U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998
[ ] Transition Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ____________ to _____________
Commission file number: 0-24557
CARDINAL FINANCIAL CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)
Virginia 54-1874630
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10641 Lee Highway
Fairfax, Virginia 22030
(Address of Principle Executive Offices)
(703) 246-7343
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
4,239,509 shares of common stock, par value $1.00 per share,
outstanding as of September 30, 1998
<PAGE>
CARDINAL FINANCIAL CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
Part I. Financial Information
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Condition
September 30, 1998 and December 31, 1997..........................................3
Condensed Consolidated Statements of Income
Three Months and Nine Months Ended September 30, 1998.............................4
Condensed Consolidated Statement of Comprehensive Income
Three Months and Nine Months Ended September 30, 1998.............................5
Condensed Consolidated Statement of Changes in Shareholders' Equity
Nine Months Ended September 30, 1998..............................................6
Condensed Consolidated Statements of Cash Flows
Three Months and Nine Months Ended September 30, 1998.............................7
Notes to Condensed Consolidated Financial Statements.......................................8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation.........................................................10
Part II. Other Information
Item 1. Legal Proceedings.........................................................................20
Item 2. Changes in Securities and Use of Proceeds.................................................20
Item 3. Defaults Upon Senior Securities...........................................................20
Item 4. Submission of Matters to a Vote of Security Holders.......................................20
Item 5. Other Information.........................................................................20
Item 6. Exhibits and Reports on Form 8-K..........................................................20
</TABLE>
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<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------ -----------------
ASSETS (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 34,004 $ 4,283
Securities available for sale 15,577 -
Loans, net of unearned discount and deferred loan fees 3,148 -
Less: Allowance for loan losses 41 -
------------------ -----------------
3,107 4,283
Subscriptions receivable - 4,510
Premises and equipment, net 1,327 -
Accrued interest receivable and other assets 168 3
------------------ -----------------
Total Assets $ 54,183 $ 8,796
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 18,335 $ -
Accrued interest payable and other liabilities 345 245
------------------ -----------------
Total Liabilities 18,680 245
Common stock, $1 par value, 50,000,000 shares
authorized, 4,239,509 outstanding in 1998 and
1,174,988 outstanding in 1997 4,240 1,175
Uncollected subscriptions receivable - (100)
Additional paid in capital 32,327 7,621
Accumulated deficit (1,085) (145)
Accumulated other comprehensive income 21 -
------------------ -----------------
Total Shareholders' Equity 35,503 8,551
------------------ -----------------
Total Liabilities and Shareholders' Equity $ 54,183 $ 8,796
================== =================
</TABLE>
See accompanying notes to interim financial statements.
-3-
<PAGE>
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1998
----------------- -----------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans $ 30,918 $ 34,662
Investment securities 74,547 75,467
Interest bearing deposits 484,196 713,230
----------------- -----------------
Total Interest and Dividend Income 589,661 823,359
INTEREST EXPENSE
Deposits 144,877 151,525
Borrowings - 1,616
----------------- -----------------
Total Interest Expense 144,877 153,141
----------------- -----------------
NET INTEREST INCOME 444,784 670,218
Provision for loan losses 37,960 40,970
----------------- -----------------
Net interest income after provision for loan losses 406,824 629,248
NON-INTEREST INCOME
Service fees 1,156 1,172
Other income 8,816 9,502
----------------- -----------------
Total Non-Interest Income 9,972 10,674
NON-INTEREST EXPENSE
Salary and benefits 399,549 777,572
Occupancy 57,278 127,112
Professional fees 97,189 226,724
Other operating expenses 297,017 448,471
----------------- -----------------
Total Non-Interest Expense 851,033 1,579,879
Net loss before income taxes (434,237) (939,957)
Provision for income taxes - -
NET LOSS $ (434,237) $ (939,957)
================= =================
Basic and diluted loss per share $ (0.12) $ (0.45)
Weighted-average shares outstanding 3,523,531 2,109,041
</TABLE>
See accompanying notes to interim financial statements.
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<PAGE>
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1998
------------------ ------------------
<S> <C> <C>
Net loss $ (434,237) $ (939,957)
Other comprehensive income:
Unrealized gain on securities available for sale 20,831 20,831
------------------ ------------------
Comprehensive income $ (413,406) $ (919,126)
================== ==================
</TABLE>
See accompanying notes to interim financial statements.
-5-
<PAGE>
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF
CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other Uncollected
Common Paid-in Accumulated Comprehensive Subscription
Stock Capital Deficit Income Receivable Total
-------------- ------------ --------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 $ 1,175 7,621 (145) - (100) 8,551
Issuance of 234,521 shares of common
stock par value $1, at $7.50 per
share, net of costs 235 1,525 - - - 1,760
Issuance of 2,830,000 shares of
common stock par value $1, at
$10.00 per share, net of costs 2,830 23,181 - - - 26,011
Payment of subscription receivable - - - - 100 100
Change in unrealized gain on
securities available for sale - - - 21 - 21
Net loss - - (940) - - (940)
-------------- ------------ --------------- ---------------- --------------- -----------
BALANCE, SEPTEMBER 30, 1998 $ 4,240 32,327 (1,085) 21 - 35,503
============== ============ =============== ================ =============== ===========
</TABLE>
See accompanying notes to interim financial statements.
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<PAGE>
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1998
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (434) $ (940)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 72 98
Provision for loan losses 38 41
Increase in accrued interest receivable and other assets (18) (165)
Increase (decrease) in accrued interest payable and other
liabilities (11) 100
------------------ ------------------
NET CASH USED IN OPERATING ACTIVITIES (354) (866)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of premises and equipment (222) (1,425)
Purchase of securities available for sale (15,316) (15,556)
Net increase in loan portfolio (2,811) (3,148)
------------------ ------------------
NET CASH USED IN INVESTING ACTIVITIES (18,349) (20,129)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 13,534 18,335
Proceeds from stock issuance, net 26,010 27,771
Decrease in subscription receivables - 4,610
------------------ ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 39,544 50,716
------------------ ------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 20,841 29,271
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 13,162 4,283
------------------ ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 34,003 $ 34,004
================== ==================
Supplemental disclosure of cash flow information
Cash paid during period for interest: $ 149 $ 158
</TABLE>
See accompanying notes to interim financial statements.
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<PAGE>
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Note 1
Organization
Cardinal Financial Corporation (the "Company") was incorporated November 24,
1997 under the laws of the Commonwealth of Virginia as a holding company whose
activities consist of investment in its wholly owned subsidiary, Cardinal Bank,
N.A.
Basis of Presentation
In the opinion of management, the accompanying condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. However, all adjustments that are,
in the opinion of management, necessary for a fair presentation have been
included. The results of operations for the nine months ended September 30, 1998
are not necessarily indicative of the results to be expected for the full year
ending December 31, 1998. The unaudited interim financial statements should be
read in conjunction with the audited financial statements and notes to financial
statements that are presented in the Prospectus dated July 17, 1998 that is part
of the Company's Registration Statement on Form SB-2 (Registration No.
333-52279) and that was filed with the Securities and Exchange Commission on
July 20, 1998 pursuant to Rule 424(b) under the Securities Act of 1933, as
amended.
Note 2
Income Recognition on Loans
Interest on loans is credited to income as earned on the principal amount
outstanding. When, in management's judgment, the full collectibility of
principal or interest on a loan becomes uncertain, that loan is placed on
nonaccrual. Any accrued but uncollected interest on nonaccrual loans is charged
against current income. Interest income is then recognized as cash is received.
Interest accruals are resumed on such loans only when they are brought fully
current with respect to principal and interest and when, in the judgment of
management, the loans have demonstrated a new period of performance and are
estimated to be fully collectible as to both principal and interest.
-8-
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance available for losses
incurred on loans. It is established through charges to earnings in the form of
provisions for loan losses. Loan losses are charged to the allowance for loan
losses when a determination is made that collection is unlikely to occur.
Recoveries are credited to the allowance at the time that cash is received.
Prior to the beginning of each year, and quarterly during the year, management
estimates whether the allowance for loan losses is adequate to absorb losses
that can be anticipated in the existing portfolio. Based on these estimates, an
amount is charged to the provision for loan losses to adjust the allowance to a
level determined to be adequate to absorb currently anticipated losses.
Management's judgment as to the level of future losses on existing loans is
based on management's internal review of the loan portfolio, including an
analysis of the borrowers' current financial position, the consideration of
current and anticipated economic conditions and their potential effects on
specific borrowers, an evaluation of the existing relationships among loans,
potential loan losses, and the present level of the loan loss allowance and
results of examinations by independent consultants. In determining the
collectibility of certain loans, management also considers the fair value of any
underlying collateral. In addition, various regulatory agencies, as a part of
their examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgments about information available to them at the
time of their examination.
-9-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Cardinal Financial Corporation (the "Company") is the bank holding
company for Cardinal Bank, N.A. in Fairfax, Virginia (the "Bank"). The Company
was in a development stage until the Bank commenced operations on June 8, 1998.
The Company funded its start-up and organizational costs through a
private offering (the "Private Offering") of 1,409,509 shares of its common
stock, par value $1.00 per share (the "Common Stock"), in the fourth quarter of
1997 and the first quarter of 1998. The total proceeds to the Company in the
Private Offering were $10.6 million, of which $8.0 million was used to
capitalize the Bank. In addition, the Company raised additional capital for
general corporate purposes and to support the growth of assets and deposits
through a public offering (the "Public Offering") of 2,830,000 shares of Common
Stock in the third quarter of 1998. The total proceeds to the Company in the
Public Offering were $26.1 million, after deducting underwriting discounts and
expenses.
The following discussion presents management's discussion and analysis
of the consolidated financial condition and results of operations of the Company
as of September 30, 1998 and December 31, 1997 and for the three and nine months
ended September 30, 1998. This discussion should be read in conjunction with the
Company's Unaudited Condensed Consolidated Financial Statements and the notes
thereto appearing elsewhere in this report. Since principal banking operations
commenced on June 8, 1998, a comparison of the September 30, 1998 results (when
banking operations were in progress) to those of September 30, 1997 (prior to
the Company's formation) is not meaningful.
Results of Operations
Total assets of the Company increased to $54.2 million at September 30,
1998, compared to $8.8 million at December 31, 1997, representing an increase of
$45.4 million. The increase is primarily attributable to the receipt of $1.5
million in proceeds from the Private Offering, the $26.1 million in proceeds
from the Public Offering and deposits of $18.3 million. Total loans at September
30, 1998 were $3.1 million (see Table I for loan portfolio detail), and the
investment portfolio at September 30, 1998 was $15.6 million. Included in cash
and cash equivalents are $32.5 million of Fed Funds Sold.
Net loss for the three months and the nine months ended September 30,
1998 was $434.2 thousand or $0.12 per share and $940.0 thousand or $0.45 per
share, respectively. While implementing its growth strategy, the Company does
not anticipate profitable operations on a consolidated basis through at least
December 31, 1999.
Net interest income is the Company's primary source of earnings and
represents the difference between interest and fees earned on interest bearing
assets and the interest paid on deposits and other interest bearing liabilities.
Net interest income for the three months and the
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<PAGE>
nine months ended September 30, 1998 totaled $444.8 thousand and $670.2
thousand, respectively.
The Company's net interest margin for the three months and the nine
months ended September 30, 1998 was 4.33% and 4.66%, respectively. Average
earning assets for the three and nine months ended September 30, 1998 were $43.1
million and $22.8 million, respectively. The growth in earning assets can be
attributed to the investment of the proceeds of the Public Offering and
deposits. Table II presents an analysis of average earning assets, interest
bearing liabilities and demand deposits with the related components of interest
income and interest expense.
The provision for loan losses for the three months and the nine months
ended September 30, 1998 was $38.0 thousand and $41.0 thousand, respectively. A
provision for loan losses was recorded even though the Company's short history
reflects no loan losses or any material trends in past due loans. Due to the
Company's short history, management is currently maintaining a loan loss
allowance comparable to its peers. The allowance for loan losses at September
30, 1998 was $41.0 thousand. The current ratio of the allowance for loan losses
to loans is 1.30%. The amounts of loan loss provision is determined by an
evaluation of the level of loans outstanding, the level of non-performing loans,
historical loan loss experience, delinquency trends, the amount of actual losses
charged to the reserve in a given period, and assessment of present and
anticipated economic conditions.
The Company recorded limited non-interest income due to the start-up
nature of its business. Non-interest income for the three months and the nine
months ended September 30, 1998 was $10.0 thousand and $10.7 thousand,
respectively. These amounts reflect the service charges on deposit accounts and
fees on miscellaneous bank services.
Non-interest expense for the three months and the nine months ended
September 30, 1998 totaled $851.0 thousand and $1.58 million, respectively.
These expenses are being incurred in support of the Company's growth and consist
of salaries and benefits, occupancy, professional fees and other operating
expenses.
Capital Resources
Shareholders' equity at September 30, 1998 was $35.5 million compared
to $8.6 million at December 31, 1997. The growth in shareholders' equity is
attributable to the receipt of proceeds from the Private Offering and proceeds
from the Public Offering, reduced by accumulated losses.
At September 30, 1998, the Company's tier 1 and total risk-based
capital ratios were 254.1% and 254.4%, respectively. The Company's leverage
ratio was 82.3% at September 30, 1998. Comparative ratios at December 31, 1997
are not meaningful since the Bank did not commence operations until June 8,
1998. Table III reflects the components of regulatory capital. The Company's
capital structure places it well above minimum regulatory requirements. The
Company maintains a strong capital base in order to implement its growth
strategy, which
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<PAGE>
includes the funding of three additional bank subsidiaries and an investment
securities subsidiary as well as ensuring that it has the resources to protect
against the risks inherent in its business.
Liquidity
Liquidity provides the Company with the ability to meet normal deposit
withdrawals, while also providing for the credit needs of customers. At
September 30, 1998, cash, cash equivalents and securities available for sale
totaled $49.6 million, representing 91.5% of total assets. Table IV reflects the
details of the available-for-sale portfolio. Management is committed to
maintaining liquidity at a level sufficient to protect depositors, provide for
reasonable growth, and fully comply with all regulatory requirements.
Interest Rate Sensitivity
An important element of asset/liability management is the monitoring of
the Company's sensitivity to interest rate movements. In order to measure the
effect of interest rates on the Company's net interest income, management takes
into consideration the expected cash flows from the securities and loan
portfolios and the expected magnitude of the repricing of specific asset and
liability categories. Management evaluates interest sensitivity risk and then
formulates guidelines to manage this risk based upon its outlook regarding the
economy, forecasted interest rate movements and other business factors.
Management's goal is to maximize and stabilize the net interest margin by
limiting exposure to interest rate changes.
The data in Table V reflects re-pricing or expected maturities of
various assets and liabilities at September 30, 1998. This gap represents the
difference between interest sensitive assets and liabilities in a specific time
interval. Interest sensitivity gap analysis presents a position that existed at
one particular point in time, and assumes that assets and liabilities with
similar re-pricing characteristics will re-price at the same time and to the
same degree. Given the Company's short history and anticipated growth,
management has maintained a high positive short-term gap.
Year 2000 Compliance
As the year 2000 approaches, an important business issue has emerged
regarding how existing software programs and operating systems can accommodate
this date value. Many existing application software products were designed to
accommodate a two-digit year. For example, "98" is stored on the systems and
represents 1998 and "00" represents 1900.
The Company utilizes a third-party vendor for processing its primary
banking applications. In addition, the Company also uses several other
third-party vendors for ancillary computer applications. All third party vendors
for the Company's banking applications either are already Year 2000 ready or are
in the process of modifying, upgrading or replacing their computer applications
to ensure Year 2000 compliance. Because the Company was recently formed, all of
its data processing equipment is new and is Year 2000 ready. The Company does
not expect to incur any material expense to replace data processing equipment.
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<PAGE>
The Company has a Year 2000 compliance program where it reviews the
Year 2000 issues that may be faced by its third-party vendors. Under such
program, the Company is examining the need for modifications or replacement of
all non-Year 2000 ready software. Because the Company is new, it has had the
opportunity to screen its third-party vendors and those it has chosen either are
Year 2000 ready or are in the process of becoming Year 2000 compliant. All of
the Company's data processing vendor contracts have Year 2000 clauses, which
allow the Company to test for compliance and to cancel without penalty if a
vendor does not meet its Year 2000 compliance plan. The Company's Year 2000
compliance program provides that all critical data processing applications will
be tested beginning in November 1998 and that testing will be completed on or
before March 31, 1999. If any software is not Year 2000 ready at March 31, 1999,
the vendor contract can be terminated and an alternative vendor can be selected.
The Company has identified alternative vendors, should they be necessary. The
Company's loan policy includes Year 2000 risk management parameters, and it has
no Year 2000 credit risk at this time.
The Company does not currently expect that the cost of its Year 2000
compliance program, including possible remediation costs, will be material to
its financial condition and expects that it will satisfy such compliance program
without material disruption of its operations. The costs that the Company
anticipates incurring will be for testing of vendor Year 2000 compliance. The
Company will utilize internal staff for this purpose, as well as a third-party
vendor as necessary. The Company does not separately track the internal costs
incurred for its Year 2000 compliance program, and such costs are principally
the related payroll costs for its test team. In the event that the Company's
significant vendors, including its correspondent, the Federal Reserve Bank of
Richmond, do not successfully and timely achieve Year 2000 compliance, however,
the Company's business, results of operations or financial condition would be
adversely affected.
The Company's contingency plan will be based on the ability to replace
mission critical vendors that do not achieve Year 2000 compliance. Alternate
vendors have been identified and, should any of the Company's existing vendors
not certify Year 2000 compliance by March 31, 1999, the Company will proceed
with plans to move to alternate vendors and to establish a contingency plan for
handling the Company's Year 2000 exposure.
The Company is subject to periodic review by its primary regulator, the
Office of the Comptroller of the Currency, for the purpose of determining that
the Company does have a Year 2000 plan and that it is in fact adhering to it.
Forward Looking Statements
This report contains certain forward-looking statements, which can be
identified by the use of forward-looking terminology such as "may, " "will, "
"expect, " "anticipate, " "estimate, " or "continue, " or the negative thereof
or other comparable terminology. The Company cautions readers that certain
important factors, including, among others, problems with technology utilized by
the Company as described above, in some cases have affected, and in the future
could affect,
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<PAGE>
the Company's actual results and could cause the Company's actual results in
1998 and beyond to differ materially from those expressed in any forward-looking
statements in this report. Reference is made to the "Risk Factors" section of
the Prospectus dated July 17, 1998 that is part of the Company's Registration
Statement on Form SB-2 (Registration No. 333-52279) and that was filed with the
Securities and Exchange Commission on July 20, 1998 pursuant to Rule 424(b)
under the Securities Act of 1933, as amended, for a description of certain of
these important factors.
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<PAGE>
TABLE I
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARY
Net Loans
(In thousands)
September 30,
1998
-------------
(Unaudited)
Commercial $621
Real estate - commercial 369
Real estate - mortgage 1,235
Home equity lines 475
Consumer 451
------
Gross loans $3,151
Less: unearned income, net (3)
Less: allowance for loan loss (41)
------
Total net loans $3,107
======
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<PAGE>
TABLE II
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST EARNINGS ASSETS:
Investment securities available for sale $4,977 $75 5.86% $1,697 $75 5.86%
Loans:
Commercial 597 13 8.75% 235 17 9.51%
Real Estate 422 10 9.23% 142 10 9.23%
Consumer 230 8 12.95% 79 8 12.93%
-----------------------------------------------------------------------
Total Loans 1,249 31 9.69% 456 35 10.02%
Federal funds sold 34,557 484 5.48% 17,422 713 5.40%
-----------------------------------------------------------------------
Total Interest Earning Assets 40,783 590 5.66% 19,575 823 5.55%
NON-INTEREST EARNINGS ASSETS:
Cash and due from banks 1,044 407
Premises and equipment, net 1,202 630
Allowance for Loan Losses (10) (3)
Accrued interest receivable and other assets 97 2,197
------------------------------------------------------------------------
Total Non-Interest Earning Assets 2,333 3,231
TOTAL ASSETS $43,116 $22,806
========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
Interest Bearing Deposits:
Interest checking $662 $4 2.09% $244 $4 2.10%
Money markets 4,639 45 3.78% 1,613 46 3.78%
Statement savings 130 1 2.93% 44 1 2.93%
Certificates of deposit 6,629 96 5.64% 2,356 102 5.70%
------------------------------------------------------------------------
Total Interest-Bearing Deposits 12,060 145 4.70% 4,257 153 4.74%
------------------------------------------------------------------------
Total Interest Bearing Liabilities 12,060 145 4.70% 4,257 153 4.74%
NON-INTEREST BEARING LIABILITIES
Demand deposits 1,520 532
Accrued interest payable and other liabilities 326 184
------------------------------------------------------------------------
Total Non-Interest Bearing Liabilities 1,846 716
------------------------------------------------------------------------
Total Liabilities $13,906 $4,973
------------------------------------------------------------------------
Total Shareholders' Equity $29,210 $17,833
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $43,116 $22,806
------------------------------------------------------------------------
Interest Spread 0.96% 0.81%
----------------- -----------------
Net Interest Margin $445 4.33% $670 4.66%
================= =================
Cost to Fund Earning Assets 1.32% 0.89%
--------- ---------
</TABLE>
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<PAGE>
TABLE III
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARY
Capital Components
As of September 30, 1998
(In thousands)
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ---------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk weighted assets $35,522 254.4% >= $1,117 >= 8.00% >= $1,396 >= 10.0%
Tier I capital to risk weighted assets 35,481 254.1% >= 559 >= 4.00% >= 838 >= 6.0%
Leverage ratio tier I capital to quarterly
average assets 35,481 82.3% >= 1,724 >= 4.00% >= 2,156 >= 5.0%
</TABLE>
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<PAGE>
TABLE IV
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARY
Securities - Available for Sale
As of September 30, 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Amortized Market Unrealized Average
Par Value Cost Value Gain/(Loss) Yield
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Government Agencies
Within one year $300 297 297 - 5.34%
One to five years 14,000 14,005 14,022 17 5.63%
Five to ten years 500 502 506 4 5.81%
After ten years - - - - -
- - ---------------------------------------------------------------------------------------------------------------------------------
Total U.S Government Agencies $14,800 14,804 14,825 21 5.59%
- - ---------------------------------------------------------------------------------------------------------------------------------
Mortgage-Backed Obligations
Within one year - - - - -
One to five years 496 512 512 - 6.79%
Five to ten years - - - - -
After ten years - - - - -
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Mortgage-Backed Obligations $496 512 512 - 6.79%
- - ---------------------------------------------------------------------------------------------------------------------------------
Other Securities
Within one year - - - - -
One to five years - - - - -
Five to ten years - - - - -
After ten years 240 240 240 - 6.00%
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Other Securities $240 240 240 - 6.00%
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Securities Available for Sale $15,536 15,556 15,577 21 6.13%
</TABLE>
-18-
<PAGE>
TABLE V
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARY
Interest Rate Sensitivity Gap Analysis
As of September 30, 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1-90 91-180 181-365 1-5 Over 5
Days Days Days Years Years TOTAL
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment Securities
U.S. Government agency securities - 13,311 1,008 506 - $14,825
Mortgage-backed securities - - - 512 - 512
Other securities - - - - 240 240
Total Investment Securities - 13,311 1,008 1,018 240 15,577
Federal Funds Sold 32,546 32,546
Loans
Variable rate loans 1,088 - 1,174 551 - 2,813
Fixed rate loans 125 - 22 119 73 339
Total Gross Loans 1,213 - 1,196 670 73 3,152
Total Earning Assets 33,759 13,311 2,204 1,688 313 $51,275
Cumulative Rate Sensitive Assets 33,759 47,070 49,274 50,962 51,275
Liabilities and Shareholders' Equity
Deposits
Demand deposits 3,742 - - - - $3,742
Interest checking 782 - - - - 782
Statement savings 177 - - - - 177
Money market accounts 4,227 - - - - 4,227
Certificates of deposit 84 1,056 8,025 241 - 9,406
Total Deposits 9,012 1,056 8,025 241 - 18,334
Other liabilities - - - - - -
Total Interest Bearing Liabilities 9,012 1,056 8,025 241 - $18,334
Cumulative Rate Sensitive Liabilities 9,012 10,068 18,093 18,334 18,334
Gap 24,747 12,255 (5,821) 1,446 313
Cumulative Gap 24,747 37,002 31,181 32,628 32,941
Gap/ Total Assets 45.67% 22.62% -10.74% 2.67% 0.58%
Cumulative Gap/ Total Assets 45.67% 68.29% 57.55% 60.22% 60.80%
</TABLE>
-19-
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
quarter ended September 30, 1998.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (filed electronically only).
(b) Reports on Form 8-K - none.
-20-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CARDINAL FINANCIAL CORPORATION
Date: November 16, 1998 /s/ L. Burwell Gunn, Jr.
-------------------------------------
L. Burwell Gunn, Jr.
President and Chief Executive Officer
Date: November 16, 1998 /s/ Joseph L. Borrelli
-------------------------------------
Joseph L. Borrelli
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,458
<INT-BEARING-DEPOSITS> 14,192
<FED-FUNDS-SOLD> 32,546
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,577
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,148
<ALLOWANCE> 41
<TOTAL-ASSETS> 54,183
<DEPOSITS> 18,335
<SHORT-TERM> 0
<LIABILITIES-OTHER> 345
<LONG-TERM> 0
0
0
<COMMON> 4,240
<OTHER-SE> 31,263
<TOTAL-LIABILITIES-AND-EQUITY> 54,183
<INTEREST-LOAN> 35
<INTEREST-INVEST> 75
<INTEREST-OTHER> 713
<INTEREST-TOTAL> 823
<INTEREST-DEPOSIT> 152
<INTEREST-EXPENSE> 153
<INTEREST-INCOME-NET> 670
<LOAN-LOSSES> 41
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,580
<INCOME-PRETAX> (940)
<INCOME-PRE-EXTRAORDINARY> (940)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (940)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
<YIELD-ACTUAL> 5.55
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 41
<ALLOWANCE-DOMESTIC> 41
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
