Cardinal Bancshares of Lexington, Ky., turned in some ugly numbers for 1994, but bank officials said they're enduring short-term losses for long- term gains.
The $560 million-asset company lost $538,000 last year, a 115% plunge from the previous year. The bank was hit hardest in the fourth quarter, when it lost $1.1 million.
The quarterly setback was attributed primarily to a $1.5-million pretax loss on the sale of securities. Rising interest rates prompted the bank to sell about $53 million of securities, the bank said.
The poor showing also stemmed from growth at Cardinal last year, including the expansion of a new finance company and opening a bank in Louisville, according to analysts.
"The main issue during the year was the expenses, and that revolved around the decision to start up a finance company," said Jon R. Burke, analyst at Robinson-Humphrey Co., Inc. in Atlanta. "They should see some stunning numbers there in 1996, if not earlier. I think they got a little jewel that's percolating, and it should percolate to the top."
The consumer finance subsidiary, called Cardinal Credit Corp., grew from one office in the fall of 1993 to its current 21-office structure. That expansion brought noninterest expenses to $23 million for the year, a 51% jump from 1993.
Despite the cost, bank officials and analysts believe the move will prove fruitful.
"I would bet that it will pay off in spades," Mr. Burke said. "The returns tend to be vastly superior to those of commercial banks. There are also no adolescent regulators looking over your shoulder."
In addition to the finance company, Cardinal opened a new bank, called Jefferson Banking Co., in the attractive Louisville area, a new market for the company. Because the state forbids statewide branching, Cardinal could not simply open a branch there.
Adding to Cardinal's losses last year, the company fell victim to a check-kiting scheme. A customer of its Pineville thrift was arrested on charges of writing checks for $452,000 on uncollected funds from another bank. Cardinal has filed suit but said it is uncertain about the chances of recovery.
"Other than the bond losses and the expenses, we were very pleased with the financial performance of the company," said Jack H. Brown, chief financial officer.
