as  of  December 31, 1997, that  the  Bank  meets  all
capital adequacy requirements to which it is subject.

As  of  December 31, 1997, the most recent notification from  the
Federal  Reserve  categorized the Bank as well capitalized  under
the  regulatory framework for prompt corrective  action.   To  be
categorized  as  well capitalized the Bank must maintain  minimum
total  risk-based, Tier I risk-based, and Tier I leverage  ratios
as  set  forth  in the table. There are no conditions  or  events
since that notification that management believes have changed the
institution's category.
<PAGE>18

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note 13.  Regulatory Restrictions, continued

Capital Requirements, continued

The  Bank's actual capital amounts and ratios are also  presented
in the table (in thousands).
<TABLE>
<CAPTION>
                                                                    To Be Well
                                                  Required     Capitalized Under
                                                 For Capital   Prompt Corrective
                                 Actual      Adequacy Purposes Action Provisions
                           _________________ _________________ __________________
                             Amount   Ratio    Amount  Ratio     Amount    Ratio
                             ______   _____    ______  _____     ______    _____
</CAPTION>
<S>                        <C>         <C>     <C>       <C>    <C>        <C>
December 31, 1997:                             
 Total Capital
  (to Risk-Weighted Assets)$  13,084   14.3% >$ 7,315  >8.0%  >$  9,144  >10.0%
 Tier I Capital                              -         -      -          -
  (to Risk-Weighted Assets)$  11,938   13.0% >$ 3,658  >4.0%  >$  5,487  > 6.0%
 Tier I Capital                              -         -      -          -
  (to Average Assets)      $  11,938    8.2% >$ 5,777  >4.0%  >$  7,221  > 5.0%
                                             -         -      -          -
December 31, 1996:
 Total Capital
  (to Risk-Weighted Assets)$  12,200   14.3% >$ 6,814  >8.0%  >$  8,518  >10.0%
 Tier I Capital                              -         -      -          -
  (to Risk-Weighted Assets)$  11,198   13.1% >$ 3,407  >4.0%  >$  5,111  > 6.0%
 Tier I Capital                              -         -      -          -
  (to Average Assets)      $  11,198    8.5% >$ 5,243  >4.0%  >$  6,554  > 5.0%
                                                       -      -          -
</TABLE>

Note 14.  Transactions with Related Parties

The  Bank  has  entered  into transactions  with  its  directors,
significant shareholders and their affiliates (related  parties).
Such transactions were made in the ordinary course of business on
substantially  the same terms and conditions, including  interest
rates  and collateral, as those prevailing at the same  time  for
comparable transactions with other customers, and did not, in the
opinion  of management, involve more than normal credit  risk  or
present other unfavorable features.

Aggregate  1997  and 1996 loan transactions with related  parties
were as follows:
<TABLE>
<CAPTION>
                                                 1997      1996
                                                 ____      ____
</CAPTION>
<S>                                            <C>        <C>
Balance, beginning                           $   900,464 $   672,581

New loans                                        575,194   1,296,282
Repayments                                      (548,853) (1,068,399)
                                             ___________ ___________  
Balance, ending                              $   926,805 $   900,464
                                             ___________ ___________
</TABLE>                                             
<PAGE>19

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note 15.   Parent Company Financial Information

Condensed    financial   information   of   Cardinal   Bankshares
Corporation is presented as follows:

                         Balance Sheets
                   December 31, 1997 and 1996

<TABLE>
<CAPTION>
                                                 1997          1996
                                                 ____          ____
</CAPTION>
<S>                                          <C>           <C>
Assets                                       
 Cash due from banks                         $ 1,996,076   $   820,309
 Loans, net of allowance for loan losses
  of $25,000 in 1997 and 1996                  1,797,087     2,367,511
 Investment in affiliate bank at equity       12,150,482    11,292,544
 Other assets                                     48,174        56,199
                                             ___________   ___________
                                             $15,991,819   $14,536,563
                                             ___________   ___________
Liabilities
 Accounts payable and other liabilities      $     7,668   $     1,644
                                             ___________   ___________
Shareholders' equity
 Common stock                                  5,119,110     4,655,360
 Surplus                                       2,925,150     1,200,000
 Retained earnings                             7,727,506     8,585,007
 Unrealized appreciation on affiliate's
 investment securities available for sale,
 net of income taxes                             212,385        94,552
                                             ___________   ___________
                                              15,984,151    14,534,919
                                             ___________   ___________
                                             $15,991,819   $14,536,563
                                             ___________   ___________
</TABLE>
                      Statements of Income
  For the year ended December 31, 1997 and the six months ended
                        December 31, 1996
<TABLE>
<CAPTION>
                                                  1997         1996
                                                  ____         ____
</CAPTION>
<S>                                          <C>         <C>
Income                                       
 Dividends from affiliate bank               $ 1,100,000  $ 3,750,000
 Interest and fees on loans                      207,432       17,512
                                             ___________  ___________
                                               1,307,432    3,767,512
                                             ___________  ___________
Expenses
 Salaries                                         27,166            -
 Management and professional fees                132,588       30,794
 Other expenses                                   25,791       30,452
                                             ___________  ___________
                                                 185,545       61,246
                                             ___________  ___________
     Income before tax benefit and equity in
      undistributed income of affiliate        1,121,887    3,706,266

Income tax (expense) benefit                      (8,308)      15,611
                                             ___________  ___________
     Income before equity in undistributed
     income of affiliate                       1,113,579    3,721,877

Equity in undistributed income of affiliate      740,105   (2,914,620)
                                             ___________  ___________
     Net income                              $ 1,853,684  $   807,257
                                             ___________  ___________
</TABLE>
<PAGE>20

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note 15.   Parent Company Financial Information, continued

                    Statements of Cash Flows
  For the year ended December 31, 1997 and the six months ended
                        December 31, 1996
<TABLE>
<CAPTION>
                                                  1997        1996
                                                  ____        ____
</CAPTION>                                                  
<S>                                          <S>         <S>
Cash flows from operating activities
  Net income                                 $ 1,853,684  $   807,257
 Adjustments to reconcile net income to net
  cash provided by operating activities:
   Amortization                                    5,929        2,564
   Provision for loan losses                           -       25,000
   Increase (decrease) in equity in undistributed
     income of affiliate                        (740,105)   2,914,620
   Deferred income taxes                               -       (8,500)
   Net change in other assets                      2,096      (50,263)
   Net change in other liabilities                 6,024        1,644
                                             ___________  ___________
     Net cash provided by operating activities 1,127,628    3,692,322
                                             ___________  ___________
Cash flows from investing activities, net
 (increase) decrease in loans                    570,424   (2,392,511)
                                             ___________  ___________
Cash flows from financing activities
 Dividends paid                                 (513,855)    (479,502)
 Redemption of fractional shares                  (8,430)           -
                                             ___________  ___________
     Net cash used by financing activities      (522,285)    (479,502)
                                             ___________  ___________
     Net increase in cash and cash equivalents 1,175,767      820,309
                                             ___________  ___________
Cash and cash equivalents, beginning             820,309            -
                                             ___________  ___________
Cash and cash equivalents, ending            $ 1,996,076  $   820,309
                                             ___________  ___________
</TABLE>
<PAGE>21
TITLE PAGE TO MD&A
<PAGE>22

________________________________________________________________________________

Management's Discussion and Analysis of Operations
________________________________________________________________________________

Overview

Management's Discussion and Analysis is provided to assist  in
the   understanding  and  evaluation  of  Cardinal  Bankshares
Corporation's   financial  condition  and   its   results   of
operations.   The  following  discussion  should  be  read  in
conjunction  with  the  Corporation's  consolidated  financial
statements.

Cardinal  Bankshares Corporation, the parent  company  of  The
Bank  of Floyd, currently operates three offices in Floyd  and
Roanoke  Counties of Virginia.  The main office  is  in  Floyd
with  a  limited service office in Willis.  The Roanoke office
is  in  the  Cave  Spring area of Roanoke County.   Management
anticipates completing construction of a fourth office in  the
Spring of 1998.  The fourth office will be located in  Carroll
County on Route 52 in Hillsville, VA.

The  individual  market conditions of each  county  vary  from
rural  to  urban  with Floyd County being the most  rural  and
Roanoke  the most urban.  Each have their own growth  patterns
which vary in intensity but share the same quality of strength
in their local economies.

The  earnings  position  of  the Bank  continues  to  improve.
Cardinal   Bankshares  Corporation  experienced   record   net
earnings for 1997, $1,853,684 compared to $1,582,920 for  1996
and  $1,395,580  in 1995.  Return on average assets  was  1.3%
compared to 1.2% for 1996 and 1.1% for 1995.

Ending  equity to assets shows the Bank with a strong  capital
position with a ratio of 10.9%.

The  total assets of Cardinal Bankshares Corporation  grew  to
$145,072,317  from $136,421,721, a 6.34% increase,  continuing
our  strategy  to  grow  the company  while  increasing  asset
quality.   Foreclosed  and in-substance foreclosed  properties
were reduced by  74.9% to a balance of $210,709 at year end.

Management  continues to look at increasing  market  share  by
expanding  to contiguous markets as it becomes feasible,  with
capital generated through normal earnings supporting growth of
the  Company.   Management of Cardinal Bankshares  Corporation
has  no  plans to raise new capital from external  sources  to
finance expansion activities in the foreseeable future.
<PAGE>23

Management's Discussion and Analysis
________________________________________________________________________________

Table 1.  Net Interest Income and Average Balances (thousands)

<TABLE>
<CAPTION>
                         1997                 1996                 1995
                ____________________ ____________________ ____________________
                       Interest             Interest             Interest
                Average Income Yield Average Income Yield Average Income Yield
                Balance Expense Cost Balance Expense Cost Balance Expense Cost
                _______ _______ ____ _______ _______ ____ _______ _______ ____
</CAPTION>
<S>        <C>      <C>     <C>   <C>      <C>     <C>   <C>      <C>      <C>

Interest earning assets:
  Deposit
   in other
   banks   $    652 $    37 5.67% $      - $     -    -% $      - $      -    -%
  Taxable
   investment
   securities
             31,364   2,158 6.88%   32,540   2,177 6.69%   30,331    2,087 6.88%
  Nontaxable
   investment
   securities
             10,183     490 4.81%    8,660     470 5.43%    6,494      337 5.19%
  Federal funds
   sold       5,743     315 5.48%    3,187     169 5.30%    5,475      324 5.92%
  Loans,
   net       86,528   8,078 9.34%   80,721   7,473 9.26%   78,673    7,255 9.22%
            _______  ______ ____   _______  ______ ____   _______  _______ ____
     Total
      interest-
      earning
      assets
            134,470  11,078        125,108  10,289        120,973   10,003
            _______  ______        _______  ______        _______  _______
      Yield on
       average
       interest-
       earning
       assets               8.24%                  8.22%                   8.27%
                            ____                   ____                    ____
Noninterest-earning assets:
  Cash and
   due from
   banks      1,942                  1,912                  1,998
  Premises and
   equipment  1,593                  1,572                  1,487
  Interest
   receivable
   and other  3,524                  2,668                  3,513
            _______                _______                _______    
    Total
     noninterest-
     earning
     assets   7,059                  6,152                  6,998
            _______                _______                _______ 
    Total
     assets
           $141,529               $131,260               $127,971
            _______                _______                _______

Interest-bearing liabilities:
  Demand
   deposits
           $  8,766 $   253 2.89% $  8,263 $   208 2.52% $  8,456 $    228 2.70%
  Savings
   deposits  18,096     582 3.22%   18,530     588 3.17%   20,921      642 3.07%
  Time
    deposits 83,002   4,703 5.67%   78,630   4,493 5.71%   74,115    4,190 5.65%
  Other
   borrowings 2,485     143 5.75%      306      18 5.88%        -        -    -%
            _______  ______ ____   _______  ______ ____   _______  _______ ____
    Total
     interest-
     bearing
      liabilities
            112,349   5,681        105,729   5,307        103,492    5,060
            _______  ______        _______  ______        _______  _______
    Cost on
     average
     interest-
     bearing
     liabilities            5.06%                  5.02%                   4.89%
                            ____                   ____                    ____

Noninterest-bearing liabilities:
    Demand
     deposits
             12,863                 11,043                 10,523
    Interest
     payable
     and other  908                    831                    942
            _______                _______                _______
      Total
       noninterest
       -bearing
       liabilities
             13,771                 11,874                 11,465
            _______                _______                _______
      Total
       liabilities
            126,120                117,603                114,957
            _______                _______                _______
Stockholders'
  equity     15,409                 13,657                 13,014
            _______                _______                _______
      Total
       liabilities
       and stock-
       holders'
       equity
           $141,529               $131,260               $127,971
            _______                _______                _______
  Net interest
   income           $ 5,397                $ 4,982                $  4,943
                     ______                 ______                 _______
  Net yield on
    interest-earning
    assets                  4.01%                  3.98%                   4.09%
                            ____                   ____                    ____
</TABLE>
<PAGE>24

Management's Discussion and Analysis
________________________________________________________________________________

Table 2.  Rate/Volume Variance Analysis (thousands)

<TABLE>
<CAPTION>
                          1997 Compared to 1996   1996 Compared to 1995
                          ______________________  ______________________
                          Interest    Variance    Interest    Variance
                          Income/   Attributable  Income/   Attributable
                          Expense       To        Expense        To
                          Variance  Rate  Volume  Variance  Rate  Volume
                          ________  ____  ______  ________  ____  ______
</CAPTION>
<S>                       <C>     <C>     <C>     <C>     <C>     <C>
Interest-earning assets:
  Deposits in
   other banks            $   37  $    -  $   37  $    -  $    -  $    -
  Taxable investment
   securities                (19)     60     (79)     90     (58)    148
  Nontaxable investment
   securities                 20     (63)     83     133      17     116
  Federal funds sold         146      11     135    (155)    (31)   (124)
  Loans                      605      68     537     218      31     187
                          ______  ______  ______  ______  ______  ______
    Total                    789      76     713     286     (41)    327
                          ______  ______  ______  ______  ______  ______

Interest-bearing liabilities:
  Demand deposits             45      32      13     (20)    (15)     (5)
  Savings deposits            (6)      8     (14)    (54)     21     (75)
  Time deposits              210     (33)    243     303      45     258
  Other borrowings           125       -     125      18       -      18
                          ______  ______  ______  ______  ______  ______
    Total                    374       7     367     247      51     196
                          ______  ______  ______  ______  ______  ______
      Net interest income $  415  $   69  $  346  $   39  $  (92) $  131
                          ______  ______  ______  ______  ______  ______
</TABLE>

Net Interest Income

Net interest income, the principal source of bank earnings, is
the  amount  of income generated by earning assets  (primarily
loans  and  investment securities) less the  interest  expense
incurred  on interest-bearing liabilities (primarily  deposits
used  to  fund earning assets).  Table 1 summarizes the  major
components of net interest income for the past three years and
also provides yields and average balances.

Net  interest  income  in 1997 increased  by  8.43%  to  $5.40
million from $4.98 million in 1996 and $4.94 million in  1995.
The  increase in net interest income realized in 1997 was  the
result  of  an  increase in the volume of net average  earning
assets  and  a 3 basis point increase in net interest  margin.
Competition  for deposits and loans continue  to  be  a  major
factor  in net margins.  The net interest margin for 1997  was
4.01%  compared  to 3.98% for 1996 and 4.09%  for  1995.   Net
interest  income in 1996 increased by $39,000, or  .81%,  over
1995.   The increase in net interest income realized  in  1996
was  the  result of an increase in net average earning  assets
which  was  also offset by an 11 basis point decrease  in  net
interest margin.  The effects of changes in volumes and  rates
on  net  interest income in 1997 compared to  1996,  and  1996
compared to 1995 are shown in Table 2.

Interest  income  for  1997 increased  $.8  million  to  $11.1
million  from $10.3 million in 1996.  Interest income in  1995
totaled  $10.0 million.  The increase in interest income  from
1996  to  1997 was the result of an increase in the volume  of
average earning assets and a 2 basis point increase in  yield.
The  increase  in interest income from 1995 to  1996  was  the
result  of an increase in the volume of average earning assets
which was offset by a 5 basis point decrease in yield.
<PAGE>25

Management's Discussion and Analysis
________________________________________________________________________________

Interest expense increased by $374,000 in 1997 to $5.7 million
from  $5.3  million  in 1996 and $5.1 million  in  1995.   The
increase  from 1996 to 1997 was due to an increase in  average
interest  bearing  liabilities  of   $6.6  million  to  $112.4
million  in  1997 at an increased rate of 5.06%,  or  4  basis
points  higher  than  1996.   Interest  expense  increased  by
$247,000  from  1995 to 1996.  The increase  was  due  to  the
average  interest  bearing  liabilities  increasing  by   $2.2
million  while  the  average rate  paid  on  interest  bearing
liabilities  increased by 13 basis points.  Interest  paid  on
time  deposits, which make up the largest portion of interest-
bearing  deposits, increased $210,000, or 4.67% from  1996  to
1997.   The  average  rate paid on time deposits  decreased  4
basis points to 5.67% in 1997 from 5.71% in 1996 and 5.65%  in
1995.

Provision for Loan Losses

The  allowance for loan losses is established to  provide  for
potential  losses in the Bank's loan portfolio.   Loan  losses
and  recoveries  are  charged  or  credited  directly  to  the
allowance.   Management  determines  the  provision  for  loan
losses  required to maintain an allowance adequate to  provide
for  any  potential losses.  The factors considered in  making
this decision are the collectibility of past due loans, volume
of  new  loans, composition of the loan portfolio, and general
economic outlook.

In  1997,  management increased the provision  for  loan  loss
reserve  from  $325,000  in 1996 to  $500,000  in  1997.   The
provision  for loan losses was $135,958 in 1995.   The  Bank's
allowance  for loan losses as a percentage of total  loans  at
the  end  of 1997 was 1.67% as compared to 1.16% in  1996  and
1.42% in 1995.

Additional information is contained in Tables 12, 13  and  14,
and is discussed in Nonperforming and Problem Assets.

Other Income

Noninterest income consists of revenues generated from a broad
range  of financial services and activities.  The majority  of
noninterest income is a result of service charges  on  deposit
accounts  including charges for insufficient funds checks  and
fees  charged  for  nondeposit services.   Noninterest  income
totaled  $543,000  in  1997, an increase  of  58.3%  over  the
$343,000 recorded in 1996.  Noninterest income in 1995 totaled
$225,000.  The majority of the increase in noninterest  income
from  1996 to 1997 is explained by a $233,000 gain on the sale
of  other  real  owned.  Service charges on  deposit  accounts
increased  $30,000  during 1997 due to a $24,000  increase  in
returned  check fees resulting from a $2 per item increase  in
returned  check  fees implemented during December  1996.   The
$34,000  increase  in  insurance  commissions  is  due  to  an
increase  in dividends from title insurance sales by the  Bank
of  Floyd's  subsidiary.  The primary sources  of  noninterest
income for the past three years are summarized in Table 3.
<PAGE>26

Management's Discussion and Analysis
________________________________________________________________________________

Table 3.  Sources of Noninterest Income (thousands)
<TABLE>
<CAPTION>
                                           1997    1996    1995
                                           ____    ____    ____
</CAPTION>
<S>                                      <C>     <C>     <C>
Service charges on deposit accounts      $   144 $   114 $   121
Other service charges and fees                36      27      13
Insurance commissions                         46      12      12
Gain on the sale of securities                 7       6       5
Gain on sale of other real estate owned      233       -       -
Other income                                  77     184      74
                                         _______ _______ _______
 Total noninterest income                $   543 $   343 $   225
                                         _______ _______ _______
</TABLE>

Other  noninterest income was down $107,000 in 1997 to $77,000
from $184,000 in 1996 and $74,000 in 1995.  Noninterest income
includes fees charged for various bank services such  as  safe
deposit  box  rental fees, letters of credit fees,  and  gains
realized on the sale of fixed assets.

Other Expense

Noninterest expense for 1997 increased by $109,000 or 3.9%  to
$2.9  million.  Noninterest expense in 1996 was  $2.8  million
and  it  was $3.1 million in 1995 (see Table 4).  The overhead
ratio  of noninterest expense to adjusted total revenues  (net
interest  income plus noninterest income excluding  securities
transactions) was 50.8% in 1997, 53.1% in 1996  and  59.8%  in
1995.

Furniture and equipment expense increased $43,000 or 18.7%  to
$273,000 in 1997 from $230,000 in 1996.  This increase is  due
to  increased depreciation expense due to the addition of  the
Willis  Branch,  the  purchase of a new  bank  automobile  and
software  purchases.  In addition, ATM expenses were  realized
for a full year versus approximately four months in 1996.  The
bank also experienced an increase in equipment maintenance and
repair expenses.
<PAGE>27

Management's Discussion and Analysis
________________________________________________________________________________

Table 4.  Sources of Noninterest Expense (thousands)
<TABLE>
<CAPTION>
                                  1997      1996      1995
                                  ____      ____      ____
</CAPTION>                                  
<S>                            <C>       <C>       <C>
Salaries & wages               $   1,298 $   1,242 $   1,154
Employee benefits                    463       512       422
                               _________ _________ _________
  Total personnel expense          1,761     1,754     1,576

Occupancy expense                    116       122       104
Furniture & equipment                273       230       183
Printing & supplies                   44        54        64
FDIC deposit insurance                14         2       126
Professional services                120       177       176
Postage                               72        69        62
Telephone                             40        33        25
Courier fees                          21        21        20
Education & seminars                  20        13        17
Travel expense                        21        27        25
Director fees and expense             38        40        31
Advertising and public relations      31        38        42
Insurance expense                     36        37        33
Capital Stock Tax                     77        98       100
Outside services                      26         -         7
Other real estate expense, net        46        35       389
Real estate loan servicing fee        12        16        20
Other operating expense              165        58        89
                               _________ _________ _________
  Total noninterest expense    $   2,933 $   2,824 $   3,089
                               _________ _________ _________
</TABLE>

Other  real  estate  expense increased  $11,000  or  31.4%  to
$46,000  in 1997 from $35,000 in 1996.  This increase  is  the
result  of  increased reserves on various  other  real  estate
parcels.   During  1997 management disposed  of  a  number  of
properties reducing the net other real estate owned balance by
$627,439  or  74.9% from $838,148 as of December 31,  1996  to
$210,709  as of December 31, 1997.  The sale of this  property
reduces  the amount of nonperforming assets and also increases
the  amount of earning assets available to the bank.  The 1995
other real estate expense balance of $389,000 was high due  to
the sale of one piece of property with a loss of approximately
$298,000.

Professional   services  expense,  fees  paid  to   attorneys,
independent  auditors, and state examiners decreased   $57,000
or  32.2%  to  $120,000 in 1997 from $177,000 in  1996.   This
decrease  is  primarily the result of a  $51,000  decrease  in
legal  fees due to a decline in the number of foreclosures,  a
decrease  in other real estate owned and a number  of  settled
bankruptcies.  Professional services expense totaled  $176,000
in 1995.

Capital  stock tax expense decreased $21,000 from  $98,000  in
1996  to $77,000 in 1997 representing  a 21.4% decline.   This
decline is the result of a lower taxable capital base  at  the
bank level due to dividends to the holding company.
<PAGE>28

Management's Discussion and Analysis
________________________________________________________________________________

Deposit   insurance  premiums  paid  to  the  Federal  Deposit
Insurance Corporation (FDIC) increased to $14,000 in 1997 from
a  low  of $2,000 in 1996.  The premium increases were due  to
the  Financing  Corporation (FICO)  debt  service  assessments
which  went  into  effect  on  January  1,  1997.   The   FICO
assessment is the result of the Deposit Insurance Funds Act of
1996  which  requires that the Bank Insurance Fund (BIF)  rate
equal  one-fifth the Savings Association Insurance Fund (SAIF)
rate  through year-end 1999, or until the insurance funds  are
merged, whichever occurs first.

The increase occurring during 1997 in the remaining categories
of  noninterest  expense were primarily  attributable  to  the
higher  level  of  activity  associated  with  the  growth  in
deposits.  Table 4 provides a further breakdown of noninterest
expense for the past three years.

Income Taxes

Income  tax  expense  is  based on  amounts  reported  in  the
statements of income (after adjustments for non-taxable income
and  non-deductible expenses) and consists of taxes  currently
due  plus  deferred  taxes  on temporary  differences  in  the
recognition  of  income  and expense  for  tax  and  financial
statement  purposes.  The deferred tax assets and  liabilities
represent the future Federal income tax return consequences of
those  differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled.

Income tax expense (substantially all Federal) was $652,000 in
1997,  $594,000  in  1996 and $548,000 for  1995  representing
26.0%,   27.3%  and  28.2%  of  income  before  income  taxes,
respectively.

The Bank's deferred income tax benefits and liabilities result
primarily  from  temporary differences  (discussed  above)  in
provisions    for    credit   losses,   valuation    reserves,
depreciation, deferred compensation, deferred income,  pension
expense, and investment security discount accretion.

Net  deferred  income tax benefits of $468,000,  $315,000  and
$381,000  at  December 31, 1997, 1996, and 1995, respectively,
are  included in other assets.  At December 31, 1997, $110,000
of   the  total  deferred  tax  liability  is  applicable   to
unrealized appreciation on investment securities available for
sale.  Accordingly, this amount was not charged to income  but
recorded directly to the related stockholders' equity account.
<PAGE>29

Management's Discussion and Analysis
________________________________________________________________________________

Management's Discussion and Analysis of Financial Condition

Earning Assets

Average  earning  assets increased 7.5% over the  past  twelve
months.   Total  earning  assets represented  95.0%  of  total
average assets in 1997 compared to 95.3% in 1996.  The mix  of
average  earning  assets  changed slightly  in  1997  with  an
increase  in  the mix of federal funds sold and a decrease  in
the  mix of investment securities.  Average federal funds sold
accounted for 4.1% of total average assets compared to 2.4% in
1996.   Average investment securities accounted for  29.4%  of
total  average  assets  in 1997 compared  to  31.4%  in  1996.
Average  loans accounted for 61.1% of total average assets  in
1997  compared to 61.5% in 1996.  For 1995, average net  loans
represented  61.5%  of average assets and  average  investment
securities represented 28.9% of average assets.  A summary  of
average assets for the past three years is shown in Table 5.

Table 5.  Average Asset Mix (thousands)

<TABLE>
<CAPTION>
                               1997             1996            1995
                         _______________  _______________  _______________
                          Average          Average         Average
                          Balance    %     Balance    %    Balance     %
                         ________ ______  ________ ______  ________ ______
</CAPTION>
<S>                      <C>       <C>    <C>       <C>    <C>       <C>
Earning assets:
Loans, net               $ 86,528  61.14  $ 80,721  61.50  $ 78,673  61.47
  Investment securities    41,547  29.36    41,200  31.39    36,825  28.78
  Federal funds sold        5,743   4.06     3,187   2.42     5,475   4.28
  Interest-bearing bank
   balances                   652   0.45         -      -         -      -
                         ________ ______  ________ ______  ________ ______
     Total earning
       assets             134,470  95.01   125,108  95.31   120,973  94.53
                         ________ ______  ________ ______  ________ ______
Nonearning assets:
  Cash and due from banks   1,942   1.37     1,912   1.46     1,998   1.56
  Premises and equipment    1,593   1.13     1,572   1.20     1,487   1.16
  Other assets              3,524   2.49     2,668   2.03     3,513   2.75
                         ________ ______  ________ ______  ________ ______
    Total nonearning
      assets                7,059   4.99     6,152   4.69     6,998   5.47
                         ________ ______  ________ ______  ________ ______
      Total assets       $141,529 100.00  $131,260 100.00  $127,971 100.00
                         ________ ______  ________ ______  ________ ______
</TABLE>

Loans

Average  net  loans  totaled  $86.5  million  during  1997  an
increase  of $6 million or 7.2% more than 1996.  The  increase
in  average loans outstanding during the past year is  due  to
increased demand.

A  significant portion of the loan portfolio, $67.0 million or
76.9%,  is made up of loans secured by various types  of  real
estate.    Total  loans  secured  by  1-4  family  residential
properties  represented 29.4% of total loans  at  the  end  of
1997.   The loans represented in the other loan classification
in  Table 6 increased by 130.9% during 1997 to a total of $4.4
million,  or  5.0% of total loans outstanding  compared  to  a
total  of $1.9 million at the end of 1996.  The growth in  the
other  loan  classification  is primarily  the  result  of  an
increase in commercial loans to leasing companies.
<PAGE>30

Management's Discussion and Analysis
________________________________________________________________________________

The  Bank  makes  both consumer and commercial  loans  to  all
neighborhoods within its market area, including the  low-  and
moderate-income  areas.  The market area is generally  defined
to  be  all or portions of the Floyd, Roanoke, Montgomery  and
Carroll  Counties of Virginia and the Cities  of  Roanoke  and
Radford, Virginia.  The Bank places emphasis on consumer based
installment  loans and commercial loans to  small  and  medium
sized  businesses.  The local economy remains  stable  with  a
lower  unemployment level. The Bank can expect  to  experience
profitable  growth  in the loan portfolio  during  1997.   The
amounts  of  loans  outstanding by type at year-end  1997  and
1996, and the maturity distribution of variable and fixed rate
loans  as of year-end 1997 are presented in Table 6 and  Table
7, respectively.

Table 6.  Loan Portfolio Summary (thousands)
<TABLE>
<CAPTION>
                                December 31, 1997       December 31, 1996
                                _________________       _________________
                                 Amount       %          Amount       %
                                ________     ____       ________     ____
</CAPTION>
<S>                             <C>          <C>        <C>          <C>
Construction and development    $  4,888     5.61       $  5,610     6.46
Farmland                           3,905     4.48          4,143     4.77
1-4 family residential            25,629    29.43         25,717    29.62
Multifamily residential            1,785     2.05          1,519     1.75
Nonfarm, nonresidential           30,795    35.36         30,970    35.66
                                ________   ______       ________   ______
  Total real estate               67,002    76.93         67,959    78.26

Agricultural                       1,815     2.08          1,766     2.03
Commercial & industrial            6,208     7.13          6,219     7.16
Consumer                           7,689     8.83          8,999    10.36
Other                              4,383     5.03          1,898     2.19
                                ________   ______       ________   ______
  Total                         $ 87,097   100.00       $ 86,841   100.00
                                ________   ______       ________   ______   
</TABLE>

Interest rates charged on loans vary with the degree of  risk,
maturity and amount of the loan.  Competitive pressures, money
market rates, availability of funds, and government regulation
also  influence  interest rates.  On  average,  loans  yielded
9.34% in 1997 compared to an average yield of 9.26% in 1996.
<PAGE>31

Management's Discussion and Analysis
________________________________________________________________________________

Table 7.  Maturity Schedule of Loans (thousands)
<TABLE>
<CAPTION>
                                   Construc-
                        Commercial   tion &                Total
                        Financial & Develop-        ________________
                        Agriculture   ment    Others   Amount      %
                        ___________ ________ ________ ________   _____
</CAPTION>
<S>                        <C>      <C>      <C>      <C>       <C>
Fixed rate loans:
  Three months or less     $  1,213 $      - $  1,301 $  2,514    2.89
  Over three months to
   twelve months              1,156      138    2,633    3,927    4.51
  Over twelve months to
   three years                2,342        -    5,233    7,575    8.70
  Over three years to
   five years                 2,037        -    7,091    9,128   10.48
  Over five years to
   fifteen years              2,840        -    3,366    6,206    7.13
  Over fifteen years            443        -    2,462    2,905    3.32
                           ________ ________ ________ ________  ______
    Total fixed rate loans $ 10,031 $    138 $ 22,086 $ 32,255   37.03
                           ________ ________ ________ ________  ______
Variable rate loans:
  Three months or less     $  8,544 $  1,762 $  4,361 $ 14,667   16.84
  Over three months to
   twelve months              6,422    1,068    6,200   13,690   15.72
  Over twelve months to
   three years               13,841    1,780    7,797   23,418   26.89
  Over three years to
   five years                 1,888      140      801    2,829    3.25
  Over five years to
   fifteen years                238        -        -      238    0.27
  Over fifteen years              -        -        -        -       -
                           ________ ________ ________ ________  ______
    Total variable rate
     loans                 $ 30,933 $  4,750 $ 19,159 $ 54,842   62.97
                           ________ ________ ________ ________  ______
Total loans:
  Three months or less     $  9,757 $  1,762 $  5,662 $ 17,181   19.73
  Over three months to
   twelve months              7,578    1,206    8,833   17,617   20.23
  Over twelve months to
   three years               16,183    1,780   13,030   30,993   35.59
  Over three years to
   five years                 3,925      140    7,892   11,957   13.73
  Over five years to
   fifteen years              3,078        -    3,366    6,444    7.40
  Over fifteen years            443        -    2,462    2,905    3.32
                           ________ ________ ________ ________  ______
    Total loans            $ 40,964 $  4,888 $ 41,245 $ 87,097  100.00
                           ________ ________ ________ ________  ______
</TABLE>

Investment Securities

The  Bank  uses its investment portfolio to provide  liquidity
for  unexpected deposit decreases or loan generation, to  meet
the  Bank's  interest rate sensitivity goals, and to  generate
income.

Management  of  the  investment  portfolio  has  always   been
conservative with virtually all investments taking the form of
purchases of U.S. Treasury, U.S. Government agencies, Mortgage
Backed Securities and State and local bond issues.  Management
views  the  investment portfolio as a source  of  income,  and
purchases  securities with the intent of retaining them  until
maturity.  However, adjustments are necessary in the portfolio
to  provide an adequate source of liquidity which can be  used
to  meet  funding  requirements for loan  demand  and  deposit
fluctuations  and  to control interest rate risk.   Therefore,
from  time  to  time,  management may sell certain  securities
prior  to  their  maturity.  Table 8 presents  the  investment
portfolio at the end of 1997 by major types of investments and
maturity   ranges.   Maturities  may  differ  from   scheduled
maturities in mortgage-backed securities because the mortgages
underlying the securities may be called or repaid prior to
<PAGE>32

Management's Discussion and Analysis
________________________________________________________________________________

the scheduled maturity date.  Maturities on all other securities
are  based on the earlier of the contractual maturity  or  the
call date, if any.

The interest rate environment in 1997 caused the average yield
of the investment portfolio to decrease to 6.30% from 6.60% in
1996.   At  December  31,  1997,  the  market  value  of   the
investment   portfolio  was  $45.3  million,  representing   a
$507,000 appreciation over amortized cost.  This compared to a
market value of $43.5 million and a $121,000 appreciation over
amortized cost a year earlier.

Table 8.  Investment Securities (thousands)

December 31, 1997
<TABLE>
<CAPTION>
                      Amortized Cost Due
                  ____________________________
                  In One  After One After Five After Restricted
                  Year or  Through   Through    Ten   Equity             Market
                   Less   Five Yrs.  Ten Yrs.  Years Securities Total    Value
                  _______  _______   ______   ______   ______  _______   _______
</CAPTION>
<S>               <C>      <C>       <C>      <C>       <C>    <C>       <C>
Investment securities:
U.S. Government agencies
 and Mortgage Backed
 Securities       $12,439  $11,340   $3,090   $4,076       -   $30,945   $31,178
State and
 political subs.    1,240    5,056    5,431        -       -    11,727    11,916
Other                   -    1,489        -        -       -     1,489     1,574
Restricted Equity
 Securities             -        -        -        -     610       610       610
                  _______  _______   ______   ______    ____   _______   _______
    Total         $13,679  $17,885   $8,521   $4,076    $610   $44,771   $45,278
                  _______  _______   ______   ______    ____   _______   _______

Weighted average yields:
U.S. Government agencies
  and Mortgage
  Backed Securities  6.59%    6.62%    6.84%    7.08%      -
States and
 political subs.     4.88%    4.76%    4.86%       -       -
Other                   -     9.64%       -        -       -
Restricted Equity
 Securities             -        -        -        -    6.89%

     Consolidated    6.43%    6.35%    5.57%    7.08%   6.89%    6.30%
</TABLE>

<TABLE>
<CAPTION>
                                                         Book     Market
December 31, 1996                                        Value    Value
                                                         _____    _____
</CAPTION>
<S>                                                    <C>      <C>
Investment securities:                                 
U.S. Treasury and Government agencies                  $   979  $   979
U.S. Government agencies (Mortgage Backed Securities)   29,739   29,760
States and political subdivisions                       10,610   10,594
Other                                                    2,075    2,191
                                                       _______  _______
     Total                                             $43,403  $43,524
                                                       _______  _______
</TABLE>

Average federal funds sold totaled $5.7 million in 1997  which
represented an 80.2% increase from the $3.2 million  in  1996.
Federal funds represent the most liquid portion of the  Bank's
invested  funds and generally the lowest yielding  portion  of
earning  assets.   Management has made an effort  to  maintain
these  funds  at  the  lowest level possible  consistent  with
prudent  interest  rate  risk management  strategies.   During
1997,  average  federal  funds  represented  4.1%  of  average
earning assets, up from the 2.4% during 1996 (See Table 5).
<PAGE>33

Management's Discussion and Analysis
________________________________________________________________________________

Deposits

The  Bank relies on deposits generated in its market  area  to
provide  the  majority  of  funds needed  to  support  lending
activities  and  for  investments  in  liquid  assets.    More
specifically, core deposits (total deposits less  certificates
of  deposits  in denominations of $100,000 or  more)  are  the
primary  funding source.  The Bank's balance sheet  growth  is
largely  determined  by the availability of  deposits  in  its
markets,  the  cost  of  attracting  the  deposits,  and   the
prospects  of profitably utilizing the available  deposits  by
increasing   the   loan  or  investment  portfolios.    Market
conditions  have resulted in depositors shopping  for  deposit
rates  more than in the past.  An increased customer awareness
of  interest  rates adds to the importance of rate management.
The   Bank's  management  must  continuously  monitor   market
pricing,  competitor's  rates,  and  internal  interest   rate
spreads to maintain the Bank's growth and profitability.   The
Bank attempts to structure rates so as to promote deposit  and
asset  growth  while  at  the  same  time  increasing  overall
profitability of the Bank.

Average  total deposits for the year ended December  31,  1997
amounted  to  $122.7  million which was an  increase  of  $6.3
million,  or  5.4%  over 1996.  Average core deposits  totaled
$97.8 million in 1997 representing a slight increase over  the
$95.7  million in 1996.  The percentage of the Bank's  average
deposits that are interest-bearing decreased to 89.5% in  1997
from  90.5%  in 1996.  Average demand deposits which  earn  no
interest increased to $12.9 million in 1997 from $11.0 million
in  1996 and $10.5 million in 1995.  Average deposits for  the
past three years are summarized in Table 9.

Table 9.  Deposit Mix (thousands)
<TABLE>
<CAPTION>
                              1997              1996             1995
                         ______________    ______________   _______________

                         Average           Average           Average
                         Balance    %      Balance    %      Balance    %
                        ________  _____   ________  _____   ________  _____
</CAPTION>
<S>                     <C>        <C>    <C>       <C>     <C>       <C>
Interest-bearing deposits:
  NOW accounts          $  8,766   7.14   $  8,263   7.10   $  8,456   7.42
  Money Market             3,228   2.63      3,417   2.93      4,061   3.56
  Savings                 14,868  12.12     15,113  12.98     16,860  14.79
  Small denomination
   certificates           70,924  57.79     68,943  59.20     66,790  58.58
  Large denomination
    certificates          12,078   9.84      9,687   8.32      7,325   6.42
                        ________ ______   ________ ______   _______  ______
    Total interest-
     bearing deposits    109,864  89.52    105,423  90.53    103,492  90.77
Noninteresting-bearing
 deposits                 12,863  10.48     11,043   9.47     10,523   9.23
                        ________ ______   ________ ______   ________ ______
    Total deposits      $122,727 100.00   $116,466 100.00   $114,015 100.00
                        ________ ______   ________ ______   ________ ______
</TABLE>

The  average  balance  of certificates of  deposit  issued  in
denominations of $100,000 or more increased by $2.4 million or
24.7%,  in  1997.   The  strategy of management  has  been  to
support loan and investment growth with core deposits and  not
to  aggressively solicit the more volatile, large denomination
certificates   of   deposit.   Table  10   provides   maturity
information relating to Certificate of Deposits of $100,000 or
more at December 31, 1997.
<PAGE>34

Management's Discussion and Analysis
________________________________________________________________________________

Table 10.  Large time deposit maturities (thousands)

Analysis of time deposits of $100,000 or more at December 31,
1997:
<TABLE>
     <S>                                                 <C>

     Remaining maturity of three months or less          $     721
     Remaining maturity over three through twelve months     8,959
     Remaining maturity over twelve months                   5,441
                                                         _________
        Total time deposits of $100,000 or more          $  15,121
</TABLE>                                                 _________

Capital Adequacy

Shareholder's equity amounted to $16.0 million at December 31,
1997,  a 10.0% increase over the 1996 year-end total of  $14.5
million.  The increase was primarily a result of earnings  and
a  $117,833  increase  in  the value of  securities  that  are
classified  as  available  for  sale.   Average  shareholders'
equity  as  a  percentage of average total assets amounted  to
10.9% in 1997 and 10.4% in 1996.

Regulatory  guidelines  relating to capital  adequacy  provide
minimum risk-based ratios which assess capital adequacy  while
encompassing all credit risks, including those related to off-
balance   sheet  activities.   Capital  ratios   under   these
guidelines are computed by weighing the relative risk of  each
asset category to derive risk-adjusted assets.  The risk-based
capital  guidelines require minimum ratios of  core  (Tier  1)
capital (common shareholders' equity ) to risk-weighted assets
of  4.0%  and  total  regulatory capital  (core  capital  plus
allowance for loan losses up to 1.25% of risk-weighted assets)
to  risk-weighted assets of 8%.  As of December 31,  1997  the
Bank has a ratio of Tier 1 capital to risk-weighted assets  of
13.0% and a ratio of total capital to risk-weighted assets  of
14.3%.
<PAGE>35

Management's Discussion and Analysis
________________________________________________________________________________

Table 11.  Year-end Risk-Based capital (thousands)
<TABLE>
<CAPTION>
                                                         1997
                                                         ____
</CAPTION>                                                         
<S>                                                   <C>
Tier I capital                                        $  11,938
Qualifying allowance for loan losses
   (limited to 1.25% of risk-weighted assets)             1,146
                                                      _________
Total regulatory capital                              $  13,084
                                                      _________
Total risk-weighted assets                            $  91,680
                                                      _________
Tier I as a percent of risk-weighted assets                13.0%
Total regulatory capital as a percent of risk-
   weighted assets                                         14.3%
Leverage Ratio<F1>                                          8.2%

<FN>
_________________________
<F1> Tier I capital divided by average total assets for the
     quarter ended December 31, 1997.
</FN>
</TABLE>

In  addition,  a minimum leverage ratio of Tier I  capital  to
average  total assets for the previous quarter is required  by
federal bank regulators, ranging from 3% to 5%, subject to the
regulator's  evaluation  of  the  Bank's  overall  safety  and
soundness.  As of December 31, 1997, the Bank had a  ratio  of
year-end Tier I capital to average total assets for the fourth
quarter  of  1997  of  8.2%.   Table  11  sets  forth  summary
information  with  respect  to the Bank's  capital  ratios  at
December 31, 1997.  All capital ratio levels indicate that the
Bank is well capitalized.

At  December 31, 1997 the Company had 511,911 shares of common
stock   outstanding  which  was  held  by  approximately   583
shareholders of record.

Nonperforming and Problem Assets

Certain   credit   risks  are  inherent   in   making   loans,
particularly   commercial  and  consumer  loans.    Management
prudently  assesses these risks and attempts  to  manage  them
effectively.  The Bank attempts to use shorter-term loans and,
although a portion of the loans have been made based upon  the
value  of  collateral, it tries to rely primarily on the  cash
flow  of  the borrower as the source of repayment rather  than
the value of the collateral.

The  Bank  also attempts to reduce repayment risks by adhering
to  internal  credit policies and procedures.  These  policies
and  procedures include officer and customer limits,  periodic
loan  documentation  review and follow  up  on  exceptions  to
credit policies.

Nonperforming  Assets  at  December  31,  1997  and  1996  are
analyzed in Table 12.
<PAGE>36

Management's Discussion and Analysis
________________________________________________________________________________

Table 12.  Nonperforming Assets

<TABLE>
<CAPTION>
                                          1997          1996
                                          ____          ____
</CAPTION>                                          
<S>                                     <C>           <C>
Non-Accrual Loans                       $278,782      $139,161
Restructured                                   -             -
Foreclosed and In-Substance
  Foreclosed Properties                  210,709       838,130
                                        ________      ________
                                        $489,491      $977,291
                                        ________      ________
</TABLE>

Nonperforming  assets  at year-end 1997  were  0.6%  of  loans
outstanding  and  1.1% at year-end 1996.  In addition  to  the
nonperforming assets, loans which were 90 days and  over  past
due amounted to $312,332 at December 31, 1997 and $215,000  at
December 31, 1996.

The  allowance  for  loan  losses is  maintained  at  a  level
adequate to absorb probable losses.  Some of the factors which
management considers in determining the appropriate  level  of
the  allowance for loan losses are:  past loss experience,  an
evaluation  of  the  current loan portfolio,  identified  loan
problems,  the  loan  volume  outstanding,  the  present   and
expected  economic conditions in general, and  in  particular,
how  such conditions relate to the market areas that the  Bank
serves.   Bank regulators also periodically review the  Bank's
loans  and  other  assets  to assess their  quality.   Credits
deemed uncollectible are charged to the allowance.  Provisions
for loan losses and recoveries on loans previously charged off
are  added to the allowance.  The accrual of interest on loans
is  discontinued on a loan when, in the opinion of management,
there is an indication that the borrower may be unable to meet
payments as they become due.

The  provision  for  loan  losses,  net  charge-offs  and  the
activity in the allowance for loan losses is detailed in Table
13.

Table 13.  Loan Losses

<TABLE>
<CAPTION>
                                             1997        1996        1995
                                             ____        ____        ____
</CAPTION>
<S>                                      <C>         <C>         <C>
Allowance for loan losses, beginning     $ 1,002,455 $ 1,134,182 $ 1,264,798
Provision for loan losses, added             500,000     325,000     135,958

Loans charged off                            (68,249)   (495,201)   (287,919)
Recoveries of loans previously charged off    17,920      38,474      21,345
                                         ___________ ___________ ___________
   Net charge-offs                           (50,329)   (456,727)   (266,574)
                                         ___________ ___________ ___________
Allowance for loan losses, ending        $ 1,452,126 $ 1,002,455 $ 1,134,182
                                         ___________ ___________ ___________
</TABLE>
<PAGE>37

Management's Discussion and Analysis
________________________________________________________________________________

Net  loan  charge-offs as a percentage of average  loans  were
0.06%, 0.57% and 0.34% in 1997, 1996, and 1995, respectively.

The  loan  portfolio also included loans to various  borrowers
(watch  loans) at year-end for which management  had  concerns
about the ability of the borrowers to continue to comply  with
present  loan repayment terms, and which could result in  some
or   all  of  these  loans  being  uncollectible.   Management
monitors  these  loans carefully and has  provided  for  these
loans in the allowance for loan losses.

The  allowance for loan losses was approximately $1.5 million,
or  1.67% of gross loans outstanding at December 31, 1997,  an
increase  of $449,671 above the 1.16% reserve at December  31,
1996.    Management  realizes  that  general  economic  trends
greatly affect loan losses and no assurances can be made about
future   losses.   Management  does,  however,  consider   the
allowance for loan losses to be adequate at December 31, 1997.

The  allocation of the reserve for loan losses is detailed  in
Table 14 below:

Table 14.  Allocation of the Reserve for Loan Losses

<TABLE>
<CAPTION>
                            1997               1996               1995
                     ___________________ __________________ _________________

Balance at end of
period applicable to Amount  Percent<F1> Amount Percent<F1> Amount Percent<F1>
                     ______  _______     ______ _______     ______ _______
</CAPTION>
<S>                  <C>      <C>         <C>    <C>        <C>     <C>
Commercial, financial
 and agricultural    $  194     9.21     $   93    9.24     $  108    9.51
Real estate,                                              
 construction            60     5.61         65    6.49         50    4.42
Real estate, mortgage 1,089    71.32        723   72.19        852   75.15
Installment loans to
 individuals, other     109    13.86        121   12.08        124   10.92
                     ______   ______     ______  ______     ______  ______
     Total           $1,452   100.00     $1,002  100.00     $1,134  100.00
                     ______   ______     ______  ______     ______  ______
<FN>
___________________
<F1>  Percent of loans in each category to total loans.
</FN>
</TABLE>

Liquidity and Sensitivity

The   principal  goals  of  the  Bank's  asset  and  liability
management strategy are the maintenance of adequate  liquidity
and  the management of interest rate risk.  Liquidity  is  the
ability   to  convert  assets  to  cash  to  fund  depositors'
withdrawals  or  borrowers'  loans without  significant  loss.
Interest rate risk management balances the effects of interest
rate  changes  on assets that earn interest or liabilities  on
which  interest  is  paid,  to  protect  the  Bank  from  wide
fluctuations  in  its net interest income which  could  result
from interest rates changes.

Management  must insure that adequate funds are  available  at
all  times  to meet the needs of its customers.  On the  asset
side   of  the  balance  sheet,  maturing  investments,   loan
payments,  maturing loans, federal funds sold, and   unpledged
investment   securities are principal sources  of   liquidity.
On  the liability side of the balance
<PAGE>38

Management's Discussion and Analysis
________________________________________________________________________________

sheet, liquidity sources include core deposits, the ability to increase
large denomination certificates,  federal  funds  lines from  correspondent
banks, borrowings from the Federal Reserve Bank, as well as the ability
to generate funds through the issuance of long-term debt and equity.

The  liquidity  ratio (the level of liquid assets  divided  by
total  deposits  plus  short-term liabilities)  was  18.9%  at
December  31,  1997  compared to 18.0% at December  31,  1996.
These ratios are considered to be adequate by management.

Table 15.  Interest Rate Sensitivity (thousands)

<TABLE>
<CAPTION>
                                    December 31, 1997
                                  Maturities/Repricing
                        ________________________________________
                           1-3       4-12      13-60     Over 60
                          Months    Months     Months     Months      Total
                          ______    ______     ______     ______      _____
</CAPTION>
<S>                     <C>        <C>        <C>        <C>        <C>
Earnings Assets:
  Loans                 $ 17,134   $ 22,641   $ 42,914   $  4,408   $ 87,097
  Investments              1,145     12,534     17,885     13,207     44,771
  Interest-bearing
   deposits with other
   banks                   5,000          -          -          -      5,000
  Federal Funds Sold       3,825          -          -          -      3,825
                        ________   ________   ________   ________   ________
     Total              $ 27,104   $ 35,175   $ 60,799   $ 17,615   $140,693
                        ________   ________   ________   ________   ________

Interest-bearing deposits:
  NOW accounts             8,924          -          -          -      8,924
  Money market             3,339          -          -          -      3,339 
  Savings                 14,168          -          -          -     14,168
  Certificates of
    Deposit               11,799     41,263     36,467          -     89,529
  Other borrowings             -          -          -          -          -
                        ________   ________   ________   ________   ________
    Total               $ 38,230   $ 41,263   $ 36,467   $      -   $115,960
                        ________   ________   ________   ________   ________
Interest sensitivity
  gap                   $(11,126)  $ (6,088)  $ 24,332   $ 17,615   $      -
Cumulative interest
  sensitivity gap       $(11,126)  $(17,214)  $  7,118   $ 24,733   $ 24,733
Ratio of sensitivity gap
  to total earning assets   (7.9)%     (4.3)%     17.3%      12.5%         -
Cumulative ratio of
  sensitivity gap to
  total earning assets      (7.9)%    (12.2)%      5.1%      17.5%      17.5%
</TABLE>

Interest  rate  risk  is the effect that changes  in  interest
rates  would have on interest income and interest  expense  as
interest-sensitive  assets and interest-sensitive  liabilities
either reprice or mature.  Management attempts to maintain the
portfolios  of earning assets and interest-bearing liabilities
with maturities or repricing opportunities at levels that will
afford protection from erosion of net interest margin, to  the
extent  practical, from changes in interest rates.   Table  15
shows  the sensitivity of the Bank's balance sheet on December
31,  1997.  This table reflects the sensitivity of the balance
sheet  as  of  that  specific  date  and  is  not  necessarily
indicative  of the position on other dates.  At  December  31,
1997,  the  Bank  appeared to be cumulatively  asset-sensitive
(earning  assets  subject to interest rate  changes  exceeding
interest-bearing  liabilities subject to changes  in  interest
rates).  Included in  the interest-bearing liabilities subject
to   interest      rate      changes      within
<PAGE>39

Management's Discussion and Analysis
________________________________________________________________________________

three  months  are NOW accounts and savings accounts  totaling
$23,092,000  which  historically have not  been  as  interest-
sensitive   as  other  types  of  interest-bearing   deposits.
Therefore, the Bank is asset sensitive in the three  month  or
less  time  period; liability sensitive in the four to  twelve
months  time  period and asset-sensitive in  the  thirteen  to
sixty months time period and over sixty months time period.

Matching  sensitive positions alone does not ensure  that  the
Bank has no interest rate risk.  The repricing characteristics
of  assets are different from the repricing characteristics of
funding sources.  Thus, net interest income can be impacted by
changes  in interest rates even if the repricing opportunities
of assets and liabilities are perfectly matched.

Table 16.  Key Financial Ratios
<TABLE>
<CAPTION>
                                        1997     1996     1995
                                        ____     ____     ____
</CAPTION>
<S>                                    <C>       <C>     <C>
Return on average assets                1.3%      1.2%    1.1%
Return on average equity               12.0%     11.6%   10.7%
Average equity to average assets       10.9%     10.4%   10.2%
</TABLE>
<PAGE>40
Title page for Personnel
<PAGE>41
________________________________________________________________________________

Staff
________________________________________________________________________________

                            Main Office
                            ___________

Customer Service          Loan Operations             Secretaries
________________          _______________             ___________

Diane Bishop              Renee Akers                 Beulah Correll
                                   
Sherrie Janney            Ola Driskett, Manager       Yara Middleton
                        
Betty Moran               Debra Funkhouser            Lisa Thomas
                                              
Sharon Zeman              Gail Phillips, Supervisor   Data Processing Center    
                                                      ______________________ 
                          Jan Rorrer             
Paying and                                            Ruth Anders
Receiving Tellers         Karen Sowers          
_________________                                     Gail Goad
                          Collections
Karen Bowman              ___________                 Gay Grim
                                             
Regina Compton            Ralph Edwards               Alva Mae Harman
                                             
Regina Gibson             Credit Cards                Patricia Whitlock
                          ____________                    
Jennifer Hollandsworth                                Custodians
                          Shelia Dehart               __________
Anthony Nolen                                 
                          Accounting                  Roger Dickerson
Helen Roberson            __________                       
                                                      Lucy Harris
Tammy Rutrough            Deborah Reed                                
                       
Patsy Wallace                       
                       
                                                       
                                                    
Cave Spring Office            Willis Office          Hillsville Office
__________________            _____________          _________________    
                                                       
 Customer Service              Head Teller             Branch Manager
 ________________              ___________             ______________
                                              
 Margaret Caldwell            Karen Sutphin           Eugene Shockley
                                              
Paying and Receiving                                 
____________________

   Kevin Harvey                               
         
  Paula McDaniel

<PAGE>42

________________________________________________________________________________

Board of Directors of Cardinal Bankshares and The Bank of Floyd
________________________________________________________________________________

K. Venson Bolt         C. W. Harman           Leon Moore
                                              
J. H. Conduff          Kevin D. Mitchell      Dorsey H. Thompson
                                              
William R. Gardner, Jr.                       J.T. Williams, Jr.


Officers of Cardinal Bankshares
_______________________________
                           
J. H. Conduff                               Chairman of the Board

Leon Moore                                      President and CEO

Christopher B. Snodgrass                        Financial Officer

Wanda M. Gardner                                 Internal Auditor

Annette V. Battle                                       Secretary


Officers of The Bank of Floyd
_____________________________

                            Executive
                            _________
J. H. Conduff                               Chairman of the Board

K. Venson Bolt                         Vice Chairman of the Board

Leon Moore                  President and Chief Executive Officer

Lawrence M. Renfroe                      Executive Vice President

Christopher B. Snodgrass       Assist. V.P. and Financial Officer

C. W. Harman                                            Secretary

G. Albert Owen, Jr.                    Vice President and Cashier

Ron Doane         Assist. Vice President and Branch Administrator

Sunny K. Cornwell        Assist. Vice President and Credit Review

                           Main Office
                           ___________
Lois A. Bond                             Assistant Vice President

Patricia K. Harris                              Assistant Cashier

Carolyn W. Reed                                 Assistant Cashier

                       Cave Spring Office
                       __________________

Larry J. Hurt           Assist. Vice President and Branch Manager

Kit C. Edwards                          Branch Operations Officer

                         Administrative
                         ______________
Marie V. Thomas                                    Vice President

Mary Ann Ayers                                  Marketing Officer

Annette V. Battle                Assist. Secretary to the Board &
                                              Recording Secretary

Patricia B. Spangler                     Administrative Assistant

Shelby L. Rutherford                     Administrative Assistant

                             Lending
                             _______

Dianne H. Hamm            Assist. Vice Pres. & Compliance Officer

Patricia A. Bower                               Assistant Cashier

Troy L. Abell             Assist. Vice President and Loan Officer

                           Operations
                           __________

Betty A. Whitlock    Assist. Cashier & Manager of Data Processing

                              Audit
                              _____

Wanda M. Gardner        Assist. Vice President & Internal Auditor
<PAGE>43
________________________________________________________________________________
                       
Stockholder Information
________________________________________________________________________________

Annual Meeting
______________

The annual meeting of shareholders will be held at 2:00 p.m. on
April 22, 1998, in the community room at The Bank of Floyd, 101
Jacksonville Circle, Floyd, Virginia.

Requests for Information
________________________

Requests for information should be directed to Mrs. Annette
Battle, Recording Secretary, at The Bank of Floyd, Post Office
Box 215, Floyd, Virginia, 24091; telephone (540) 745-4191.  A
copy of the Company's Form 10-KSB for 1997 will be furnished,
without charge, after March 31, 1998 upon written request.

Independent Auditors                         Stock Transfer Agent
____________________                         ____________________

Larrowe, Cardwell & Company, LC              The Bank of Floyd
 Certified Public Accountants                Post Office Box 215
Post Office Box 760                          Floyd, Virginia 24091
Galax, Virginia  24333

Federal Deposit Insurance Corporation
_____________________________________

The Bank is a member of the FDIC.  This statement has not been
reviewed, or confirmed for accuracy or relevance by the Federal
Deposit Insurance Corporation.

Federal Home Loan Bank
______________________

The Bank of Floyd is a member of the Federal Home Loan Bank of Atlanta.

Federal Reserve
_______________

The Bank of Floyd is a state-chartered bank and a member of the Federal
Reserve Bank of Richmond.

                         Banking Offices
                         _______________

  Floyd Office                            Roanoke Office
  ____________                            ______________
  101 Jacksonville Circle                 4094 Postal Drive
  Floyd, Virginia  24091                  Roanoke, Virginia 24018
  (540) 745-4191                          (540) 774-1111

  Willis Office                            Hillsville Office
  _____________                            _________________
  Floyd Highway South                      Opening Spring 1998
  Willis, Virginia  24380                  185 South Main Street
  (540) 745-4191                           Hillsville, Virginia 24343
                                           (540) 745-4191
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