8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) August 21, 2006 (August 22, 2006)

Cardinal Bankshares Corporation

(Exact name of registrant as specified in its charter)

Virginia	0-28780	54-1804471
(State or other jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

101 Jacksonville Circle, PO Box 215 Floyd, Virginia	24091
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (540) 745-4191

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition

On August 21, 2006, Cardinal Bankshares Corporation (“Cardinal Bankshares”) issued a news release announcing financial results for the quarter ended June 30, 2006. The News Release (the “News Release”) is attached as Exhibit 99.1 to this report and is incorporated into this Item 8.01 by reference.

Item 9.01. Financial Statements and Exhibits.

(99.1) The News Release.

*                             *                              *

This Current Report on Form 8-K (including information included or incorporated by reference herein) may contain, among other things, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements regarding certain of Cardinal Bankshares’ goals and expectations with respect to earnings, earnings per share, revenue, expenses and the growth rate in such items, as well as other measures of economic performance, including statements relating to estimates of credit quality trends, and statements preceded by, followed by or that include the words “may”, “could”, “should”, “would”, “believe”, “anticipate”, “estimate”, “expect”, “intend”, “plan”, “projects”, “outlook” or similar expressions. These statements are based upon the current beliefs and expectations of Cardinal Bankshares’ management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. These forward-looking statements involve certain risks and uncertainties that are subject to change based on various factors (many of which are beyond Cardinal Bankshares’ control).

The following factors, among others, could cause Cardinal Bankshares’ financial performance to differ materially from that expressed in such forward-looking statements: (1) the strength of the United States economy in general and the strength of the local economies in which Cardinal Bankshares conducts operations may be different than expected resulting in, among other things, a deterioration in credit quality or a reduced demand for credit, including the resultant effect on Cardinal Bankshares’ loan portfolio and allowance for loan losses; (2) the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; (3) inflation, interest rate, market and monetary fluctuations; (4) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions); (5) the timely development of competitive new products and services by Cardinal Bankshares and the acceptance of these products and services by new and existing customers; (6) the willingness of customers to accept third party products marketed by Cardinal Bankshares; (7) the willingness of customers to substitute competitors’ products and services for Cardinal Bankshares’ products and services and vice versa; (8) the impact of changes in financial services’ laws and regulations (including laws concerning taxes, banking, securities and insurance); (9) technological changes; (10) changes in consumer spending and saving habits; (11) the effect of corporate restructurings, acquisitions and/or dispositions; (12) the growth and profitability of Cardinal Bankshares’ noninterest or fee income being less than expected; (13) unanticipated regulatory or judicial proceedings or rulings; (14) the impact of changes in accounting principles; (15) adverse changes in financial performance and/or condition of Cardinal Bankshares’ borrowers which could impact repayment of such borrowers’ outstanding loans; (16) the impact on Cardinal Bankshares’ businesses, as well as on the risks set forth above, of various domestic or international military or terrorist activities or conflicts; and (17) Cardinal Bankshares’ success at managing the risks involved in the foregoing.

Cardinal Bankshares cautions that the foregoing list of factors is not exclusive. All subsequent written and oral forward-looking statements concerning Cardinal Bankshares or other matters and attributable to Cardinal Bankshares or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above. Cardinal Bankshares does not undertake any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this Current Report on Form 8-K.

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 hereunto duly authorized.

	CARDINAL BANKSHARES CORPORATION
Date: August 21, 2006	By:	/s/ Ronald Leon Moore
	Name:	Ronald Leon Moore
	Title:	Chairman, President and Chief Executive Officer
	By:	/s/ Stephanie Kent
	Name:	Stephanie Kent
	Title:	Controller, Senior Vice President and Principal Financial Officer

EXHIBIT INDEX

Exhibit No.	Description
(99.1)	The News Release.

EX-99.1

Exhibit 99.1

Cardinal Bankshares Corporation

101 Jacksonville Circle

Floyd, Virginia 24091

Contact:	Leon Moore	Telephone: (540) -745-4191
	Chairman of the Board, President and CEO	FAX: (540-) 745-4133
	Stephanie Kent Senior Vice President and Principal Financial Officer

August 21, 2006 For Immediate Release Traded: OTC Bulletin Board         Symbol: CDBK

Cardinal Bankshares Corporation Announces Increased Earnings for the First Six Months of 2006

FLOYD, VA – Cardinal Bankshares Corporation is pleased to report increased year to date earnings for the first half of 2006 as compared to the first half of 2005. “As the bank continues to expand, we are quite pleased to report this increase in earnings”, stated Leon Moore, chairman and chief executive officer.

Net income for the first six months of 2006 amounted to $1,270,000, a slight increase of $167,000 from the income of $1,103,000 for the same period in 2005. Basic earnings amounted to $.83 per share as compared to $.72 per share for the first 6 months of 2005. This represents an increase of 15.1% above ending figures of June 2005.

Noninterest expense increased approximately $57,000 the first six months of 2006 compared to the first six months of 2005. The largest portion of that amount was attributed to personnel expenses related to Tanglewood and Salem branches added during 2005.

Total assets at June 30, 2006 were $191,122,000. Net loans ended the first six months at $123,342,000. Deposits at June 2006 were $162,068,000.

Mr. Moore stated, “Asset quality remains good and our capital position remains strong.”

Moore added, “Plans are underway to open our eighth branch in early 2007. This branch in Pulaski County, Virginia will serve the Fairlawn community. With this expansion, I believe the bank is well positioned for future growth and success. We appreciate the support of our customers, shareholders and employees. We welcome your comments and the opportunity to serve you.”

Mr. Moore commented on a recent article in the Roanoke, Virginia newspaper concerning the ongoing lawsuit between Cardinal and its former Chief Financial Officer David Welch. The newspaper article refers to a court filing by Welch in which Welch presents as fact his speculation about how much Cardinal has spent defending against his efforts to be reinstated as CFO. Mr. Moore said, “Mr. Welch could not know whether his speculation—which he passed off as fact in his court filing—is true or not. In reality, Mr. Welch’s speculation is false and greatly overstates Cardinal’s expenses in the case. Cardinal is troubled that its former CFO would go on record with these conjectures about Cardinal’s finances. The remarks reveal a casual willingness to pass off provocative speculation as fact. If anything, Welch’s statements illustrate exactly why Cardinal so vigorously opposes his reinstatement as CFO. Cardinal finds it unacceptable that its former CFO would make public representations about the finances of the company without knowing whether they were right or wrong. Like the vast majority of public companies, Cardinal has had to spend substantial amounts to comply with the new requirements of the Sarbanes Oxley Act. These expenses have nothing to do with Welch’s suit. Even so, Cardinal’s results are gratifying”.

Cardinal provides a wide range of commercial banking services to individuals and small to medium-sized businesses through its main office located in Floyd, Virginia and its branch locations in Christiansburg, Hillsville, Roanoke, Salem and Willis, Virginia.

****

This press release may contain “forward-looking statements,” within the meaning of federal securities laws, that involve risks and uncertainties. Statements herein are based on certain assumptions and analyses by the Company and other factors it believes are appropriate in the circumstances. However, the Company’s expectations are subject to a number of risks and uncertainties and other factors that could cause actual results, events and developments to differ materially from those contemplated by any forward-looking statements herein. Consequently, all forward-looking statements made herein are qualified by these cautionary statements and the cautionary language in the Company’s most recent Form 10-K report and other documents filed with the Securities and Exchange Commission.

Cardinal Bankshares Corporation and Subsidiary

Consolidated Balance Sheets

(In thousands, except share data)	(Unaudited) June 30, 2006			(Audited) December 31, 2005
Assets
Cash and due from banks	$	4,378		$	4,292
Interest-bearing deposits		7,438			9,042
Federal funds sold		6,600			5,125
Investment securities available for sale, at fair value		19,771			19,308
Investment securities held to maturity (fair value June 30, 2006 - $17,488; December 31, 2005 - $17,743)		17,455			17,470
Restricted equity securities		554			546
Total loans		124,809			129,981
Allowance for loan losses		(1,467	)		(1,427	)
Net loans		123,342			128,554
Bank premises and equipment, net		3,918			3,997
Accrued interest receivable		1,019			998
Foreclosed properties		212			418
Bank owned life insurance		4,709			4,631
Other assets		1,726			1,854
Total assets	$	191,122		$	196,235
Liabilities and Stockholders’ Equity
Noninterest-bearing deposits	$	28,915		$	26,747
Interest-bearing deposits		133,153			141,101
Total deposits		162,068			167,848
Securities sold under agreements to repurchase		—			134
Accrued interest payable		137			134
Other liabilities		1,109			1,061
Total liabilities		163,314			169,177
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		9,688			8,833
Accumulated other comprehensive income, net		(162	)		(57	)
Total stockholders’ equity		27,808			27,058
Total liabilities and stockholders’ equity	$	191,122		$	196,235

Cardinal Bankshares Corporation and Subsidiary

Consolidated Statements of Income (Unaudited)

	Three months ended June 30,					Six months ended June 30,
(In thousands, except share data)	2006			2005		2006			2005
Interest income
Loans and fees on loans	$	2,267		$	2,165	$	4,583		$	4,167
Federal funds sold and securities purchased under agreements to resell		47			32		74			58
Investment securities:
Taxable		207			208		399			418
Exempt from federal income tax		213			229		431			468
Deposits with banks		85			17		196			34
Total interest income		2,819			2,651		5,683			5,145
Interest expense
Deposits		987			844		1,956			1,619
Borrowings		—			10		—			22
Total interest expense		987			854		1,956			1,641
Net interest income		1,832			1,797		3,727			3,504
Provision for loan losses		10			12		30			36
Net interest income after provision for loan losses		1,822			1,785		3,697			3,468
Noninterest income
Service charges on deposit accounts		64			71		132			129
Other service charges and fees		26			26		49			49
Net realized gains on sales of securities		—			6		3			9
Other operating income		92			77		222			162
Total noninterest income		182			180		406			349
Noninterest expense
Salaries and employee benefits		741			702		1,488			1,385
Occupancy and equipment		167			173		340			365
Foreclosed assets, net		(9	)		—		(9	)		—
Other operating expense		314			349		621			660
Total noninterest expense		1,213			1,224		2,440			2,410
Income before income taxes		791			741		1,663			1,407
Income tax expense		184			164		393			304
Net Income	$	607		$	577	$	1,270		$	1,103
Basic earnings per share	$	0.40		$	0.38	$	0.83		$	0.72
Diluted earnings per share	$	0.40		$	0.38	$	0.83		$	0.72
Weighted average basic shares outstanding		1,535,733			1,535,733		1,535,733			1,535,733
Weighted average diluted shares outstanding		1,535,733			1,535,733		1,535,733			1,535,733