##### Table of Contents

Quarterly Report for Period Ending 09-30-02


---

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, 2002
|- |  | -----------------------------------------------------------------------------------------------------------------------------------




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-





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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  ̈





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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 8, 2002 was 1,535,733.





Transitional Small
Business Disclosure Format (check one): Yes  ̈ Nox





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##### Table of Contents




Cardinal Bankshares Corporation and Subsidiaries





Form 10-QSB


Index





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, 2002 and December 31, 2001

3Consolidated Statements of Operations for the Nine Months Ended September 30, 2002 and 2001

4Consolidated Statements of Operations for the Three Months Ended September 30, 2002 and 2001

5Consolidated Statements of Stockholders Equity for the Nine Months Ended September 30, 2002 and the Year Ended December 31, 2001

6Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001

7Notes to Consolidated Financial Statements

8Item 2.    Managements Discussion and Analysis of financial condition and Results of Operations

9-10Item 3.    Controls and Procedures

11Part II.    Other Information

12All schedules have been omitted because they are inapplicable or the required information is provided in the financial statements,
including the notes thereto.Signatures and Certifications

12-16







2




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##### Table of Contents




Cardinal Bankshares Corporation and Subsidiaries





Consolidated Balance Sheets


September 30, 2002 and December 31, 2001


(In thousands,
except share and per share data)





September 30, 2002

December 31, 2001AssetsCash and due from banks

$
5,651

$
3,986Interest-bearing deposits with banks


5,000


Federal funds sold


12,515


18,990Investment securities available for sale


28,078


23,651Investment securities held to maturity


17,788


19,255Restricted equity securities


1,614


2,126Loans, net of allowance for credit losses of $1,613 in 2002 and $1,300 in 2001


104,941


113,207Property and equipment, net


2,212


2,302Accrued income


1,144


1,071Foreclosed assets


297


58Other assets


4,455


1,152Total assets

$
183,695

$
185,798LiabilitiesNoninterest-bearing deposits

$
21,368

$
20,107Interest-bearing deposits


138,321


143,361Total deposits


159,689


163,468Accrued interest payable


225


298Other liabilities


608


578Total liabilities


160,522


164,344Commitments and contingencies





Stockholders equityCommon stock, $10 par value, authorized 5,000,000 shares, issued 1,535,733 shares in 2002 and in 2001



15,357


15,357Paid in capital


2,925


2,925Retained earnings


4,531


2,972Unrealized appreciation (depreciation) on investment securities available for sale


360


200Total stockholders equity


23,173


21,454Total liabilities and stockholders equity

$
183,695

$
185,798







3




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##### Table of Contents

Cardinal Bankshares Corporation and Subsidiaries





Consolidated Statements of Operations


For the Nine Months ended September 30, 2002 and 2001 (Unaudited)


(In thousands, except share and per share data)





Nine Months Ended September
30,2002

2001(Unaudited)

(Unaudited)Interest incomeLoans and fees on loans

$
6,672

$
6,948Federal funds sold


145


225Taxable investment securities


1,101


1,575Investment securities exempt from federal tax


733


714Deposits with banks


81


39Total interest income


8,732


9,501Interest expenseDeposits


3,858


4,908Other borrowed funds





Total interest expense


3,858


4,908Net interest income


4,874


4,593Provision for loan losses


375


400Net interest income after provision for loan loss


4,499


4,193Noninterest incomeService charges on deposit accounts


231


210Other service charges and fees


60


59Net realized gains on sales of securities


24


44Other income


185


136Total non interest income


500


449Noninterest expenseSalaries and employee benefits


1,491


1,305Occupancy expense


150


155Equipment expense


244


232Data processing


14


14Foreclosed assets, net


1


(144
)Other expense


618


779Total non interest expense


2,518


2,341Income before income taxes


2,481


2,301Income tax expense


615


546Net income

$
1,866

$
1,755Basic earnings per share

$
1.22

$
1.14Diluted earnings per share

$
1.22

$
1.14




4




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##### Table of Contents

Cardinal Bankshares Corporation and Subsidiaries





Consolidated Statements of Operations


For the Three Months ended September 30, 2002 and 2001 (Unaudited)


(In thousands, except share and per share data)





Three Months Ended September 30,2002

2001(Unaudited)

(Unaudited)Interest incomeLoans and fees on loans

$
2,132

$
2,475Federal funds sold


46


55Taxable investment securities


383


501Investment securities exempt from federal tax


246


236Deposits with banks


23


35Total interest income


2,830


3,302Interest expenseDeposits


1,165


1,672Other borrowed funds





Total interest expense


1,165


1,672Net interest income


1,665


1,630Provision for loan losses


105


145Net interest income after provision for loan loss


1,560


1,485Noninterest incomeService charges on deposit accounts


84


73Other service charges and fees


22


20Net realized gains on sales of securities


13


41Other income


67


36Total non interest income


186


170Noninterest expenseSalaries and employee benefits


518


556Occupancy expense


48


61Equipment expense


87


(42
)Data processing


5


(66
)Foreclosed assets, net





(116
)Other expense


219


321Total non interest expense


877


714Income before income taxes


869


941Income tax expense


209


217Net income

$
660

$
724Basic earnings per share

$
0.43

$
0.47Diluted earnings per share

$
0.43

$
0.47







5




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##### Table of Contents

Cardinal Bankshares Corporation and Subsidiaries





Consolidated Statement of Changes in
Stockholders Equity


For the Nine Months ended September 30, 2002 (Unaudited) and the Year ended December 31, 2001 (Audited)


(In thousands, except share and per share data)





Common Stock

Paid In Capital

Retained Earnings


Accumulated Other
Comprehensive Income (Loss)


Total Stock- holders EquityJanuary 1, 2001

$
5,119

$
2,925

$
11,765


$
(131
)

$
19,678Net income








2,090







2,090Net change in unrealized depreciation on investment securities available for sale, net of income taxes












331



3312,421Dividends paid ($0.42 per share)








(645
)






(645
)Stock split (3 for 1) effected in the form of a dividend


10,238





(10,238
)






December 31, 2001


15,357


2,925


2,972



200



21,454Net income








1,866







1,866Net change in unrealized depreciation on investment securities available for sale, net of income taxes












160



1602,026Dividends paid ($0.20 per share)








(307
)






(307
)September 30, 2002

$
15,357

$
2,925

$
4,531


$
360


$
23,173







6




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##### Table of Contents

Cardinal Bankshares Corporation and Subsidiaries





Consolidated Statements of Cash Flows


For the Nine Months ended September 30, 2002 and 2001 (Unaudited)


(In thousands, except share and per share data)





Nine Months Ended September 30,2002


2001Cash flows from operating activitiesNet income

$
1,866


$
1,755Adjustments to reconcile net income to net cash provided by operations:Depreciation and amortization


192



183Accretion of discounts on securities


(7
)


(12
)Provision for loan losses


375



400Deferred income taxes


63



245Net realized gains on securities


(24
)


(44
)Deferred compensation & pension expense


72



77Changes in assets and liabilities:Accrued income


(73
)


60Other assets


(624
)


1,086Accrued interest payable


(72
)


58Other liabilities


(42
)


113Net cash provided by operating activities


1,726



3,921Cash flows from investing activitiesNet (increase) decrease in interest-bearing deposits


(5,000
)


Net (increase) decrease in federal funds sold


6,475



(5,325
)Purchases of investment securities


(13,514
)


(8,610
)Sale of investment securities


792



1,000Maturities of investment securities


10,034



18,578Decrease in restricted equity securities


512



Net (increase) decrease in loans


7,891



(20,993
)Net purchases of property and equipment


(102
)


(52
)Purchases of bank owned life insurance


(3,063
)


Net cash used in investing activities


4,025



(15,402
)Cash flows from financing activitiesNet increase (decrease) noninterest-bearing deposits


1,261



5,834Net increase in interest-bearing deposits


(5,040
)


6,578Dividends paid


(307
)


(292
)Common stock purchased






Common stock reissued






Net cash used in financing activities


(4,086
)


12,120Net increase (decrease) in cash and cash equivalents


1,665



639Cash and cash equivalents, beginning


3,986



2,631Cash and cash equivalents, ending

$
5,651


$
3,270Supplemental disclosures of cash flow informationInterest paid

$
3,930


$
4,850Income taxes paid

$
764


$
401




7




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##### Table of Contents

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 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, 2002 and for the
periods ended September 30, 2002 and 2001 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, 2001, included in the Companys Annual Report for the fiscal year ended December 31,
2001.





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 minority
interests in an insurance company and a title 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 intercompany 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 Loan Losses (dollars in thousands)





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





2002


2001Balance at January 1

$
1,300


$
1,134Provision charged to operations


375



400Loans charged off, net of recoveries


(62
)


(342
)Balance at September 30

$
1,613


$
1,192





Note 3.    Commitments and Contingencies (dollars in thousands)





The Banks exposure to credit loss in the event of nonperformance by the other party 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 September 30, 2002 and 2001 is as follows:





2002

2001Commitments to extend credit

$
9,463

$
12,078Standby letters of credit


803


565$
10,266

$
12,643







8




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##### Table of Contents




Item 2.    Managements Discussion and Analysis of Financial Condition and Results of Operations





Overview (in thousands, except shares and per share data)





The Bank earned $1,866 or $1.22 basic net income per
share for the nine months ended September 30, 2002 compared to $1,755 or $1.14 basic net income per share for the nine months ended September 30, 2001. Total interest income of $8,732 less interest expense of $3,858 resulted in net interest income
of $4,874 for the nine months, an increase of 6.1% over the same period in 2001. Provision for loan losses charged to operations was $375 for the nine months ending September 30, 2002 compared to $400 in the same period of 2001. Noninterest income
and expenses amounted to $500 and $2,518, respectively for the first nine months of 2002 and $449 and $2,341 for the first nine months of 2001.





Total assets at September 30, 2002 were $183,695 compared to $185,798 at December 31, 2001. The decrease in assets was primarily due to the $3,779 decrease in deposits. Other assets increased 286.7% from December to September. Most
of the increase was the result of a $3.0 million investment in bank-owned life insurance.





Net income for the quarter ended September 30,
2002 decreased 8.9% from the same period in 2001. The decrease in net income was due primarily to an increase in noninterest expenses.





Noninterest income increased during the third quarter of 2002, amounting to $186 compared to $170 for the third quarter of 2001. Noninterest expense increased by $163.





Loans (dollars in thousands)





At September 30, 2002, gross loans totaled $106,529
and represented 58.0% of total assets compared to $114,507 or 61.6% of total assets at December 31, 2001. The loan-to-deposit ratios for September 30, 2002 and December 31, 2001 were 66.7% and 70.0%, respectively.





Allowance for Loan Losses (dollars in thousands)





The allowance for loan losses was $1,613 or 1.49% of outstanding loans at September 30, 2002 compared to $1,300 or 1.14% of outstanding loans at December 31, 2001.





The allowance for loan losses represents managements estimate of an amount adequate to provide for potential losses inherent in the loan portfolio. The adequacy for loan losses and the related
provision are based upon managements evaluation of the risk characteristics of the loan portfolio under current economic conditions with consideration to such factors as financial condition of the borrowers, collateral values, growth and
composition of the loan portfolio, the relationship of the allowance for loan losses to outstanding loans, and delinquency trends. Management believes that the allowance for loan losses is adequate.





While management uses all available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic
conditions. Various regulatory agencies, as an integral part of their examination process, periodically review the Banks allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.





Deposits (dollars in thousands)





Total deposits decreased from $163,468 at December 31, 2001 to $159,689 at September 30, 2002, a decrease of $3,779 or 2.3%. As of September 30, 2002,
the Bank had $21,559 in time deposits of $100 or more.





Stockholders Equity and Capital Adequacy (dollars in thousands)





Total stockholders equity was $23,173 at September 30, 2002, compared to $21,454 at December 31, 2001, an increase of $1,719.
The increase is attributed to net earnings of $1,866, dividends of $307 paid, and the change in the unrealized appreciation on available for sale securities of $160.




9




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##### Table of Contents




Stockholders Equity and Capital Adequacy, continued





The Banks regulators define risk-based capital guidelines as core, or Tier 1 capital, and supplementary, or Tier 2 capital. Core
capital consists of common stockholders equity while supplementary, or Tier 2 capital, consists of the allowance for loan losses, subject to certain limitations. These amounts are referred to collectively as total qualifying
capital. Banks are expected to meet a minimum ratio of total qualifying capital to risk adjusted assets of 8.0%. The Banks risk-based capital ratio exceeded 13.6% at September 30, 2002.





In addition to the risk-based capital guidelines mentioned above, banking regulatory agencies have adopted leverage capital ratio requirements. The leverage ratioor core capital to
assets ratioworks in tandem with the risk-based capital guidelines. The minimum leverage ratios range from three to five percent. At September 30, 2002, the Banks leverage capital ratio was in excess of 8%.





Management is not presently aware of any current recommendations to the Bank by regulatory authorities, which if they were to be implemented, would have a
material effect on the Banks liquidity, capital resources, or operations.





Interest Rate Risk Management





Interest rate risk is the sensitivity of interest income and interest expense to changes in interest rates. Management continues to structure its
assets and liabilities in an attempt to protect net interest income from large fluctuations associated with changes in interest rates.





Forward-Looking Statements





This document contains forward-looking statements. These statements are subject to
certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, changes in the interest rate
environment, managements business strategy, national, regional, and local market conditions and legislative and regulatory conditions.





Readers should not place undue reliance on forward-looking statements, which reflect managements view only as to the date hereof. The Bank undertakes no obligation to publicly revise these forward-looking statements to reflect
subsequent events or circumstances.





Liquidity





The liquidity of a bank measures its access to or ability to raise funds. Sustaining adequate liquidity requires a bank to ensure the availability of funds to satisfy reserve requirements, loan demand,
deposit withdrawals, and maturing liabilities while funding asset growth and producing appropriate earnings. Liquidity is provided through maturities and repayments of loans and investments, deposit growth, and access to sources of funds other than
deposits, such as the federal funds market or other borrowing sources. The Banks primary liquid assets are Cash and due from banks, Interest-bearing deposits with banks, Federal funds sold and Investment securities. At September 30, 2002, the
ratio of liquid assets to total deposits was 42.6% compared to a ratio of 41.6% at December 31, 2001.







10




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##### Table of Contents




Item 3.    Controls and Procedures





Within 90 days prior to the date of this report, we
carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, including internal controls and procedures for financial reporting. Our principal executive officer and acting financial officer
supervised this evaluation and concluded that our disclosure controls and procedures are effective. Subsequent to this evaluation, (i) there have been no significant changes to our internal controls or other factors that could significantly affect
our disclosure controls or procedures and (ii) we have not taken any corrective actions with respect to our disclosure controls and procedures to correct any significant deficiencies or weaknesses.





The design of any system of controls is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design
will succeed in achieving its stated goal under every potential condition, regardless of how remote. In addition, the operation of any system of controls and procedures is dependent upon the employees responsible for executing it. While we have
evaluated the operation of our disclosure controls and procedures and found them effective, there can be no assurance that they will succeed in every instance to achieve their objective.




11




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##### Table of Contents




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





Not applicable





Item
5.    Other Information





On September 25, 2002 the Company signed an amendment to the
Agreement and Plan of Reorganization and Merger (the Agreement) by and between the Company and MountainBank Financial Corporation dated June 20, 2002.





The employment of the Companys Chief Financial Officer, Mr. David Welch, was terminated by the Board of Directors effective October 1, 2002. Pending appointment of a
permanent replacement for Mr. Welch, Ms. Wanda Gardner has assumed interim responsibility as the Companys principal financial officer.





Item 6.    Exhibits and Reports on Form 8-K





| | (a) |  | Exhibits
| | --- |  | --------




None.





| | (b) |  | Reports on Form 8-K
| | --- |  | -------------------




| | (1) |  | Form 8-K filed September 25, 2002 to report an amendment to the merger agreement with MountainBank Financial Corporation
| | --- |  | ------------------------------------------------------------------------------------------------------------------------




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 CorporationDate:    November 14, 2002



By:

/s/    RONALD LEON
MOOREPresident, Chief Executive Officer/s/    WANDA M.
GARDNERActing Chief Financial Officer




12




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##### Table of Contents




CERTIFICATION





I, Ronald Leon Moore certify that:





|1. |  | I have reviewed this quarterly report on Form 10-QSB of Cardinal Bankshares Corporation;
|-- |  | ----------------------------------------------------------------------------------------




|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|4. |  | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) for the registrant and have:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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




| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | c) |  | presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation
Date;
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------




|5. |  | The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent functions):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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




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




|6. |  | The registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date:    November 14, 2002





/s/    RONALD LEON
MOORERonald Leon Moore President
and Chief Executive Officer







13




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##### Table of Contents




STATEMENT OF CHIEF EXECUTIVE OFFICER AND


PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. § 1350





In connection with the Quarterly Report on Form 10-QSB for the period ended September 30, 2002 (the Form 10-QSB) of Cardinal Bankshares Corporation (the Company), I, Ronald Leon Moore, Chief Executive Officer
and Principal Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:





(a)    the Form 10-QSB fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and





(b)    the information contained in the Form 10-QSB fairly presents, in all
material respects, the financial condition and results of operations of the Company as of and for the periods presented in the Form 10-QSB.





By:

/s/    RONALD LEON
MOORE



Date:    November 14, 2002Ronald Leon Moore Chief Executive
Officer




14




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##### Table of Contents

CERTIFICATION





I, Wanda M. Gardner certify that:





|1. |  | I have reviewed this quarterly report on Form 10-QSB of Cardinal Bankshares Corporation;
|-- |  | ----------------------------------------------------------------------------------------




|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|4. |  | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) for the registrant and have:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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




| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | c) |  | presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation
Date;
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------




|5. |  | The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent functions):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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




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




|6. |  | The registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date:    November 14, 2002



/S/    WANDA M. GARDNERWanda M. Gardner Acting Chief
Financial Officer




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##### Table of Contents

STATEMENT OF CHIEF EXECUTIVE OFFICER AND


PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. § 1350





In connection with the
Quarterly Report on Form 10-QSB for the period ended September 30, 2002 (the Form 10-QSB) of Cardinal Bankshares Corporation (the Company), I, Wanda M. Gardner, Acting Chief Financial Officer of the Company, hereby certify
pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:





(a) the
Form 10-QSB fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and





(b) the
information contained in the Form 10-QSB fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the Form 10-QSB.





By:

/S/    WANDA M.
GARDNER





Date:    November 14, 2002Wanda M. Gardner Acting Chief
Financial Officer




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