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U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549





FORM 10-Q





QUARTERLY REPORT PURSUANT TO

SECTION 13 or 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For
the quarterly period ended March 31, 2009

Commission File No. 0-28780





CARDINAL BANKSHARES CORPORATION

(Exact name of 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, Virginia 24091

(Address of principal executive offices)

(540) 745-4191

(Registrants telephone number)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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   ̈.

Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. (Check one):



|                        |  |    |  |                           |  |  
|----------------------- |  | -- |  | ------------------------- |  | -
|Large Accelerated Filer |  |  ̈  |  | Accelerated Filer         |  |  ̈
|                        |  |    | 
|Non-accelerated Filer   |  |  ̈. |  | Smaller Reporting Company |  | x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈.    No  x.

The number of shares outstanding of the issuers Common Stock, $10 par value as of May 13, 2009 was 1,535,733.









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CARDINAL BANKSHARES CORPORATION

FORM 10-Q

March 31, 2009

INDEX



|         |  |                                                                                                      |  |     
|-------- |  | ---------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                      |  | Page
|Part I.  |  | Financial Information                                                                                |  |     
|         |  |                                                                                                     
|Item 1.  |  | Consolidated Balance Sheets as of March 31, 2009 (Unaudited) and December 31, 2008 (Audited)         |  | 3   
|         |  |                                                                                                     
|         |  | Consolidated Statements of Income for the three months ended March 31, 2009 and 2008 (Unaudited)     |  | 4   
|         |  |                                                                                                     
|         |  | Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and 2008 (Unaudited) |  | 5   
|         |  |                                                                                                     
|         |  | Notes to Consolidated Statements (Unaudited)                                                         |  | 6   
|         |  |                                                                                                     
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                |  | 12  
|         |  |                                                                                                     
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                           |  | 16  
|         |  |                                                                                                     
|Item 4T. |  | Controls and Procedures                                                                              |  | 16  
|         |  |                                                                                                     
|Part II. |  | Other Information                                                                                    |  |     
|         |  |                                                                                                     
|Item 1.  |  | Legal Proceedings                                                                                    |  | 17  
|         |  |                                                                                                     
|Item 1A. |  | Risk Factors                                                                                         |  | 17  
|         |  |                                                                                                     
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                                          |  | 17  
|         |  |                                                                                                     
|Item 3.  |  | Defaults Upon Senior Securities                                                                      |  | 17  
|         |  |                                                                                                     
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                  |  | 17  
|         |  |                                                                                                     
|Item 5.  |  | Other Information                                                                                    |  | 17  
|         |  |                                                                                                     
|Item 6.  |  | Exhibits                                                                                             |  | 17  



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Cardinal Bankshares Corporation and Subsidiary

Consolidated Balance Sheets



|                                                                                                         |  |                          |         |   |                           |   |         |  
|-------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ------------------------- | - | ------- | -
|(In thousands, except share data)                                                                        |  | (Unaudited)March 31,2009 |         |   | (Audited)December 31,2008 |  
|Assets                                                                                                   |  |                          |         |   |                           |   |         |  
|Cash and due from banks                                                                                  |  | $                        | 3,061   |   |                           | $ | 3,299   |  
|Interest-bearing deposits                                                                                |  |                          | 608     |   |                           |   | 227     |  
|Federal funds sold                                                                                       |  |                          | 27,950  |   |                           |   | 12,875  |  
|Investment securities available for sale, at fair value                                                  |  |                          | 28,153  |   |                           |   | 28,868  |  
|Investment securities held to maturity (fair value March 31, 2009 $ 16,744 - December 31, 2008 $ 16,642) |  |                          | 16,645  |   |                           |   | 16,506  |  
|Restricted equity securities                                                                             |  |                          | 554     |   |                           |   | 534     |  
|                                                                                                         |  |                         
|Total loans                                                                                              |  |                          | 144,030 |   |                           |   | 147,921 |  
|Allowance for loan losses                                                                                |  |                          | (1,618  | ) |                           |   | (1,659  | )
|                                                                                                         |  |                          |         |   |                           |   |         |  
|Net loans                                                                                                |  |                          | 142,412 |   |                           |   | 146,262 |  
|                                                                                                         |  |                          |         |   |                           |   |         |  
|                                                                                                         |  |                         
|Bank premises and equipment, net                                                                         |  |                          | 3,955   |   |                           |   | 4,000   |  
|Accrued interest receivable                                                                              |  |                          | 1,112   |   |                           |   | 1,134   |  
|Foreclosed properties                                                                                    |  |                          | 412     |   |                           |   | 289     |  
|Bank owned life insurance                                                                                |  |                          | 4,992   |   |                           |   | 4,951   |  
|Other assets                                                                                             |  |                          | 3,122   |   |                           |   | 2,095   |  
|                                                                                                         |  |                          |         |   |                           |   |         |  
|Total assets                                                                                             |  | $                        | 232,976 |   |                           | $ | 221,040 |  
|                                                                                                         |  |                          |         |   |                           |   |         |  
|                                                                                                         |  |                         
|Liabilities and Stockholders Equity                                                                     |  |                          |         |   |                           |   |         |  
|Noninterest-bearing deposits                                                                             |  | $                        | 27,601  |   |                           | $ | 26,975  |  
|Interest-bearing deposits                                                                                |  |                          | 173,436 |   |                           |   | 162,038 |  
|                                                                                                         |  |                          |         |   |                           |   |         |  
|Total deposits                                                                                           |  |                          | 201,037 |   |                           |   | 189,013 |  
|                                                                                                         |  |                          |         |   |                           |   |         |  
|Accrued interest payable                                                                                 |  |                          | 304     |   |                           |   | 222     |  
|Other liabilities                                                                                        |  |                          | 2,481   |   |                           |   | 2,359   |  
|                                                                                                         |  |                          |         |   |                           |   |         |  
|Total liabilities                                                                                        |  |                          | 203,822 |   |                           |   | 191,594 |  
|                                                                                                         |  |                          |         |   |                           |   |         |  
|Commitments and contingent liabilities                                                                   |  |                          |        |   |                           |   |        |  
|                                                                                                         |  |                         
|Stockholders Equity                                                                                     |  |                          |         |   |                           |   |         |  
|Common stock, $10 par value, 5,000,000 shares authorized, 1,535,733 shares issued and outstanding        |  |                          | 15,357  |   |                           |   | 15,357  |  
|Additional paid-in capital                                                                               |  |                          | 2,925   |   |                           |   | 2,925   |  
|Retained earnings                                                                                        |  |                          | 12,571  |   |                           |   | 12,411  |  
|Accumulated other comprehensive loss, net                                                                |  |                          | (1,699  | ) |                           |   | (1,247  | )
|                                                                                                         |  |                          |         |   |                           |   |         |  
|Total stockholders equity                                                                               |  |                          | 29,154  |   |                           |   | 29,446  |  
|                                                                                                         |  |                          |         |   |                           |   |         |  
|Total liabilities and stockholders equity                                                               |  | $                        | 232,976 |   |                           | $ | 221,040 |  
|                                                                                                         |  |                          |         |   |                           |   |         |  

See Notes to Consolidated Financial Statements.



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Cardinal Bankshares Corporation and Subsidiary

Consolidated Statements of Income (Unaudited)



|                                                                      |  |                             |           |   |      |   |          
|--------------------------------------------------------------------- |  | --------------------------- | --------- | - | ---- | - | ---------
|                                                                      |  | Three months endedMarch 31,
|(In thousands, except share data)                                     |  | 2009                        |           |   | 2008
|Interest income                                                       |  |                             |           |   |      |   |          
|Loans and fees on loans                                               |  | $                           | 2,144     |   |      | $ | 2,296    
|Federal funds sold and securities purchased under agreement to resell |  |                             | 10        |   |      |   | 68       
|Investment securities:                                                |  |                             |           |   |      |   |          
|Taxable                                                               |  |                             | 344       |   |      |   | 330      
|Exempt from federal income tax                                        |  |                             | 200       |   |      |   | 238      
|Deposits with banks                                                   |  |                             | 1         |   |      |   | 134      
|                                                                      |  |                             |           |   |      |   |          
|Total interest income                                                 |  |                             | 2,699     |   |      |   | 3,066    
|                                                                      |  |                             |           |   |      |   |          
|Interest expense                                                      |  |                             |           |   |      |   |          
|Deposits                                                              |  |                             | 1,298     |   |      |   | 1,463    
|                                                                      |  |                             |           |   |      |   |          
|Total interest expense                                                |  |                             | 1,298     |   |      |   | 1,463    
|                                                                      |  |                             |           |   |      |   |          
|Net interest income                                                   |  |                             | 1,401     |   |      |   | 1,603    
|Provision for loan losses                                             |  |                             | 40        |   |      |   | 20       
|                                                                      |  |                             |           |   |      |   |          
|Net interest income after provision for loan losses                   |  |                             | 1,361     |   |      |   | 1,583    
|                                                                      |  |                             |           |   |      |   |          
|Noninterest income                                                    |  |                             |           |   |      |   |          
|Service charges on deposit accounts                                   |  |                             | 43        |   |      |   | 53       
|Other service charges and fees                                        |  |                             | 26        |   |      |   | 22       
|Other operating income                                                |  |                             | 66        |   |      |   | 86       
|                                                                      |  |                             |           |   |      |   |          
|Total noninterest income                                              |  |                             | 135       |   |      |   | 161      
|                                                                      |  |                             |           |   |      |   |          
|Noninterest expense                                                   |  |                             |           |   |      |   |          
|Salaries and employee benefits                                        |  |                             | 833       |   |      |   | 819      
|Occupancy and equipment                                               |  |                             | 147       |   |      |   | 193      
|Foreclosed assets, net                                                |  |                             | 3         |   |      |   |         
|Other operating expense                                               |  |                             | 413       |   |      |   | 395      
|                                                                      |  |                             |           |   |      |   |          
|Total noninterest expense                                             |  |                             | 1,396     |   |      |   | 1,407    
|                                                                      |  |                             |           |   |      |   |          
|Income before income taxes                                            |  |                             | 100       |   |      |   | 337      
|Income tax expense (benefit)                                          |  |                             | (60       | ) |      |   | 20       
|                                                                      |  |                             |           |   |      |   |          
|Net Income                                                            |  | $                           | 160       |   |      | $ | 317      
|                                                                      |  |                             |           |   |      |   |          
|                                                                      |  |                            
|Basic earnings per share                                              |  | $                           | 0.10      |   |      | $ | 0.21     
|                                                                      |  |                             |           |   |      |   |          
|Diluted earnings per share                                            |  | $                           | 0.10      |   |      | $ | 0.21     
|                                                                      |  |                             |           |   |      |   |          
|Dividends declared per share                                          |  | $                           |          |   |      | $ |         
|                                                                      |  |                             |           |   |      |   |          
|Weighted average basic shares outstanding                             |  |                             | 1,535,733 |   |      |   | 1,535,733
|                                                                      |  |                             |           |   |      |   |          
|Weighted average diluted shares outstanding                           |  |                             | 1,535,733 |   |      |   | 1,535,733
|                                                                      |  |                             |           |   |      |   |          

See Notes to Consolidated Financial Statements.



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Cardinal Bankshares Corporation and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)



|                                                                        |  |      |         |   |      |   |        |  
|----------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------ | -
|(In thousands) Three Months Ended March 31,                             |  | 2009 |         |   | 2008 |  
|Cash flows from operating activities                                    |  |      |         |   |      |   |        |  
|Net income                                                              |  | $    | 160     |   |      | $ | 317    |  
|Adjustments to reconcile net income to net cash provided by operations: |  |      |         |   |      |   |        |  
|Depreciation and amortization                                           |  |      | 76      |   |      |   | 78     |  
|Accretion of discounts on securities, net of amortization of premiums   |  |      | 1       |   |      |   | 10     |  
|Provision for loan losses                                               |  |      | 40      |   |      |   | 20     |  
|Deferred compensation and pension expense                               |  |      | 74      |   |      |   | 35     |  
|Changes in operating assets and liabilities:                            |  |      |         |   |      |   |        |  
|Accrued income                                                          |  |      | 22      |   |      |   | (84    | )
|Other assets                                                            |  |      | (835    | ) |      |   | (249   | )
|Accrued interest payable                                                |  |      | 82      |   |      |   | 36     |  
|Other liabilities                                                       |  |      | 48      |   |      |   | (230   | )
|                                                                        |  |      |         |   |      |   |        |  
|Net cash provided by operating activities                               |  |      | (332    | ) |      |   | (67    | )
|                                                                        |  |      |         |   |      |   |        |  
|Cash flows from investing activities                                    |  |      |         |   |      |   |        |  
|Net increase in interest-bearing deposits in banks                      |  |      | (381    | ) |      |   | (3,916 | )
|Net (increase) decrease in federal funds sold                           |  |      | (15,075 | ) |      |   | 200    |  
|Purchase of available for sale securities                               |  |      | (2,653  | ) |      |   | (2,250 | )
|Sales of available for sale securities                                  |  |      |        |   |      |   |       |  
|Maturities, calls and paydowns of available for sale securities         |  |      | 2,685   |   |      |   | 2,220  |  
|Purchases of held to maturity securities                                |  |      | (599    | ) |      |   | (410   | )
|Maturities, calls and paydowns of held to maturity securities           |  |      | 457     |   |      |   | 555    |  
|Call (purchase) of restricted equity securities                         |  |      | (20     | ) |      |   | 2      |  
|Net (increase) decrease in loans                                        |  |      | 3,687   |   |      |   | (5,053 | )
|Net purchases of bank premises and equipment                            |  |      | (31     | ) |      |   | (19    | )
|                                                                        |  |      |         |   |      |   |        |  
|Net cash (used) provided by investing activities                        |  |      | (11,930 | ) |      |   | (8,671 | )
|                                                                        |  |      |         |   |      |   |        |  
|Cash flows from financing activities                                    |  |      |         |   |      |   |        |  
|Net increase (decrease) in noninterest-bearing deposits                 |  |      | 626     |   |      |   | (588   | )
|Net increase in interest-bearing deposits                               |  |      | 11,398  |   |      |   | 8,282  |  
|                                                                        |  |      |         |   |      |   |        |  
|Net cash provided by financing activities                               |  |      | 12,024  |   |      |   | 7,694  |  
|                                                                        |  |      |         |   |      |   |        |  
|Net decrease in cash and cash equivalents                               |  |      | (238    | ) |      |   | (1,044 | )
|Cash and cash equivalents, beginning                                    |  |      | 3,299   |   |      |   | 4,526  |  
|                                                                        |  |      |         |   |      |   |        |  
|Cash and cash equivalents, ending                                       |  | $    | 3,061   |   |      | $ | 3,482  |  
|                                                                        |  |      |         |   |      |   |        |  
|                                                                        |  |     
|Supplemental disclosures of cash flow information                       |  |      |         |   |      |   |        |  
|Interest paid                                                           |  | $    | 1,216   |   |      | $ | 1,427  |  
|                                                                        |  |      |         |   |      |   |        |  
|Income taxes paid                                                       |  | $    | 4       |   |      | $ | 255    |  
|                                                                        |  |      |         |   |      |   |        |  
|                                                                        |  |     
|Supplemental disclosures of noncash activities                          |  |      |         |   |      |   |        |  
|Other real estate acquired in settlement of loans                       |  | $    | 123     |   |      | $ |       |  
|                                                                        |  |      |         |   |      |   |        |  

See Notes to Consolidated Financial Statements.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. Basis of Presentation

The accompanying unaudited consolidated
financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all of the disclosures and notes required by generally accepted accounting principles. In the opinion of management, all material
adjustments (which are of a normal recurring nature) considered necessary for a fair presentation have been made. The results for the interim period are not necessarily indicative of the results to be expected for the entire year or any other
interim period. The information reported herein should be read in conjunction with the Notes to Consolidated Financial Statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2008. Certain previously
reported amounts have been reclassified to conform to current presentations.

Principles of Consolidation

The consolidated financial statements of the Company include the accounts of the Company, the Bank and FBC, Inc. All material intercompany transactions and balances have
been eliminated.

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.

Note 2. Allowance for Loan Losses

Changes in the allowance for loan losses
are as follows:



|                                             |  |      |       |   |      |   |      
|-------------------------------------------- |  | ---- | ----- | - | ---- | - | -----
|Three months ended March 31, (In thousands)  |  | 2009 |       |   | 2008
|Balance, at January 1                        |  | $    | 1,659 |   |      | $ | 1,669
|Provision charged to expense                 |  |      | 40    |   |      |   | 20   
|Recoveries of amounts previously charged off |  |      | 2     |   |      |   | 2    
|Loans charged off                            |  |      | (83   | ) |      |   |     
|                                             |  |      |       |   |      |   |      
|Balance, at March 31,                        |  | $    | 1,618 |   |      | $ | 1,691
|                                             |  |      |       |   |      |   |      

Note 3. Commitments and Contingencies

The Company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 Company uses the same credit policies in making commitments and conditional obligations as for on-balance sheet instruments. A summary of the Companys commitments at March 31 for the years indicated follows:



|                             |  |      |        |      |   |       
|---------------------------- |  | ---- | ------ | ---- | - | ------
|(In thousands)               |  | 2009 |        | 2008
|Commitments to extend credit |  | $    | 16,410 |      | $ | 19,156
|Standby letters of credit    |  |      | 924    |      |   | 1,017 
|                             |  |      |        |      |   |       
|Total                        |  | $    | 17,334 |      | $ | 20,173
|                             |  |      |        |      |   |       



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Note 4. 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 components of the
net periodic benefit cost.



|                                             |  |      |         |   |      |   |         |  
|-------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|Three months ended March 31                  |  | 2009 |         |   | 2008 |  
|Service cost                                 |  | $    | 45,145  |   |      | $ | 38,837  |  
|Interest cost                                |  |      | 52,772  |   |      |   | 50,693  |  
|Expected return on plan assets               |  |      | (37,197 | ) |      |   | (55,413 | )
|Amortization of net obligation at transition |  |      | (757    | ) |      |   | (1,007  | )
|Amortization of prior service cost           |  |      | 1,495   |   |      |   | 1,495   |  
|Recognized net actuarial loss                |  |      | 11,250  |   |      |   |        |  
|                                             |  |      |         |   |      |   |         |  
|Net periodic benefit cost                    |  | $    | 72,708  |   |      | $ | 34,605  |  
|                                             |  |      |         |   |      |   |         |  

The Company previously disclosed in its financial statements for the year ended December 31, 2008, that
employer contributions in the amount of $254 thousand are expected to be paid in 2009. As of March 31, 2009, no contributions have been made.

Note 5.
Fair Value

Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (SFAS 157) which provides
a framework for measuring and disclosing fair value under generally accepted accounting principles. SFAS 157 requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial
recognition, whether the measurements are made on a recurring basis (for example, available for sale investment securities) or on a nonrecurring basis (for example, impaired loans).

SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value.

The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures.
Securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for
investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Fair Value Hierarchy

Under SFAS 157, the company groups assets and liabilities at fair value in three levels, based on the
markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine the fair value. These levels are:



|        |  |   |  |                                                                                                                                                                                                                                                                             
|------- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 1 |  | - |  | Valuation is based upon quoted prices for identical instruments traded in active markets.                                                                                                                                                                                   
|        |  |  
|Level 2 |  | - |  | Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation
techniques for which all significant assumptions are observable in the market.



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Note 5. Fair Value (continued)



|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                       
|------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 3 |  | - |  | Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that
market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value

Investment Securities Available for Sale

Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent
pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the securitys credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities
include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the counter markets and money market funds. Level 2 securities include mortgage backed
securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Loans

The Company does not record loans at fair value on a
recurring basis, however, from time to time, a loan is considered impaired and an allowance for loan loss is established. Loans for which it is probable that payment of interest and principle will not be made in accordance with the contractual terms
of the loan are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with SFAS 114,  Accounting by Creditors for Impairment of a Loan, (SFAS 114). The fair value of
impaired loans is estimated using one of several methods, including the collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring a specific allowance represents
loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At March 31, 2009, substantially all of the totally impaired loans were evaluated based upon the fair value of the collateral. In
accordance with SFAS 157, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observerable market price or a
current appraised value, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no
observable market price, the Company records the loan as nonrecurring Level 3.

Foreclosed Assets

Foreclosed assets are adjusted for fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of
carrying value and fair value. Fair value is based upon independent market prices, appraised value of the collateral or managements estimation of the value of the value of the collateral. When the fair value of the collateral is based on an
observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the
appraised value and there is no observable market price, the Company records the foreclosed asset at nonrecurring Level 3.



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Assets and Liabilities Recorded as Fair Value on a Recurring Basis

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis.



|                                         |  |       |        |         |   |         |   |         |  |  
|---------------------------------------- |  | ----- | ------ | ------- | - | ------- | - | ------- |  | -
|(In Thousands) March 31, 2009            |  | Total |        | Level 1 |   | Level 2 |   | Level 3
|Investment securities available for sale |  | $     | 28,153 |         |  |         | $ | 28,153  |  | 
|                                         |  |       |        |         |   |         |   |         |  |  
|                                         |  |       |        |        
|Total assets at fair value               |  | $     | 28,153 |         |  |         | $ | 28,153  |  | 
|                                         |  |       |        |         |   |         |   |         |  |  

Assets and Liabilities Recorded as Fair Value on a Nonrecurring Basis

The company may be required from time to time, to measure certain assets at fair value on a non- recurring basis in accordance with U. S generally
accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the
table below



|                             |  |       |       |         |   |         |   |         |  |  
|---------------------------- |  | ----- | ----- | ------- | - | ------- | - | ------- |  | -
|In Thousands) March 31, 2009 |  | Total |       | Level 1 |   | Level 2 |   | Level 3
|Impaired Loans               |  | $     | 2,250 |         |  |         | $ | 2,250   |  | 
|Other real estate owned      |  | $     | 412   |         |  |         | $ | 412     |  | 
|                             |  |       |       |         |   |         |   |         |  |  
|                             |  |       |       |        
|Total assets at fair value   |  | $     | 2,662 |         |  |         | $ | 2,662   |  | 
|                             |  |       |       |         |   |         |   |         |  |  

Note 6. Recent Accounting Pronouncements

The following is a summary of recent authoritative pronouncements:

In December 2008 the Financial Accounting Standards
Board (FASB) issued FASB Staff Position (FSP) SFAS 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets, (FSP SFAS 132(R)-1). This FSP provides guidance on an employers
disclosures about plan assets of a defined benefit pension or other postretirement plan. The objective of the FSP is to provide the users of financial statements with an understanding of: (a) how investment allocation decisions are made,
including the factors that are pertinent to an understanding of investment policies and strategies; (b) the major categories of plan assets; (c) the inputs and valuation techniques used to measure the fair value of plan assets;
(d) the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period; and (e) significant concentrations of risk within plan assets. The FSP also requires a nonpublic entity, as
defined in Statement of Financial Accounting Standard (SFAS) 132, to disclose net periodic benefit cost for each period for which a statement of income is presented. FSP SFAS 132(R)-1 is effective for fiscal years ending after
December 15, 2009. The Staff Position will require the Company to provide additional disclosures related to its benefit plans.

FSP EITF 99-20-1,
Amendments to the Impairment Guidance of EITF Issue No. 99-20, (FSP EITF 99-20-1) was issued in January 2009. Prior to the FSP, other-than-temporary impairment was determined by using either Emerging Issues Task Force
(EITF) Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transferor in Securitized Financial Assets, (EITF
99-20) or SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities,



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Note 6. Recent Accounting Pronouncements (continued)



(SFAS 115) depending on the type of security. EITF 99-20 required the use of market participant assumptions regarding future cash flows regarding
the probability of collecting all cash flows previously projected. SFAS 115 determined impairment to be other than temporary if it was probable that the holder would be unable to collect all amounts due according to the contractual terms. To achieve
a more consistent determination of other-than-temporary impairment, the FSP amends EITF 99-20 to determine any other-than-temporary impairment based on the guidance in SFAS 115, allowing management to use more judgment in determining any
other-than-temporary impairment. The FSP was effective for reporting periods ending after December 15, 2008. Management has reviewed the Companys security portfolio and evaluated the portfolio for any other-than-temporary impairments.

On April 9, 2009, the FASB issued three staff positions related to fair value which are discussed below.

FSP SFAS 115-2 and SFAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, (FSP SFAS 115-2 and SFAS 124-2) categorizes
losses on debt securities available-for-sale or held-to-maturity determined by management to be other-than-temporarily impaired into losses due to credit issues and losses related to all other factors. Other-than-temporary impairment (OTTI) exists
when it is more likely than not that the security will mature or be sold before its amortized cost basis can be recovered. An OTTI related to credit losses should be recognized through earnings. An OTTI related to other factors should be recognized
in other comprehensive income. The FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. Annual disclosures required in SFAS 115 and FSP SFAS 115-1 and SFAS 124-1 are also
required for interim periods (including the aging of securities with unrealized losses).

FSP SFAS 157-4, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That are Not Orderly recognizes that quoted prices may not be determinative of fair value when the volume and level of trading activity has
significantly decreased. The evaluation of certain factors may necessitate that fair value be determined using a different valuation technique. Fair value should be the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction, not a forced liquidation or distressed sale. If a transaction is considered to not be orderly, little, if any, weight should be placed on the transaction price. If there is not sufficient information to conclude as to whether
or not the transaction is orderly, the transaction price should be considered when estimating fair value. An entitys intention to hold an asset or liability is not relevant in determining fair value. Quoted prices provided by pricing services
may still be used when estimating fair value in accordance with SFAS 157; however, the entity should evaluate whether the quoted prices are based on current information and orderly transactions. Inputs and valuation techniques are required to be
disclosed in addition to any changes in valuation techniques.

FSP SFAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments requires disclosures about the fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements and also requires those disclosures in summarized financial
information at interim reporting periods A publicly traded company includes any company whose securities trade in a public market on either a stock exchange or in the over-the-counter market, or any company that is a conduit bond obligor.
Additionally, when a company makes a filing with a regulatory agency in preparation for sale of its securities in a public market it is considered a publicly traded company for this purpose.



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Note 6. Recent Accounting Pronouncements (continued)



The three staff positions are effective for periods ending after June 15, 2009, with early adoption permitted
for periods ending after March 15, 2009, in which case all three must be adopted. The Company will adopt the staff positions for its second quarter 10-Q but does not expect the staff positions to have a material impact on the consolidated
financial statements.

Also on April 1, 2009, the FASB issued FSP SFAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a
Business Combination That Arise from Contingencies. The FSP requires that assets acquired and liabilities assumed in a business combination that arise from a contingency be recognized at fair value. If fair value cannot be determined during
the measurement period as determined in SFAS 141 (R), the asset or liability can still be recognized if it can be determined that it is probable that the asset existed or the liability had been incurred as of the measurement date and if the amount
of the asset or liability can be reasonably estimated. If it is not determined to be probable that the asset/liability existed/was incurred or no reasonable amount can be determined, no asset or liability is recognized. The entity should determine a
rational basis for subsequently measuring the acquired assets and assumed liabilities. Contingent consideration agreements should be recognized initially at fair value and subsequently reevaluated in accordance with guidance found in paragraph 65 of
SFAS 141 (R). The FSP is effective for business combinations with an acquisition date on or after the beginning of the Companys first annual reporting period beginning on or after December 15, 2008. The Company will assess the impact of
the FSP if and when a future acquisition occurs.

The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
(SAB) No. 111 on April 9, 2009 to amend Topic 5.M., Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities and to supplement FSP SFAS 115-2 and SFAS 124-2. SAB 111 maintains the
staffs previous views related to equity securities; however debt securities are excluded from its scope. The SAB provides that other-than-temporary impairment is not necessarily the same as permanent impairment and
unless evidence exists to support a value equal to or greater than the carrying value of the equity security investment, a write-down to fair value should be recorded and accounted for as a realized loss. The SAB was effective upon issuance and had
no impact on the Companys financial position.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting
bodies are not expected to have a material impact on the Companys financial position, results of operations or cash flows.



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|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Cardinal Bankshares Corporation (the Company and Cardinal Bankshares), a Virginia corporation, is a bank holding company headquartered in Floyd, Virginia. The Company serves the marketplace
primarily through its wholly owned banking subsidiary, Bank of Floyd (the Bank), a Virginia chartered, Federal Reserve member commercial bank. The Banks deposits are insured by the Federal Deposit Insurance Corporation (the
FDIC) to the extent provided by law. Bank of Floyd is supervised and examined by the Federal Reserve and the Bureau of Financial Institutions of the State Corporation Commission of the Commonwealth of Virginia (the SCC). At
March 31, 2009, the Bank operated eight branch facilities in the counties of Floyd, Montgomery, Roanoke, Pulaski and Carroll. The main office is in Floyd with a limited service office located in Willis. The Roanoke offices are in the Cave
Spring and Tanglewood Mall areas of Roanoke County. The Salem office is located on West Main Street in Salem, Virginia. The Hillsville office is located in Carroll County. The Christiansburg office serves Montgomery County. The Banks Pulaski
County office is located in the Fairlawn community.

Through Bank of Floyds network of banking facilities, Cardinal Bankshares provides a wide range
of commercial banking services to individuals, small to medium-sized businesses, institutions and governments located in Virginia. The Company conducts substantially all of the business operations of a typical independent commercial bank, including
the acceptance of checking and savings deposits, and the making of commercial, real estate, personal, home improvement, automobile and other installment loans. The Company also offers other related services, such as travelers checks, safe
deposit boxes, depositor transfer, customer note payment, collection, notary public, escrow, drive-in and ATM facilities, and other customary banking services. Cardinal Bankshares does not offer trust services.

The following discussion provides information about the major components of the financial condition, results of operations, asset quality, liquidity, and capital
resources of Cardinal Bankshares. The discussion and analysis should be read in conjunction with the Consolidated Financial Statements.

Critical
Accounting Policy

Management believes the policy with respect to the methodology for the determination of the allowance for loan losses involve a high
degree of complexity. Management must make difficult and subjective judgments, assumptions or estimates that could cause reported results to differ materially. This critical policy and its application are periodically reviewed with the Audit
Committee and Board of Directors.

FINANCIAL CONDITION

Total assets as of March 31, 2009 were $233.0 million, an increase of 5.4% or $12.0 million from year-end 2008. Total loans decreased 2.6% or $3.9 million during the quarter to $144.0 million due to loans being refinanced and pay
downs.

The investment securities portfolio reflected a decrease of $576 thousand. Federal funds sold increased $15.1 million during the quarter as a
result of increased deposits, which management believes reflects the flight of depositors from banks which have suffered near catastrophic losses to smaller banks which are well capitalized and offer safety and soundness.

As of March 31, 2009, total deposits were $201.0 million, up approximately 6.4% or $12.0 million compared to year-end 2008. Non-interest-bearing core deposits
increased slightly to $27.6 million as compared to $27.0 million at year-end 2008. Interest-bearing deposits increased 7.0% or $11.4 million to $173.4 million due to depositors moving funds over concerns about investment markets and safety and
soundness. Deposits greater than $100 thousand amounted to $64.4 million at March 31, 2009 as compared to $57.1 million at year-end 2008.

Stockholders equity was $29.1 million as of March 31, 2009 compared to $29.4 million as of December 31, 2008. Recognition of accumulated other comprehensive loss, net of income for the period accounted for the decrease in
stockholders equity.



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RESULTS OF OPERATIONS

Net income for the three months ended March 31, 2009 was $160 thousand, down 49.5% compared to $317 thousand for the three months ended March 31, 2008. Diluted earnings per share decreased 52.4% to $.10 for the three months ended
March 31, 2009. Diluted earnings per share for the same period a year earlier was $.21. The decrease in net income is primarily a result of decreased earnings on deposits with banks and federal funds sold due to continued historically low
federal funds interest rates of between 0.00% and .25%.

Total interest income for the three months ended March 31, 2009 decreased $367 thousand to
$2.7 million, a decrease of 12.0% over the same prior year quarter. This resulted primarily from the effect of decreased earnings from loans and loan fees, federal funds sold and deposits with banks due to declining interest rates. Noninterest
income decreased 16.1% to $135 thousand. Total interest expense decreased $165 thousand to $1.3 million, reflecting the decline of rates paid on interest-bearing deposits accounts. Noninterest expense decreased $11 thousand to $1.4 million for the
first quarter of 2009 as compared to the first quarter of 2008.

On February 27, 2009, the Board of Directors of the Federal Deposit Insurance
Corporation (FDIC) voted to amend the restoration plan for the Deposit Insurance Fund. The Board took action by imposing a special assessment on insured institutions of 20 basis points, implementing changes to the risk-based assessment system, and
increased regular premium rates for 2009, which banks must pay on top of the special assessment. The 20 basis point special assessment on the industry will be as of June 30, 2009, payable on September 30, 2009. As a result of the special
assessment and increased regular assessments, the Company could experience an increase in FDIC assessement expense by approximately $612 thousand from 2008 to 2009. The 20 basis point special assessment represents $379 thousand of this increase.

On March 5, 2009, the FDIC Chairman announced that the FDIC could potentially lower the special assessment from 20 basis points to 10 basis points.
The approval of the cutback is contingent on whether Congress clears legislation that would expand the FDICs line of credit with the Treasury to $100 billion. Legislation to increase the FDICs borrowing authority on a permanent basis is
also expected to advance to Congress, which should aid in reducing the burden on the industry.

The assessment rates, including the special assessment, are
subject to change at the discretion of the Board of Directors of the FDIC.



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ASSET QUALITY

The
allowance for loan losses represents managements estimate of an amount adequate to absorb potential future losses inherent in the loan portfolio. In assessing the adequacy of the allowance, management relies predominately on its ongoing review
of the lending process and the risk characteristics of the portfolio in the aggregate. Among other factors, management considers the Companys loan loss experience, the amount of past-due loans, current and anticipated economic conditions, and
the estimated current values of collateral securing loans in assessing the level of the allowance for loan losses. In the first quarter of 2009 the provision for loan losses was $40 thousand as compared to $20 thousand provision for the same period
in 2008. Based upon managements periodic reviews of the loan portfolio using the above mentioned factors, the current year increase in the provision for loan losses was felt appropriate. Management believes the provision recorded in 2009
maintains the allowance at a level adequate to cover potential losses.

The allowance for loan losses totaled $1.6 million at March 31, 2009. The
allowance for loan losses to period end loans was 1.12% at March 31, 2009 compared to 1.12% and 1.31% at December 31, 2008 and March 31, 2008, respectively. The Company recovered balances previously charged off on loans in the amount
of $2 thousand during the quarter. This compares with recoveries for the three months ended March 31, 2008 of $2 thousand. The Company charged-off loans in the amount of $83 during the quarter as compared to $0 charge-offs for the same quarter
in the previous year.

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 of the loan loss reserve 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 to outstanding loans and delinquency trends.

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 Companys allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the
time of their examination.

Nonperforming assets, which consist of nonaccrual loans, loans 90 days or more past due and other real estate owned, were $5.3
million as of March 31, 2009 compared to $3.1 million as of December 31, 2008. Management is taking aggressive actions to mitigate any material losses related to nonperforming assets. As of March 31, 2009 the Companys impaired
loans with a valuation allowance amounted to $2.7 million, unchanged from December 31, 2008. The valuation allowance related to the loans was $470 thousand at March 31, 2009 and $461 thousand at December 31, 2008.

LIQUIDITY

In determining the Companys liquidity requirements,
both sides of the balance sheet are managed to ensure that adequate funding sources are available to support loan growth, deposit withdrawals or any unanticipated need for funds.

Securities available for sale that mature within one year, or securities that have a weighted average life of one year or less are sources of liquidity. Anticipated mortgage-backed securities pay downs and maturing
loans also generate cashflows to meet liquidity requirements. Wholesale funding sources are also used to supply liquidity such as federal funds purchased and large denomination certificates of deposit. The Company considers its sources of liquidity
to be adequate to meet its anticipated needs.



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CAPITAL RESOURCES

Cardinal Bankshares capital position provides the necessary assurance required to support anticipated asset growth and to absorb potential losses.

The Companys Tier I capital position was $30.9 million at March 31, 2009, or 18.95% of risk-weighted assets. Total risk-based capital was $32.5 million or 19.95% of risk-weighted assets

Tier I capital consists primarily of common stockholders equity, while total risk-based capital includes the allowance for loan losses. Risk weighted assets are
determined by assigning various levels of risk to different categories of assets and off-balance sheet activities. To be well capitalized under current risk-based capital standards, all banks are required to have Tier I capital of at least 4% and
total capital of 8%. Based on these standards, Cardinal Bankshares is categorized as well capitalized at March 31, 2009.

In addition to the
risk-based capital guidelines, banking regulatory agencies have adopted leverage capital ratio requirements. The leverage ratio  or core capital to assets ratio  works in tandem with the risk-capital guidelines. The minimum leverage
ratios range from three to five percent. At March 31, 2009, the Companys leverage capital ratio was 13.59%.

The Company applied and was
approved for TARP (Troubled Assets Relief Program) funds. However, due to the Companys strong capital position, the Board of Directors voted unanimously not to accept the funds.

A WARNING ABOUT FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements. The Company may also
make written forward-looking statements in periodic reports to the Securities and Exchange Commission, proxy statements, offering circulars and prospectuses, press releases and other written materials and oral statements made by Cardinal
Bankshares officers, directors or employees to third parties. Statements that are not historical facts, including statements about the Companys beliefs and expectations, are forward-looking statements. These statements are based on
beliefs and assumptions of the Companys management, and on information currently available to management. Forward-looking statements include statements preceded by, followed by or that include the words believes,
expects, estimates, anticipates, plans, or similar expressions. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of
them in light of new information or future events.

Forward-looking statements involve inherent risks and uncertainties. Management cautions the readers
that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to, the following: competitive pressures among depository and other
financial institutions may increase significantly; changes in the interest rate environment may reduce margins; general economic or business conditions may lead to a deterioration in credit quality or a reduced demand for credit; legislative or
regulatory changes, including changes in accounting standards, may adversely affect the business in which Cardinal Bankshares is engaged; changes may occur in the securities markets; and competitors of the Company may have greater financial
resources and develop products that enable such competitors to compete more successfully than Cardinal Bankshares.

Other factors that may cause actual
results to differ from the forward-looking statements include the following: the timely development of competitive new products and services by the Company and the acceptance of such products and services by customers; changes in consumer spending
and savings habits; the effects of competitors pricing policies; the Companys success in managing the costs associated with the expansion of existing distribution channels and developing new ones, and in realizing increased revenues from
such distribution channels, including cross-selling initiatives; and mergers and acquisitions and their integration into the Company and managements ability to manage these other risks.



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##### Table of Contents

Management of Cardinal Bankshares believes these forward-looking statements are reasonable; however undue reliance should
not be placed on such forward-looking statements, which are based on current expectations.

Forward-looking statements are not guarantees of performance.
They involve risks, uncertainties and assumptions. The future results and stockholder values of Cardinal Bankshares may differ materially from those expressed in forward-looking statements contained in this report. Many of the factors that will
determine these results and values are beyond the Companys ability to control or predict.



|Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

Under
the filer category of smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, the Company is not required to provide information requested by Item 3 of its Form 10-Q.



|Item 4T. | CONTROLS AND PROCEDURES
|-------- | -----------------------

As of the end of the period to which this
report relates, the Company has carried out an evaluation, under the supervision and with the participation of the Companys management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures in accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act).

The design of any system of controls is based in part upon certain assumptions about the likelihood of future events. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, there can be no assurance that any design will succeed in achieving its stated goal under every potential condition, regardless of how
remote. 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.

Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in enabling us to
record, process, summarize and report effectively and in a timely manner the information required to be disclosed in reports we file under the Exchange Act. There have not been any changes in our internal control over financial reporting that
occurred during the last quarter that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.



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##### Table of Contents

Part II. OTHER INFORMATION



|Item: 1 | Legal proceedings
|------- | -----------------

The Company was named as a defendant in
a complaint filed by its former Chief Financial Officer Dave Welch with the United States Department of Labor (DOL) under Section 806 of the Sarbanes-Oxley Act. Mr. Welch alleged in his complaint that his termination in October
2002 by the Companys Board of Directors violated the Act. He sought reinstatement, back pay and damages. The Company maintained that the independent members of its Board of Directors terminated Mr. Welch lawfully because he refused to
comply with the directives of the Audit Committee in their attempt to investigate Mr. Welchs own allegations related to the Companys financial reporting. The Audit Committee, after full investigation, later concluded that
Mr. Welchs allegations had no merit. The Boards decision was initially upheld by the DOL. Mr. Welch appealed the decision. A DOL Administrative Law Judge reversed the earlier decision in the Companys favor and entered a
decision in favor of Mr. Welch in January 2004. The Company filed a petition for review with the Administrative Review Board of the DOL (ARB) and on May 31, 2007, the ARB reversed the decision of the Administrative Law Judge
and entered the final order of the DOL in favor of the Company. Mr. Welch appealed the DOLs decision to the United States Court of Appeal for the Fourth Circuit on July 19, 2007. On August 5, 2008 the Fourth Circuit denied
Mr. Welchs appeal and affirmed the DOLs decision in favor of the Company. On September 19, 2008 Mr. Welch petitioned the Fourth Circuit for a rehearing. On October 3, 2008 the Fourth Circuit denied
Mr. Welchs petition and confirmed its earlier decision in favor of the Company. On January 5, 2009 Mr. Welch filed a petition for a writ of certiorari with the U.S. Supreme Court seeking a review of the Fourth Circuits
decision in the Companys favor. On April 20, 2009 the Supreme Court denied Mr. Welchs petition.



| | 1A. | Risk factors
| | --- | ------------

Under the category of smaller
reporting company, as defined in Rule 12b-2 of the Exchange Act, the Company is not required to provide information requested by Part II, Item 1A of its Form 10-Q.



| | 2 | Unregistered sales of equity securities and use of proceeds - None
| | - | ------------------------------------------------------------------



| | 3 | Defaults upon senior securities - None
| | - | --------------------------------------



| | 4 | Submission of matters to a vote of security holders - None
| | - | ----------------------------------------------------------



| | 5 | Other information - None
| | - | ------------------------



| | 6 | Exhibits
| | - | --------



|       |  |                                                                                                        
|------ |  | -------------------------------------------------------------------------------------------------------
|31.1  |  | Certification of Chief Executive Officer Pursuant To Rule 13a-14(a)                                    
|       | 
|31.2  |  | Certification of Chief Financial Officer Pursuant To Rule 13a-14(a)                                    
|       | 
|32.1  |  | Certification of Chief Executive Officer and Chief Financial Officer Pursuant To 18 U.S.C. Section 1350



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SIGNATURES

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



|                                                          
|----------------------------------------------------------
|CARDINAL BANKSHARES CORPORATION                           
|                                                          
|/s/ Ronald Leon Moore                                     
|Ronald Leon Moore                                         
|Chairman of the Board, President & Chief Executive Officer
|                                                          
|/s/ J. Alan Dickerson                                     
|J. Alan Dickerson                                         
|Vice President & Chief Financial Officer                  
|                                                          
|Date: May 13, 2009                                        



18