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
-----  1934 (Fee required). For the fiscal year ended December 31, 1998.
                                         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                (IRS Employer
       of incorporation or organization            Identification No.)

                101 Jacksonville Circle, Floyd, Virginia 24091
                    (Address of principal executive offices)

                               (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
                    ----------------------------------------
                                  Title of Class

     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 the Form
10-KSB or any amendment to this Form 10-KSB.  [X]

     The issuer's revenues for its most recent fiscal year were $11,758,000

     The aggregate market value of the voting stock as of March 15, 1998, held
by non-affiliates of the registrant computed by reference to the price at which
the stock was sold, or the average bid and asked prices of such stock, as of a
specified date within the last 60 days was $22,465,000.

     511,911 shares of the Issuer's common stock were issued and outstanding as
of March 15, 1999.

     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, 1998 is
incorporated by reference into Form 10-KSB Part II, Items 7 and 8, and Part III,
Item 13. The issuer's Proxy Statement dated March 24, 1999 is incorporated by
reference into Form 10-KSB Part III, Items 9, 10, 11, and 12.


<PAGE>



                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS
--------------------------------

    (A)  BUSINESS DEVELOPMENT

    Cardinal Bankshares Corporation (the Company) was incorporated as a Virginia
    corporation on March 12, 1996 to acquire the stock of The Bank of Floyd (the
    Bank). The Bank was acquired by the Company on 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 a minority interest in a title insurance
    company.

    (B)  DESCRIPTION OF THE BUSINESS

    The principal business of the Company and Bank is to provide comprehensive
    individual and corporate banking services through its main office in Floyd,
    Virginia, and its branch in Hillsville, Roanoke and Willis, Virginia.
    Effective April 6, 1994, the Bank acquired a 7-1/2% interest in Virginia
    Title Center, LLC (a title insurance company) through its acquisition by
    FBC, Inc. (a wholly owned subsidiary of the Bank). FBC, Inc. has no
    significant assets or operations other than its interest in Virginia Title
    Center, 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 banking 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, 1998, 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 70% of the Bank's total deposits. In
    the other parts of the Bank's trade area (the Virginia Counties of Roanoke
    and Montgomery 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 $1,750,000. 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 $8,900,000 and $6,400,000 at December 31, 1998 and 1997,
    respectively.


<PAGE>

    (B)  DESCRIPTION OF BUSINESS, CONTINUED

    (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 and has not announced any new
    line of business which will require an investment of material assets.

    (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 20 officers, 32 full-time employees and seven part-time
    employees as of December 31, 1998. Employee relations have been good.

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 operates branch
    offices in Hillsville and Roanoke, Virginia. All facilities are owned by the
    Bank and each has drive-up facilities. The Bank's Willis, Virginia office
    operates from a leased facility.

    The Bank also owns a three-story brick building adjacent to its main office
    which serves primarily as community meeting rooms and off-site data backup
    storage.


<PAGE>



ITEM 3.  LEGAL PROCEEDINGS
--------------------------

    Neither the Company nor the Bank or its subsidiary are a party to, nor is
    any of their property the subject of, any material pending legal proceedings
    incidental to the business of the Company or the Bank or its subsidiary.

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) Beginning in 1997, the Company's stock was listed on the NASDAQ Bulletin
Board under the symbol CDBK. Prior to 1997, no active public market existed for
the common stock of the Bank. Transfers of the common stock occurred from time
to time, but management had no direct access to the prices realized in those
trades. Based on information available to the Bank concerning such trading, 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 four for one stock
split in 1995 and a 10% stock dividend in 1997.

                Year               High              Low
                ----              ------            ------
                1998              $57.00            $48.25
                1997              $47.00            $44.00
                1996              $44.00            $35.45
                1995              $35.45            $21.59
                1994              $21.59            $20.45

    (B) The approximate number of holders of the Bank's 511,911 Common Stock
        Securities as of December 31, 1998, is 721.

    (C) Dividends paid for 1998 were $1.06 and 1997 were $1.00 per share
        (adjusted for the effects of a four for one stock split in 1995 and a
        10% stock dividend in 1997) owned. The Company's ability to declare and
        pay dividends in the future will be dependent upon its consolidated
        income and fiscal condition, tax considerations, and general business
        condition. Subject to these considerations, dividends may be declared
        only in the discretion of the Board of Directors. The Company presently
        expects that dividends will continue to be paid in the future.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------

    The information required under this item is incorporated by reference to the
    Company's Annual Report to Stockholders, Exhibit 13.1, pages 24-42 and
    inside front cover.

ITEM 7.  FINANCIAL STATEMENTS
-----------------------------

    The following consolidated financial statements of the registrant and the
    independent Auditor's Report set forth on pages 2 through 23 of the
    Company's 1998 Annual Report to Stockholders are incorporated herein by
    reference:

    (1)  Independent Auditor's Report

    (2)  Consolidated Balance Sheets as of December 31, 1998 and 1997

    (3)  Consolidated Statements of Income for the years ended December 31,
         1998, 1997, and 1996

    (4)  Consolidated Statements of Stockholders' Equity for the years ended
         December 31, 1998, 1997, and 1996

    (5)  Consolidated Statements of Cash Flows for the years ended December 31,
         1998, 1997, and 1996

    (6)  Notes to Consolidated Financial Statements


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

    NONE

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:
----------------------------------------------------------------------
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
         -------------------------------------------------

    The Executive Officer of the Company as of December 31, 1998 is listed on
    page 3 of the Company's Proxy statement dated March 24, 1999 and is
    incorporated herein by reference. Information with respect to the directors
    of the Company is set out under the caption "Election of Directors" on page
    2 of The Company's Proxy statement dated March 24, 1999, which information
    is incorporated herein by reference.

    The disclosure required by item 405 of regulation S-K is set out under the
    caption "Beneficial Ownership Reporting Compliance" section 16(a) on page 5
    of the Company's Proxy Statement dated March 24, 1999, which information is
    incorporated by reference.


<PAGE>




ITEM 10.  EXECUTIVE COMPENSATION
--------------------------------

    The information set forth under "Executive Compensation" and "Directors
    Meetings, Committees and Fees" on page 4 of the Company's Proxy Statement
    dated March 24, 1999 is incorporated herein by reference.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------

    The information set forth under "Ownership of Common Stock" on pages 3, 4
    and 5 of the Company's Proxy Statement dated March 24, 1999 is incorporated
    herein by reference.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

    The information contained under "Certain Transactions" on page 5 of the
    Company's Proxy Statement dated March 24, 1999 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:

                                            1998 Annual Report
                                         To Stockholders Pages(s)*
                                         -------------------------

    1.  Financial Statements:
        --------------------
        Independent Auditors' Report                 2

        Consolidated Balance Sheets
        December 31, 1998 and 1997                   3

        Consolidated Statements of Income
        Years ended December 31, 1998,
        1997, and 1996                               4

        Consolidated Statements of Stock-
        holders' Equity-Years ended
        December 31, 1998, 1997, and 1996            5

        Consolidated Statements of Cash
        Flows-Years ended December 31,
        1998, 1997, and 1996                         6

        Notes to Consolidated Financial
        Statements                                 7 - 23

* Incorporated by reference from the indicated pages of the 1998 Annual Report
  to Stockholders


<PAGE>




ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED
-----------------------------------------------------

    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
        --------

        The exhibits filed as part of this
        report and exhibits incorporated
        herein by reference to other
        documents are listed in the Index
        to Exhibits to this Annual Report
        on Form 10-KSB.

        REPORTS ON FORM 8-K
        -------------------

        None.

        EXHIBITS
        --------

        See Item 13(a)3 above.

        FINANCIAL STATEMENT SCHEDULES
        -----------------------------

        See Item 13(a)2 above.


<PAGE>



                                   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

Date:  March 22, 1999                   By: /s/ Ronald Leon Moore
                                            --------------------
                                            Ronald Leon Moore
                                            President and CEO


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
       ---------                       -----                   ----
                            Director, President and
                            Chief Executive Officer
                            (principal financial and
/s/ Ronald Leon Moore          accounting officer).           3/22/99
---------------------
Ronald Leon Moore

/s/ K. Venson Bolt                   Director                 3/22/99
------------------
K. Venson Bolt

/s/ J. H. Conduff                    Director                 3/22/99
-----------------
J. H. Conduff

/s/ W. R. Gardner,                   Director                 3/22/99
----------------------
W. R. Gardner, Jr.

/s/ C. W. Harman                     Director                 3/22/99
----------------
C. W. Harman

/s/ Kevin D. Mitchell                Director                 3/22/99
---------------------
Kevin D. Mitchell

/s/ Dorsey H. Thompson               Director                 3/22/99
----------------------
Dorsey H. Thompson



<PAGE>




                                INDEX TO EXHIBITS


                                                           PAGE NO. IN
EXHIBIT NO.               DESCRIPTION                   SEQUENTIAL SYSTEM
-----------               -----------                   -----------------
   13.1             1998 Annual Report to Stock-
                    holders (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).              ---

    3.1             Cardinal Bankshares Corporation,    Incorporated by
                    Articles of Incorporation           reference to the
                                                        Company's Registration
                                                        on Form 8-A, filed
                                                        August 16, 1996

    3.2             Cardinal Bankshares Corporation     Incorporated by
                    by-laws                             reference to the
                                                        Company's 1996 Annual
                                                        Report filed on Form
                                                        10-KSB on March 26, 1997

   21.1             Subsidiaries of Cardinal
                    Bankshares Corporation                       ---

   27.1             Financial Data Schedule                      ---



<PAGE>




    Sec.8-Reference herein to directors, officers, employees or agents shall
    include former directors, officers, employees and agents and their
    respective heirs, executors and administrators.