<PAGE>


                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-QSB


                                   (Mark One)
   X Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
                                     of 1934
                for the quarterly period ended September 30, 2001
                                       or
  _____Transition Report under Section 13 or 15 (d) of the Securities Exchange
                                   Act of 1934
     for the transition period from__________________ to __________________.

                          Commission File No. -0-28780-

                         CARDINAL BANKSHARES CORPORATION
           (Exact name of the registrant as specified in its charter)

        Virginia                                        54-1804471
(State of Incorporation)                   (I.R.S. Employer Identification No.)

             101 Jacksonville Circle (P. O. Box 215), Floyd VA 24091
                    (Address of principal executive offices)

                                 (540) 745-4191
                (Issuer's telephone number, including area code)

                 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 the past 90 days.
                                    Yes [X]  No__

                      APPLICABLE ONLY TO CORPORATE ISSUERS

    State the number of shares outstanding of each of the issuer's classes of
                common equity, as of the latest practicable date:

     The number of shares outstanding of the Issuer's Common Stock, $10 Par
                 value, as of November 12, 2001 was 1,535,733.

       Transitional Small Business Disclosure Format (check one):Yes [_] No X__

<PAGE>


                CARDINAL BANKSHARES CORPORATION AND SUBSIDIARIES
                                   FORM 10-QSB

                                      INDEX


-----------------------------------------------------------------------------

<TABLE>
<CAPTION>
<S>                                                                                                             <C>
PART 1.   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

   The consolidated financial statements of Cardinal Bankshares Corporation (the
   "Company") are set forth in the following pages.

   Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000 .................................   3

   Consolidated Statements of Operations for the Nine and Three Months Ended September 30, 2001 and 2000 ......   4

   Consolidated Statements of Stockholders' Equity for the Nine Months Ended September 30, 2001
     and the Year Ended December 31, 2000 .....................................................................   5

   Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000 ................   6

   Notes to Consolidated Financial Statements .................................................................   7

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS ............................................................................... 8-9

PART II.  OTHER INFORMATION ...................................................................................  10
</TABLE>





All schedules have been omitted because they are inapplicable or the required
information is provided in the financial statements, including the notes
thereto.

<PAGE>

--------------------------------------------------------------------------------

Consolidated Balance Sheets
September 30, 2001 and December 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                    2001            2000
                                                           -------------   -------------
Assets
<S>                                                        <C>             <C>
Cash                                                       $   3,269,752   $   2,631,298
Interest-bearing deposits with banks                                   -               -
Federal funds sold                                             9,800,000       4,475,000
Investment securities available for sale                      27,111,198      37,320,415
Investment securities held to maturity                        18,913,935      19,351,824
Restricted equity securities                                     841,898         630,700
Loans, net of allowance for loan losses $1,192,467
    in 2001 and $1,133,993 in 2000                           113,194,915      92,601,863
Property and equipment, net                                    2,355,520       2,486,648
Accrued income                                                 1,228,391       1,288,241
Foreclosed assets                                                217,528         428,151
Other assets                                                     905,454       2,025,775
                                                           -------------   -------------
      Total assets                                         $ 177,838,591   $ 163,239,915
                                                           =============   =============

Liabilities and Stockholders' Equity

Liabilities
Noninterest-bearing liabilities                            $  24,180,525   $  18,346,247
Interest-bearing liabilities                                 131,264,522     124,687,105
                                                           -------------   -------------
      Total deposits                                         155,445,047     143,033,352

Accrued interest payable                                         330,576         272,507
Other liabilities                                                446,697         255,968
                                                           -------------   -------------
      Total liabilities                                      156,222,320     143,561,827
Commitments and contingencies                                          -               -

Stockholders' equity
    Common stock, $10 par value; 5,000,000 shares
      authorized; 1,535,733 and 511,911 shares issued in
      2001 and 2000, respectively                             15,357,330       5,119,110
    Surplus                                                    2,925,150       2,925,150
    Retained earnings                                          2,989,570      11,764,483
    Accumulated other comprehensive income                       344,221        (130,655)
                                                           -------------   -------------
      Total stockholder's equity                              21,616,271      19,678,088
                                                           -------------   -------------
      Total liabilities and stockholder's equity           $ 177,838,591   $ 163,239,915
                                                           =============   =============
</TABLE>

See Notes to Consolidated Financial Statements

                                       3



<PAGE>

--------------------------------------------------------------------------------

Consolidated Statements of Income
For the nine and three months ended September 30, 2001 and 2000
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                       For the nine months ended    For the three months ended
                                                        9/30/2001      9/30/2000     9/30/2001      9/30/2000
                                                       -----------    ----------    -----------    -----------
<S>                                                    <C>            <C>           <C>            <C>
Interest income

    Loans and fees on loans                            $ 6,948,280    $ 5,852,543   $ 2,474,936    $ 2,036,034
    Federal funds sold and securities purchased
      under agreements to resell                           225,397        214,545        55,386         44,275
    Investment securities:
      Taxable                                            1,511,511      1,778,975       460,713        582,964
      Exempt from federal income tax                       714,064        710,348       235,598        254,239
    Dividends                                               63,253              -        39,795              -
    Deposits with banks                                     38,381         21,995        35,139          1,704
                                                       -----------    -----------   -----------    -----------
           Total interest income                         9,500,886      8,578,406     3,301,567      2,919,216
                                                       -----------    -----------   -----------    -----------
Interest expense
    Deposits                                             4,907,570      4,403,829     1,671,820      1,499,325
    Borrowings                                                   -              -             -              -
                                                       -----------    -----------   -----------    -----------
           Total interest expense                        4,907,570      4,403,829     1,671,820      1,499,325
                                                       -----------    -----------   -----------    -----------
           Net interest income                           4,593,316      4,174,577     1,629,747      1,419,891

Provision for loan losses                                  400,000        400,000       145,000        150,000
                                                       -----------    -----------   -----------    -----------
           Net interest income after provision
             for loan losses                             4,193,316      3,774,577     1,484,747      1,269,891
                                                       -----------    -----------   -----------    -----------
Noninterest income
    Service charges on deposit accounts                    210,314        159,467        73,463         57,585
    Other service charges and fees                          58,413         40,889        20,063         17,759
    Net realized gains on sales of securities               44,365              -        40,650              -
    Other income                                           136,021         55,189        35,890         15,415
                                                       -----------    -----------   -----------    -----------
           Total noninterest income                        449,113        255,545       170,066         90,759
                                                       -----------    -----------   -----------    -----------
Noninterest expense
    Salaries and employee benefits                       1,304,812      1,295,096       555,700        437,216
    Occupancy                                              155,587        132,770        60,861         50,086
    Equipment                                              232,460        217,912       (41,770)        87,074
    Data processing                                         13,809              -       (65,541)             -
    Foreclosed assets, net                                (144,176)             -      (116,508)             -
    Other general and administrative                       779,037        692,535       321,358        221,830
                                                       -----------    -----------   -----------    -----------
           Total noninterest expense                     2,341,529      2,338,313       714,100        796,206
                                                       -----------    -----------   -----------    -----------
           Income before income taxes                    2,300,900      1,691,809       940,713        564,444

Income tax expense                                         545,804        358,875       216,804        120,561
                                                       -----------    -----------   -----------    -----------
           Net income                                  $ 1,755,096    $ 1,332,934   $   723,909    $   443,883
                                                       ===========    ===========   ===========    ===========

Basic earnings per share                               $      1.14    $      0.88   $      0.47    $      0.30
                                                       ===========    ===========   ===========    ===========
</TABLE>


See Notes to Consolidated Financial Statements

                                        4



<PAGE>

================================================================================

Consolidated Statements of Changes in Stockholders' Equity

For the nine months ended September 30, 2001 (Unaudited) and the year ended
December 31, 2000 (Audited)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                     Accumulated
                                                                                        Other
                                        Common                        Retained      Comprehensive
                                        Stock           Surplus       Earnings      Income (Loss)        Total
                                     ------------    ------------   ------------    -------------    ------------
<S>                                  <C>             <C>            <C>             <C>              <C>
Balance, December 31, 1999           $  5,117,710    $  2,925,150   $ 10,514,759    $    (800,022)   $ 17,757,597

Comprehensive income
Net income                                      -               -      1,825,938                -       1,825,938
Net change in unrealized
    appreciation on investment
    securities available for sale,
    net of income taxes                         -               -              -          669,367         669,367
                                                                                                     ------------
Total comprehensive income                                                                              2,495,305

Dividends paid
    ($1.18 per share)                           -               -       (582,014)               -        (582,014)
Common stock purchased                   (200,640)              -       (584,763)               -        (785,403)
Common stock reissued                     202,040               -        590,563                -         792,603
                                     ------------    ------------   ------------    -------------    ------------
Balance, December 31, 2000              5,119,110       2,925,150     11,764,483         (130,655)     19,678,088

Comprehensive income
Net income                                      -               -      1,755,096                -       1,755,096
Net change in unrealized
    appreciation on investment
    securities available for sale,
    net of income taxes                         -               -              -          474,876         474,876
                                                                                                     ------------
Total comprehensive income                                                                              2,229,972

Dividends paid
    ($0.57 per share)                           -               -       (291,789)               -        (291,789)
Stock split (3 for 1)
    effected in the form
    of a dividend                      10,238,220               -    (10,238,220)               -               -
                                     ------------    ------------   ------------    -------------    ------------
Balance, September 30, 2001          $ 15,357,330    $  2,925,150   $  2,989,570    $     344,221    $ 21,616,271
                                     ============    ============   ============    =============    ============
</TABLE>

See Notes to Consolidated Financial Statements

                                       5

<PAGE>

================================================================================

Consolidated Statements of Cash Flows

For the nine months ended September 30, 2001 and 2000 (Unaudited)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                  2001            2000
                                                              ------------    -----------
<S>                                                           <C>             <C>
Cash flows from operating activities
    Net income                                                $  1,755,096    $  1,332,934
    Adjustments to reconcile net income
      to net cash provided by operations;
        Depreciation and amortization                              183,175         169,304
        Accretion of discount on securities, net
           of amortization of premiums                             (12,480)         40,551
        Provision for loan losses                                  400,000         400,000
        Deferred income taxes                                      244,633        (109,392)
        Net realized (gains) losses on securities                  (44,365)              -
        Deferred compensation and pension expense                   77,066          71,215
        Changes in assets and liabilities:
           Accrued income                                           59,850          (5,010)
           Other asssets                                         1,086,312        (677,847)
           Accrued income payable                                   58,069          34,638
           Other liabilities                                       113,663          97,756
                                                              ------------    ------------
             Net cash provided by operating activities           3,921,019       1,354,149
                                                              ------------    ------------

Cash flows from investing activites
    Net (increase) decrease in interest-bearing deposits                 -       2,000,000
    Net (increase) decrease in federal funds sold               (5,325,000)      2,375,000
    Purchases of investment securities                          (8,609,944)     (8,295,085)
    Sales of investment securities                               1,000,000               -
    Maturities of investment securities                         18,577,573       4,673,759
    Net (increase) decrease in loans                           (20,993,052)     (2,149,479)
    Net purchases of property and equipment                        (52,048)       (273,625)
                                                              ------------    ------------
             Net cash used in investing activities             (15,402,471)     (1,669,430)
                                                              ------------    ------------

Cash flows from financing activities
    Net increase (decrease) in noninterest-bearing deposits      5,834,278       1,365,445
    Net increase in interest-bearing deposits                    6,577,417        (950,620)
    Dividends paid                                                (291,789)       (271,816)
    Common stock purchased                                               -        (784,620)
    Common stock reissued                                                -          31,401
                                                              ------------    ------------
             Net cash provided by financing activities          12,119,906        (610,210)
                                                              ------------    ------------
             Net increase (decrease) in cash and cash
               equivalents                                         638,454        (925,491)

Cash and cash equivalents, beginning                             2,631,298       3,775,280
                                                              ------------    ------------
Cash and cash equivalents, ending                             $  3,269,752    $  2,849,789
                                                              ============    ============

Supplemental disclosures of cash flow information

    Interest paid                                             $  4,849,502    $  4,369,191
                                                              ============    ============
    Income taxes paid                                         $    400,986    $    269,495
                                                              ============    ============
Supplemental disclosure of noncash investing activities
    Other real estate acquired in settlement of loans         $    210,623    $    625,454
                                                              ============    ============
</TABLE>

See Notes to Consolidated Financial Statements

                                       6

<PAGE>


ITEM 1.       ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

NOTE 1.       BASIS OF PRESENTATION:

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 July 1, 1996 and used the pooling
of interests accounting method.

The consolidated financial statements as of September 30, 2001 and for the
periods ended September 30, 2001 and 2000 included herein, have been prepared by
Cardinal Bankshares Corporation, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, the information furnished in the interim consolidated financial
statements reflects all adjustments necessary to present fairly the Company's
consolidated financial position, results of operations, changes in stockholders'
equity and cash flows for such interim periods. Management believes that all
interim period adjustments are of a normal recurring nature. These consolidated
financial statements should be read in conjunction with the Company's audited
financial statements and the notes thereto as of December 31, 2000, included in
the Company's Annual Report for the fiscal year ended December 31, 2000.

The Bank of Floyd and its wholly owned subsidiary, FBC, Inc. are organized and
incorporated 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 an insurance company. The Bank serves the counties of Floyd, Carroll,
Montgomery, and Roanoke, Virginia and the City of Roanoke, Virginia through five
banking offices.

All significant inter-company accounts and transactions have been eliminated in
consolidation. Certain prior year amounts have been reclassified to conform to
the current year presentation.

NOTE 2.       ALLOWANCES FOR CREDIT LOSSES

The following is an analysis of the allowance for credit losses for the nine
months ended September 30.

                                                   2001             2000
                                             ----------------  ---------------

     Balance at January 1                    $      1,133,993  $     1,661,521
     Provision charged to operations                  400,000          400,000
     Loans charged off, net of recoveries            (341,526)        (941,553)
                                             ----------------  ---------------
       Balance at September 30               $      1,192,467  $     1,119,968
                                             ================  ===============

<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Comparision of Nine Months Ended September 30, 2001 and 2000

Net income for the nine months ended September 30, 2001 was $1,755,096, an
increase of 31.67% compared to September 30, 2000. Net interest income increased
10.03% from September 30, 2000 to September 30, 2001. Provision for loan losses
remained the same at $400,000. Management believes the provision and the
resulting allowance for credit losses to be adequate.

Interest income increased $922,480 from September 30, 2001 to 2000 as interest
expense increased $503,741 over 2000.

Noninterest income increased 75.75% in 2001 compared to 2000. Gains on sales of
securities and charges on the growing number of deposit accounts were
contributors to the increase. Noninterest expense increased only $3,216.
Salaries and employee benefits increased $9,716 occupancy expense increased
$22,817. Net foreclosed assets which consists of income from the sale of other
assets less related expenses was $144,176 at September 30, 2001.

Comparison of three months ended September 30, 2001 and 2000.

For the quarter ended September 30, 2001, the Bank earned $723,909 in net income
compared to $443,883 for the quarter ended September 30, 2000. Net interest
income increased 14.78%. Interest income was $3,301,567 for the quarter ended
September 30, 2001, compared to $2,919,216 for the same period of 2000, an
increase of 13.10%. Interest expense for the quarter ended September 30, 2001
was $1,671,820, up $172,495 from $1,499,325 for the quarter ended September 30,
2000.

The provision for credit losses was $145,000 for the quarter ended September 30,
2001 and $150,000 for the quarter ended September 30, 2000. Management believes
the provision and the resulting allowance for credit losses is adequate.

CHANGES IN FINANCIAL CONDITION

Total assets at September 30, 2001 were $177,838,591 compared to $163,239,915 at
December 31, 2000, an increase of $14,598,676. Federal funds sold increased by
$5,325,000 and other assets decreased by $1,120,321 for the period. Gross loans
increased $20,651,526 compared to December 31, 2000 and accounted for 64% of
total assets at September 30, 2001. Deposits increased $12,411,695. Loans to
deposits at September 30, 2001 was 74% compared to 66% at December 31, 2000.

Allowance for loan losses at September 30, 2001 amounted to $1,192,467 and
$1,133,993 at December 31, 2000. At September 30, 2001, the allowance was 1.04%
of gross loans. At December 31, 2000, the allowance was 1.21% of gross loans.
The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.

CAPITAL ADEQUACY

Shareholder's equity amounted to $21,616,271 at September 30, 2001, an increase
of $1,938,183 compared to the December 31, 2000 balance of $19,678,088. The
increase was a result of earnings and an increase in the market value of
securities offset by dividends paid.

Regulatory guidelines relating to capital adequacy provide minimum risk-based
ratios at the Bank level which assess capital adequacy while encompassing all
credit risks, including those related to off-balance sheet activities. The Bank
of Floyd (a wholly owned subsidiary of Cardinal Bankshares Corporation) exceeds
all regulatory capital guidelines and is considered to be well capitalized. At
September 30, 2001 the Bank had a ratio of Tier 1 capital to risk-weighted
assets of 13.18%, a ratio of total risk-based capital to risk-weighted assets of
14.16% and a leverage ratio of Tier 1 capital to average total assets for the
quarter ended September 30, 2001 of 8.91%.

<PAGE>

On April 25, 2001, the Company announced a 3-for-1 stock split to be distributed
to all stockholders of record as of April 25, 2001. All references in the
financial statements have been retroactively restated to reflect the split. As a
result, $10,238,200 was transferred from retained earnings to common stock.

FORWARD LOOKING INFORMATION

Certain statements in this Section and elsewhere in this report are
forward-looking in nature and relate to trends and events that may affect the
Company's future financial position and operating results. Such statements are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The terms "expect", "anticipate", "intend" and "project" and
similar words or expressions are intended to identify forward-looking
statements. These statements speak only as of the date of this report. The
statements are based on current expectations, are inherently uncertain, are
subject to risks, and should be viewed with caution. Actual results and
experience may differ materially from the forward-looking statements as a result
of many factors, including changes in economic conditions in the markets served
by the Company, increasing competition, fluctuations in raw materials and energy
prices, and other unanticipated events and conditions. It is not possible to
foresee or identify all such factors. The Company makes no commitment to update
any forward-looking statement or to disclose any facts, events, or circumstances
after the date hereof that may affect the accuracy of any forward-looking
statement.

INTEREST RATE RISK (IRR) AND ASSET LIABILITY MANAGEMENT

The Company's profitability is dependent to a large extent upon its net interest
income (NII), which is the difference between its interest income on
interest-bearing assets, such as loans and investments, and its interest expense
on interest-bearing liabilities, such as deposits and borrowings. The Company,
like other financial institutions, is subject to interest rate risk to the
degree that its interest-earning assets reprice differently than its
interest-bearing liabilities. The Company manages its mix of assets and
liabilities with the goals of limiting its exposure to interest rate risk,
ensuring adequate liquidity, and coordinating its sources and uses of funds.
Specific strategies for management of interest rate risk (IRR) on the lending
side of the balance sheet have included the use of ballooning fixed rate loans
and maintaining a significant level of 1, 3 and 5-year adjustable rate
mortgages. On the investment side the Company maintains a significant portion of
its portfolio in adjustable rate securities. These strategies help to reduce the
average maturity of the Company's interest-earning assets.

The Company attempts to control its IRR exposure to protect net interest income
and net earnings from fluctuations in the general level of interest rates. To
measure its exposure to IRR, the Company performs monthly simulations of NII
using financial models that project NII through a range of possible interest
rate environments including rising, declining, flat and most likely rate
scenarios. The result of these simulations indicate the existence and severity
of IRR in each of those rate environments based upon the current balance sheet
position and assumptions as to changes in the volume and mix of interest-earning
assets and interest-bearing liabilitities and management's estimate of yields
attainable in those future rate environments and rates which will be paid on
various deposit instruments and borrowings. The Company runs these rate shock
scenarios for twelve and twenty-four month projections out from the current
month of the model.

Changes to the Company's risk portfolio since December 31, 2000 reflects an
increase in the Company's liability-sensitivity. The Company has experienced an
increase in short-term deposits due in large part to the significant drop in
interest rates. In this low rate environment the Company's customers are
shifting their deposits from a longer term position to mainly terms of 12 months
or less.

The earnings sensitivity measurements completed on a monthly basis indicate that
the performance criteria against which sensitivity is measured, are currently
within the Company's defined policy limits. A more complete discussion of the
overall interest rate risk is included in the Company's annual report for
December 31, 2000.

<PAGE>

                                     PART II
                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

There are no matters pending legal proceedings to which the Company or any of
its subsidiaries is a party or of which any of their property is subject.

ITEM 2.  CHANGES IN SECURITIES

    (a)  Not applicable.

    (b)  Not applicable

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         Not applicable.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

ITEM 5.  OTHER INFORMATION

     None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

    (a)  Exhibits

     None.

    (b)  Reports on Form 8-K

    None.

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Exchange Act of 1934, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                     CARDINAL BANKSHARES CORPORATION


Date: November 12, 2001              By:  s/Ronald Leon Moore
                                     President, Chief Executive
                                     Officer, and Principal Financial
                                     Officer