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 June 30, 1999
[ ] 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.)
10555 Main Street, Suite 500
Fairfax, Virginia 22030
(Address of Principle Executive Offices)
(703) 934-9200
(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 June 30, 1999
<PAGE>
CARDINAL FINANCIAL CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
Part I. Financial Information
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Condition (Unaudited)
June 30, 1999 and December 31, 1998........................................................3
Consolidated Statements of Operations (Unaudited)
For the Three and Six Months Ended June 30, 1999 and June 30, 1998.........................4
Consolidated Statements of Comprehensive Income (Unaudited)
For the Three and Six Months Ended June 30, 1999 and June 30, 1998.........................5
Consolidated Statement of Changes in Shareholders' Equity (Unaudited)
For the Six Months Ended June 30, 1999 and June 30, 1998...................................6
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, 1999 and June 30, 1998...................................7
Notes to Condensed Consolidated Financial Statements (Unaudited)...........................8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation..........................................................9
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
Signatures
</TABLE>
2
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share data)
(Unaudited)
June 30, December 31,
1999 1998
---- ----
ASSETS
Cash & due from banks $ 1,572 $ 1,073
Federal funds sold 24,191 24,277
-------- --------
Total cash and cash equivalents 25,763 25,350
Investment securities available for sale 6,649 13,697
Loans receivable 31,645 16,327
Less: Allowance for loan losses 401 212
-------- --------
31,244 16,115
Premises and equipment, net 3,497 1,829
Accrued interest and other assets 952 304
-------- --------
Total Assets $ 68,105 $ 57,295
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 31,133 $ 21,867
Accrued interest and other liabilities 4,019 700
-------- --------
Total Liabilities 35,152 22,567
Common stock, $1 par value, 50,000,000 shares authorized,
shares outstanding 4,239,509 at June 30, 1999 and
December 31, 1998 4,240 4,240
Additional paid in capital 32,465 32,327
Accumulated deficit (3,672) (1,842)
Accumulated other comprehensive income (80) 3
-------- --------
Total Shareholders' Equity 32,953 34,728
-------- --------
Total Liabilities and Shareholders' Equity $ 68,105 $ 57,295
======== ========
See accompanying notes to consolidated financial statements.
3
<PAGE>
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1999 and June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $ 472,520 $ 3,743 $ 827,415 $ 3,743
Investment securities 102,889 920 234,096 920
Federal funds sold 323,629 127,799 644,429 229,035
------- ------- ------- -------
Total Interest Income 899,038 132,462 1,705,940 233,698
INTEREST EXPENSE
Deposits 225,562 8,001 424,811 8,001
Borrowings 13 - 273 1,616
------- ------- ------- -------
Total Interest Expense 225,575 8,001 425,084 9,617
------- ------- ------- -------
NET INTEREST INCOME 673,462 124,461 1,280,856 224,081
Provision for loan losses 120,679 3,010 188,804 3,010
------- ------- ------- -------
Net interest income after provision for loan losses 552,783 121,451 1,092,052 221,071
NON-INTEREST INCOME
Service charges on deposit accounts 6,606 16 11,693 16
Loan service charges 3,805 - 18,845 -
Investment fee income 278,903 - 280,181 -
Gains from sale of securities 884 - 12,087 -
Other income 21,982 687 34,597 687
------- ------- ------- -------
Total Non-interest income 312,180 703 357,403 703
NON-INTEREST EXPENSE
Salary and benefits 1,001,912 257,734 1,763,530 378,023
Depreciation 70,923 20,851 130,868 23,351
Occupancy 205,617 41,279 420,845 102,083
Professional fees 191,862 68,074 314,738 129,535
Other operating expenses 401,204 57,602 650,345 97,468
------- ------- ------- -------
Total non-interest expense 1,871,518 445,540 3,280,326 730,460
--------- ------- --------- -------
Net loss before income taxes (1,006,554) (323,386) (1,830,871) (508,686)
Provision for income taxes - - - -
------- ------- ------- -------
NET LOSS $ (1,006,554) $ (323,386) $ (1,830,871) $ (508,686)
============ ========== ============ ==========
Basic and diluted loss per share $ (0.24) $ (0.23) $ (0.43) $ (0.37)
Weighted-average shares outstanding 4,239,509 1,409,509 4,239,509 1,390,074
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months and six months ended June 30, 1999 and June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $ (1,006,554) $ (323,386) (1,830,871) (508,686)
Other comprehensive income:
Unrealized holding loss on available-for-sale
investment securities, net of tax (60,694) - (82,327) -
------------ ---------- ---------- --------
Comprehensive income $ (1,067,248) $ (323,386) (1,913,198) (508,686)
============ ========== ========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Six Months Ended June 30, 1999 and June 30, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated
Shares Stock Capital Deficit
------ -------- ---------- -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1998 ................................ 1,175 $1,175 7,621 (145)
Issuance of 235 shares of common stock
at $7.50 per share, net of costs .................... 235 235 1,525 -
Payment of subscription receivable ......................
Net loss ................................................ - - - (509)
----- ------ ------ ------
BALANCE, June 30, 1998 .................................. 1,410 $1,410 9,146 (654)
===== ====== ===== ======
Balance, January 1, 1999 ................................ 4,240 $4,240 32,327 (1,842)
Net loss ................................................
Change in unrealized holding loss on investment
securities available for sale, net of tax ........... - - -
Total Comprehensive Loss ................................
Reversal of Expense Accrual from Public Offering ........ - - 138 -
BALANCE, June 30, 1999 .................................. 4,240 $4,240 32,465 (3,672)
===== ====== ===== ======
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Uncollected
Comprehensive Subscription
Income Receivable Total
------------- ------------ --------
<S> <C> <C> <C>
Balance, January 1, 1998 ................................ - (100) 8,551
Issuance of 235 shares of common stock
at $7.50 per share, net of costs .................... - - 1,760
Payment of subscription receivable ...................... 100 100
Net loss ................................................ - - (509)
------ ------- -------
BALANCE, June 30, 1998 .................................. - - 9,902
====== ======= =====
Balance, January 1, 1999 ................................ 3 - 34,728
Net loss ................................................ - - (1,830)
Change in unrealized holding loss on investment
securities available for sale, net of tax ........... (83) - (83)
Total Comprehensive Loss ................................ (1,913)
Reversal of Expense Accrual from Public Offering ........ - - 138
BALANCE, June 30, 1999 .................................. (80) - 32,953
====== ======= =====
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months ended June 30, 1999 and June 30, 1998
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,831) $ (509)
Adjustments to reconcile net loss to net cash used in operating activities:
Realized gain on investment securities (12) -
Depreciation 131 27
Provision for loan losses 189 3
Increase in accrued interest and other assets (647) (143)
Increase in accrued interest and other liabilities 319 300
--------- -------
NET CASH USED IN OPERATING ACTIVITIES (1,851) (322)
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (1,799) (1,203)
Proceeds from sale of investment securities 3,285 -
Purchases of investment securities available for sale (171) (240)
Redemptions of investment securities 3,864 -
Net increase in loan portfolio (15,319) (341)
--------- -------
NET CASH USED IN INVESTING ACTIVITIES (10,140) (1,784)
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 9,266 4,801
Net increase in short-term borrowings 3,000 -
Proceeds from stock issuance, net - 1,759
Reversal of expense accrual from public offering 138 -
Decrease in subscription receivables - 4,610
Repayment of borrowings - (185)
--------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 12,404 10,985
--------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 413 8,879
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 25,350 4,283
--------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 25,763 $ 13,163
========= =======
Supplemental disclosure of cash flow information
Cash paid during period for interest: $ 424,915 $ 8,458
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(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. and as of February 1, 1999 investment in its new wholly owned investment
advisory subsidiary, Cardinal Wealth Services, Inc.
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 three months and six months ended
June 30, 1999 are not necessarily indicative of the results to be expected for
the full year ending December 31, 1999. 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 Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
8
<PAGE>
Item 2.
Cardinal Financial Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Cardinal Financial Corporation (the "Company") is the holding company for
Cardinal Bank, N.A. (the "Bank"), which commenced operations on June 8, 1998,
and Cardinal Wealth Services, Inc., an investment advisory subsidiary, which
commenced operations on February 1, 1999. Both subsidiaries are located in
Fairfax, Virginia.
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 were 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 of the Company as of June 30, 1999 and for the
three months and six months ended June 30, 1999 and June 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 June 30, 1999 results (when banking operations were in
progress) to those of June 30, 1998 (with only three weeks of banking
operations) is not meaningful.
Financial Condition
Total assets of the Company increased to $68.1 million at June 30, 1999 from
$57.3 million at December 31, 1998. Total loans increased $15.3 million or 94%
to $31.6 million at June 30, 1999 from $16.3 million at December 31, 1998 (see
Table 1 for details of the loan portfolio). The increase in loans was funded
primarily by a $9.2 million or 42% increase in deposits to $31.1 million at June
30, 1999 from $21.9 million at December 31, 1998, and also due to the sale of
investment securities available for sale which declined $7.1 million or 52% to
$6.6 million at June 30, 1999 from $13.7 million at December 31, 1998 (see Table
2 for details of investment securities available for sale). Cash and cash
equivalents including fed funds sold remained flat at $25.8 million at June 30,
1999 compared to $25.4 million at December 31, 1998. Shareholders' equity at
June 30, 1999 was $33.0 million compared to $34.7 million at December 31, 1998.
Book value per share on June 30, 1999 was $7.77 compared to $8.19 at December
31, 1998.
Results of Operations
The Company reported a net loss of $1.01 million and $1.83 million for the
second quarter and first six months of 1999, respectively, compared with $323.4
thousand and $508.7 thousand in the same periods of 1998. The increase in the
net loss reflects the organizational and operational expenses associated with
the Company's investment subsidiary and three additional banks that are
scheduled to open in the third quarter of 1999 and the first quarter of 2000.
9
<PAGE>
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 interest bearing liabilities. Net interest income for the
three and six months ended June 30, 1999 totaled $673.5 thousand and $1.28
million, respectively, compared to $124.5 thousand and $224.1 thousand for the
same periods in 1998.
The Company's net interest margin for the three and six months ended June 30,
1999 was 4.57% and 4.54%, respectively. The net interest margin for the same
periods in 1998 are not meaningful due to the June 1998 opening of the Company's
banking subsidiary. Table 3 presents an analysis of average earning assets,
interest bearing liabilities and demand deposits with the related components of
interest income and interest expense.
The provisions for loan losses for the three and six months ended June 30, 1999
was $120.7 thousand and $188.8 thousand, respectively, compared to $3.0 thousand
for the same periods in 1998. The allowance for loan losses at June 30, 1999 was
$401 thousand compared to $212 thousand at December 31, 1998. The ratio of the
allowance for loan losses to gross loans at June 30, 1999 was 1.27% compared to
1.30% at December 31, 1998. Due to the Company's short history, management is
currently maintaining a loan loss allowance comparable to its peers. The amount
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.
Table 4 reflects the components of the allowance for loan losses.
Non-interest income for the three and six months ended June 30, 1999 was $312.2
thousand and $357.4 thousand, respectively, compared to $703 for the same
periods in 1998. Non-interest income is significantly higher in 1999 due to the
investment income generated by Cardinal Wealth Services, Inc. which began
operations on February 1, 1999.
Non-interest expense for the three and six months ended June 30, 1999 was $1.87
million and $3.28 million, respectively, compared to $446 thousand and $730
thousand for the same periods in 1998. Non-interest expense is significantly
higher in 1999 due to the costs associated with the organization and start-up
operation of the Company's subsidiary that opened in 1999 and those scheduled to
open in late 1999 and early 2000.
Capital Resources
Shareholders' equity at June 30, 1999 was $33.0 million compared to $34.7
million at December 31, 1998. The reduction in equity was due to the recognition
of the loss for the six months ended June 30, 1999.
At June 30, 1999 the Company's tier 1 and total risk-based capital ratios were
74.2% and 75.1%, respectively. At December 31, 1998 the Company's tier 1 and
total risk-based capital ratios were 146.9% and 146.0%, respectively. Table 5
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 includes
the funding of three additional bank subsidiaries, 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 June 30,
1999, cash, cash equivalents and investment securities available for sale
totaled $32.4 million or 48% of total assets compared to $39.0 million or 68% of
total assets at December 31, 1998. Management is committed to maintaining
liquidity at a level
10
<PAGE>
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 6 reflects re-pricing or expected maturities of various assets
and liabilities at June 30, 1999. This gap analysis 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
final 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.
The Company continues to execute its Year 2000-compliance program to review the
Year 2000 issues faced by its third-party vendors. Under this program, the
Company examined the need for modifications or replacement of all non-compliant
software. The Company's recent entrance into the market has allowed it the
opportunity to screen third party vendors. Vendors chosen are already compliant
or are in the process of becoming Year 2000 compliant. 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 has satisfactorily completed testing of its primary operating
system. All hardware has been certified compliant. All of the Company's critical
outsource partners have satisfactorily reported successful testing and the
Company does not contemplate changing any vendors.
The Company does not expect the cost of its Year 2000 compliance program to be
material to its financial condition, and has and continues to expect to satisfy
compliance without material disruption of its operations. The Company has used
internal staff for testing purposes as well as third-party vendors 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. While unlikely, based on satisfactory testing and monitoring,
in the event that the Company's significant
11
<PAGE>
vendors, including its correspondent, the Federal Reserve Bank of Richmond, do
not successfully achieve Year 2000 compliance, the Company's business, results
of operations or financial condition could be adversely affected.
The Company's contingency plan has been completed and tested. The plan provides
an outline for operating in any worst case scenario.
The Company is subject to periodic review by its primary regulator, the Office
of the Comptroller of the Currency, to ensure existence of and adherence to a
Year 2000 compliance plan.
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,"
"estimate," or "continue," or the negative thereof or other comparable
terminology. The Company cautions readers that certain important factors,
including, among others, problems with terminology utilized by the Company as
described above, in some cases have affected, and in the future could affect,
the Company's actual results and could cause the Company's actual results in
1999 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.
12
<PAGE>
Table 1.
Cardinal Financial Corporation and Subsidiaries
Loans
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
Commercial $ 7,995 25.25% $ 5,138 31.43%
Real estate - commercial 9,882 31.21% 3,507 21.46%
Real estate - construction 1,069 3.38% 760 4.65%
Real estate - residential 8,608 27.18% 5,529 33.83%
Home equity lines 2,827 8.93% 1,040 6.37%
Consumer 1,284 4.05% 369 2.26%
Gross loans $ 31,665 100.00% $ 16,343 100.00%
Less: unearned income, net (20) - (16) -
Less: allowance for loan loss (401) - (212) -
============================ =============================
Total net loans $ 31,244 - $ 16,115 -
============================ =============================
</TABLE>
13
<PAGE>
Table 2.
Cardinal Financial Corporation and Subsidiaries
Investment Securities - Available for Sale
As of June 30, 1999
(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 $ - - - - 0.00%
One to five years 4,000 4,001 3,948 (53) 5.63%
Five to ten years - - - - 0.00%
After ten years 500 499 460 (39) 6.26%
------- ----- ----- ---- ----
Total U.S Government Agencies $ 4,500 4,500 4,408 (92) 5.70%
------- ----- ----- ---- ----
Mortgage-Backed Securities
Within one year 315 315 316 1 5.71%
One to five years - - - - 0.00%
Five to ten years 334 335 333 (2) 5.35%
After ten years 1,226 1,232 1,202 (30) 5.71%
------- ----- ----- ---- ----
Total Mortgage-Backed Securities $ 1,875 1,882 1,851 (31) 5.65%
------- ----- ----- ---- ----
Other Securities
Within one year - - - - -
One to five years - - - - -
Five to ten years - - - - -
After ten years 390 390 390 - 6.25%
------- ----- ----- ---- ----
Total Other Securities $ 390 390 390 - 6.25%
------- ----- ----- ---- ----
Total Investment Securities Available for Sale $ 6,765 6,772 6,649 (123) 5.71%
</TABLE>
14
<PAGE>
Table 3.
Cardinal Financial Corporation and Subsidiaries
Rate and Volume Analysis (Tax Equivalent Basis)
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Three Months Three Months
Ended June 30, Ended June 30, Ended June 30, Ended June 30,
Average Volume Average Rate Interest Increase Attributable to
1999 1998 1999 1998 1999 1998 (Decrease) Rate Volume
- ------------------------------------------ -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income
Loans:
$ 6,542 $ - 8.55% 0.00% Commercial $ 141 $ - $ 141 $ 141 $ -
7,153 - 7.88% 0.00% Real estate - commercial 142 - 142 $ 142 $ -
971 - 7.97% 0.00% Real estate - construction 20 - 20 $ 20 $ -
6,427 - 7.24% 0.00% Real estate - residential 118 - 118 $ 118 $ -
2,157 - 6.41% 0.00% Home equity lines 35 - 35 $ 35 $ -
1,085 - 8.51% 0.00% Consumer 23 - 23 $ 23 $ -
- ------------------------------------------------------------------------------------------------------------------------------------
24,335 - 7.79% 0.00% Total loans 479 - 479 $ 479 $ -
- ------------------------------------------------------------------------------------------------------------------------------------
7,088 - 5.55% 0.00% Investment Securities - AFS 99 - 99 $ 99 $ -
- - 0.00% 0.00% Money Market Accounts - - - $ - $ -
27,083 - 4.73% 0.00% Federal funds sold 323 - 323 $ 323 $ -
- ------------------------------------------------------------------------------------------------------------------------------------
$ 58,507 $ - 6.10% 0.00% Total interest-earning assets $ 902 $ - $ 902 $ 902 $ -
====================================================================================================================================
Interest Expense
2,216 - 2.06% 0.00% Interest Checking 11 - 11 $ 11 $ -
5,343 - 3.62% 0.00% Money Markets 48 - 48 $ 48 $ -
173 - 2.97% 0.00% Statement Savings 1 - 1 $ 1 $ -
13,813 - 4.78% 0.00% Certificates of Deposit 165 - 165 $ 165 $ -
683 - 5.33% 0.00% FHLB Short-Term Advances 9 - 9 $ 9 $ -
- ------------------------------------------------------------------------------------------------------------------------------------
22,228 - 4.24% 0.00% Total interest-bearing liabilities 235 - 235 $ 235 $ -
40,122 - Other Sources - Net - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
62,350 - 1.53% 0.00% Total Sources of Funds 235 - 235 235 -
- ------------------------------------------------------------------------------------------------------------------------------------
$ 36,278 $ - 4.57% 0.00% Net Interest Margin $ 667 $ - $ 667 $ 667 $ -
====================================================================================================================================
</TABLE>
15
<PAGE>
Table 3 continued.
Cardinal Financial Corporation and Subsidiaries
Rate and Volume Analysis (Tax Equivalent Basis)
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months Six Months Six Months
Ended June 30, Ended June 30, Ended June 30, Ended June 30,
Average Volume Average Rate Interest Increase Attributable to
1999 1998 1999 1998 1999 1998 (Decrease) Rate Volume
- --------------------------------------- ------------------- ------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income
Loans:
$ 6,487 $ - 8.33% 0.00% Commercial $ 272 $ - $ 272 $ 272 $ -
5,515 - 7.83% 0.00% Real estate - commercial 217 - 217 $ 217 $ -
657 - 9.10% 0.00% Real estate - construction 30 - 30 $ 30 $ -
6,050 - 7.22% 0.00% Real estate - residential 220 - 220 $ 220 $ -
1,687 - 6.32% 0.00% Home equity lines 54 - 54 $ 54 $ -
838 - 8.51% 0.00% Consumer 36 - 36 $ 36 $ -
- -----------------------------------------------------------------------------------------------------------------------------------
21,233 - 7.75% 0.00% Total loans 828 - 828 $ 828 $ -
8,269 - 5.55% 0.00% Investment Securities - AFS 231 - 231 $ 231 $ -
- - 0.00% 0.00% Money Market Accounts - - - $ - $ -
26,991 - 4.75% 0.00% Federal funds sold 644 - 644 $ 644 $ -
- -----------------------------------------------------------------------------------------------------------------------------------
$ 56,493 $ - 5.99% 0.00% Total interest-earning assets $ 1,703 $ - $ 1,703 $ 1,703 $ -
===================================================================================================================================
Interest Expense
2,065 - 2.06% 0.00% Interest Checking 21 - 21 $ 21 $ -
4,824 - 3.61% 0.00% Money Markets 86 - 86 $ 86 $ -
142 - 2.97% 0.00% Statement Savings 2 - 2 $ 2 $ -
12,950 - 4.83% 0.00% Certificates of Deposit 310 - 310 $ 310 $ -
343 - 5.33% 0.00% FHLB Short-Term Advances 9 - 9 $ 9 $ -
- -----------------------------------------------------------------------------------------------------------------------------------
20,325 - 4.19% 0.00% Total interest-bearing liabilities 429 - 429 $ 429 $ -
39,455 - Other Sources - Net
- -----------------------------------------------------------------------------------------------------------------------------------
59,780 - 1.45% 0.00% Total Sources of Funds 429 - 429 429 -
- -----------------------------------------------------------------------------------------------------------------------------------
$ 36,168 $ - 4.54% 0.00% Net Interest Margin $ 1,274 $ - $ 1,274 $ 1,274 $ -
===================================================================================================================================
</TABLE>
16
<PAGE>
Table 4.
Cardinal Financial Corporation and Subsidiaries
Allowance for Loan Losses
(In Thousands)
(Unaudited)
For the six For the year
months ended ended
June 30, December 31,
1999 1998
------------ ------------
Beginning balance $ 212 $ -
Provision for loan losses 189 212
Loans charged off:
Commercial - -
Real estate - commercial - -
Real estate - construction - -
Real estate - residential - -
Home equity lines - -
Consumer - -
- --------------------------------------------------------------------------------
Total loans charged off - -
Recoveries:
Commercial - -
Real estate - commercial - -
Real estate - construction - -
Real estate - residential - -
Home equity lines - -
Consumer - -
- --------------------------------------------------------------------------------
Total recoveries - -
Net charge-offs - -
Ending Balance $ 401 $ 212
================================================================================
Loans:
Total at period end $ 31,665 $ 16,343
Allowance for loan losses to:
Period-end loans 1.27% 1.30%
17
<PAGE>
Table 5.
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
Capital Components
As of June 30, 1999
(In thousands)
(Unaudited)
<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 risk based capital to risk weighted assets $ 33,633 75.11% $3,582 >= 8.00% $4,478 >= 10.0%
Tier I capital to risk weighted assets 33,233 74.21% 1,791 >= 4.00% 2,687 >= 6.0%
Leverage ratio total risk based capital to quarterly
average assets 33,633 53.34% 1,791 >= 4.00% 2,239 >= 5.0%
</TABLE>
18
<PAGE>
Table 6.
Cardinal Financial Corporation
Interest Rate Sensitivity Gap Analysis - Consolidated
As of June 30, 1999
(In thousands)
<TABLE>
<CAPTION>
1-90 91-180 181-365 1-5 Over 5
Days Days Days Years Years TOTAL
---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C>
ASSETS
Investment Securities
U.S. Government agency securities - - - 3,948 460 $ 4,408
Mortgage-backed securities - 315 333 390 813 1,851
Other securities - - - - 391 391
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investment Securities - 315 333 4,338 1,664 6,650
- -----------------------------------------------------------------------------------------------------------------------------------
Federal Funds Sold 24,191 24,191
- -----------------------------------------------------------------------------------------------------------------------------------
Loans
Variable rate loans 8,232 2,752 3 13,977 - 24,964
Fixed rate loans 901 - 631 4,931 652 7,115
- -----------------------------------------------------------------------------------------------------------------------------------
Total Gross Loans 9,133 2,752 634 18,908 652 32,079
- -----------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets 33,324 3,067 967 23,246 2,316 $ 62,920
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative Rate Sensitive Assets 33,324 36,391 37,358 60,604 62,920
- ----------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Deposits
Demand deposits 8,641 - - - - $ 8,641
Interest checking 2,007 - - - - 2,007
Statement savings 181 - - - - 181
Money market accounts 5,372 - - - - 5,372
Certificates of deposit 2,322 5,377 6,518 767 - 14,984
- -----------------------------------------------------------------------------------------------------------------------------------
Total Deposits 18,523 5,377 6,518 767 - 31,185
- -----------------------------------------------------------------------------------------------------------------------------------
Other liabilities - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Total Interest Bearing Liabilities 18,523 5,377 6,518 767 - $ 31,185
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative Rate Sensitive Liabilities 18,523 23,900 30,418 31,185 31,185
- ----------------------------------------------------------------------------------------------------------------------
Gap 14,801 (2,310) (5,551) 22,479 2,316
Cumulative Gap 14,801 12,491 6,940 29,419 31,735
Gap/ Total Assets 21.73% -3.39% -8.15% 33.01% 3.40%
Cumulative Gap/ Total Assets 21.73% 18.34% 10.19% 43.20% 46.60%
Rate Sensitive Assets/ Rate Sensitive Liabilities 1.80 0.57 0.15 30.31 -
Cumulative RSA/ Cumulative RSL 1.80 1.52 1.23 1.94 2.02
</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
The Annual Meeting of Shareholders (the "Meeting") of Cardinal
Financial Corporation (the "Company") was held on Thursday,
June 10, 1999. The Shareholders voted on the election of three
individuals to serve as directors of the Company for a term of
three years each and a proposal to approve the Company's 1999
Stock Option Plan. The results of the voting on these matters
are set forth below.
<TABLE>
<CAPTION>
Election of Directors
Broker
For Against Withheld Non-Votes
<S> <C> <C> <C> <C>
Nancy K. Falck 3,266,769 -- 71,833 --
L. Burwell Gunn, Jr. 3,266,769 -- 71,833 --
Jones V. Isaac 3,266,769 -- 71,833 --
Approval of 1999 Stock Option Plan
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C> <C>
1999 Stock Option Plan 1,713,737 242,769 52,233 --
</TABLE>
No other matters were voted upon at the Meeting or during the
quarter for which this report is filed.
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: August 16, 1999 /s/ L. Burwell Gunn, Jr.
---------------------------------------
L. Burwell Gunn, Jr.
President and Chief Executive Officer
Date: August 16, 1999 /s/ Joseph L. Borrelli
---------------------------------------
Joseph L. Borrelli
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB FOR CARDINAL FINANCIAL CORPORATION FOR THE
PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1572
<INT-BEARING-DEPOSITS> 22544
<FED-FUNDS-SOLD> 24191
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6648
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 31645
<ALLOWANCE> 401
<TOTAL-ASSETS> 68105
<DEPOSITS> 31133
<SHORT-TERM> 3000
<LIABILITIES-OTHER> 1019
<LONG-TERM> 0
0
0
<COMMON> 4240
<OTHER-SE> 28713
<TOTAL-LIABILITIES-AND-EQUITY> 68105
<INTEREST-LOAN> 829
<INTEREST-INVEST> 233
<INTEREST-OTHER> 644
<INTEREST-TOTAL> 1706
<INTEREST-DEPOSIT> 425
<INTEREST-EXPENSE> 425
<INTEREST-INCOME-NET> 1281
<LOAN-LOSSES> 189
<SECURITIES-GAINS> 12
<EXPENSE-OTHER> 3280
<INCOME-PRETAX> (1831)
<INCOME-PRE-EXTRAORDINARY> (1831)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1831)
<EPS-BASIC> (0.43)
<EPS-DILUTED> (0.43)
<YIELD-ACTUAL> 5.99
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 212
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 401
<ALLOWANCE-DOMESTIC> 401
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
