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 March 31, 2000
[ ] 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:
4,242,634 shares of common stock, par value $1.00 per share,
outstanding as of March 31, 2000
<PAGE>
CARDINAL FINANCIAL CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
Part I. Financial Information
Item 1. Financial Statements
<S> <C>
Consolidated Statements of Condition
March 31, 2000 (Unaudited) and December 31, 1999...........................................3
Consolidated Statements of Operations (Unaudited)
For the Three Months Ended
March 31, 2000 and March 31, 1999..........................................................4
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
For the Three Months Ended
March 31, 2000 and March 31, 1999..........................................................5
Consolidated Statement of Changes in Shareholders' Equity (Unaudited)
For the Three Months Ended March 31, 2000 and March 31, 1999...............................6
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 2000 and March 31, 1999...............................7
Notes to Condensed Consolidated Financial Statements (Unaudited)...........................8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation.........................................................11
Part II. Other Information
Item 1. Legal Proceedings.........................................................................21
Item 2. Changes in Securities and Use of Proceeds.................................................21
Item 3. Defaults Upon Senior Securities...........................................................21
Item 4. Submission of Matters to a Vote of Security Holders.......................................21
Item 5. Other Information.........................................................................21
Item 6. Exhibits and Reports on Form 8-K..........................................................21
Signatures
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
As of March 31, 2000 and December 31, 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
Assets 2000 1999
----------------- -----------------
<S> <C> <C>
Cash & due from banks $ 4,180 $ 6,018
Federal funds sold 20,378 13,025
----------------- -----------------
Total cash and cash equivalents 24,558 19,043
Investment securities available-for-sale 4,620 4,807
Other investments 1,028 1,015
Loans receivable, net of fees 81,444 68,167
Allowance for loan losses (869) (726)
----------------- -----------------
80,575 67,441
Premises and equipment, net 4,476 4,203
Accrued interest and other assets 668 524
----------------- -----------------
Total assets $ 115,925 $ 97,033
================= =================
Liabilities and Shareholders' Equity
Deposits $ 80,010 $ 59,873
Borrowings 6,000 6,000
Accrued interest and other liabilities 185 415
----------------- -----------------
Total liabilities 86,195 66,288
Common stock, $1 par value, 50,000,000 shares authorized,
shares outstanding 4,242,634 in 2000 and 1999 4,243 4,243
Additional paid in capital 32,498 32,496
Accumulated deficit (6,823) (5,881)
Accumulated other comprehensive income (loss) (188) (113)
----------------- -----------------
Total shareholders' equity 29,730 30,745
----------------- -----------------
Total liabilities and shareholders' equity $ 115,925 $ 97,033
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------------- -----------------
<S> <C> <C>
Interest income:
Loans receivable $ 1,528,938 $ 354,895
Federal funds sold 287,204 320,801
Investment securities available-for-sale 72,202 127,914
Other investments 15,480 3,293
----------------- -----------------
Total interest income 1,903,824 806,903
Interest expense:
Deposits 654,516 199,510
Borrowings 96,214 --
----------------- -----------------
Total interest expense 750,730 199,510
----------------- -----------------
Net interest income 1,153,094 607,393
Provision for loan losses 143,091 68,125
----------------- -----------------
Net interest income after provision for loan losses 1,010,003 539,268
Non-interest income:
Service charges on deposit accounts 20,401 5,087
Loan service charges 63,104 19,198
Investment fee income 313,326 1,278
Gains from sale of securities -- 11,203
Other income 26,848 8,457
----------------- -----------------
Total non-interest income 423,679 45,223
Non-interest expense:
Salary and benefits 1,362,859 761,618
Occupancy 221,508 215,228
Professional fees 101,554 117,007
Depreciation 128,500 59,945
Other operating expenses 561,421 255,010
----------------- -----------------
Total non-interest expense 2,375,842 1,408,808
----------------- -----------------
Net loss before income taxes (942,160) (824,317)
Provision for income taxes -- --
----------------- -----------------
Net loss $ (942,160) $ (824,317)
================= =================
Basic and diluted loss per share $ (0.22) $ (0.19)
================= =================
Weighted-average shares outstanding 4,242,634 4,239,509
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the three months ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------------- -----------------
<S> <C> <C>
Net loss $ (942,160) $ (824,317)
Other comprehensive income (loss):
Unrealized holding loss on investment securities
available-for-sale (75,179) (21,633)
----------------- -----------------
Comprehensive loss $ (1,017,339) $ (845,950)
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Three months ended March 31, 2000 and 1999
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Accumulated Comprehensive
Shares Stock Capital Deficit Income (Loss) Total
------ ----- ------- ------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 4,240 $ 4,240 $ 32,327 $ (1,842) $ 3 $ 34,728
Change in unrealized holding loss on
investment securities available-for-sale,
net of tax -- -- -- -- (22) (22)
Reversal of Expense Accrual from
Public Offering -- -- 138 -- -- 138
Net loss -- -- -- (824) -- (824)
-------- -------- -------- -------- -------- --------
Balance, March 31, 1999 4,240 $ 4,240 $ 32,465 $ (2,666) $ (19) $ 34,020
==================================================================================================================================
Balance, January 1, 2000 4,243 $ 4,243 $ 32,496 $ (5,881) $ (113) $ 30,745
Accrual of stock award -- -- 2 -- -- 2
Change in unrealized holding loss on
investment securities available-for-sale -- -- -- -- (75) (75)
Net loss -- -- -- (942) -- (942)
-------- -------- -------- -------- -------- --------
Balance, March 31, 2000 4,243 $ 4,243 $ 32,498 $ (6,823) $ (188) $ 29,730
==================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2000 and 1999
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
-------- --------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (942) $ (824)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 129 60
Provision for loan losses 143 68
Gain on sale of investment securities available-for-sale -- (11)
Increase in accrued interest and other assets (144) (36)
Decrease in accrued interest and other liabilities (288) (310)
Compensation related to stock awards 2 --
-------- --------
Net cash used in operating activities (1,100) (1,053)
-------- --------
Cash flows from investing activities:
Purchase of premises and equipment (402) (588)
Proceeds from sale of securities 6 1,984
Purchase of securities (18) (15)
Redemptions of investment securities-available-for-sale 169 3,562
Net increase in loan portfolio (13,277) (5,714)
-------- --------
Net cash used in investing activities (13,522) (771)
-------- --------
Cash flows from financing activities:
Net increase in deposits 20,137 4,065
Reversal of accrued costs related to public offering -- 138
-------- --------
Net cash provided by financing activities 20,137 4,203
-------- --------
Net increase in cash and cash equivalents 5,515 2,379
Cash and cash equivalents at beginning of period 19,043 25,350
-------- --------
Cash and cash equivalents at end of period $ 24,558 $ 27,729
======== ========
Supplemental disclosure of cash flow information
Cash paid during period for interest: $ 760 $ 200
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
7
<PAGE>
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(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 subsidiaries, Cardinal
Bank, N.A., Cardinal Wealth Services, Inc., Cardinal Bank - Manassas/Prince
William, N.A. and Cardinal Bank - Dulles, 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 three months ended March 31, 2000
are not necessarily indicative of the results to be expected for the full year
ending December 31, 2000. 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-KSB for
the year ended December 31, 1999.
Note 2
Segment Disclosures
The Company operates and reports in two business segments, commercial banking
and investment advisory services. The commercial banking segment includes both
commercial and consumer lending and provides customers such products as term
loans, real estate loans, other business financing and installment loans. In
addition, this segment also provides customers with several choices of deposit
products including demand deposit accounts, savings accounts and certificates of
deposit. The investment advisory services segment provides advisory services to
businesses and individuals including financial planning and retirement/estate
planning.
Information about reportable segments, and reconciliation of such information to
the consolidated financial statements as of and for the quarter to date ended
March 31, 2000 and 1999 follows:
8
<PAGE>
For the Three Months Ended March 31, 2000 (in dollars):
<TABLE>
<CAPTION>
Commercial Investment Intersegment
Banking Advisory Elimination Other Consolidated
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income 993,606 - - 159,488 1,153,094
Provision for loan losses 143,091 - - - 143,091
Non-interest income 106,020 313,326 (3,553) 7,886 423,679
Non-interest expense 1,413,143 467,949 (3,553) 498,303 2,375,842
----------- ------- ----------- ---------- -----------
Net income (loss) (456,608) (154,623) - (330,929) (942,160)
=========== ======= =========== ==========
Total Assets 106,990,578 212,631 (21,178,772) 29,900,182 115,924,619
</TABLE>
For the Three Months Ended March 31, 1999 (in dollars):
<TABLE>
<CAPTION>
Commercial Investment Intersegment
Banking Advisory Elimination Other Consolidated
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income 280,407 - - 326,986 607,393
Provision for loan losses 68,125 - - - 68,125
Non-interest income 43,945 1,278 - - 45,223
Non-interest expense 697,587 195,001 - 516,220 1,408,808
---------- ------- ----------- ---------- ----------
Net income (loss) (441,360) (193,723) - (189,234) (824,317)
========== ======= ========== ========== ==========
Total Assets 32,129,128 188,565 (6,553,889) 34,578,494 60,342,298
</TABLE>
The Company does not have operating segments other than those reported. Parent
Company financial information is included in the Other category above and
represents the overhead function rather than an operating segment.
9
<PAGE>
Note 3
Earnings Per Share
The following discloses the calculation of basic and diluted earnings per share
as of March 31, 2000 and 1999. Because the Company has net losses due to the
start-up nature of the organization, stock options issued have an anti-dilutive
effect on the earnings per share calculation.
2000 1999
---- ----
Net loss $ (942,160) $ (824,317)
Weighted average shares for basic and diluted 4,242,634 4,239,509
Basic and diluted loss per share $ (.22) $ (.19)
Note 4
Subsequent Events
On April 17, 2000, the Company entered into a definitive agreement to acquire
the Heritage Bancorp, Inc. Under the terms of the agreement, the Company will
issue a combination of cash and shares of convertible preferred stock to the
shareholders of Heritage in exchange for all of the shares of Heritage's common
stock. Heritage's shareholders will be able to elect to receive $6.00 in cash or
1.2 shares of convertible preferred stock for each share of Heritage stock,
subject to certain adjustments to permit the Company to issue an equal amount of
cash and convertible preferred stock. The completion of the acquisition is
subject to shareholder and regulatory approval, which is expected in the third
quarter of 2000.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
Cardinal Financial Corporation (the "Company") is the holding company for three
bank subsidiaries and one non-bank subsidiary. The Company began operations
November 24, 1997 and opened its first bank subsidiary, Cardinal Bank, N.A., on
June 8, 1998. Following its private offering in December 1997 that generated
$10.6 million in capital, the Company raised an additional $26.0 million in an
initial public offering of 2,830,000 shares in July 1998. In February 1999,
Cardinal Wealth Services, Inc. began operations as the Company's non-bank
investment advisory subsidiary. Through a strategic alliance with LM Financial
Partners, Inc., a wholly owned subsidiary of Legg Mason, Inc., Cardinal Wealth
Services, Inc. can offer an extensive range of financial products and services.
In July 1999, the Company's second bank subsidiary, Cardinal Bank -
Manassas/Prince William, N.A. began operations. Cardinal Bank -Dulles, N.A., the
third bank subsidiary, began operations in August 1999.
The following presents management's discussion and analysis of the consolidated
financial condition and results of operations of the Company as of March 31,
2000 and for the three months ended March 31, 2000 and March 31, 1999. 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.
Financial Condition
Total assets of the Company were $115.9 million at March 31, 2000 compared to
$97.0 million at December 31, 1999. This represents an increase of $18.9 million
or 19.5% and is due to increased deposit and loan generation. Gross loans
increased $13.3 million to $81.4 million at March 31, 2000 from $68.2 million at
December 31, 1999 (see Table 1 for loan portfolio details). Total deposits
increased $20.1 million to $80.0 million at March 31, 2000 compared to $59.9
million at December 31, 1999. Total cash and cash equivalents increased to $24.6
million at March 31, 2000 from $19.0 million at December 31, 1999. Investment
securities available-for-sale and other investments declined $174 thousand to
$5.6 million at March 31, 2000 from $5.8 million at December 31, 1999 (see Table
2 for details of the investment securities available-for-sale portfolio). The
increase in loans of $13.3 million was funded primarily through increased
deposits. Shareholders' equity at March 31, 2000 was $29.7 million compared to
$30.7 million at December 31, 1999. Book value per share on March 31, 2000 was
$7.01 compared to $7.25 on December 31, 1999.
Results of Operations
Net loss for the three months ended March 31, 2000 was $942 thousand or $0.22
per share compared to a net loss of $824 thousand or $0.19 per share for the
three months ended March 31, 1999. The increase in the net loss reflects the
expenses associated with the operation of two additional bank subsidiaries that
opened in the third quarter of 1999. Return on average assets and return on
average equity for the three months ended March 31, 2000 were -3.53% and
- -12.39%, respectively. For the three months ended March 31, 1999, return on
average assets and return on average equity were -5.76% and -9.70%,
respectively.
Net interest income is the Company's primary source of revenue 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 ended March 31, 2000 was $1.15 million
compared to $607 thousand for the three months ended March 31, 1999.
11
<PAGE>
The Company's net interest margin for the three months ended March 31, 2000 was
4.93% compared to 4.54% for the three months ended March 31, 1999. The 39
basis-point increase in the margin can be attributed to a change in asset mix as
loans represented a higher percentage of interest earning assets at March 31,
2000 than at March 31, 1999. 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 provision for loan losses for the three months ended March 31, 2000 was $143
thousand compared to $68 thousand for the three months ended March 31, 1999. The
increase is due to the increased loan balances. The allowance for loan losses at
March 31, 2000 was $869 thousand compared to $726 thousand at December 31, 1999.
The ratio of the allowance for loan losses to gross loans at March 31, 2000 was
1.07% compared to a ratio of 1.07% at December 31, 1999. In the fourth quarter
of 1999, the Company purchased a $7.8 million installment loan portfolio. This
transaction was structured in such a way that the seller absorbs losses up to
115 basis points of the outstanding balances. Consequently, the Company does not
expect losses in this portfolio and did not add to its allowance for loan losses
when this transaction was recorded. The second factor to be considered is the
Company's Business Manager receivable financing product. Under this product,
advances to customers are collateralized by customer receivables and a
restricted deposit account equal to at least 10% of the amount borrowed. As a
result, the Company does not expect losses on those transactions and therefore
has not added to its allowance for loan losses. Table 4 reflects the components
of the allowance for loan losses and calculates the loan loss ratio two ways:
first, with total gross loans, and second, with total gross loans less purchased
loans and the Business Manager receivables.
Non-interest income for the three months ended March 31, 2000 was $424 thousand
compared to $45 thousand for the three months ended March 31, 1999. The
significant increase in non-interest income was due to investment fees generated
by the Company's non-bank subsidiary, Cardinal Wealth Services, Inc. This
subsidiary opened in February, 1999 and had minimal fee income for the three
months ended March 31, 1999.
Non-interest expense for the three months ended March 31, 2000 totaled $2.38
million compared to $1.41 million for the three months ended March 31, 1999. The
increases in expenses were due to the opening of two bank subsidiaries in the
third quarter of 1999 and the resulting increase in personnel. Total employees
increased to 88 as of March 31, 2000 from 45 as of March 31, 1999. Non-personnel
related expenses associated with the operation of the new bank subsidiaries
increased as well.
Business Segment Operations
The Company provides a diversified selection of banking and non-banking
financial services and products through its subsidiaries. Management operates
and reports the results of the Company's operations through two business
segments--commercial banking and investment advisory services.
Commercial Banking
The commercial banking segment provides comprehensive banking services to small
businesses and individuals through multiple delivery channels. Through three
banking subsidiaries, services include commercial and consumer lending, deposit
products, direct banking via the internet and telephone and the funding of small
business receivables through the Business Manager product.
For the three months ended March 31, 2000 the commercial banking segment had a
net loss of $456.6 thousand compared to a net loss of $441.4 thousand for the
three months ended March 31, 1999. As of March 31, 2000 total assets were $107.0
million, total loans were $81.4 million and deposits were $80.0
12
<PAGE>
million. As of March 31, 1999, total assets were $32.1 million, total loans were
$22.0 million and deposits were $25.9 million.
Investment Advisory Services
The investment advisory services segment provides financial and estate planning
services utilizing a host of products provided through a strategic alliance with
Legg Mason Financial Partners, a wholly owned subsidiary of Legg Mason, Inc.
Operations for this segment began February 1, 1999.
For the three months ended March 31, 2000 the investment advisory services
segment had a net loss of $154.6 thousand. As of March 31, 2000 total assets
were $212.6 thousand and total assets under management were $72.6 million. For
the three months ended March 31, 1999 the net loss was $193.7 thousand. As of
March 31, 1999 total assets were $188.6 thousand and total assets under
management were $22.6 million.
Capital Resources
Shareholders' equity at March 31, 2000 was $29.7 million compared to $30.7
million at December 31, 1999. The reduction in equity reflects the net loss
recorded for the quarter ended March 31, 2000. At March 31, 2000 the Company's
tier 1 and total risk-based capital ratios were 30.9% and 31.8%, respectively.
At December 31, 1999 the Company's tier 1 and total risk-based capital ratios
were 37.9% and 38.8%, respectively. The decline in the Company's capital ratios
is due to the increase in total assets as well as the absorption of operating
losses. Table 5 reflects the components of regulatory capital. The Company
continues to maintain a capital structure that places it well above minimum
regulatory requirements.
Liquidity
Liquidity provides the Company with the ability to meet normal deposit
withdrawals while also providing for the credit needs of customers. At March 31,
2000, cash and cash equivalents and securities available for sale totaled $29.2
million or 25% of total assets compared to $23.8 million or 25% of total assets
at December 31, 1999. 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 loan and securities 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 as of March 31, 2000. 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.
13
<PAGE>
Year 2000
The Company successfully completed the transition to the year 2000 with no
impact on the Company's financial condition. The Company is not aware of any
significant third party relationships which were negatively impacted by the year
2000 transition. The cost of year 2000 readiness was minimal to the Company due
to its recent formation and the ability to incorporate year 2000 ready systems
and vendors at its inception.
Forward Looking Statements
Certain information contained in this discussion may include "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements are generally identified by phrases such as
"the Company expects," "the Company believes" or words of similar import. Such
forward-looking statements involve known and unknown risks including, but not
limited to, changes in general economic and business conditions, interest rate
fluctuations, competition within and from outside the banking industry, new
products and services in the banking industry, risk inherent in making loans
such as repayment risks and fluctuating collateral values, changing trends in
customer profiles and changes in laws and regulations applicable to the Company.
Although the Company believes that its expectations with respect to the
forward-looking statements are based upon reliable assumptions within the bounds
of its knowledge of its business and operations, there can be no assurance that
actual results, performance or achievements of the Company will not differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. For more information on factors that
could affect expectations, see the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1999.
15
<PAGE>
Table 1.
Cardinal Financial Corporation and Subsidiaries
Loans
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
Commercial $ 24,977 30.68% $ 22,558 33.10%
Real estate - commercial 27,032 33.20% 19,780 29.03%
Real estate - construction 756 0.93% 870 1.28%
Real estate - residential 14,283 17.54% 11,851 17.39%
Home equity lines 4,902 6.02% 3,777 5.54%
Consumer 9,465 11.63% 9,311 13.66%
---------------------------- -----------------------------
Gross loans $ 81,415 100.00% $ 68,147 100.00%
Less: unearned income, net 29 20
Less: allowance for loan losses (869) (726)
---------------- ------------------
Total loans, net $ 80,575 $ 67,441
================ ==================
</TABLE>
15
<PAGE>
Table 2.
Cardinal Financial Corporation and Subsidiaries
Investment Securities - Available-for-Sale
As of March 31, 2000 and December 31, 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Amortized Fair Unrealized Average
As of March 31, 2000 Par Value Cost Value Gain/(Loss) Yield
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Government Agencies and Enterprises
One to five years $ 3,000 $ 3,000 $ 2,920 $ (80) 5.90%
After ten years 500 498 440 (58) 6.26%
----------------------------------------------------------------------
Total U.S. Government Agencies $ 3,500 $ 3,498 $ 3,360 $ (138) 5.95%
----------------------------------------------------------------------
Mortgage-Backed Securities
Five to ten years $ 1,305 $ 1,310 $ 1,260 $ (50) 5.96%
----------------------------------------------------------------------
Total Mortgage-Backed Securities $ 1,305 $ 1,310 $ 1,260 $ (50) 5.96%
----------------------------------------------------------------------
Total Investment Securities-Available-for-Sale $ 4,805 $ 4,808 $ 4,620 $ (188) 5.93%
======================================================================
</TABLE>
<TABLE>
<CAPTION>
Amortized Fair Unrealized Average
As of December 31, 1999 Par Value Cost Value Gain/(Loss) Yield
----------------------------------------------------------------------
U.S. Government Agencies and Enterprises
<S> <C> <C> <C> <C> <C>
Within one year $ 2,000 $ 2,000 $ 1,948 $ (52) 5.99%
One to five years 1,000 1,000 979 (21) 5.74%
After ten years 500 499 445 (54) 6.26%
----------------------------------------------------------------------
Total U.S. Government Agencies $ 3,500 $ 3,499 $ 3,372 $ (127) 5.95%
----------------------------------------------------------------------
Mortgage-Backed Securities
Within one year $ 305 $ 305 $ 304 $ (1) 5.63%
One to five years 367 368 368 - 5.92%
Five to ten years 803 806 763 (43) 5.93%
----------------------------------------------------------------------
Total Mortgage-Backed Securities $ 1,475 $ 1,479 $ 1,435 $ (44) 5.87%
----------------------------------------------------------------------
Total Investment Securities-Available-for-Sale $ 4,975 $ 4,978 $ 4,807 $ (171) 5.93%
======================================================================
</TABLE>
16
<PAGE>
Table 3.
Cardinal Financial Corporation and Subsidiaries
Rate and Volume Analysis
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
First Quarter First Quarter First Quarter Variance
Average Volume Average Rate Interest Increase Attributable to
2000 1999 2000 1999 2000 1999 (Decrease) Rate Volume
- ------------------------ -------------------- -------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income
Loans:
$ 23,652 $ 6,445 8.79% 8.32% Commercial $ 520 $ 134 $ 386 $ 28 $ 358
22,935 3,587 8.34% 8.48% Real estate - commercial 478 76 402 (8) 410
1,022 526 10.57% 7.60% Real estate - construction 27 10 17 8 9
12,955 5,668 7.60% 7.27% Real estate - residential 246 103 143 11 132
4,258 1,211 8.17% 6.28% Home equity lines 87 19 68 20 48
9,288 588 7.41% 8.84% Consumer 172 13 159 (33) 192
- ------------------------------------------------------------------------------------------------------------------------------------
74,110 18,025 8.26% 7.88% Total loans 1,530 355 1,175 26 1,149
4,700 9,238 6.13% 5.54% Investment Securities - AFS 72 128 (56) 7 (63)
1,016 225 5.91% 5.33% Other Investments 15 3 12 1 11
18,147 26,898 6.33% 4.77% Federal Funds Sold 287 321 (34) 70 (104)
$ 97,973 $ 54,386 7.77% 5.94% Total interest-earning assets $ 1,904 $ 807 $ 1,097 $ 104 $ 993
====================================================================================================================================
Interest Expense
$ 3,306 $ 1,912 2.31% 2.10% Interest Checking $ 19 $ 10 $ 9 $ 2 $ 7
10,884 4,299 3.54% 4.11% Money Markets 96 44 52 (15) 67
624 111 3.21% 3.61% Statement Savings 5 1 4 (1) 5
38,169 12,078 5.62% 4.82% Certificates of Deposit 535 145 390 77 313
- ------------------------------------------------------------------------------------------------------------------------------------
52,983 18,400 4.96% 4.36% Total Interest-Bearing Liabilities 655 200 455 63 392
6,000 - 6.42% 0.00% Borrowings 96 - 96 96 -
- ------------------------------------------------------------------------------------------------------------------------------------
$ 58,983 $ 18,400 5.11% 4.36% Total interest-bearing liabilities $ 751 $ 200 $ 551 $ 159 392
====================================================================================================================================
46,871 38,898 Other Sources
- ------------------------------------------------------------------------------------------------------------------------------------
105,854 57,298 2.84% 1.40% Total Sources of Funds 751 200 551 159 392
- ------------------------------------------------------------------------------------------------------------------------------------
$ 38,990 $ 35,986 4.93% 4.54% Net Interest Margin $ 1,153 $ 607 $ 546 $ (55) $ 601
====================================================================================================================================
</TABLE>
No tax equivalent adjustment made to the above table.
17
<PAGE>
Table 4.
Cardinal Financial Corporation and Subsidiaries
Allowance for Loan Losses
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------------- ------------------
<S> <C> <C>
Beginning balance, January 1 $ 726 $ 212
Provision for loan losses 143 68
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 - -
Balance, March 31 $ 869 $ 280
===========================================================================================
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31, March 31,
Loans: 2000 1999 1999
----------------- ------------------ -----------------
<S> <C> <C> <C>
Balance at period end $ 81,444 $ 68,167 $ 21,760
Allowance for loan losses to
Period end loans 1.07% 1.07% 1.29%
Less: Business Manager $ 2,196 $ 1,522 $ 107
Less: Purchased Loans 7,331 7,687 -
----------------- ------------------ -----------------
Adjusted Loan Balance $ 71,917 $ 58,958 $ 21,653
Allowance for loan losses to
Period end adjusted loans 1.21% 1.23% 1.30%
</TABLE>
18
<PAGE>
Table 5.
Cardinal Financial Corporation and Subsidiaries
Capital Components
As of March 31, 2000 and December 31, 1999
(Dollars 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>
As of March 31, 2000
Total risk based capital to risk weighted assets $ 30,787 31.84% $7,736 > 8.00% $9,670 > 10.00%
Tier I capital to risk weighted assets 29,918 30.94% 3,868 > 4.00% 5,802 > 6.00%
Leverage ratio total risk based capital to total
assets 30,787 26.52% 4,643 > 4.00% 5,804 > 5.00%
---------------------------------------------------------------------------------------------------------------------------
As of December 31, 1999
Total risk based capital to risk weighted assets $ 31,585 38.75% $6,521 > 8.00% $8,151 > 10.00%
Tier I capital to risk weighted assets 30,858 37.86% 3,261 > 4.00% 4,891 > 6.00%
Leverage ratio total risk based capital to total
assets 30,858 32.55% 3,881 > 4.00% 4,852 > 5.00%
</TABLE>
19
<PAGE>
Table 6.
Cardinal Financial Corporation and Subsidiaries
Interest Rate Sensitivity Gap Analysis
As of March 31, 2000
(Dollars 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>
ASSETS
Investment securities available-for-sale
U.S. Government agency securities $ - $ - $ - $ 2,920 $ 440 $ 3,360
Mortgage-backed securities - - - - 1,260 1,260
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities available-for-sale - - - 2,920 1,700 4,620
- ------------------------------------------------------------------------------------------------------------------------------------
Federal funds sold 20,378 - - - - 20,378
- ------------------------------------------------------------------------------------------------------------------------------------
Loans
Commercial -fixed 2,757 454 945 6,142 1,554 11,852
Commercial - variable 12,497 280 597 17,271 9,541 40,186
Real estate - construction fixed - - - - 151 151
Real estate - construction variable 605 - - - - 605
Real estate - residential fixed 13 14 30 1,911 463 2,431
Real estate - residential variable 341 44 90 8,690 2,687 11,852
Home equity lines 4,676 118 108 - - 4,902
Consumer - fixed 149 76 191 1,018 7,364 8,798
Consumer - variable 667 - - - - 667
- ----------------------------------------------------------------------------------------------------------------------
Loans receivable, net of fees 21,705 986 1,961 35,032 21,760 81,444
- ------------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets 42,083 986 1,961 37,952 23,460 $ 106,442
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative Rate Sensitive Assets $ 42,083 $ 43,069 $ 45,030 $ 82,982 $ 106,442
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Deposits
Demand deposits $ 18,533 $ 590 $ 590 $ 590 $ 2,361 $ 22,664
Interest checking 2,752 710 237 237 - 3,936
Statement savings 548 54 54 95 - 751
Money market accounts 7,454 2,033 678 678 - 10,843
Certificates of deposit - fixed 4,062 4,036 4,471 9,566 111 22,246
Certificates of deposit - no penalty 2,649 2,007 5,372 9,542 - 19,570
- ----------------------------------------------------------------------------------------------------------------------
Total Deposits 35,998 9,430 11,402 20,708 2,472 80,010
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowings - short term 4,000 - 2,000 - - 6,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest Bearing Liabilities 39,998 9,430 13,402 20,708 2,472 $ 86,010
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative Rate Sensitive Liabilities $ 39,998 $ 49,428 $ 62,830 $ 83,538 $ 86,010
- ------------------------------------------------------------------------------------------------------------------------------------
Gap $ 2,085 $ (8,444) $ (11,441) $ 17,244 $ 20,988
Cumulative Gap 2,085 (6,359) (17,800) (556) 20,432
Gap/ Total Assets 1.80% -7.28% -9.87% 14.88% 18.10%
Cumulative Gap/ Total Assets 1.80% -5.49% -15.35% -0.48% 17.63%
Rate Sensitive Assets/ Rate Sensitive Liabilities 1.05x 0.10x 0.15x 1.83x 9.49x
Cumulative Rate Sensitive Assets/
Cumulative Rate Sensitive Liabilities 1.05x 0.87x 0.72x 0.99x 1.24x
</TABLE>
20
<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 March 31, 2000.
Item 5. Other Information
On April 17, 2000, Cardinal Financial Corporation (the "Company")
and Heritage Bancorp, Inc. ("Heritage") entered into an Agreement
and Plan of Reorganization providing for the merger of the two
companies (the "Merger"). Heritage is a publicly owned bank
holding company and the parent of The Heritage Bank, a Virginia
chartered commercial bank with two full-service offices in McLean
and Sterling, Virginia, and a third branch to be opened in the
Tyson's Corner area of northern Virginia in May 2000.
Under the terms of the Merger, the Company will issue a
combination of cash and shares of convertible preferred stock to
the shareholders of Heritage in exchange for all of the shares of
Heritage's common stock. Heritage's shareholders will be able to
elect to receive $6.00 in cash or 1.2 shares of convertible
preferred stock for each share of Heritage stock, subject to
certain adjustments to permit the Company to issue an equal
amount of cash and convertible preferred stock. Following the
Merger, three members of Heritage's Board of Directors will join
the Company's Board. Subject to certain conditions including
receipt of regulatory approval and approval of the shareholders
of the Company and Heritage, the closing of the Merger is
anticipated to occur in the third quarter of 2000. The Merger
will be accounted for under the purchase method.
Additional information on the Merger is contained in a press
release issued by the Company and filed with the Commission
pursuant to Rule 425 under the Securities Act of 1933, as
amended, on April 18, 2000.
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.
21
<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: May 15, 2000 /s/ L. Burwell Gunn, Jr.
--------------------------
L. Burwell Gunn, Jr.
President and Chief Executive Officer
Date: May 15, 2000 /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 MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FINANCIAL STATEMENTS AND OTHER INFORMATION CONTAINED IN THE FORM 10-QSB.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,180
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 20,378
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,620
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 81,444
<ALLOWANCE> 869
<TOTAL-ASSETS> 115,925
<DEPOSITS> 80,010
<SHORT-TERM> 6,000
<LIABILITIES-OTHER> 185
<LONG-TERM> 0
0
0
<COMMON> 4,243
<OTHER-SE> 25,487
<TOTAL-LIABILITIES-AND-EQUITY> 115,925
<INTEREST-LOAN> 1,529
<INTEREST-INVEST> 88
<INTEREST-OTHER> 287
<INTEREST-TOTAL> 1,904
<INTEREST-DEPOSIT> 655
<INTEREST-EXPENSE> 751
<INTEREST-INCOME-NET> 1,153
<LOAN-LOSSES> 143
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,376
<INCOME-PRETAX> (942)
<INCOME-PRE-EXTRAORDINARY> (942)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (942)
<EPS-BASIC> (0.22)
<EPS-DILUTED> (0.22)
<YIELD-ACTUAL> 7.77
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 726
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 869
<ALLOWANCE-DOMESTIC> 869
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 87
</TABLE>
