U.S. Securities And Exchange Commission

Washington, D.C. 20549



---



Form 10-KSB



(Mark One)



|x | Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee required) For the fiscal year ended December 31, 2003
|- | -----------------------------------------------------------------------------------------------------------------------------------------



or



| ̈ | Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee required) For the transition period from
 to
|- | ---------------------------------------------------------------------------------------------------------------------------------------



Commission file no. 0-28780



Cardinal Bankshares Corporation

---

(Name of small business issuer in its charter)



|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Virginia                                                       |  | 54-1804471                       
|                                                               |  |                                  
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)
|                                                               | 
|101 Jacksonville Circle Floyd, Virginia                        |  | 24091                            
|                                                               |  |                                  
|(Address of principal executive offices)                       |  | (Zip Code)                       



(540) 745-4191

---

Issuers telephone number, including area code



Securities registered pursuant to Section 12(b) of the Act: None



Securities registered pursuant to Section 12(g) of the
Act:

Common Stock, par value $10.00 per share

---



Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for past 90 days.



Yes x     No ̈



Check if there is no disclosure of delinquent filers in response to Item 405 of regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.



The issuers revenues for its most recent fiscal year were $10,748,000.



The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $30,533,580 as of March 22, 2004.



1,535,733 shares of the Issuers common stock were issued and outstanding as of March
22, 2004.



Transitional Small Business Disclosure Format. (Check one):



Yes ̈No x



DOCUMENTS INCORPORATED BY REFERENCE



The
annual report to security holders for fiscal year ended December 31, 2003 is incorporated by reference into Form 10-KSB Part II, Items 6 and 7, and Part III, Item 13. The issuers Proxy Statement dated March 26, 2004 is incorporated by
reference into Form 10-KSB Part III, Items 9, 10, 11 and 12 and Part IV, Item 14.



---

PART I



ITEM 1. DESCRIPTION OF BUSINESS



(A) BUSINESS DEVELOPMENT



Cardinal Bankshares Corporation (Cardinal or 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 June 30, 1996.



The Bank was organized as a state chartered bank on February 24, 1951 through the consummation of a plan of consolidation between two state chartered
community banks then operating in Floyd County, Virginia.



The
Bank and its wholly-owned subsidiary, FBC, Inc., are incorporated and operate under the laws of the Commonwealth of Virginia. As a state chartered Federal Reserve member, the Bank is subject to regulation by the Virginia Bureau of Financial
Institutions and the Federal Reserve. FBC, Inc.s assets and operations consist primarily of annuity sales and minority interests in title insurance companies.



(B) DESCRIPTION OF THE BUSINESS



The principle business of the Company and Bank is to provide comprehensive individual and corporate banking services through the Banks main office
in Floyd, Virginia, and branch offices in Hillsville, Christiansburg, Roanoke and Willis, Virginia. The Banks wholly-owned subsidiary, FBC, Inc., has interests in Virginia Title Center, LLC as well as Virginia Bankers Insurance Center, LLC,
both of which act as title insurance companies. FBC, Inc. also has an interest in VBA Investment Services, LLC.



(1) SERVICES



The Bank is a full service retail commercial bank offering a wide range of services, including demand and time deposits as well as installment, mortgage
and other consumer lending services. The Bank makes seasonal and term commercial loans, both alone and in conjunction with other banks or governmental agencies.



(2) COMPETITIVE CONDITIONS



The bank business is highly competitive. The Company competes as a financial intermediary with other commercial banks, savings and loan associations,
credit unions and money market mutual funds operating in its trade area and elsewhere. As of December 31, 2003, there were two commercial banks (one of which is the Bank) operating a total of three offices in Floyd County, Virginia. The competing
institution is not locally owned.





---

Floyd County generates approximately 80% of the Banks total deposits. In the other parts of the
Banks trade area (the Virginia counties of Roanoke, Montgomery, and Carroll and the City of Roanoke, Virginia), there are a number of locally owned community banks, statewide banking organizations, and affiliate banks of southeast regional
bank holding companies in operation.



(3) MATERIAL CUSTOMERS



Deposits are derived from a broad base of customers in its
trade area. No material portion of deposits have been obtained from a single person or a few persons (including Federal, State, and local governments and agencies thereunder), the loss of which would have a materially adverse effect on the business
of the Bank.



The majority of loans, commitments to extend
credit, and standby letters of credit have been granted to customers in the Companys market area. The majority of such customers are depositors. The Company generally does not extend credit to any single borrower or group of related borrowers
in excess of approximately $2.5 million. Although the Company has a reasonably diversified loan portfolio, it has a loan concentration relating to customers who are motel and bed-and-breakfast owners and operators. Total loans and loan commitments
to this industrial group amounted to approximately $16.8 million and $17.7 million at December 31, 2003 and 2002, respectively.



(4) RIGHTS



No patents, trademarks, licenses, franchises or concessions held are of material significance to the Company.



(5) NEW SERVICES



The Company has expended no material dollars on research activities relating
to new lines of business in the last two years.



(6)
ENVIRONMENTAL LAWS



Compliance with Federal, State, or Local
provisions regulating the discharge of materials into the environment has not had, nor is it expected to have in the future, a material effect upon the Companys capital expenditures, earnings or competitive position.



(7) EMPLOYEES



The Bank had 19 officers, 40 full-time employees and 5 part-time employees as of December 31, 2003.



ITEM 2. DESCRIPTION OF PROPERTY



The present headquarters of the Company consists of a three-story brick
building, with approximately 21,200 square feet of floor space located at 101 Jacksonville Circle, Floyd, Virginia. The Bank also owns its branch offices in Hillsville and Roanoke, Virginia, which have drive-up facilities. The Banks Willis and
Christiansburg, Virginia offices operate from leased facilities.



The Bank also owns a three-story brick building adjacent to its main office which serves as the Banks conference room, training room and which provides space for expansion of the financial services now offered.



In 2003, the Bank purchased land in Christiansburg and plans to begin
construction on a branch office in 2004.



---

ITEM 3. LEGAL PROCEEDINGS



On December 12, 2002 Cardinals former Chief Financial Officer Mr. David Welch filed a complaint against Cardinal with
the United States Department of Labor under Section 806 of the Sarbanes-Oxley Act. Welch alleges in his complaint that his termination in October, 2002 violated the Act and seeks reinstatement, back pay and damages. The Company maintains that the
independent members of Cardinals Board of Directors terminated Welch lawfully because he refused to comply with the directives of the Audit Committee attempting to look into certain matters raised by Mr. Welch. The Audit Committee, after full
investigation, later concluded that the matters raised by Mr. Welch had no merit. The Boards decision was upheld by the Department of Labor initially. Mr. Welch appealed that decision. The Department of Labor Administrative Law Judge reversed
the earlier decision in Cardinals favor and entered a decision in Welchs favor on January 28, 2004. The Administrative Review Board of the Department of Labor agreed to review the decision of the Administrative Law Judge on February 6,
2004. Their decision to review suspended the decision of the Administrative Law Judge prior to any determination of damages by the Administrative Law Judge. The matter is presently before the Administrative Review Board. Cardinal intends to pursue
its appeal rights vigorously and believes that the Administrative Law Judges decision is erroneous, factually and legally.



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



No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.



PART II



ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



| | (A) | The Companys stock is traded on the OTC Bulletin Board under the symbol CDBK. The following table shows the trading ranges of the Common Stock for the previous five years. The
table has been adjusted for the effects of a 3-for-1 stock split in 2001.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|     |  |      |       |     |   |      
|---- |  | ---- | ----- | --- | - | -----
|Year |  | High |       | Low
|2003 |  | $    | 24.25 |     | $ | 17.60
|2002 |  | $    | 23.47 |     | $ | 14.80
|2001 |  | $    | 16.00 |     | $ | 12.00
|2000 |  | $    | 12.25 |     | $ | 10.33
|1999 |  | $    | 17.00 |     | $ | 13.33



| | (B) | The approximate number of holders of the Banks 1,535,733 Common Stock Securities as of December 31, 2003, is 712.
| | --- | ------------------------------------------------------------------------------------------------------------------



| | (C) | Dividends paid for 2003 were $0.47 and 2002 were $0.45 per share owned. The Companys ability to declare and pay dividends in the future are dependent upon its consolidated net
income, fiscal and general business condition. Subject to these considerations, as well as, laws and regulations governing the payment of dividends, the Company may declare dividends at the discretion of the Board of Directors only. The Company
currently expects that dividends will continue to be paid in the foreseeable future.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS



The information required by Item 6 of Form 10-KSB appears in the Companys 2003 Annual Report to Stockholders and is incorporated herein by reference.



ITEM 7. FINANCIAL STATEMENTS



The information required by Item 7 of Form 10-KSB appears in the Companys 2003 Annual Report to Stockholders and is incorporated herein by
reference.





---

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



|NONE | 
|---- | 



ITEM 8A. CONTROLS AND PROCEDURES



Our Chief
Executive Officer and Principal Financial Officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures in accordance with Rule 13a-14 of the Securities Exchange Act of 1934 (the Exchange
Act). Based on the evaluation, the Chief Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in enabling us to record,
process, summarize and report in a timely manner the information required to be disclosed in reports we file under the Exchange Act.



No change in our internal control over financial reporting occurred during our fourth quarter of 2003 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.



ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:

COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT



The information required by
Item 9 of Form 10-KSB appears in the Companys Proxy Statement for the 2004 Annual Meeting and is incorporated herein by reference.



ITEM 10. EXECUTIVE COMPENSATION



The information required by Item 10 of Form 10-KSB appears in the Companys Proxy Statement for the 2004 Annual Meeting and is incorporated herein by
reference.



ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT



The information required by Item 11 of Form
10-KSB appears in the Companys Proxy Statement for the 2004 Annual Meeting and is incorporated herein by reference.



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



The information required by Item 12 of Form 10-KSB appears in the Companys Proxy Statement for the 2004 Annual Meeting and is incorporated herein by
reference.



---

PART IV



ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K



| | (a) | The following documents are filed as part of the report:
| | --- | --------------------------------------------------------



| | 1. | Financial Statements:
| | -- | ---------------------



Independent Auditors Report



Consolidated Balance Sheets -

December 31,
2003 and 2002



Consolidated Statements of Income - Years ended

December 31, 2003, 2002 and 2001



Consolidated Statements of Stockholders

Equity - Years ended

December 31, 2003, 2002 and 2001



Consolidated Statements of Cash

Flows - Years ended December 31,

2003, 2002 and 2001



Notes to Consolidated Financial

Statements



| | 2. | Financial Statement Schedules:
| | -- | ------------------------------



All schedules are omitted as the required information is inapplicable or the information is presented in the Consolidated Financial Statements or related
notes.



| | 3. | Exhibits:
| | -- | ---------



|     |  |                                                                                                            
|---- |  | -----------------------------------------------------------------------------------------------------------
|13.1 |  | 2003 Annual Report to Stockholders                                                                         
|31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)                                        
|31.2 |  | Certification of Principal Financial Officer pursuant to Rule 13a-14(a)                                    
|32   |  | Certification of Chief Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350



| | (b) | REPORTS ON FORM 8-K filed during the fourth quarter of 2003:
| | --- | ------------------------------------------------------------



On December 19, 2003, the Company filed a report on Form 8-K to announce an increase in its common stock dividend, payable on December 31, 2003 to holders
of record as of December 23, 2003.



|ITEM | 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
|---- | ------------------------------------------



The information required by Item 14 of Form 10-KSB appears in the Companys Proxy Statement for the 2004 Annual Meeting and is incorporated herein by
reference.



FINANCIAL STATEMENT SCHEDULES



See Item 13(a)2 above.



---

SIGNATURES



In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.



CARDINAL BANKSHARES CORPORATION



|                        |  |  |  |                                         |  | 
|----------------------- |  |  |  | --------------------------------------- |  | 
|/s/ Ronald Leon Moore   |  |  |  | /s/ Ray A. Fleming                      |  | 
|Ronald Leon Moore       |  |  |  | Ray A. Fleming                          |  | 
|Chairman, President &   |  |  |  | Executive Vice President, Comptroller &
|Chief Executive Officer |  |  |  | Principal Financial Officer             |  | 
|Date: March 26, 2004    |  |  |  | Date: March 26, 2004                    |  | 



In accordance with the Exchange Act,
this report has to be signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                               |  |                                                         |  |               
|------------------------------ |  | ------------------------------------------------------- |  | --------------
|Signature                      |  | Title                                                   |  | Date          
|                               |  |                                                        
|/s/ Ronald Leon Moore          |  | Director, Chairman, President & Chief Executive Officer |  | March 26, 2004
|                               |  |                                                         | 
|Ronald Leon Moore              |  |                                                         | 
|                               |  |                                                        
|/s/ K. Venson Bolt             |  | Director                                                |  | March 26, 2004
|                               |  |                                                         |  |               
|K. Venson Bolt                 |  |                                                         |  |               
|                               |  |                                                        
|/s/ Joseph Howard Conduff, Jr. |  | Director                                                |  | March 26, 2004
|                               |  |                                                         |  |               
|Joseph Howard Conduff, Jr.     |  |                                                         |  |               
|                               |  |                                                        
|/s/ W. R. Gardner, Jr.         |  | Director                                                |  | March 26, 2004
|                               |  |                                                         |  |               
|W. R. Gardner, Jr.             |  |                                                         |  |               
|                               |  |                                                        
|/s/ Kevin D. Mitchell          |  | Director                                                |  | March 26, 2004
|                               |  |                                                         |  |               
|Kevin D. Mitchell              |  |                                                         |  |               
|                               |  |                                                        
|/s/ A. Carole Pratt            |  | Director                                                |  | March 26, 2004
|                               |  |                                                         |  |               
|A. Carole Pratt                |  |                                                         |  |               
|                               |  |                                                        
|/s/ Dorsey H. Thompson         |  | Director                                                |  | March 26, 2004
|                               |  |                                                         |  |               
|Dorsey H. Thompson             |  |                                                         |  |               
|                               |  |                                                        
|/s/ G. Harris Warner, Jr.      |  | Director                                                |  | March 26, 2004
|                               |  |                                                         |  |               
|G. Harris Warner, Jr.          |  |                                                         |  |               



---

INDEX TO EXHIBITS



|            |  |                                                                                                                                                                                                                                           
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                               
|13.1        |  | 2003 Annual Report to Stockholders (Such Report, except to the extent incorporated herein by reference, is being furnished for the information of the Commission only and is not deemed to be
filed as part of this Report on Form 10-KSB)
|            | 
|31.1        |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)                                                                                                                                                                       
|            | 
|31.2        |  | Certification of Principal Financial Officer pursuant to Rule 13a-14(a)                                                                                                                                                                   
|            | 
|32          |  | Certification of Chief Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350