CARDINAL FINANCIAL CORP
S-4, 2000-06-01
NATIONAL COMMERCIAL BANKS
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      As filed with the Securities and Exchange Commission on June 1, 2000.
                                                  Registration No. 333-
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM S-4
                          REGISTRATION STATEMENT UNDER
                           THE SECURITIES ACT OF 1933

                         CARDINAL FINANCIAL CORPORATION
             (Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S>                                  <C>                                <C>
           Virginia                              6022                         54-1874630
(State or Other Jurisdiction of      (Primary Standard Industrial          (I.R.S. Employer
Incorporation or Organization)        Classification Code Number)       Identification Number)
</TABLE>
                          10555 Main Street, Suite 500
                                Fairfax, VA 22030
                                 (703) 279-5060
   (Address, Including Zip Code, and Telephone Number, Including Area Code,
                  of Registrant's Principal Executive Offices)

                              L. Burwell Gunn, Jr.
                          10555 Main Street, Suite 500
                                Fairfax, VA 22030
                                 (703) 279-5052
            (Name, Address, Including Zip Code, and Telephone Number,
                   Including Area Code, of Agent For Service)

                          Copies of Communications to:

   Wayne A. Whitham, Jr., Esq.                      Richard A. Schaberg, Esq.
Williams, Mullen, Clark & Dobbins                    Thacher Proffitt & Wood
      1021 East Cary Street                       1700 Pennsylvania Avenue, N.W.
       Richmond, VA 23219                              Washington, DC 20006
         (804) 783-6473                                   (202) 626-5630
       Fax: (804) 783-6507                             Fax: (202) 626-1930

Approximate date of commencement of proposed sale to the public: As soon as
practicable following the effectiveness of this Registration Statement.
     If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
     If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
     If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
<TABLE>
<CAPTION>
                         CALCULATION OF REGISTRATION FEE
================================= ================== ======================= ==================== ==================
                                                        Proposed Maximum      Proposed Maximum
     Title Of Each Class Of         Amount To Be         Offering Price           Aggregate           Amount of
  Securities To Be Registered      Registered (1)         Per Unit (2)       Offering Price (2)   Registration Fee
--------------------------------- ------------------ ----------------------- -------------------- ------------------
<S>                                   <C>
Preferred Stock, $1.00 par value      1,376,770               N/A                    N/A                $1,184
================================= ================== ======================= ==================== ==================
</TABLE>
(1)  Based upon an assumed number of shares that may be issued in the merger
     described in this Registration Statement. The assumed number is based upon
     the maximum number of shares of common stock of Heritage Bancorp, Inc. that
     may be outstanding immediately prior to the merger.
(2)  Reflects the market price of Heritage  Bancorp,  Inc.'s  common stock to be
     exchanged  for  Cardinal  preferred  stock in  connection  with the merger,
     computed  in  accordance  with  Rule  457(c)  and  Rule  457(f)  under  the
     Securities Act of 1933, as amended,  based upon the average of the high and
     low sales price of Heritage  Bancorp,  Inc. common stock as reported on The
     Nasdaq SmallCap Market on May 24, 2000, less the cash to be received in the
     merger ($11,365,468 - $6,883,851).  The proposed maximum aggregate offering
     price is estimated solely to determine the registration fee.

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 5(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

================================================================================

<PAGE>

                  MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT

                [THE FOLLOWING IS PRESENTED IN TWO-COLUMN FORMAT]

        The Boards of Directors of Cardinal Financial Corporation and Heritage
Bancorp, Inc. have agreed to merge the two companies. After the merger, Cardinal
will own four banks with total assets of almost $180 million and seven branch
offices in northern Virginia.

         If shareholders of both companies approve the merger, Heritage will
merge into Cardinal Merger Corp., a wholly-owned subsidiary of Cardinal.
Heritage's bank subsidiary will change its name to Cardinal Bank - Potomac and
operate as a separate subsidiary of Cardinal Merger Corp.. Heritage shareholders
will receive $6.00 in cash or shares of preferred stock with a per share value
of approximately $6.00 and a 7.25% annual dividend for each share of Heritage
common stock that they own. Cardinal has applied to list the preferred stock on
the Nasdaq SmallCap Market. Cardinal shareholders will continue to hold their
existing shares of Cardinal common stock after the merger.

         We cannot complete the merger unless shareholders of Heritage approve
the merger agreement and the shareholders of Cardinal approve the issuance of
preferred stock to the shareholders of Heritage and the election of three
Heritage directors to the Cardinal board.

        We have each scheduled meetings for our shareholders to vote on the
merger. Whether or not you plan to attend your shareholder meeting, please take
the time to vote by completing and mailing the enclosed proxy card to us. If
your shares are held in "street name," you must instruct your broker on how to
vote your shares.

        The dates, times and places of the meetings are as follows:

        For Cardinal shareholders:

                  ________ __, _____, ______ _.m.
                  ____________________
                  ____________________

        For Heritage shareholders:

                  ________ __, ______, _____ _. m.
                  ____________________
                  ____________________

         The document accompanying this letter contains additional information
regarding the merger agreement, the proposed merger and the two companies. We
encourage you to read this entire document carefully.

        We strongly support this merger and appreciate your prompt attention to
this very important matter.


_______________________________
L. Burwell Gunn, Jr.
President and Chief Executive Officer
Cardinal Financial Corporation


_______________________________
Terrie G. Spiro
President and Chief Executive Officer
Heritage Bancorp, Inc.

                           [END OF TWO-COLUMN FORMAT]


Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this document. Any representation to the contrary is a
criminal offense. The securities offered hereby are not savings accounts,
deposits or other obligations of a bank or savings association and are not
insured by the Federal Deposit Insurance Corporation or any other government
agency.

The date of this joint proxy statement/prospectus is ________ _, 2000 and it is
first being mailed to shareholders on or about ________ __, 2000.


<PAGE>

                         Cardinal Financial Corporation
                          10555 Main Street, Suite 500
                                Fairfax, VA 22030

                    Notice of Special Meeting of Shareholders
                         to be held on ________ __, 2000


         A special meeting of shareholders of Cardinal Financial Corporation
will be held on ________ __, 2000, at ________, _.m., at
_____________________________, ______________, ________________, __________, for
the following purposes:

         (1)      To approve the issuance of shares of Cardinal preferred stock
                  under the Amended and Restated Agreement and Plan of
                  Reorganization dated June __, 2000 by and between Heritage
                  Bancorp, Inc., Cardinal Merger Corp. and Cardinal, which
                  provides for Heritage to be merged with and into Cardinal
                  Merger Corp.;

         (2)      To elect three of Heritage's directors to serve on Cardinal's
                  board of directors; and

         (3)      To transact such other business as may properly come before
                  the special meeting or any adjournment or postponement of the
                  meeting.

         The Cardinal board of directors recommends a vote in favor of issuing
shares of Cardinal preferred stock to Heritage shareholders in the merger and
electing three Heritage directors to the Cardinal board.

         Only holders of record of Cardinal common stock as of the close of
business on ________ __, 2000, are entitled to notice of and to vote at the
special meeting and any adjournments or postponements of the meeting.

         To ensure that your shares are voted at the special meeting, please
sign, date and promptly mail the accompanying proxy card in the enclosed
envelope. Any shareholder of record present at this meeting or at any
adjournments or postponements of the meeting may revoke his or her proxy and
vote personally on each matter brought before the meeting. You may revoke your
proxy at any time before it is voted.

         Remember, if your shares are held in the name of a broker, only your
broker can vote your shares and only after receiving your instructions. Please
contact the person responsible for your account and instruct him/her to execute
a proxy card on your behalf. You should also sign, date and mail your proxy at
your earliest convenience.

         Please review the joint proxy statement/prospectus accompanying this
notice for more complete information regarding the matter proposed for your
consideration at the special meeting.

                                       By Order of the Board of Directors


                                       Nancy K. Falck
                                       Corporate Secretary
Fairfax, Virginia
________ __, 2000


         Whether or not you plan to attend the meeting in person, we urge you to
date, sign and return promptly the enclosed proxy in the accompanying envelope.
You may revoke your proxy at any time before it is voted in the manner provided
in the accompanying joint proxy statement/prospectus.


<PAGE>

                             Heritage Bancorp, Inc.
                          1313 Dolley Madison Boulevard
                                McLean, VA 22101

                    Notice of Special Meeting of Shareholders
                         to be held on ________ __, 2000


         A special meeting of shareholders of Heritage Bancorp, Inc. will be
held at ________ __.m. on ________ __, 2000 at
__________________________________________________, _________, Virginia _______,
to consider the following matters:

         (1)      To approve the Amended and Restated Agreement and Plan of
                  Reorganization dated June __, 2000 by and between Heritage,
                  Cardinal Merger Corp. and Cardinal Financial Corporation which
                  provides for Heritage to be merged with and into Cardinal
                  Merger Corp.; and

         (2)      Any other business properly brought before the special meeting
                  or any adjournment or postponement thereof.

         Your board of directors recommends a vote in favor of the merger
agreement.

         Only Heritage shareholders of record at the close of business on
________ __, 2000 are entitled to notice of, and to vote at, this special
meeting and any adjournments or postponements thereof.

         Each Heritage shareholder has the right to dissent from the merger and
seek an appraisal of the fair market value of his or her shares, provided the
proper procedures are followed. These procedures are described in the joint
proxy statement/prospectus.

         To ensure that your shares are voted at the special meeting, please
sign, date and promptly mail the accompanying proxy card in the enclosed
envelope. Any shareholder of record present at this meeting or at any
adjournments or postponements of the meeting may revoke his or her proxy and
vote personally on each matter brought before the meeting. You may revoke your
proxy at any time before it is voted.

         Remember, if your shares are held in the name of a broker, only your
broker can vote your shares and only after receiving your instructions. Please
contact the person responsible for your account and instruct him/her to execute
a proxy card on your behalf. You should also sign, date and mail your proxy at
your earliest convenience.

         Please review the joint proxy statement/prospectus accompanying this
notice for more complete information regarding the matter proposed for your
consideration at the special meeting.

                                        By Order of the Board of Directors


                                        Janet A. Valentine
                                        Corporate Secretary
McLean, Virginia
________ __, 2000


         Regardless of whether you plan to attend the special meeting in person,
you are urged to vote promptly by dating, signing and returning the enclosed
proxy in the accompanying envelope. You may revoke your proxy at any time before
it is voted in the manner provided in the accompanying joint proxy
statement/prospectus.


<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                              Page
                                    CHAPTER I
<S>                                                                                                           <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................................................       I-1
WHO CAN HELP ANSWER YOUR QUESTIONS......................................................................       I-4
SUMMARY.................................................................................................       I-5
     The Companies......................................................................................       I-5
     The Meetings.......................................................................................       I-5
     Votes Required.....................................................................................       I-6
     Record Date; Voting Power..........................................................................       I-6
     The Merger.........................................................................................       I-6
     Recommendations....................................................................................       I-6
     Reasons for the Merger.............................................................................       I-7
     Opinion of Financial Advisors......................................................................       I-7
     Appraisal Rights...................................................................................       I-8
     Comparison of Shareholder Rights...................................................................       I-8
     Comparative Per Share Market Price Information.....................................................       I-8
     Share Ownership of Management......................................................................       I-8
     Benefits to Management in the Merger...............................................................       I-8
     Transaction Structure..............................................................................       I-9
     The Heritage Bank..................................................................................       I-9
     Conditions that Must Be Satisfied for the Merger to Occur..........................................       I-9
     Termination of the Merger Agreement................................................................      I-10
     Effective Date Expected: Third Quarter of 2000.....................................................      I-10
     Selected Historical Financial Data.................................................................      I-11
     Selected Unaudited Pro Forma Combined Financial Data...............................................      I-12
     Consolidated Ratios of Earnings to Fixed Charges and Preferred Stock Dividends.....................      I-12
RISK FACTORS THAT YOU SHOULD CONSIDER...................................................................      I-13
     Cardinal has not been profitable since it began banking operations in 1998 and does not
      expect to be profitable in the near future........................................................      I-13
     If Cardinal's bank subsidiaries do not become profitable, it may not be able to pay
      dividends on its preferred stock..................................................................      I-13
     Cardinal and Heritage may not successfully integrate their respective business operations..........      I-13
THE MERGER..............................................................................................      I-14
     Background.........................................................................................      I-14
     Cardinal's Reasons for the Merger..................................................................      I-15
     Heritage's Reasons for the Merger..................................................................      I-16
     Financial Board....................................................................................
     Accounting Treatment...............................................................................      I-17
     Material Federal Income Tax Consequences of the Merger.............................................      I-17
     Appraisal Rights...................................................................................      I-19
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION.....................................................      I-21
OPINION OF HERITAGE'S FINANCIAL ADVISOR.................................................................      I-28
OPINION OF CARDINAL'S FINANCIAL ADVISOR.................................................................      I-31
INTERESTS OF CERTAIN PERSONS IN THE MERGER..............................................................      I-36
TERMS OF THE MERGER AGREEMENT...........................................................................      I-37
     Merger Consideration...............................................................................      I-37
     Representations and Warranties; Conditions to the Merger...........................................      I-37
     Regulatory Approvals...............................................................................      I-38
     Business Pending the Merger........................................................................      I-38

<PAGE>

                                                                                                              Page

     No Solicitation; Board Action......................................................................      I-39
     Effective Date.....................................................................................      I-39
     Surrender of Stock Certificates....................................................................      I-39
     Conversion of Stock Options........................................................................      I-40
     Waiver and Amendment...............................................................................      I-40
     Termination........................................................................................      I-40
     Resales of Cardinal Preferred Stock................................................................      I-41
     Expenses of the Merger and Termination Fee.........................................................      I-41
MARKET PRICES AND DIVIDENDS.............................................................................      I-41
     Market Prices......................................................................................      I-41
     Dividends..........................................................................................      I-43

                                   CHAPTER II
                INFORMATION ABOUT THE SPECIAL MEETINGS AND VOTING

     General...........................................................................................       II-1
     Cardinal Meeting..................................................................................       II-1
     Heritage Meeting..................................................................................       II-2

                                   CHAPTER III
                             DESCRIPTION OF CARDINAL

BUSINESS...............................................................................................       III-1

MANAGEMENT'S DISCUSSION AND ANALYSIS...................................................................      III-13


                                   CHAPTER IV
                             DESCRIPTION OF HERITAGE

BUSINESS................................................................................................      IV-1

MANAGEMENT'S DISCUSSION AND ANALYSIS....................................................................      IV-14

                                    CHAPTER V
                         MANAGEMENT FOLLOWING THE MERGER

The Board of Directors.................................................................................        V-1
Executive Officers Who Are Not Directors...............................................................        V-3
Security Ownership of Management.......................................................................        V-4
Security Ownership of Certain Beneficial Owners........................................................        V-6
Executive Compensation.................................................................................        V-6
Stock Options..........................................................................................        V-7
Directors' Fees........................................................................................        V-9
Compensation and Other Employment Arrangements.........................................................        V-9
Transactions with Management...........................................................................       V-10


<PAGE>
                                                                                                              Page
                                   CHAPTER VI
                                  LEGAL MATTERS

DESCRIPTION OF CARDINAL CAPITAL STOCK..................................................................       VI-1
COMPARATIVE RIGHTS OF SHAREHOLDERS.....................................................................       VI-4
     General...........................................................................................       VI-4
     Authorized Capital................................................................................       VI-4
     Amendment of Articles of Incorporation or Bylaws..................................................       VI-5
     Mergers, Consolidations and Sales of Assets.......................................................       VI-6
     Size and Classification of Board of Directors.....................................................       VI-6
     Vacancies and Removal of Directors................................................................       VI-7
     Director Liability and Indemnification............................................................       VI-7
     Special Meetings of Shareholders..................................................................       VI-9
     Shareholder Nominations and Proposals.............................................................       VI-9
     Shareholder Voting Rights in General..............................................................       VI-11
     State Anti-Takeover Statutes......................................................................       VI-11
SHAREHOLDER PROPOSALS..................................................................................       VI-13
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS..............................................      VI-13
EXPERTS................................................................................................       VI-14
LEGAL OPINIONS.........................................................................................       VI-14
WHERE YOU CAN FIND MORE INFORMATION....................................................................       VI-14

</TABLE>


<PAGE>


APPENDICES
----------

General
-------

A    Amended and Restated Agreement and Plan of Reorganization  between Heritage
     Bancorp,  Inc.,  Cardinal Merger Corp. and Cardinal Financial  Corporation,
     dated June __, 2000.

Cardinal Financial Corporation
------------------------------

B    Cardinal Financial  Corporation Financial Statements (including the audited
     December 31, 1999  financial  statements  and the unaudited  March 31, 2000
     financial statements)

C    Opinion of Scott & Stringfellow, Inc.

Heritage Bancorp, Inc.
----------------------

D    Heritage Bancorp, Inc. Financial Statements (including the audited December
     31, 1999 financial  statements  and the unaudited  March 31, 2000 financial
     statements)

E    Opinion of Ferris, Baker Watts, Incorporated

F    Excerpts  from the Virginia  Stock  Corporation  Act relating to dissenting
     shareholders




<PAGE>

                                    CHAPTER I
                     QUESTIONS AND ANSWERS ABOUT THE MERGER

                [THE FOLLOWING IS PRESENTED IN TWO-COLUMN FORMAT]

Q:   Why is Heritage merging with Cardinal?

A:   Both the Heritage board of directors and the Cardinal board of directors
believe the merger is in the best interests of their respective companies and
will provide significant benefits to their shareholders, customers and
employees. The merger will enable Cardinal, a new bank holding company just
completing its start-up phase, to become profitable sooner. Heritage will become
part of a community banking company with more capital, products and geographic
scope. The boards believe the merger will create a company with enhanced
financial performance which will be better positioned to compete in the rapidly
changing and consolidating financial services industry in Virginia.

To review the background and reasons for the merger in greater detail, see pages
I-14 through I-17.

Q:   What will I receive in the merger?

A:   CARDINAL SHAREHOLDERS:
Each share of Cardinal common stock held by a Cardinal shareholder will continue
to represent one share of Cardinal common stock following the merger.

FOR EXAMPLE:

o  If you own 100 shares of Cardinal common stock, after the merger those shares
   will continue to represent 100 shares of Cardinal common stock.

HERITAGE SHAREHOLDERS:
Each Heritage shareholder can elect to receive either $6.00 in cash or 1.2
shares of Cardinal's 7.25% Cumulative Convertible Preferred Stock, Series A, for
each share of Heritage common stock. Cardinal will not issue fractional shares
of preferred stock in the merger. Instead, a Heritage shareholder who elects to
receive Cardinal preferred stock will receive a cash payment based on the $5.00
liquidation value of the Cardinal preferred stock for any fractional shares.

FOR EXAMPLE:

o  If you own 100 shares of Heritage common stock and receive all cash in the
   merger, you will receive $600 in cash.

o  If you own 100 shares of Heritage common stock and receive all Cardinal
   preferred stock, after the merger you will receive 120 shares of Cardinal
   preferred stock, with a value of approximately $600.

Q.   What are the key attributes of the Cardinal preferred stock?

A:

o  If Cardinal ever liquidates, each share of preferred stock will be entitled
   to a $5.00 payment before any distribution to holders of Cardinal common
   stock.

o  Each share will be entitled to cumulative annual dividend of $0.3625, or
   7.25% of the $5.00 liquidation amount, before any dividend is paid on any
   Cardinal common stock.

o  A holder of Cardinal preferred stock will have the right to convert each
   share into _____ shares of Cardinal common stock at any time.

o  If Cardinal's common stock trades at a price above $_______ for 20
   consecutive days beginning at least 42 months after the merger closes, each
   share of Cardinal preferred stock will automatically convert into Cardinal
   common stock.

o  Cardinal preferred stock will not have the right to vote for directors, but
   will have the right to vote on mergers and similar transactions that affect
   the Cardinal preferred stock.



                                      I-1
<PAGE>

o  Generally, the Cardinal preferred stock cannot be redeemed by Cardinal for 20
   years.

Q.   How will a Heritage shareholder elect cash or Cardinal preferred stock?

A:   Cardinal will mail an election form to Heritage shareholders no more than
10 days after the Heritage special meeting. If you want to receive any Cardinal
preferred stock, you will need to complete the form and return it to Cardinal.
You may elect to receive all cash, all Cardinal preferred stock or any
combination of cash and Cardinal preferred stock. If you do not complete and
return the form, you will be treated as if you elected to receive all cash.

Q.   If I am a Heritage shareholder, will I receive exactly what I elect?

A:   Not necessarily. The merger agreement provides that total consideration
given to Heritage shareholders will be 50% cash and 50% Cardinal preferred
stock. This means that if holders of more than 50% of Heritage common stock
elect to receive Cardinal preferred stock, the amount of Cardinal preferred
stock given to each will be reduced and cash will be substituted. Reductions
will be proportional.

FOR EXAMPLE:

o  You own 100 shares of Heritage common stock and elect to receive no cash and
   all Cardinal preferred stock. If holders of 75% of the Heritage common stock
   elect to receive Cardinal preferred stock, instead of receiving 120 shares of
   Cardinal preferred stock, you will receive 80 shares of Cardinal preferred
   stock and $200 in cash.

o  You own 100 shares of Heritage common stock and elect to receive no cash and
   all Cardinal preferred stock. If holders of 60% of Heritage common stock
   elect to receive Cardinal preferred stock, instead of receiving 120 shares of
   Cardinal preferred stock, you will receive 100 shares of Cardinal preferred
   stock and $100 in cash.

o  You own 100 shares of Heritage common stock and elect to receive $120 in cash
   and 96 shares of Cardinal preferred stock. If holders of 75% of the Heritage
   common stock elect to receive Cardinal preferred stock, you will receive 64
   shares of Cardinal preferred stock and $280 in cash.

Likewise, if holders of more than 50% of the Heritage common stock elect to
receive cash and exercise dissenters' rights, the cash payments made to each
Heritage shareholder will be reduced and Cardinal preferred stock will be
substituted. Reductions will be proportional.

FOR EXAMPLE:

o  You own 100 shares of Heritage common stock and elect to receive all cash. If
   holders of 75% of the Heritage common stock elect to receive cash, instead of
   receiving $600 in cash, you will receive $400 in cash and 40 shares of
   Cardinal preferred stock.

o  You own 100 shares of Heritage common stock and elect to receive $300 in cash
   and 60 shares of Cardinal preferred stock. If holders of 75% of the Heritage
   common stock elect to receive cash, instead of receiving $300 in cash and 60
   shares of Cardinal preferred stock, you will receive $200 in cash and 80
   shares of Cardinal preferred stock.

o  You own 100 shares of Heritage common stock and elect to receive $120 in cash
   and 96 shares of Cardinal preferred stock. If holders of 75% of the Heritage
   common stock elect to receive cash, you will receive $80 in cash and 104
   shares of Cardinal preferred stock.

Q:   Will Cardinal pay dividends after the merger?

A:   CARDINAL SHAREHOLDERS:

Because it is a new bank holding company, without a history of profitable
operations, Cardinal has paid no dividends on its common stock. Cardinal does
not expect to pay dividends on its common stock for the next several years.



                                      I-2
<PAGE>

A:   HERITAGE SHAREHOLDERS:

Heritage shareholders who receive shares of Cardinal preferred stock will be
entitled to annual dividends of 7.25% of the $5.00 per share liquidation value
of the preferred stock, or $0.3625 per share per year. The dividends will be
cumulative, which means that no dividends may be paid on Cardinal common stock
unless all dividends accrued on the Cardinal preferred stock have been paid.

The Cardinal board will use its discretion to decide whether and when to declare
dividends and in what amount, and it will consider all relevant factors in doing
so.

Q:   When is the merger expected to be completed?

A:   We are working to complete the merger during the third quarter of 2000.
Because the merger is subject, however, to regulatory approval, we cannot
predict the exact timing.

Q:   What are the tax consequences of the merger to me?

A:   HERITAGE SHAREHOLDERS:
We expect that the exchange of Heritage shares for Cardinal preferred stock
generally will be tax-free to Heritage shareholders for U.S. federal income tax
purposes. A Heritage shareholder who has a gain will have to pay taxes on cash
received up to the amount of the gain. To review the tax consequences to
Heritage shareholders in greater detail, see page I-17. Your tax consequences
may depend on your personal situation. You should consult your tax advisor for a
full understanding of the tax consequences of the merger to you.

CARDINAL SHAREHOLDERS:
The merger will have no tax consequences to Cardinal shareholders.

Q:   What am I being asked to vote upon?

A:   HERITAGE SHAREHOLDERS:
You are being asked to approve the merger agreement. Approval of the proposal
requires the vote of a majority of the shares of Heritage common stock that vote
on the merger.

CARDINAL SHAREHOLDERS:
You are being asked to approve the issuance of Cardinal preferred stock to
Heritage shareholders in the merger. You also are being asked to elect three
directors of Heritage to the Cardinal board of directors. Approval of each
proposal requires the affirmative vote of over 50% of the shares that vote at
the Cardinal meeting.

Q:   What should I do now?

A:   Just indicate on your proxy card how you want to vote, and sign and mail it
in the enclosed envelope as soon as possible, so that your shares will be
represented at your meeting.

If you sign and send in your proxy and do not indicate how you want to vote,
your proxy will be voted in favor of the proposal presented to you.

Q.   Can I change my vote?

A:   Yes. You can change your vote by submitting a later signed proxy or by
attending the special meeting and voting in person.

You may attend your shareholders' meeting and vote your shares in person, rather
than voting by proxy. In addition, you may withdraw your proxy up to and
including the day of your shareholders' meeting by following the directions on
pages II-1 through II-4 and either change your vote or attend your shareholders'
meeting and vote in person.

Q:   If my shares are held in "street name" by my broker, will my broker vote my
     shares for me?

A:   No. Your broker will vote your shares of Heritage common stock or Cardinal
common stock only if you provide instructions on how to vote. You should
instruct your broker how to vote your shares, following the directions your
broker provides. If you do not provide instructions to your broker, your shares
will not be voted.

Q:   Should I send in my stock certificates now?


                                      I-3
<PAGE>

A:   No. If you are a Heritage shareholder, after the merger is completed we
will send you written instructions for exchanging your Heritage common stock
certificates for cash and Cardinal preferred stock certificates.

If you are a Cardinal shareholder, the merger will not require you to take any
action regarding your Cardinal common stock certificates.

Q.   May I dissent from the merger and seek an appraisal of the fair value of my
shares?

A:   Yes. If you are a Heritage shareholder and you choose to dissent from the
merger, you are entitled to appraisal of your shares of Heritage common stock
under Virginia law. To exercise your appraisal rights you must strictly comply
with the procedures in Article 15 of Title 13.1 of the Virginia Stock
Corporation Act. If you do not strictly comply with these procedures you will
lose your appraisal rights. We have attached a copy of the relevant portions of
the Virginia Stock Corporation Act for dissenting shareholders as Appendix F of
this joint proxy statement/prospectus. See also "Appraisal Rights" on page I-19.
If you seek appraisal rights, the appraised value of your shares may be more or
less than the consideration to be paid by Cardinal in the merger.

Cardinal shareholders do not have appraisal rights under Virginia law in
connection with the merger.

                           [END OF TWO-COLUMN FORMAT]

                       WHO CAN HELP ANSWER YOUR QUESTIONS

         If you want additional copies of this document, or if you want to ask
any questions about the merger, you should contact:

                           If you are a Cardinal shareholder:

                           L. Burwell Gunn, Jr.
                           President and Chief Executive Officer
                           Cardinal Financial Corporation
                           10555 Main Street, Suite 500
                           Fairfax, VA 22030
                           (703) 279-5060

                           If you are a Heritage shareholder:

                           Terrie G. Spiro
                           President and Chief Executive Officer
                           Heritage Bancorp, Inc.
                           1313 Dolley Madison Boulevard
                           McLean, VA 22101-3926
                           (703) 873-0320





                                      I-4
<PAGE>

                                     SUMMARY

         This summary highlights selected information from this document and may
not contain all the information that is important to you. For a more complete
understanding of the merger and for a more complete description of the legal
terms of the merger, you should read this entire document carefully, as well as
the additional documents to which we refer you, including the merger agreement.
See "Where You Can Find More Information" on page VI-14. Each item in this
summary refers to the page where the subject is discussed in more detail.

                [THE FOLLOWING IS PRESENTED IN TWO-COLUMN FORMAT]

The Companies  (pages III-1 and IV-1)

Cardinal Financial Corporation
10555 Main Street, Suite 500
Fairfax, VA 22030
(703) 279-5060

         Cardinal is a Virginia bank holding company that was incorporated in
1997. Cardinal owns three banks, headquartered in northern Virginia, which
opened in 1998 and 1999. Each of Cardinal's bank subsidiaries is a national bank
with deposits insured by the Federal Deposit Insurance Corporation. On March 31,
2000, Cardinal had total assets of $115.9 million, total deposits of $80.0
million, total loans of $81.4 million and shareholders' equity of $29.7 million.
Cardinal has not yet completed the start-up phase of its business plan. Its
oldest bank, which opened in June 1998, is barely two years old. Its second and
third banks have been open for less than one year each. Cardinal, as it
anticipated, sustained losses in 1998 and 1999. Cardinal also will report a net
loss in 2000. Cardinal expects that the merger will advance the time when
Cardinal becomes profitable.

         Cardinal's common stock is listed and traded on The Nasdaq SmallCap
Market under the symbol "CFNL."

         Cardinal has applied for the Cardinal preferred stock to be listed on
The Nasdaq SmallCap Market.


Heritage Bancorp, Inc.
1313 Dolley Madison Boulevard
McLean, VA 22101-3926
(703) 356-6610

         Heritage is a Virginia bank holding company chartered in 1998. The
Heritage Bank, its bank subsidiary, is a Virginia commercial bank founded in
1987 and is a member of the Federal Reserve System. Its deposits are insured by
the Federal Deposit Insurance Corporation. Heritage's headquarters are in
McLean, Virginia. In addition to its main office, Heritage operates two branch
offices, opened in 1999 and May 2000, extending operations into the neighboring
areas of Loudoun County, Virginia and Tysons Corner, Virginia . On March 31,
2000, Heritage had total assets of $64.4 million, total deposits of $48.0
million, total loans of $36.0 million, and shareholders' equity of $8.6 million.

          Heritage's common stock is listed and traded on The Nasdaq SmallCap
Market under the symbol "HBVA."

The Meetings (pages II-1 and II-2)

          CARDINAL. The Cardinal meeting will be held at
___________________________, Virginia, at____ _.m., local time, on ________ __,
2000. At the Cardinal meeting, Cardinal shareholders will be asked to consider
and vote to authorize the issuance of Cardinal preferred stock to Heritage
shareholders in the merger. Cardinal shareholders also will be asked to elect
three of Heritage's directors to Cardinal's board of directors. These
individuals will become



                                      I-5
<PAGE>

directors of Cardinal only if the merger is completed.

         HERITAGE. The Heritage meeting will be held at
________________________,Virginia, at _____ _.m., local time, on ________
__,2000. At the Heritage meeting, Heritage shareholders will be asked to
consider and vote upon a proposal to approve the merger agreement.

Votes Required (pages II-1 and II-2)

          CARDINAL. Approval by the Cardinal shareholders of the issuance of
Cardinal preferred stock and election of three Heritage directors to the
Cardinal board will require the affirmative vote of holders of a majority of the
shares of Cardinal common stock voted at the Cardinal meeting.

          HERITAGE. Approval by the Heritage shareholders of the merger
agreement will require the affirmative vote of a majority of the shares of
Heritage common stock that vote on the merger.

Record Date; Voting Power (pages II-1 and II-2)

          CARDINAL. You are entitled to vote at the Cardinal meeting if you
owned shares on ________ __, 2000, the Cardinal record date. On that date, there
were _________ issued and outstanding shares of Cardinal common stock held by
approximately _____ holders of record. Cardinal shareholders are entitled to one
vote per share on any matter that may properly come before the Cardinal meeting.

          HERITAGE. You are entitled to vote at the Heritage meeting if you
owned shares on ________ __, 2000, the Heritage record date. On that date, there
were _________ issued and outstanding shares of Heritage common stock held by
approximately _____ holders of record. Heritage shareholders are entitled to one
vote per share on any matter that may properly come before the Heritage meeting.

The Merger (page I-14)

         The merger agreement provides that each share of Heritage common stock
will be converted into 1.2 shares of Cardinal preferred stock or $6.00 in cash
on the effective date of the merger. Half of the total consideration will be
cash and half will be Cardinal preferred stock. Accordingly, the 2,294,617
shares of Heritage common stock outstanding on May 24, 2000 will be converted
into $6.88 million in cash and approximately 1,376,770 shares of Cardinal
preferred stock. Fractional shares of Cardinal preferred stock will not be
issued, and Heritage shareholders will receive cash payment, without interest,
for the value of any fraction of a share of Cardinal preferred stock that they
would otherwise be entitled to receive, based upon the $5.00 liquidation value
per share of Cardinal preferred stock.

         Each Heritage shareholder can elect to receive either $6.00 in cash or
1.2 shares of Cardinal's 7.25% Cumulative Convertible Preferred Stock, Series A,
for each share of Heritage common stock.

         The merger agreement provides that total consideration given to
Heritage shareholders will be 50% cash and 50% Cardinal preferred stock. This
means that if holders of more than 50% of Heritage common stock elect to receive
Cardinal preferred stock, the amount of Cardinal preferred stock given to each
will be reduced and cash will be substituted. Reductions will be proportional.

         Furthermore, if holders of more than 50% of Heritage common stock elect
to receive cash in the merger, the amount of cash given to each will be reduced
and shares of preferred stock will be substituted. Reductions will be
proportional.

Recommendations (pages I-15 through I-17)

          The Cardinal board of directors and the Heritage board of directors
have each unanimously approved and adopted the merger agreement. The Heritage
board recommends a vote "FOR" approval of the merger agreement. The Cardinal
board recommends a vote "FOR"



                                      I-6
<PAGE>

the approval of issuing Cardinal preferred stock to Heritage shareholders in the
merger and "FOR" the election of three Heritage directors to the Cardinal board.
You also should refer to the board's reasons for the merger in determining
whether to approve and adopt the merger agreement on pages I-15 through I-17.

Reasons for the Merger (pages I-15 through I-17)

         The Cardinal board and Heritage board each carefully considered the
merger decision. Each board had several reasons for approving the merger.

CARDINAL:

o    By merging with Heritage, Cardinal will avoid the additional start-up
     losses that would result from opening a fourth subsidiary bank. Heritage's
     bank subsidiary already is profitable. Cardinal plans to increase its
     profitability by substituting higher yielding loans for lower yielding
     securities.

o    The merger with Heritage will expand Cardinal's presence in Fairfax County,
     a growing region of Virginia, and afford new expansion opportunities into
     adjacent areas such as Loudoun County.

o    The merger will allow Cardinal to spread administrative and operational
     costs over a larger asset base and to realize a limited amount of direct
     cost savings.

o    The compatibility of Heritage and Cardinal, including community bank
     operating philosophies and similarity of products and customer orientation.

HERITAGE:

o    The terms of the merger agreement, including the per share value that
     Heritage shareholders will receive, the ability to elect cash or Cardinal
     preferred stock and the provisions that will put three Heritage directors
     on the Cardinal board.

o    The compatibility of Heritage's and Cardinal's community bank operating
     philosophies and the similarity of products and customer orientation.

o    An association with Cardinal will result in Heritage's participation in a
     banking organization with seven offices in northern Virginia. The resulting
     geographic diversification and economies of scale would enable Heritage to
     compete more effectively in the financial services industry of the future.

o    The representation of Ferris, Baker Watts, Incorporated to the board that
     the merger consideration is fair from a financial point of view to the
     Heritage shareholders.

o    The expectation that the receipt of Cardinal preferred stock in the merger
     will be tax-free for federal income tax purposes to Heritage and its
     shareholders.

Opinion of Financial Advisors (pages I-28 and I-31)

          At the April 17, 2000, meeting of the Heritage board, Ferris, Baker
Watts, Incorporated, financial advisor to Heritage, gave its opinion to the
Heritage board that as of that date, the merger was fair to the Heritage
shareholders from a financial point of view. Ferris, Baker Watts subsequently
confirmed its April 17, 2000 opinion by delivery to the Heritage board of a
written opinion dated as of the date of this document. A copy of the fairness
opinion, setting forth the information reviewed, assumptions made and matters
considered, is attached to this document as Appendix E. Heritage shareholders
should read the fairness opinion of Ferris, Baker Watts in its entirety.

         Scott & Stringfellow, Inc., financial advisor to Cardinal, gave its
oral opinion to the Cardinal board that the merger is fair to Cardinal's
shareholders from a financial point of view. Scott & Stringfellow, Inc.
subsequently confirmed its opinion by delivery to the Cardinal board of a
written opinion dated as of the date of



                                      I-7
<PAGE>

this document. A copy of the opinion setting forth the information reviewed,
assumptions made and matters considered, is attached to this document as
Appendix C. Cardinal's shareholders should read the fairness opinion of Scott &
Stringfellow, Inc. in its entirety.

Appraisal Rights (page I-19)

         Under Virginia law, a Heritage shareholder has the right to an
appraisal of the fair value of his or her shares in connection with the merger.
Cardinal shareholders do not have appraisal rights.

Cardinal to Use Purchase Accounting Treatment (page I-17)

         We expect that the merger will be accounted for as a purchase.

Comparison of Shareholder Rights (page VI-4)

         Both Cardinal and Heritage are corporations subject to the provisions
of the Virginia State Corporation Act. Heritage's shareholder's rights are
presently governed by Heritage's articles of incorporation and bylaws. Upon
consummation of the merger, Heritage's shareholders will become shareholders of
Cardinal and Heritage's shareholders' rights will be governed by the articles of
incorporation and bylaws of Cardinal.

         There are material differences between the rights of a Heritage
shareholder under Heritage's articles of incorporation and bylaws and the rights
of a Cardinal shareholder under the articles of incorporation and bylaws of
Cardinal which are disclosed in the section "Comparative Rights of Shareholders"
on page VI-__.

Comparative Per Share Market Price Information (page I-41)

         Heritage common stock is traded on The Nasdaq SmallCap Market under the
symbol "HBVA." On April 17, 2000, the last full trading day before the merger
was publicly announced, Heritage's common stock closed at $3.75.

         No Cardinal preferred stock has been issued and Cardinal cannot predict
the price at which it will trade after the merger.

         Cardinal common stock is traded on The Nasdaq SmallCap Market under the
symbol "CFNL." On April 17, 2000, the last full trading day before Heritage and
Cardinal issued a joint press release announcing the merger, Cardinal common
stock closed at $4.63. On ________ __, 2000, Cardinal common stock closed at
$_____.

Share Ownership of Management (pages V-4)

         On the Cardinal record date, the executive officers and directors of
Cardinal, including their affiliates, had voting power with respect to an
aggregate of 604,449 shares of Cardinal common stock, or approximately 14.1% of
the shares of Cardinal common stock then outstanding.

         On the Heritage record date, the executive officers and directors of
Heritage, including their affiliates, had voting power with respect to an
aggregate of 679,422 shares of Heritage common stock, or approximately 22.9% of
the shares of Heritage common stock then outstanding.

         We expect that the directors and executive officers of Cardinal and
Heritage will vote their shares of Cardinal common stock "FOR" the approval of
the issuance of Cardinal preferred stock to Heritage shareholders and the
election of three Heritage directors to the Cardinal board and their shares of
Heritage common stock "FOR" the approval of the merger agreement.

Benefits to Management in the Merger (page I-36)

         When considering the recommendation of the Heritage board, you should
be aware that some Heritage directors and officers have



                                      I-8
<PAGE>

interests in the merger that differ from the interests of other Heritage
shareholders. Three directors of Heritage, Harold E. Lieding, George P. Shafran
and Kevin B. Tighe, will become directors of Cardinal. Each Cardinal director
receives an option each year to purchase 2,000 shares of Cardinal common stock.
Options are granted at or above market value at the time of grant and have a ten
year term. Cardinal directors do not receive cash fees.

         Messrs. Lieding, Tighe and Shafran, Phillip F. Herrick and Terrie G.
Spiro, President and Chief Executive Officer of Heritage and The Heritage Bank,
will continue as directors of The Heritage Bank after the merger. The Heritage
Bank will be changing its name to Cardinal Bank - Potomac. Jones V. Isaac, a
director of Cardinal, and up to seven additional individuals will be appointed
to the board of Cardinal Bank - Potomac by Cardinal. Directors fees to Messrs.
Lieding, Tighe, Shafran and Herrick will not be reduced as a result of the
merger. Currently, as directors of The Heritage Bank, they receive $500 per
month and $100 per committee meeting, with an annual maximum amount of $700 for
committee meeting attendance. In addition, members of the executive committee
receive an additional $250 per month. Ms. Spiro is not compensated for serving
as a director of The Heritage Bank.

         Options to purchase a total of 30,500 shares of common stock of
Heritage at $5.00 per share were granted to the current directors on May 24,
2000. These grants represent the annual option awards for fiscal year 2000,
which were scheduled to be made at the end of this year. These grants were made
as follows: directors with 1-2 years of service were granted options for 2,000
shares; directors with 2-3 years of service were granted options for 3,500
shares; directors with over 4 years of service were granted options for 5,000
shares; and the chairman and vice chairman of the board each were granted an
option for 5,000 shares.

         Heritage, with the concurrence of Cardinal, may agree to provide
certain key employees of The Heritage Bank with "stay bonuses" in the form of
cash payments and options for Heritage common stock as an inducement to these
employees to continue their services through or following the closing of the
merger. These cash payments are not expected to exceed $65,000 in the aggregate
and the option grants are not expected to exceed options for more than 10,000
shares.

         Also, all outstanding options for shares of common stock of Heritage
issued to employees and directors of Heritage or The Heritage Bank under
Heritage's stock option plans will be converted as of the close of the merger to
options for common stock of Cardinal having equivalent values.

         Within two days after the Heritage shareholders approve the merger, Ms.
Spiro will receive a lump sum payment of approximately $360,000 in satisfaction
of Heritage's obligations to pay change of control benefits under her employment
contract with Heritage.

         The Heritage board was aware of these and other interests and
considered them before approving and adopting the merger agreement.

Transaction Structure

         Heritage will merge into Cardinal Merger Corp., a wholly owned
subsidiary of Cardinal. Cardinal Merger Corp. was formed solely to facilitate
the merger. It has minimal assets and no liabilities.

The Heritage Bank

         The Heritage Bank is Heritage's bank subsidiary. After the merger, it
will continue to operate as a separate bank, but will change its name to
Cardinal Bank - Potomac.

Conditions that Must Be Satisfied for the Merger to Occur (page I-37)

         The following conditions must be met for us to complete the merger:

o    approval by Cardinal shareholders of the issuance of Cardinal preferred
     stock to



                                      I-9
<PAGE>

     Heritage shareholders and election of three Heritage directors to the
     Cardinal board;

o    approval by Heritage shareholders of the merger agreement;

o    the continuing effectiveness of Cardinal's registration statement filed
     with the Securities and Exchange Commission;

o    receipt of an opinion of Cardinal's counsel that the merger will be treated
     for U.S. federal income tax purposes as a reorganization within the meaning
     of Section 368 of the Internal Revenue Code of 1986, as amended.

         We cannot complete the merger unless we obtain the approval of the
Board of Governors of the Federal Reserve System and the Virginia State
Corporation Commission. On ________ __, 2000, Cardinal filed applications with
the Federal Reserve Board and the Virginia State Corporation Commission. The
applications include a request for The Heritage Bank to pay a $3.0 million
dividend to Cardinal on the effective date. While we cannot predict whether or
when we will obtain all required regulatory approvals, we see no reason why the
approvals will not be obtained in a timely manner.

         Unless prohibited by law, either Heritage or Cardinal could elect to
waive a condition that has not been satisfied and complete the merger anyway.

Termination of the Merger Agreement (page I-40)

         We can mutually agree to terminate the merger agreement at any time
without completing the merger. Either company may also terminate the merger
agreement if:

o    the merger is not completed on or before December 31, 2000;

o    any event occurs which renders impossible, in a material way, the
     satisfaction by one company of one or more of the conditions described
     above, unless the other company waives such satisfaction; or

o    other conditions to the closing of the merger have not been satisfied.

Effective Date Expected: Third Quarter of 2000 (page I-39)

         The merger will become effective at the date and time stated on the
certificate of merger issued by the Virginia State Corporation Commission. We
anticipate the merger will take place in the third quarter of 2000.

                           [END OF TWO-COLUMN FORMAT]



                                      I-10
<PAGE>

                       SELECTED HISTORICAL FINANCIAL DATA

         We are providing the following information to help you analyze the
financial aspects of the merger. We derived this information from audited
financial statements for 1997 through 1999 and unaudited financial statements
for the three months ended March 31, 2000 and 1999. This information is only a
summary, and you should read it in conjunction with the information about
Cardinal that begins on page III-1, Cardinal's historical financial statements
in Appendix B, the information about Heritage that begins on page IV-1, and
Heritage's historical financial statements in Appendix D. You should not rely on
the three-month information as being indicative of results expected for the
entire year.

                   CARDINAL - HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
                                       Three Months Ended March 31,                Year Ended December 31,
                                          2000             1999                1999          1998          1997
                                     ----------------------------------    -----------------------------------------

                                                        (in thousands, except per share data)
<S>                                     <C>                  <C>                <C>          <C>           <C>
Net interest income                      $1,153                $607              $3,025       $1,216           $4
Net income (loss)                          (942)               (824)             (4,039)      (1,696)        (145)
Diluted net income per share              (0.22)              (0.19)              (0.95)       (0.64)       (0.12)
Cash dividends per share                     --                  --                  --           --           --
Book value per share                       7.01                8.02                7.25         8.19         7.28
Total assets                            115,925              60,342              97,033       57,295        8,796
Shareholders' equity                     29,730              34,020              30,745       34,728        8,551
</TABLE>

                   HERITAGE - HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
                                       Three Months Ended March 31,                Year Ended December 31,
                                           2000             1999                1999         1998         1997
                                     ----------------------------------    -----------------------------------------

                                                        (in thousands, except per share data)
<S>                                        <C>                <C>                <C>          <C>         <C>
Net interest income                          $744               $739             $2,942       $2,494      $2,146
Net income                                     25                177                182          133         571
Diluted net income per share                 0.01               0.08               0.08         0.07        0.44
Cash dividends per share                       --                 --                 --           --          --
Book value per share                         3.73               3.94               3.75         3.89        3.18
Total assets                               64,421             61,050             59,939       64,776      45,450
Shareholders' equity                        8,568              9,031              8,598        8,928       4,730
</TABLE>






                                      I-11
<PAGE>

              SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

         The following table sets forth certain unaudited pro forma combined
financial data for Cardinal giving effect to the merger accounted for as a
purchase. This information should be read in conjunction with the historical
financial statements of Cardinal and Heritage, including respective notes to the
financial statements, appearing elsewhere in this joint proxy
statement/prospectus. See "Unaudited Pro Forma Condensed Financial Information"
on page I-21. The pro forma financial data may not be indicative of the results
that actually would have occurred had the merger been consummated on the dates
indicated or that may be obtained in the future.

                                                 As of and for the
                                    --------------------------------------------

                                     Three Months Ended        Year Ended
                                           March 31,           December 31,
                                             2000                  1999
                                    --------------------- ----------------------

                                       (in thousands, except per share data)

Net interest income                     $     1,805            $   5,686
Net income (loss)                            (1,120)              (4,536)
Diluted net income per common share           (0.29)               (1.19)
Cash dividends per common share                  --                   --
Book value per common share                    7.11                 7.35
Total assets                                178,839                  N/A
Shareholders' equity                         37,066                  N/A


                CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
                          AND PREFERRED STOCK DIVIDENDS

         The following table sets forth for Cardinal the consolidated ratios of
earnings to fixed charges and preferred stock dividends for the periods
indicated. Earnings represent income before income taxes plus fixed charges.
Fixed charges, excluding interest on deposits, represent interest expense on
borrowings and dividends paid on Cardinal preferred stock. Fixed charges,
including interest on deposits, represent all interest expense and dividends
paid on Cardinal preferred stock.
<TABLE>
<CAPTION>
                                                     Historical                          Pro Forma (Unaudited)
                                         -----------------------------------    --------------------------------------

                                                                                Three Months Ended      Year Ended
                                              Year Ended December 31,                March 31,          December 31,
                                         -----------------------------------    ------------------ ---------------------
                                            1999        1998         1997             2000                1999
                                            ----        ----         ----             ----                ----
<S>                                       <C>        <C>           <C>               <C>                 <C>
Including interest on deposits             (2.10x)     (3.99x)     (47.33x)           0.02x              (0.51x)
Excluding interest on deposits            (40.21x)   (847.00x)     (47.33x)          (3.68x)             (6.24x)
</TABLE>

         The above ratios for the years ended December 31, 1999 and 1998
indicate that earnings were inadequate to cover fixed charges in the amount of
$4.0 million and $1.7 million, respectively.




                                      I-12
<PAGE>

                      RISK FACTORS THAT YOU SHOULD CONSIDER

         In addition to the other information contained in this joint proxy
statement/prospectus, you should consider the following material risk factors
carefully before deciding how to vote at the special meeting. Please see
specifically the additional information in the "Cautionary Statement Concerning
Forward-Looking Statements" section on page VI-14.

Cardinal has not been profitable since it began banking operations in 1998 and
does not expect to be profitable in the near future.

         Cardinal was incorporated in Virginia in 1997 and its first banking
subsidiary opened for business in June 1998. Three additional subsidiaries began
operations over the next two years. For the years ended December 31, 1999 and
1998, Cardinal had net losses of $4.0 million and $1.7 million, respectively.
Although the principal goal of Cardinal's business strategy is profitability,
Cardinal has not achieved this profitability to date and cannot assure its
future profitability.

         Cardinal's management expects that the merger of Cardinal and Heritage
will accelerate the achievement of this future profitability. For the years
ended December 31, 1999 and 1998, Heritage had net income of $182,000 and
$133,000, respectively. Neither Cardinal nor Heritage, however, are able to make
any assurances as to the future profitability of The Heritage Bank.

If Cardinal's bank subsidiaries do not become profitable, it may not be able to
pay dividends on its preferred stock.

         The Heritage Bank has filed a regulatory application for permission to
pay a $3.0 million dividend to Cardinal on the effective date of the merger. The
merger will not be completed unless The Heritage Bank receives regulatory
approval for the dividend. An important purpose of that dividend will be to
provide Cardinal with the cash that it will need to pay holding company level
expenses and to pay dividends on the Cardinal preferred stock. Those dividends
will total approximately $499,000 per year. Except for the $3.0 million dividend
to be received from The Heritage Bank, Cardinal does not expect to receive
dividends from its subsidiary banks in the near term. Without regulatory
approval, a Cardinal bank subsidiary cannot pay dividends to Cardinal until it
has recovered all of its start-up losses.

         After 2003, Cardinal expects that it will need dividends from its bank
subsidiaries to continue to pay dividends on the Cardinal preferred stock. While
Cardinal expects that its bank subsidiaries will be able to pay dividends to
Cardinal sufficient to continue the preferred stock dividend, it cannot
guarantee that any dividend payments to Cardinal will be made. If Cardinal's
bank subsidiaries cannot pay dividends to Cardinal sufficient to cover
Cardinal's operating expenses and the preferred stock dividend, Cardinal would
attempt to raise cash by borrowing money or selling common stock. If it could
not borrow or sell common stock, it would suspend payment of the dividend on the
Cardinal preferred stock.

         If Cardinal suspends the preferred stock dividend, it also could not
pay dividends on its common stock.

Cardinal and Heritage may not successfully integrate their respective business
operations.

         Integrating the business operations of Cardinal and Heritage after the
merger may be difficult and time consuming. If we are unable to integrate our
businesses successfully, this could hurt our business and operating results.
Successful integration of Heritage's operations will depend on Cardinal's
ability to consolidate operations, systems and procedures to eliminate
redundancies and costs. Cardinal may encounter difficulties in the integration
process, such as the loss of key employees and customers, the disruption of
ongoing businesses or possible inconsistencies in standards, controls,
procedures and policies.



                                      I-13
<PAGE>

                                   THE MERGER


         The following is a summary description of the material terms of the
merger, and is qualified in its entirety by reference to the merger agreement,
which is attached as Appendix A to this joint proxy statement/prospectus. All
holders of Cardinal and Heritage common stock are urged to read the merger
agreement in its entirety.

Background

         General. Cardinal and Heritage operate community banks in
geographically close, but separate markets in northern Virginia. Heritage's
subsidiary, The Heritage Bank operates two banking offices that serve
predominantly affluent urban markets in McLean and Sterling, Virginia. Heritage
opened a third banking office in Tyson's Corner, Virginia in May, 2000. Cardinal
operates three bank subsidiaries that serve predominantly urban markets in
Manassas, Reston and the Dulles Corridor and Fairfax, Virginia and had planned
to open a fourth located in Alexandria, Virginia. Cardinal also owns and
operates an investment subsidiary, Cardinal Wealth Services, Inc. Cardinal has
decided to suspend its charter application for Cardinal Bank -
Alexandria/Arlington, N.A. pending the merger with Heritage. Once the merger is
complete, The Heritage Bank will change its name to Cardinal Bank - Potomac and
will become the fourth Cardinal Bank and will operate the branch office that
Cardinal planned the Alexandria bank would have occupied. There are no
overlapping branch facilities. Heritage offers Cardinal a stable core business;
a cost of funds lower than Cardinal's; access to attractive markets adjacent to
Cardinal's; the opportunity for cross sales of products and services of Cardinal
Wealth Services, Inc.; and the liquidity and capital to diversify and serve
customers with higher borrowing needs. Cardinal offers Heritage systems, product
and consolidated operational support and access to rapidly growing markets with
strong loan demand. Each of Cardinal and Heritage offer to the other greater
diversification of assets and deposits, depth of management and greater
opportunity to enhance revenue and realize economies of scale.

         In December 1999, Mr. Gunn from Cardinal met with Ms. Spiro from
Heritage to discuss the concept of a merger. The December 1999 discussions were
informal and preliminary. Discussions included the advantages of combining
entities and the practical difficulties of remaining independent and continuing
to be able to compete with large statewide and regional bank holding companies,
including challenges presented by increasing technology costs and costs
associated with offering non-deposit products and services. Heritage had planned
to make significant investments in systems and products in the year 2000. As a
new entity, Cardinal had already completed its investment in state of the art
products and systems. Cardinal engaged Scott & Stringfellow and Heritage engaged
Ferris, Baker Watts to prepare a financial analysis of possible combination. In
January 2000, Messrs. Gunn, and Rust and Ms. Spiro and Messrs. Lieding and
Shafran continued discussions that included possible board of directors
composition, management structure, products, strategic alignment of branches,
computer systems and growth plans. A number of negotiating sessions took place
between the parties over the course of the next several months with
representatives of Scott & Stringfellow and Ferris, Baker Watts along with
counsel for both entities attending. The meetings consisted of discussions of
financial analyses of Cardinal and Heritage, as combined. The boards of the
respective institutions met on several occasions during this time period to
discuss and amend various terms including the exchange ratio, the preferred
dividend, the change of control provisions of Ms. Spiro's contract and other
costs, terms and conditions. Discussions continued into April of 2000 as the
main issue centered around the pricing of the transaction and on several
occasions talks were suspended and it appeared unlikely that the parties would
be able to agree on final terms of an affiliation in a time frame consistent
with Cardinal's need for a decision on opening its approved, but not yet
chartered Alexandria affiliate bank.



                                      I-14
<PAGE>

         In mid-April 2000 however, Cardinal represented by Messrs. Gunn and
Rust and Heritage represented by Ms. Spiro and Messrs. Lieding and Shafran
reached agreement, subject to their respective boards' approval, on the
structure of the merger and on all key issues involving management and board
representation. The Cardinal board met on Friday April 14th and offered Heritage
the terms so agreed to. The Heritage board met on Monday the 17th of April and
approved the offer and executed the merger agreement.

         Cardinal and Heritage subsequently agreed to revise the terms of the
merger so that Heritage would merge with a subsidiary of Cardinal that was
created only for that purpose. The reason that the parties agreed to this
restructuring was to be sure that Cardinal shareholders would not have
dissenters' rights. If the parties had provided Cardinal's shareholders with
dissenters' rights and if there were a substantial number of dissenting Cardinal
shareholders, cash payments to those shareholders could have adversely affected
the regulatory approvals sought by Cardinal and Heritage in connection with the
merger and thus the consummation of the merger. On June __, 2000, the Cardinal
board and the Heritage board executed an amended and restated merger agreement
that reflects this restructuring.

Cardinal's Reasons for the Merger

         In deciding to enter into the merger agreement, the Cardinal board
considered a number of factors. The Cardinal board did not assign any relative
or specific weights to the factors considered. The principal factors that led
the Cardinal board to approve the merger were:

         Earnings. Cardinal's strategy of forming separate community banks in
northern Virginia has involved start-up losses for Cardinal and each of its
three subsidiary banks. Cardinal projected that the fourth proposed Cardinal
Bank - Alexandria/Arlington, N.A. would experience a first year loss of
approximately $1.1million. In contrast, The Heritage Bank is profitable. By
combining Cardinal's proposed Alexandria/Arlington operations with Heritage's
existing operations, Cardinal expects to avoid additional start-up losses and
reach profitability sooner than would without the merger.

         Liquidity and Loan Demand. Cardinal believes that its strong loan
growth will not slow in the immediate future. Due to Cardinal's higher cost of
funds, it can profitably employ the available liquidity at Heritage. As of March
31, 2000, Cardinal's loan to deposit ratio was 101.8% compared to Heritage's
loan to deposit ratio of 75.0%. From March 31, 1999 to March 31, 2000,
Cardinal's total assets have increased from $60.3 million to $115.9 million
(92.2%), deposits increased from $25.9 million to $80.0 million (208.9%) and net
loans increased from $21.8 million to $80.6 million (270.3%). In the same
period, Heritage's total assets increased by 5.5% and deposits decreased by
5.1%, while net loans increased by 24.4%. Heritage's strength has been its
stable deposit base while Cardinal's strength has been its strong loan
generation. Heritage has approximately $23.8 million in securities that can be
reinvested in higher yielding loans.

         Operating Efficiencies. Cardinal operates its bank and non-bank
subsidiaries through a consolidated back office. Cardinal anticipates that the
addition of Heritage will provide opportunities for increased operating
efficiency as The Heritage Bank's back office is consolidated into Cardinal's.
The consolidation with Cardinal will eliminate the need for Heritage to upgrade
its internal systems at significant cost, compared to a less costly expansion of
Cardinal's system.

         Local Autonomy. The Heritage Bank will continue to operate with a large
degree of autonomy, under a board of directors comprised of current directors of
Cardinal, Cardinal's proposed Alexandria affiliate bank directors and five
directors of The Heritage Bank.

         Cardinal considered other material factors including: the consideration
offered for Heritage common stock; the market value of Cardinal common stock;
the dividend to be paid on the Cardinal preferred stock; the financial condition
and history of performance of Cardinal and Heritage; diversification of risk
associated with ownership of an institution with a broader geographic market
area; the well capitalized position and earnings of Heritage; and the
compatibility of the managements of the two organizations. The Cardinal board
believes that the addition of the resources it will provide to Heritage will
enable the new Cardinal Bank formed out of Heritage to provide a wider and
improved array of financial services to consumers and businesses and to achieve
added flexibility in dealing with the changing competitive environment in their
market areas.



                                      I-15
<PAGE>

         The Cardinal board has concluded that the terms of the merger
agreement, which were determined on the basis of arms-length negotiations, are
fair to Cardinal shareholders. As explained below, this conclusion is supported
by the opinion of an independent financial advisor. In establishing the merger
consideration, the Cardinal board also considered the merger consideration in
relation to the market value of Cardinal common stock and Heritage common stock;
information concerning the financial condition, results of operations and the
prospects of Cardinal and Heritage; and the tax-free nature of the merger to the
shareholders of Heritage to the extent they receive Cardinal preferred stock in
exchange for their shares of Heritage common stock.

         Following the effective date, Messrs. Lieding, Herrick, Tighe, Shafran,
Gunn, Rust, Isaac, Tech, Lockwood, Kell, Anderson, DeCarlo and Broadwater and
Ms. Spiro are expected to serve as directors of Cardinal Bank-Potomac.

         The board of directors of Cardinal believes that the merger is in the
best interests of Cardinal and its shareholders. The Cardinal directors have all
committed to vote shares under their control in favor of the merger to the
extent of their fiduciary ability. The Cardinal directors unanimously recommend
that Cardinal shareholders vote "FOR" the approval of the issuance of Cardinal
preferred stock to Heritage shareholders and "FOR" the election of three
Heritage directors to the Cardinal board of directors.

Heritage's Reasons for the Merger

         The terms of the merger agreement, including the merger consideration
of $6.00 per share of Heritage common stock to be paid in a combination of
preferred stock and cash, were the result of an arms length negotiation between
Heritage and Cardinal. Heritage consulted with its special legal counsel,
Thacher Proffitt & Wood, and its financial advisor, Ferris, Baker Watts during
the negotiations. The Heritage board considered various factors in determining
that the merger was fair and in the best interests of Heritage and its
shareholders. The Heritage board did not assign any specific weights to the
factors considered. In considering the factors described below, individual
members of the Heritage board may have given different weights to different
factors. Among other things, the Heritage board considered:

         o   the premium presented by the consideration offered to Heritage's
             shareholders in relation to the current trading price of Heritage's
             common stock;

         o   favorable terms of the preferred stock as it relates to dividend
             and conversion features;

         o   the fact that Heritage will be combining with a Virginia-based
             holding company and that The Heritage Bank will remain a subsidiary
             of Cardinal, with a name change to denote its location;

         o   the probable impact of the merger on the customers and the
             communities served by Heritage and Cardinal and Cardinal's
             willingness to retain Heritage's employees and provide certain
             benefits to these employees;

         o   the fact that Heritage will appoint three directors to serve on
             Cardinal's board and five directors to serve on the board of The
             Heritage Bank following the consummation of the merger;

         o   the potential for expansion of products and services that may be
             offered to the customers of Cardinal and Heritage, on a combined
             basis;



                                      I-16
<PAGE>

         o   the increasingly competitive environment in which financial
             institutions operate and the uncertain economic regulatory and
             legal environment affecting financial institutions such as
             Heritage;

         o   the increasing consolidation of financial institutions which has
             resulted in fewer potential acquirors for Heritage;

         o   the potential for greater liquidity and potential market
             appreciation for Cardinal's common stock, as compared to Heritage's
             common stock;

         o   the large and growing investment in technology that is needed to
             compete with larger banks; and

         o   the opinion of Ferris, Baker Watts that the merger consideration is
             fair from a financial point of view to Heritage's shareholders.

Accounting Treatment

         The merger will be accounted for by Cardinal as a purchase. Under the
purchase method, the assets and liabilities of Heritage will be recorded on the
books of Cardinal at their respective fair values as of the effective date of
the merger. The excess of value of consideration paid by Cardinal over the fair
value of Heritage's specifically identifiable tangible and intangible assets
acquired less liabilities assumed is considered goodwill, which is expected to
be amortized over 15 years. Cardinal's consolidated results of operations will
include the results of Heritage after the effective date of the merger.

Material Federal Income Tax Consequences of the Merger

         The following is a discussion of all material federal income tax
consequences of the merger under the Internal Revenue Code of 1986, as amended,
to Heritage shareholders. The discussion does not deal with all aspects of
federal taxation that may be relevant to particular Heritage shareholders.
Certain tax consequences of the merger may vary depending upon the particular
circumstances of each Heritage shareholder and other factors.

         You are urged to consult with your tax advisor to determine the
particular tax consequences of the merger to you.

         This summary is based on current law and the advice of Williams,
Mullen, Clark & Dobbins, legal counsel to Cardinal. The advice in this summary
assumes that Heritage shareholders hold their shares as capital assets and is
based on, among other things, certain customary assumptions and representations
relating to certain facts and circumstances of, and the intentions of the
parties to the merger. Neither Cardinal nor Heritage has requested a ruling from
the Internal Revenue Service in connection with the merger. To meet a condition
to consummation of the merger, Cardinal and Heritage will receive from Williams,
Mullen, Clark & Dobbins an opinion as to certain federal income tax consequences
of the merger. This opinion is not binding on the Internal Revenue Service.

         In the opinion of Williams, Mullen, Clark & Dobbins the merger will
constitute a tax-free reorganization under Section 368(a) of the Internal
Revenue Code, if consummated in the manner set forth in the merger agreement.
Accordingly, among other things, in the opinion of such counsel:



                                      I-17
<PAGE>

         o   The merger will constitute a reorganization within the meaning of
             Section 368(a) of the Internal Revenue Code;

         o   No gain or loss will be recognized by Cardinal or Heritage as a
             result of the merger;

         o   No gain or loss will be recognized by a Heritage shareholder who
             receives solely Cardinal preferred stock in exchange for all of
             such shareholder's shares of Heritage common stock (except to the
             extent such a shareholder receives cash in lieu of a fractional
             share interest in Cardinal preferred stock). The aggregate tax
             basis of the Cardinal preferred stock received by such shareholder
             will be the same as the aggregate tax basis of the Heritage common
             stock surrendered in exchange therefor, reduced by any amount
             allocable to a fractional share interest of Cardinal preferred
             stock received will include the holding period of the share of
             Heritage common stock exchanged therefor.

         o   A Heritage shareholder who received both Cardinal preferred stock
             and cash in exchange for all of such shareholder's shares of
             Heritage common stock will recognize capital gain, but not loss, to
             the extent of the less of:

             (i)  the excess of (A) the sum of the fair market value of the
                  Cardinal preferred stock and the amount of cash received by
                  such shareholder over (B) the shareholder's aggregate tax
                  basis for the shares of Heritage common stock exchanged
                  therefor; and

             (ii) the amount of cash received by such shareholder.

             Any such gain will be long-term capital gain if such shares of
             Heritage common stock were held for more than one year. The
             aggregate tax basis of the Cardinal preferred stock received by
             such shareholder will equal such shareholder's aggregate tax basis
             of the Heritage common stock surrendered in exchange therefor,
             reduced by any amount allocable to a fractional share interest of
             Cardinal preferred stock for which cash is received and by the
             amount of other cash received, and increased by the amount of any
             gain recognized, by such shareholder in the merger. Such
             shareholder's holding period of each share of Cardinal preferred
             stock received will include the holding period of the share of
             Heritage common stock exchanged therefor.

         o   A Heritage shareholder who receives solely cash in exchange for all
             such shareholder's shares of Heritage common stock will recognize
             capital gain or capital loss in an amount equal to the difference
             between the amount of cash received and the shareholder's aggregate
             tax basis for such shares of Heritage common stock, which gain or
             loss will be long-term capital gain or loss if such shares of
             Heritage common stock were held for more than one year.

         o   In certain limited situations, the receipt of cash in the merger,
             or a sale or redemption of Cardinal preferred stock received in the
             merger by a shareholder who owns shares of Heritage common stock at
             the effective time, may be treated as a dividend and taxed as
             ordinary income. Heritage shareholders should consult their tax
             advisors as to the possibility that all or a portion of any cash
             received in exchange for their shares of Heritage common stock, or
             that a sale or redemption of the Cardinal preferred stock received
             in the merger, will be treated as a dividend.



                                      I-18
<PAGE>

         o   Based upon the current ruling position of the IRS, a Heritage
             shareholder who received cash in lieu of a fractional share
             interest will be treated as having received such fractional share
             pursuant to the merger and then as having exchanged such fractional
             share for cash in a redemption by Cardinal subject to Section 302
             of the Code. Such a deed redemption will be treated as a sale of
             the fractional share, provided that it is not "essentially
             equivalent to a dividend." A Heritage shareholder will generally
             recognize capital gain or loss on such a deemed redemption of the
             fractional share in an amount determined by the excess of the
             amount of cash received therefor and the shareholder's tax basis in
             the fractional share. Any such capital gain or loss will be
             long-term capital gain or loss if the Heritage common stock
             exchanged was held for more than one year.

Appraisal Rights

         General. Shareholders of a corporation that is proposing to merge or
consolidate with another entity are sometimes entitled under relevant state laws
to appraisal or dissenters' rights in connection with the proposed transaction
depending on the circumstances. This right generally confers on shareholders who
oppose a merger or the consideration to be received in a merger the right to
receive, in lieu of the consideration being offered in the merger, the fair
value for their shares as provided for in the statute.

         Cardinal shareholders do not have dissenters' appraisal rights in
connection with the merger under Virginia law. Heritage shareholders, however,
are entitled to dissenters' appraisal rights in connection with the merger under
Virginia law.

         Any shareholder of Heritage common stock who objects to the merger and
who complies with provisions of Article 15 of Title 13.1 of the Virginia SCA
("Article 15") may demand the right to receive a cash payment, if the merger is
consummated, for the fair value of his or her stock immediately before the
merger effective date, exclusive of any appreciation or depreciation in
anticipation of the merger unless such exclusion would be inequitable. In order
to receive payment, a dissenting shareholder must deliver to Heritage prior to
the Heritage special meeting a written notice of intent to demand payment for
his or her shares if the merger is consummated and must not vote his or her
shares in favor of the merger. The intent to demand payment should be addressed
to Janet A. Valentine, Secretary, Heritage Bancorp, Inc., 1313 Dolley Madison
Boulevard, McLean, Virginia 22101.

         A shareholder of record of Heritage common stock may assert dissenters'
rights as to fewer than all the shares registered in his or her name only if the
shareholder dissents with respect to all shares beneficially owned by any one
person and notifies Heritage in writing of the name and address of each person
on whose behalf he or she asserts dissenters' rights. The rights of such a
partial dissenter are determined as if the shares to which he or she dissents
and his or her other shares were registered in the names of different
shareholders. A beneficial shareholder of Heritage common stock may assert
dissenters' rights as to shares held on his or her behalf by a shareholder of
record only if the individual (i) submits to Heritage the record shareholder's
written consent to the dissent not later than the time when the beneficial
shareholder asserts dissenters' rights, and (ii) dissents with respect to all
shares of which he or she is the beneficial shareholder or over which he or she
has power to direct the vote.

         Within 10 days after the effective date of the merger, Cardinal is
required to deliver a notice in writing to each dissenting shareholder who has
filed an intent to demand payment and who has not voted such shares in favor of
the merger. The notice will (i) state where the payment demand must be sent and
where and when stock certificates shall be deposited; (ii) supply a form for
demanding payment; (iii) set a date by which Cardinal must receive the payment
demand; and (iv) be accompanied by a copy of Article 15. A dissenting
shareholder who is sent a dissenter's notice must submit the payment demand and
deposit his or her stock certificates in accordance with the terms of, and
within the time frames set forth



                                      I-19
<PAGE>

in, the dissenter's notice. As a part of the payment demand, the dissenting
shareholder must certify whether he or she acquired beneficial ownership of the
shares before or after the date of the first public announcement of the terms of
the proposed merger, which was April 18, 2000. Cardinal will specify the
announcement date in the dissenter's notice.

         Except with respect to shares acquired after the announcement date,
Cardinal will pay a dissenting shareholder the amount Cardinal estimates to be
the fair value of his or her shares, plus accrued interest. This payment will be
made within 30 days of receipt of the dissenting shareholder's payment demand.
The payment will be accompanied by (i) Cardinal's balance sheet as of the end of
the fiscal year ending not more than 16 months before the effective date of the
corporate action creating the dissenter's right, an income statement for that
year, a statement of changes in shareholders' equity for that year, and the
latest available interim financial statements; (ii) an explanation of how
Cardinal estimated the fair value of the shares and how the interest was
calculated; (iii) a statement of the dissenter's right to demand payment under
Article 15; and (iv) a copy of Article 15. As to shares acquired after the
announcement date, Cardinal is only obligated to estimate the fair value of the
shares, plus accrued interest, and to offer to pay this amount to the dissenting
shareholder conditioned upon the dissenting shareholder's agreement to accept it
in full satisfaction of his or her claim.

         If a dissenting shareholder believes that the amount paid or offered by
Cardinal is less than the fair value of his or her shares, or that the interest
due is incorrectly calculated, that dissenting shareholder may notify Cardinal
of his or her own estimate of the fair value of his or her shares and amount of
interest due and demand payment of such estimate (less any amount already
received by the dissenting shareholder). The dissenting shareholder must notify
Cardinal of the estimate and demand within 30 days after the date Cardinal makes
or offers to make payment to the dissenting shareholder.

         Within 60 days after receiving the estimate and demand, Cardinal must
either commence a proceeding in the appropriate circuit court to determine the
fair value of the dissenting shareholder's shares and accrued interest, or
Cardinal must pay each dissenting shareholder whose demand remains unsettled the
amount demanded. If a proceeding is commenced, the court must determine all
costs of the proceeding and must assess those costs against Cardinal, except
that the court may assess costs against all or some of the dissenting
shareholders to the extent the court finds that the dissenting shareholders did
not act in good faith in demanding payment of the dissenting shareholder's
estimates.

         The foregoing discussion is a summary of the material provisions of
Article 15. Shareholders are strongly encouraged to review carefully the full
text of Article 15, which is included as Appendix F to this joint proxy
statement/prospectus. The provisions of Article 15 are technical and complex,
and a shareholder failing to comply strictly with them may forfeit his or her
dissenting rights. Any shareholder who intends to dissent from the merger should
review the text of those provisions carefully and also should consult with his
or her attorney. No further notice of the events giving rise to dissenters'
rights or any steps associated therewith will be furnished Heritage shareholders
except as indicated above or otherwise required by law.

         Any dissenting shareholder who perfects his or her right to be paid the
fair value of his or her shares will recognize gain or loss, if any, for federal
income tax purposes upon the receipt of cash for his or her shares. The amount
of gain or loss and its character as ordinary or capital gain or loss will be
determined in accordance with applicable provisions of the Internal Revenue
Code. See "- Federal Income Tax Matters."



                                      I-20
<PAGE>

               UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION

         The following unaudited pro forma condensed financial statements have
been prepared on a consolidated basis based upon the historical financial
statements of Cardinal and Heritage. The pro forma combined information gives
effect to the merger, accounted for as a purchase, and is based on the issuance
of 1,376,770 shares of Cardinal preferred stock and the payment of $6,883,851 in
cash in the merger, which in turn is based on the number of shares of Heritage
common stock outstanding at May 17, 2000. Accordingly, the assets and
liabilities of Heritage have been recorded on Cardinal's books at their fair
market value and Heritage's capital accounts have been eliminated. The amount by
which the sum of the cash paid by Cardinal and the fair value of the Cardinal
preferred stock issued in the merger exceeds the net fair value of Heritage's
assets and liabilities has been allocated to goodwill.

         The pro forma statement of condition combines the balance sheet of
Cardinal and Heritage as of March 31, 2000. The pro forma statements of
operations for the three months ended March 31, 2000 and for the year ended
December 31, 1999 combine the results of operations of Cardinal and Heritage for
the respective periods. The pro forma statement of condition and statement of
operations for the three months ended March 31, 2000 are based on unaudited
financial statements, and the pro forma statement of operations for the year
ended December 31, 1999 is based on audited financial statements, all of which
are included elsewhere in this joint proxy statement/prospectus.

         The pro forma financial statements should be read in conjunction with
the historical financial statements and the related notes of Cardinal in
Appendix B and of Heritage in Appendix D. There are no adjustments necessary to
the historical results of operations as a result of these transactions. The pro
forma combined financial position and results of operations are not necessarily
indicative of the results which would actually have been attained if the
Heritage merger had occurred in the past or which may be attained in the future.

         The pro forma combined condensed financial statements also do not take
into account the following items which will impact the financial condition,
results of operations and reported per share amounts of Cardinal.

         o   Losses from March 31, 2000 to the actual closing date of the
             transaction.

         o   Estimated expense savings to be derived from, among other things,
             the termination of certain Heritage executive officers, elimination
             of duplicate backroom operations and conversion to Cardinal's data
             processing system.

         o   Expected revenue enhancements from selling Heritage's investment
             securities and investing the funds in higher yielding loans
             receivable.








                                      I-21
<PAGE>

                              CARDINAL AND HERITAGE
               PRO FORMA COMBINED CONDENSED STATEMENT OF CONDITION
                                 MARCH 31, 2000
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                            Pro Forma
                                                     Cardinal          Heritage            Adjustments            Combined
                                                 ------------------------------------------------------------------------------
                                                                        (Dollars in thousands)
<S>                                                <C>               <C>                     <C>                 <C>
Assets
Cash and due from banks                            $      4,180      $      2,990            (1,375) (A)         $     5,795
Federal funds sold                                       20,378                --            (6,884) (C)              13,494
Investment securities, available-for-sale                 4,620            23,764                --                   28,384
Loans receivable, net                                    80,575            35,649              (414) (C)             115,810
Premises and equipment, net                               4,476               872                --                    5,348
Goodwill                                                     --                --             7,166  (C)               7,166
Other assets                                              1,696             1,146                --                    2,842
                                                 ------------------------------------------------------------------------------

Total assets                                       $    115,925       $    64,421            (1,507)             $   178,839
                                                 ==============================================================================


Liabilities and Stockholders' Equity
Liabilities:
Deposits                                                 80,010            48,033               (75) (C)             127,968
Borrowings                                                6,000             7,603                --                   13,603
Other liabilities                                           185               217                --                      402
                                                 ------------------------------------------------------------------------------

Total liabilities                                        86,195            55,853               (75)                 141,973
                                                 ------------------------------------------------------------------------------

Stockholders' equity:
Preferred stock                                              --                --             6,884  (B)               6,884
Common stock                                              4,243             2,295            (2,295) (B)               4,243
Additional paid in capital                               32,498             6,530            (6,078) (B)              32,950
Retained earnings                                        (6,823)              235              (435) (B)              (7,023)
Accumulated other comprehensive income (loss)              (188)             (492)              492  (B)                (188)
                                                 ------------------------------------------------------------------------------

Total stockholders' equity                               29,730             8,568            (1,432)                  36,866
                                                 ------------------------------------------------------------------------------


Total liabilities and stockholders' equity         $    115,925       $    64,421        $   (1,507)             $   178,839
                                                 ==============================================================================
</TABLE>






                                      I-22
<PAGE>

                              CARDINAL AND HERITAGE
                PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
                      FOR THREE MONTHS ENDED MARCH 31, 2000
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                                Pro Forma
                                                     Cardinal            Heritage              Adjustments              Combined
                                                ------------------------------------------------------------------------------------
                                                                   (Dollars in thousands, except per share data)
<S>                                               <C>                 <C>                        <C>                 <C>
Interest income:
Loans                                             $       1,529       $         725              35  (D)             $        2,289
Federal funds sold                                          287                   7            (108) (D)                        186
Investment securities                                        88                 386              --                             474
                                                ------------------------------------------------------------------------------------

Total interest income                                     1,904               1,118             (73)                          2,949
                                                ------------------------------------------------------------------------------------

Interest expense:
Deposits                                                    655                 330              19  (D)                      1,004
Borrowings                                                   96                  44              --                             140
                                                ------------------------------------------------------------------------------------

Total interest expense                                      751                 374              19                           1,144
                                                ------------------------------------------------------------------------------------

Net interest income                                       1,153                 744             (92)                          1,805
Provision for loan losses                                   143                 (28)             --                             115
                                                ------------------------------------------------------------------------------------

Net interest income after provision for
  loan losses                                             1,010                 772             (92)                          1,690
                                                ------------------------------------------------------------------------------------

Non-interest income:
Service charges                                              84                  46              --                             130
Investment fee income                                       313                  --              --                             313
Other                                                        27                 (13)             --                              14
                                                ------------------------------------------------------------------------------------

Total non-interest income                                   424                  33              --                             457
                                                ------------------------------------------------------------------------------------

Non-interest expense:
Salary and benefits                                       1,363                 319              --                           1,682
Occupancy                                                   221                 105              --                             326
Professional fees                                           102                  62              --                             164
Depreciation                                                129                  64              --                             193
Amortization of Goodwill                                     --                  --             119  (D)                        119
Other                                                       561                 218              --                             779
                                                ------------------------------------------------------------------------------------

Total non-interest expense                                2,376                 768             119                           3,263
                                                ------------------------------------------------------------------------------------

Income (loss) before income taxes                          (942)                 37            (211)                         (1,116)
Provision for income taxes                                   --                  12             (12) (D)                         --
                                                ------------------------------------------------------------------------------------

Net income (loss)                                 $        (942)      $          25            (199)                  $      (1,116)
                                                ====================================================================================

Dividend to preferred stockholders                           --                  --             125  (E)                        125

Net income (loss) to
  common stockholders                             $        (942)      $          25            (324)                  $      (1,241)
                                                ====================================================================================

Earnings per common share:
Basic                                             $       (0.22)      $        0.01                  (E)              $       (0.29)
Diluted                                           $       (0.22)      $        0.01                  (E)              $       (0.29)
Weighted average shares outstanding:
Basic                                                 4,242,634           2,294,617                  (E)                  4,242,634
Diluted                                               4,242,634           2,296,405                  (E)                  4,242,634
</TABLE>

                                      I-23
<PAGE>

                              CARDINAL AND HERITAGE
              PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
                        FOR YEAR ENDED DECEMBER 31, 1999
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                               Pro Forma
                                                   Cardinal             Heritage               Adjustments            Combined
                                              -------------------------------------------------------------------------------------
                                                                   (Dollars in thousands, except per share data)
<S>                                             <C>                  <C>                         <C>               <C>
Interest income:
Loans                                           $       2,661        $       2,690               138  (D)          $       5,489
Federal funds sold                                      1,234                  277              (344) (D)                  1,167
Investment securities                                     435                1,414                --                       1,849
                                              -------------------------------------------------------------------------------------

Total interest income                                   4,330                4,381              (206)                      8,505
                                              -------------------------------------------------------------------------------------

Interest expense:
Deposits                                                1,207                1,342                75  (D)                  2,624
Borrowings                                                 98                   97                --                         195
                                              -------------------------------------------------------------------------------------

Total interest expense                                  1,305                1,439                75                       2,819
                                              -------------------------------------------------------------------------------------

Net interest income                                     3,025                2,942              (281)                      5,686
Provision for loan losses                                 514                   --                --                         514
                                              -------------------------------------------------------------------------------------

Net interest income after provision for
  loan losses                                           2,511                2,942              (281)                      5,172
                                              -------------------------------------------------------------------------------------

Non-interest income:
Service charges                                           268                  164                --                         432
Investment fee income                                   1,018                   --                --                       1,018
Other                                                      35                   58                --                          93
                                              -------------------------------------------------------------------------------------

Total non-interest income                               1,321                  222                --                       1,543
                                              -------------------------------------------------------------------------------------

Non-interest expense:
Salary and benefits                                     4,277                1,472                --                       5,749
Occupancy                                                 812                  328                --                       1,140
Professional fees                                         495                  176                --                         671
Depreciation                                              356                  146                --                         502
Amortization of Goodwill                                   --                   --               478  (D)                    478
Other                                                   1,931                  767                --                       2,698
                                              -------------------------------------------------------------------------------------

Total non-interest expense                              7,871                2,889               478                      11,238
                                              -------------------------------------------------------------------------------------

Income (loss) before income taxes                      (4,039)                 275              (759)                     (4,523)
Provision for income taxes                                 --                   93               (93) (D)                      -
                                              -------------------------------------------------------------------------------------

Net income (loss)                               $      (4,039)      $          182              (666)             $       (4,523)
                                              =====================================================================================

Dividend to Preferred stockholders                         --                   --               499  (E)                    499

Net income (loss) to common
  stockholders                                  $      (4,039)      $          182            (1,165)             $       (5,022)
                                              =====================================================================================

Earnings per common share:
Basic                                           $       (0.95)      $         0.08                    (E)         $        (1.18)
Diluted                                         $       (0.95)      $         0.08                    (E)         $        (1.18)
Weighted average shares outstanding:
Basic                                               4,240,819            2,294,617                    (E)              4,240,819
Diluted                                             4,240,819            2,301,548                    (E)              4,240,819
</TABLE>

                                      I-24
<PAGE>

                Notes to Pro Forma Combined Financial Information

         The merger will be accounted for by Cardinal using the purchase method
of accounting in accordance with Accounting Principles Board Opinion ("APB") No.
16 and Statement of Financial Accounting Standards ("SFAS" No. 72). Under this
method, the aggregate cost of the merger will be allocated to assets acquired
and liabilities assumed based on their estimated fair values as of the closing
date. For purposes of pro forma presentation, estimates of the fair values of
Heritage's assets and liabilities as of March 31, 2000, have been combined with
the book values of Cardinal's assets and liabilities as of March 31, 2000.

(A)      As part of the transaction, Cardinal expects to incur, on a pre-tax
         basis, $375,000 in transaction costs, primarily for professional
         expenses, including financial advisory, legal and accounting fees.
         Additionally, it is estimated that Heritage will incur, on a pre-tax
         basis, $800,000 in transaction costs, including financial advisory,
         legal, accounting and contract termination costs. Cardinal also expects
         to incur nonrecurring charges of $200,000 as a result of the merger
         during the 12 months after its closing. These charges are included in
         the pro forma combined condensed statement of condition, but are not
         considered in the pro forma combined condensed statement of operations.

(B)      As stated in the merger agreement, Cardinal will issue 1,376,770 shares
         of 7.25% cumulative, convertible preferred stock valued at $5 per share
         and cash of $6,884,000 to Heritage's shareholders. Cardinal will issue
         Cardinal stock options for vested Heritage stock options with terms
         based on the merger consideration.

         The following table details the adjustments to stockholders' equity
         based on the assumed purchase price:
<TABLE>
<CAPTION>
                                                                                                          Accumulated
                                                                                                             Other
                                                          Preferred    Common    Paid-In     Retained    Comprehensive
                                                            Stock       Stock    Capital     Earnings        Income
                                                        -------------------------------------------------------------
<S>                                                          <C>       <C>       <C>          <C>                <C>
Elimination of Heritage's stockholders' equity                   -     (2,295)   (6,530)      (235)              492
Issuance of Cardinal stock options for
   Heritage carryover stock options                              -          -       452          -                 -
Issuance of Cardinal convertible preferred stock             6,884          -         -          -                 -
Nonrecurring charges subsequent to merger                        -          -         -       (200)                -
                                                        -------------------------------------------------------------

   Total pro forma adjustment                                6,884     (2,295)   (6,078)      (435)              492
</TABLE>


(C)      The purchase price is allocated to identifiable tangible and intangible
         assets at their fair values. Although not included here, a core deposit
         intangible is expected to be identified. Any portion of the purchase
         price that cannot be assigned to specifically identifiable tangible and
         intangible assets acquired less liabilities assumed is considered
         goodwill, which is expected to be amortized over 15 years.

         The following table provides a reconciliation of the excess cost of the
         merger to Cardinal over the fair value of net assets acquired from
         Heritage (in thousands):




                                      I-25
<PAGE>

<TABLE>
<CAPTION>
<S>                                                                                               <C>
         Cash to be paid by Cardinal                                                              $      6,884
         Value of preferred stock to be issued by Cardinal                                                6,884
         Fair value of 138,420 Cardinal stock options issued for Heritage carryover options                 452
         Cardinal transaction costs                                                                         375
                                                                                                ---------------

                                                                                                         14,595
         Less:
         Stockholders' equity of Heritage                                                                 8,568
         Fair value adjustments, net                                                                       (339)
         Heritage transaction costs                                                                        (800)
                                                                                                ---------------

           Cost in excess of fair value of net assets acquired                                    $       7,166
                                                                                                ===============
</TABLE>

         The fair value adjustments as of March 31, 2000 were calculated for
         loans receivable and deposits. Loans receivable were decreased by
         approximately $414,000, while deposits were decreased by $75,000. The
         fair values ultimately recorded by Cardinal may be materially different
         from the values indicated due to (a) changes in future interest rates
         and economic conditions beyond the control of management, (b) changes
         in the composition of Heritage's assets and liabilities, and (c)
         refinements to the underlying assumptions made by Cardinal.

(D)      The purchase accounting adjustments, including the recording of
         goodwill have the following impact on the unaudited pro forma combined
         condensed statements of operations:

         Interest income on loans receivable in the unaudited pro forma combined
         condensed statements of operations for the three months ended March 31,
         2000, and the year ended December 31, 1999, is increased by $35,000 and
         $138,000, respectively, reflecting the amortization of the discount
         calculated on loans receivable using the level yield method over the
         estimated life of 36 months.

         Interest income on federal funds sold in the unaudited pro forma
         combined condensed statements of operations for the three months ended
         March 31, 2000, and the year ended December 31, 1999, is decreased by
         $108,000 and $344,000, respectively, reflecting the decrease in federal
         funds sold due to the pay out of $6,884,000 in cash to Heritage
         shareholders.

         Interest expense on deposits in the unaudited pro forma combined
         condensed statements of operations for the three months ended March 31,
         2000, and the year ended December 31, 1999, is increased by $19,000 and
         $75,000, respectively, to reflect amortization of the discount on
         certificates of deposit using the level yield method over the estimated
         life of 12 months.

         Goodwill amortization expense in the unaudited pro forma combined
         condensed statements of operations for the three months ended March 31,
         2000, and the year ended December 31, 1999, reflects $119,000 and
         $478,000, respectively, of goodwill amortization on a straight line
         basis over 15 years.

         Provision for income taxes in the unaudited pro forma combined
         condensed statements of operations for the three months ended March 31,
         2000, and the year ended December 31, 1999, is decreased by $12,000 and
         $93,000, respectively, to reduce the historical income tax expense due
         to pro forma net losses.


                                      I-26
<PAGE>

(E)      Basic and diluted earnings per share in the pro forma combined
         condensed statements of operations were computed by dividing pro forma
         net loss less dividends to preferred stockholders by the pro forma
         total average shares outstanding of Cardinal's common stock for the
         period and the elimination of Heritage's average shares outstanding.
         Conversion of Cardinal's preferred stock and options results in
         antidilution and therefore was excluded.










                                      I-27
<PAGE>

                     OPINION OF HERITAGE'S FINANCIAL ADVISOR

         Heritage retained Ferris, Baker Watts, Incorporated, to act as its sole
financial advisor in connection with the merger and related matters. As part of
its engagement, Ferris, Baker Watts agreed, if requested by Heritage, to render
an opinion with respect to the fairness, from a financial point of view, to the
holders of Heritage common stock, of the merger consideration of either
preferred shares of Cardinal; cash; or a combination of preferred shares and
cash. Heritage selected Ferris, Baker Watts because Ferris, Baker Watts is a
nationally recognized investment-banking firm with substantial experience in
transactions similar to the merger and is familiar with Heritage and its
business. As part of its investment banking business, Ferris, Baker Watts is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions.

         On April 17, 2000, Ferris, Baker Watts delivered to the Heritage board
its written opinion, that the merger consideration was fair to Heritage
shareholders, from a financial point of view, as of the date of such opinion.
Ferris, Baker Watts has also delivered to the Heritage board a written opinion
as of the date of this document, which is substantially similar to the opinion
delivered on April 17, 2000. No limitations were imposed by Heritage on Ferris,
Baker Watts with respect to the investigations made or the procedures followed
in rendering its opinion.

         The full text of the Ferris, Baker Watts opinion, which sets forth the
assumptions made, matters considered and extent of review by Ferris, Baker
Watts, is attached as Appendix E to this document and is incorporated herein by
reference. It should be read carefully and in its entirety in conjunction with
this document. The following summary of the Ferris, Baker Watts opinion is
qualified in its entirety by reference to the full text of the opinion. The
Ferris, Baker Watts opinion is addressed to the Heritage board and does not
constitute a recommendation to any shareholder of Heritage as to how such
shareholder should vote at the Heritage special meeting described in this
document.

         Ferris, Baker Watts, in connection with rendering its opinion:

         o   reviewed the proposed transaction;
         o   reviewed the draft Agreement and Plan of Reorganization;
         o   reviewed selected public and internal information of Heritage;
         o   interviewed management of Heritage;
         o   utilized its own independent research; and
         o   utilized its expertise in merger, acquisition and divestiture
             transactions and valuations.

         The written opinions provided by Ferris, Baker Watts to Heritage were
necessarily based upon economic, monetary, financial market, and other relevant
conditions as of the dates thereof.

         In connection with its review and arriving at its opinion, Ferris,
Baker Watts relied upon the accuracy and completeness of the financial
information and other pertinent information provided by Heritage to Ferris,
Baker Watts for purposes of rendering its opinion. Ferris, Baker Watts did not
assume any obligation to independently verify any of the provided information as
being complete and accurate in all material respects. With regard to the
financial forecasts established and developed for Heritage with the input of
management, Ferris, Baker Watts assumed that this material had been reasonably
prepared on bases reflecting the best available estimates and judgments of
Heritage as to the future performance of Heritage and that the projections
provided a reasonable basis upon which Ferris, Baker Watts could formulate its
opinion. Heritage does not publicly disclose such internal management
projections of the type utilized by Ferris, Baker Watts in connection with
Ferris, Baker Watts' role as financial advisor to Heritage with respect to
review of the merger. Therefore, such projections cannot be assumed to have been
prepared with a view toward public disclosure. The projections were based upon
numerous variables



                                      I-28
<PAGE>

and assumptions that are inherently uncertain, including, among others, factors
relative to the general economic and competitive conditions facing Heritage and
Cardinal. Accordingly, actual results could vary significantly from those set
forth in the respective projections.

         Furthermore, Ferris, Baker Watts assumed that the merger will be
consummated in accordance with the terms set forth in the plan of
reorganization, without any waiver of any material terms or conditions by
Heritage, and that obtaining the necessary regulatory approvals for the merger
will not have an adverse effect on either separate institution or the combined
entity. Moreover, in each analysis that involves per share data for Heritage,
Ferris, Baker Watts adjusted the data to reflect full dilution.

         In connection with rendering its opinion to the Heritage board, Ferris,
Baker Watts performed a variety of financial and comparative analyses, which are
briefly summarized below. This summary of analyses does not purport to be a
complete description of the analyses performed by Ferris, Baker Watts. Moreover,
Ferris, Baker Watts believes that these analyses must be considered as a whole
and that selecting portions of these analyses and the factors considered by it,
without considering all of the analyses and factors, could create an incomplete
understanding of the scope of the process underlying the analyses and, more
importantly, the opinion derived from them. The preparation of a financial
advisor's opinion is a complex process involving subjective judgments and is not
necessarily susceptible to partial analyses or a summary description of the
analyses. In its full analysis, Ferris, Baker Watts also included assumptions
with respect to general economic, financial market, and other financial
conditions. Furthermore, Ferris, Baker Watts drew from its past experience in
similar transactions, as well as its experience in the valuation of securities
and its general knowledge of the banking industry as a whole. Any estimates in
Ferris, Baker Watts' analyses were not necessarily indicative of future results
or values, which may significantly diverge favorably or adversely from the
estimates. Estimates of company valuations do not purport to be appraisals nor
do they necessarily reflect the prices at which companies or their respective
securities actually may be sold. None of the analyses performed by Ferris, Baker
Watts were assigned a greater significance by Ferris, Baker Watts than any other
in deriving its opinion.

         Transaction Summary. In its fairness opinion, Ferris, Baker Watts
stated that the consideration to be paid by Cardinal is at a premium to the
values determined through the discounted cash flow analysis and the comparable
company analysis. In addition, the opinion stated that the merger consideration
compares favorably to the premiums paid in comparable transactions, and finally,
the transaction value is in the upper range of the control premium study.
Finally, Ferris, Baker Watts stated that the transaction allows Heritage to
compete as part of a larger organization with attractive growth rates,
addressing some of the non-price financial issues that were considered during
the sale process. The analyses used by Ferris, Baker Watts to determine whether
the merger consideration is fair from a financial point of view to Heritage's
shareholders are described in more detail below.

         Discounted Cash Flow Analysis. Ferris, Baker Watts performed a
discounted cash flow analysis with regard to Heritage on a stand-alone basis.
This analysis utilized projections derived from assumptions provided by
management and included loan growth of 50% in the first year, with slower growth
provided in the out years, and deposit growth of 60% in the first year, also
slowing in following years. These assumptions resulted in a return on average
assets of 0.42% and return on average equity of 5.63% by fiscal 2003. The
resulting per share value was $1.29 per share. This analysis is not necessarily
indicative of actual values or actual future results and does not purport to
reflect the prices at which any securities may trade at the present or at any
time in the future. Ferris, Baker Watts noted that the accuracy of this method
of valuation depends largely on the integrity of the projections.

         Comparable Sale Transactions. Ferris, Baker Watts reviewed and examined
publicly available records for sale transactions in the banking industry.
Ferris, Baker Watts reviewed 10 transactions that



                                      I-29
<PAGE>

have been announced since January 1, 1999, whose target banks were located in
the eastern portion of the United States and whose asset size was under $125
million.

         The following table represents a summary analysis based on the
announced transaction values.


                                    Average       Median       Heritage/Cardinal
                                    -------       ------       -----------------
         Price/Deposits              25.06%        24.21%             28.69%
         Price/Book Value           234.07%       224.80%            160.13%
         P/E                         27.33x        27.02x             75.65x
         Price/Assets                21.83%        20.93%             22.87%

         Comparable Bank Analysis. Ferris, Baker Watts reviewed and compared
Heritage multiples pricing to multiples of 18 publicly traded banks based in
Maryland, Virginia, West Virginia and North Carolina that had total assets of
less than $100 million. These banks are listed below:

AmericasBank Corp.                      First Western Bank
Bank of Ashville                        Gateway Bank & Trust
BOC Financial Corp.                     Heritage Bankshares, Incorporated
Cardinal Financial Corporation          Metro-County Bank of Virginia, Inc.
Carolina Bank                           Patapsco Bancorp, Inc.
CNB Holdings, Inc.                      Rowan Bancorp, Inc.
Easton Bancorp, Incorporated            Surrey Bank & Trust
First Commerce Bank                     United Financial Banking Companies, Inc.
First Gaston Bank of North Carolina     Virginia National Bank

         The table below compares the premium to be received in the merger by
the Heritage shareholders to comparable company valuations.


       Consideration Offered                             $6.00
                                                         Implied Value Per Share
                                                         -----------------------
       Discounted Cash Flow Analysis                     $1.29

       Comparable Company Analysis:
         Price/Book                                      $3.93
         Price/Tangible Book                             $3.96
         Price/Earnings                                  $0.99
       Closing Bid Price (as of April 10, 2000)          $3.06

         Control Premium. Ferris, Baker Watts also reviewed the Control Premium
Study, which is published quarterly by Hoilihan Lokey Howard & Zukin, Inc. which
analyzes stock prices of target companies prior to takeover announcement dates.
Market data for the fourth quarter of 1999 for banking and credit agencies
indicated that the median premium paid was 24.4% and the average premium paid
was 29.1%. The premiums ranges from 0.9% to 81.6%. The $6.00 transaction value
represents a 95.9% premium to the $3.063 closing bid price of Heritage's common
stock as of April 10, 2000.



                                      I-30
<PAGE>

         In connection with its opinion dated as of the date of this joint proxy
statement/prospectus, Ferris, Baker Watts performed procedures to update, as
necessary, certain of the analyses described above, as it deemed appropriate.

         As described above, Ferris, Baker Watts' fairness opinion to Heritage's
board of directors was among many factors taken into consideration by Heritage's
board in making its determination to approve the agreement and plan of
reorganization.


                     OPINION OF CARDINAL'S FINANCIAL ADVISOR

         Pursuant to an engagement letter dated as of April 14, 2000, Cardinal
retained Scott & Stringfellow as its financial advisor in connection with
Cardinal's consideration of a possible business combination with Heritage. In
connection therewith, the Cardinal board requested Scott & Stringfellow to
render its opinion as to the fairness, from a financial point of view, of the
transaction to the holders of Cardinal common stock. Scott & Stringfellow
delivered to Cardinal's board its oral opinion prior to April 14, 2000 that as
of such date, the transaction was fair, from a financial point of view, to the
holders of shares of Cardinal common stock. Scott & Stringfellow has reconfirmed
its opinion by delivering a written opinion to the Cardinal board, dated the
date of this joint proxy statement/prospectus, to the effect that, as of the
date of the opinion, the transaction was fair to the holders of shares of
Cardinal common stock from a financial point of view. Scott & Stringfellow is a
regional investment banking firm and was selected by Cardinal based on the
firm's reputation and experience in investment banking, its extensive experience
and knowledge of the Virginia banking market, its recognized expertise in the
valuation of commercial banking businesses and because of its familiarity with,
and prior work for Cardinal. Scott & Stringfellow, through its investment
banking business and specifically through its Financial Institutions Group,
specializes in commercial banking institutions and is continually engaged in the
valuation of such businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings and other corporate
transactions.

         The full text of Scott & Stringfellow's opinion, dated the date of this
joint proxy statement/prospectus, which sets forth the assumptions made,
procedures followed, matters considered and limits on the review undertaken, is
attached as Appendix C to this joint proxy statement/prospectus. The description
of the Scott & Stringfellow opinion set forth below is qualified in its entirety
by reference to Appendix C. The Scott & Stringfellow opinion is provided for the
information of Cardinal shareholders because it was provided to the Cardinal
board in connection with its consideration of the merger.

         In developing its opinion, Scott & Stringfellow reviewed and analyzed:

         o   the merger agreement;

         o   this joint proxy statement/prospectus;

         o   Cardinal's audited financial statements for the three years ended
             December 31, 1999;

         o   Cardinal's unaudited financial statements for the three months
             ended March 31, 2000 and 1999, and other internal information
             relating to Cardinal prepared by Cardinal's management;

         o   information regarding the trading market for Cardinal common stock
             and Heritage common stock and the price ranges within which the
             respective stocks have traded;


                                      I-31
<PAGE>

         o   the relationship of prices paid to relevant financial data such as
             net worth, earnings, deposits and assets in certain bank and bank
             holding company mergers and acquisitions in recent years;

         o   Heritage's annual reports to shareholders and its audited financial
             statements for the three years ended December 31, 1999;

         o   Heritage's unaudited financial statements for the three months
             ended March 31, 2000 and 1999 and other internal information
             relating to Heritage prepared by Heritage's management; and

         o   Conducted such other studies, analysis and investigations
             particularly of the banking industry, and considered such other
             information as it deemed appropriate, the material portion of which
             is described below.

         o   Scott & Stringfellow also took into account its assessment of
             general economic, market and financial conditions and its
             experience in other transactions, as well as its experience in
             securities valuations and knowledge of the commercial banking
             industry generally.

         o   Scott & Stringfellow also discussed with members of Cardinal's and
             Heritage's management past and current business operations, the
             background of the merger, the reasons and basis for the merger,
             results of regulatory examinations, and the business and future
             prospects of Cardinal and Heritage individually and as a combined
             entity, as well as other matters relevant to its inquiry.

         Scott & Stringfellow relied without independent verification upon the
accuracy and completeness of all of the financial and other information reviewed
by it and discussed with it for purposes of its opinion. With respect to
financial forecasts reviewed by Scott & Stringfellow in rendering its opinion,
Scott & Stringfellow assumed that such financial forecasts were reasonably
prepared on the basis reflecting the best currently available estimates and
judgment of the managements of Cardinal and Heritage as to the future financial
performance of Cardinal and Heritage, respectively. Scott & Stringfellow did not
make an independent evaluation or appraisal of the assets or liabilities of
Cardinal and Heritage nor was it furnished with any such appraisal.

         In connection with rendering its opinion, Scott & Stringfellow
performed a variety of financial analyses. Scott & Stringfellow evaluated the
financial terms of the transaction using standard valuation methods, including
comparable acquisition analysis, contribution analysis, present value analysis,
among others. The following is a summary of the material analyses presented by
Scott & Stringfellow to the Cardinal board of directors in connection with its
fairness opinion.



                                      I-32
<PAGE>

         Summary of Proposal. Scott & Stringfellow reviewed the terms of the
proposed transaction, including the aggregate transaction value. Heritage
shareholders will be able to elect to receive $6.00 in cash or 1.2 shares of
convertible preferred stock or a combination of cash and stock for each share of
Heritage common stock, resulting in an implied total transaction value of
approximately $13.8 million. Scott & Stringfellow calculated the premium over
the closing price of Heritage's common stock on April 17, 2000, price to book,
price to tangible book, price to deposits, price to assets, and implied core
deposit premium (defined as the transaction value minus the tangible book value
divided by core deposits) for Heritage based on such implied total transaction
value. This analysis yielded a premium over the closing price of Heritage's
common stock on April 17, 2000 of 60.00%, a price to book value multiple of
1.61x, a price to tangible book value multiple of 1.61x, price to deposits of
28.66%, price to assets of 21.37%, and an implied core deposit premium of
12.01%.

         Comparable Acquisition Analysis. Scott & Stringfellow reviewed 16
acquisitions announced from January 1, 1997 to April 18, 2000 involving
commercial banking institutions based in Virginia with less than $1.0 billion in
assets ("Virginia Acquisitions") and 18 acquisitions announced from April 18,
1999 to April 18, 2000 involving commercial banking institutions nationwide with
assets between $50.0 million and $100.0 million and a return on average assets
of less than 1.0% ("Recent Peer Acquisitions"). Scott & Stringfellow compared
the average price to book value, price to tangible book value, price to
deposits, price to assets, and the implied core deposit premium, for such
Virginia Acquisitions and Recent Peer Acquisitions to the proposed merger at
announcement.
<TABLE>
<CAPTION>
                                              Cardinal/              Virginia            Recent Peer
                                               Heritage          Acquisitions           Acquisitions
                                             -----------        --------------         --------------
<S>                                              <C>                   <C>                    <C>
Deal Price/Book Value                             1.61x                 2.49x                  2.17x

Deal Price/Tangible Book                          1.61x                 2.52x                  2.18x

Deal Price/Deposits                              28.66%                30.55%                 20.66%

Deal Price/Assets                                21.37%                26.26%                 17.79%

Tangible Book Premium/Core Deposits              12.01%                21.01%                 12.93%

</TABLE>

         Contribution Analysis. Scott & Stringfellow reviewed the relative
contributions of, among other things, last twelve months net interest income,
last twelve months net income, estimated 2000 net income, total assets, total
loans, total deposits, total equity and market capitalization to be made by
Cardinal and Heritage to the combined institution based on data at and for the
twelve months ended March 31, 2000. Scott & Stringfellow compared such
contributions to the consideration to be received by Heritage shareholders.
Based upon the terms of the proposed transaction and the assumption that
Cardinal's stock price is $5.00 for the purpose of calculating the common
equivalent shares of the convertible preferred stock, Heritage shareholders
shall receive approximately 20.0% of the fully converted shares of the combined
institution and approximately $6.9 million in cash.



                                      I-33
<PAGE>

                                                   Cardinal            Heritage
                                               Contribution        Contribution
                                              --------------      --------------

Last 12 Months Net Interest Income                    54.9%               45.1%

Last 12 Months Net Income                              0.0%              100.0%

Estimated 2000 Net Income                              0.0%              100.0%

Total Assets                                          64.3%               35.7%

Total Loans                                           69.3%               30.7%

Total Deposits                                        62.5%               37.5%

Total Equity                                          77.6%               22.4%

Market Capitalization                                 71.1%               28.9%

         Present Value Analysis. Scott & Stringfellow performed an analysis to
determine a range of present values of Heritage common stock assuming Heritage
is merged with Cardinal. This range was determined by adding (1) the present
value of the estimated future cash flows that Heritage could generate and (2)
the present value of the "terminal value" of Heritage common stock at the end of
year 10 following the transaction. For years 1 through 3 following the
transaction, Scott & Stringfellow relied upon Cardinal's financial projections,
which Scott & Stringfellow viewed as reasonable. The cash flow projections for
years 4 through 10 were grown using an annual earnings growth rate of 8%. The
"terminal value" of Heritage's common stock at the end of the period was
determined by applying a range of price-to-earnings multiples (11.0x to 15.0x)
to year 10 projected earnings. The cash flows and terminal values were
discounted to present value using discount rates of 15% to 19%, which Scott &
Stringfellow viewed as the appropriate discount rate range for a commercial bank
with Heritage's risk characteristics. Based upon the above assumptions, the
synergistic value of Heritage common stock ranged from $14.8 million to $22.1
million.




                                      I-34
<PAGE>

($ in 000s)
                                            Discount Rate
                ------------------------------------------------------------
   Terminal
      P/E           15.0%      16.0%       17.0%       18.0%       19.0%
----------------------------------------------------------------------------

                                                                ------------
     11.0x         $18,943    $17,773     $16,698     $15,707     $14,795
                                                                ------------
     12.0x         $19,733    $18,498     $17,363     $16,318     $15,356
     13.0x         $20,523    $19,223     $18,028     $16,929     $15,917
     14.0x         $21,313    $19,947     $18,693     $17,540     $16,479
                ------------
     15.0x         $22,104    $20,672     $19,358     $18,151     $17,040
                ------------


         Other Analyses. Scott & Stringfellow also reviewed, among other things,
selective investment research reports on, and earnings estimates for, Cardinal
and Heritage and analyzed available information regarding the ownership of
Heritage common stock. In addition, Scott & Stringfellow prepared an overview of
Heritage's business, prepared a summary of the historical financial performance
of Heritage, summarized Heritage's financial goals and objectives, and, based on
publicly available information, analyzed Heritage's deposit market share and
branch presence.

        In connection with its opinion dated as of the date of this joint proxy
statement/prospectus, Scott & Stringfellow performed procedures to update, as
necessary, certain of the analyses described above and reviewed the assumptions
on which such analyses described above were based and the factors considered in
connection therewith.

         The summary set forth above includes all the material factors
considered by Scott & Stringfellow in developing its opinion. The preparation of
a fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of these methods
to the particular circumstances and, therefor, such an opinion is not readily
susceptible to summary description. Accordingly, notwithstanding the separate
factors discussed above, Scott & Stringfellow believes that its analyses must be
considered as a whole and that selecting portions of its analysis and of the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying its opinion. As a
whole, these various analyses contributed to Scott & Stringfellow's opinion that
the transaction is fair from a financial point of view to Cardinal's
shareholders.

         Pursuant to an engagement letter dated April 14, 2000 between Cardinal
and Scott & Stringfellow, in exchange for its services, Cardinal has agreed to
pay Scott & Stringfellow a transaction fee of $25,000, as a non-refundable
retainer, plus one and one half percent (1.5%) of the aggregate value of the
transaction up to $175,000 which is payable and contingent upon the consummation
of the merger. In the past, Scott & Stringfellow has provided investment banking
services to Cardinal for which services Scott & Stringfellow received customary
fees. In the ordinary course of its business, Scott & Stringfellow may actively
trade the equity securities of Cardinal for its own account or the account of
its customers, and, accordingly, may at any time hold a long or short position
in such securities.



                                      I-35
<PAGE>

                   INTERESTS OF CERTAIN PERSONS IN THE MERGER

         Certain members of Heritage's management, as well as certain members of
the Heritage board of directors, have interests in the merger in addition to
their interests as shareholders of Heritage. These interests are described
below. In each case, the Heritage board was aware of these potential interests,
and considered them, among other matters, in approving the merger agreement and
the transactions contemplated by it.

         Indemnification. Cardinal has generally agreed to indemnify the
officers and directors of Heritage to the same extent and on the same conditions
as they are entitled to from Heritage before the merger. Cardinal also has
agreed to provide directors' and officers' liability insurance for the present
officers and directors of Heritage comparable to the coverage currently provided
by Heritage before the merger for three years following the effective date of
the merger.

         Directors of Heritage. Three Heritage directors (Messrs. Lieding,
Shafran and Tighe) will serve on the Cardinal board and will receive the same
compensation as current Cardinal board members. Cardinal directors do not
receive any cash fees. Each Cardinal director is granted an option to purchase
2,000 shares of Cardinal common stock each year. Options are granted at or above
market value at the time of grant and have a ten year term.

         In addition, five current members of The Heritage Bank's board, Messrs.
Lieding, Tighe, Shafran and Herrick and Ms. Spiro, will continue to serve as
directors of The Heritage Bank, which will change its name to Cardinal Bank -
Potomac. They will receive fees of $500 per month and $100 per committee
meeting. In addition, members of the executive committee receive an additional
$250 per month. These fees will not be reduced following the merger. Ms. Spiro
is not compensated for serving as a director of The Heritage Bank.

         Options for a total of 30,500 shares of common stock of Heritage were
granted to the current outside directors on May 24, 2000. These grants represent
the annual option awards for fiscal year 2000, which were scheduled to be made
at the end of this year. These grants were made as follows: directors with 1-2
years of service were granted options for 2,000 shares; directors with 2-3 years
of service were granted options for 3,500 shares; directors with over 4 years of
service were granted options for 5,000 shares; and the chairman and vice
chairman of the board each were granted an option for 5,000 shares.

         Stay Bonuses. Heritage, with the concurrence of Cardinal, may agree to
provide certain key employees of The Heritage Bank with "stay bonuses" in the
form of cash payments and options for Heritage common stock as an inducement to
these employees to continue their services through or following the closing of
the merger. These cash payments are not expected to exceed $65,000 in the
aggregate and the option grants are not expected to exceed options for more than
10,000 shares.

         Conversion of Stock Options. All outstanding options for shares of
common stock of Heritage issued to employees and directors of Heritage or The
Heritage Bank under Heritage's stock option plans will be converted as of the
close of the merger to options for common stock of Cardinal having equivalent
values.

         Employment Arrangement. Within two days after Heritage's shareholders
approve the merger, Ms. Spiro will receive a lump sum payment of approximately
$360,000 in satisfaction of all of Heritage's obligations to pay change of
control benefits under her contract with Heritage.



                                      I-36
<PAGE>

         Employee and Benefit Plans. Cardinal will coordinate the participation
of Heritage's employees in its employee benefit plans and programs. Cardinal
will treat the service of a Heritage employee with Heritage as service with
Cardinal for purposes of all employee benefit plans and programs.


                          TERMS OF THE MERGER AGREEMENT

         The following is a summary description of the material aspects of the
merger agreement. This description does not purport to be complete and is
qualified in its entirety by reference to Appendix A that contains the full
merger agreement. We urge you to read Appendix A in its entirety.

Merger Consideration

         The total consideration received by holders of Heritage common stock
will consist of approximately 1,376,770 shares of Cardinal preferred stock and
$6,883,851 in cash. Each Heritage shareholder can elect to receive all cash, all
Cardinal preferred stock or any combination of cash and Cardinal preferred
stock. A Heritage shareholder who beneficially owns Heritage common stock in
more than one account or capacity may direct how cash and shares of Cardinal
preferred stock will be allocated among such accounts. If, however, Heritage
shareholders elect to receive more than $6,883,851 in cash, the amount of cash
paid to each Heritage shareholder who elects to receive cash will be reduced so
that the total amount of cash paid will be $6,883,851. Reductions will be
proportional, based on the amount of cash each Heritage shareholder elects.
Conversely, if Heritage shareholders elect to receive more than 1,376,770 shares
of Cardinal preferred stock, the number of shares of Cardinal preferred stock
received by each Heritage shareholder who elects to receive Cardinal preferred
stock will be reduced so that the number of shares of Cardinal preferred stock
actually issued will be 1,376,770. Reductions will be proportional.

Representations and Warranties; Conditions to the Merger

         The merger agreement contains representations and warranties by
Cardinal and Heritage, including representations and warranties with respect to
their individual organizations, authorizations to enter into the merger
agreement, capitalization, financial statements and pending and threatened
litigation. These representations and warranties, except as otherwise provided
in the merger agreement, will not survive the effective date of the merger.

         The obligations of Cardinal and Heritage to consummate the merger are
subject to the following conditions, among others:

         o   approval of the merger agreement by the requisite shareholder vote
             of the Heritage shareholders;

         o   approval by the Cardinal shareholders of the issuance of Cardinal
             preferred stock in the merger;

         o   the election of three Heritage directors to the Cardinal board of
             directors;

         o   receipt of all necessary regulatory approvals not conditioned or
             restricted in a manner that, in the judgment of the boards of
             directors of Cardinal or Heritage, materially adversely affects the
             economic or business benefits of the merger so as to render
             inadvisable or unduly burdensome consummation of the merger;


                                      I-37
<PAGE>

         o   the absence of certain actual or threatened proceedings before a
             court or other governmental body relating to the merger;

         o   the receipt of an opinion of counsel as to certain federal income
             tax consequences of the merger;

         o   performance by the other company of its obligations under the
             merger agreement;

         o   the accuracy, in all material respects, of the representations and
             warranties of the other company contained in the merger agreement;

         o   the receipt of certain opinions and certificates from the other
             company;

         o   the receipt by Cardinal of a final fairness opinion from Scott &
             Stringfellow; and

         o   the receipt by Heritage of a final fairness opinion from Ferris,
             Baker Watts.

Regulatory Approvals

         As indicated above, the merger is conditioned on the prior approval of
the merger by the Board of Governors of the Federal Reserve System and the
Virginia State Corporation Commission. The applications to the Federal Reserve
and the State Corporation Commission will include a request for The Heritage
Bank to pay a $3.0 million dividend to Cardinal on the effective date. On
________ __, 2000, applications were filed with the Federal Reserve and the
State Corporation Commission. The applications were accepted but no approvals
have been obtained. While we cannot predict whether or when we will obtain all
required regulatory approvals, we see no reason why the approvals will not be
obtained in a timely manner. However, there can be no assurance that the
necessary approvals will be obtained, or that any approval will not be
conditioned in a manner which makes consummation of the merger, in the judgment
of the board of directors of Cardinal or Heritage, inadvisable or unduly
burdensome.

Business Pending the Merger

         Until the effective date of the merger, each of Cardinal and Heritage
has agreed that it will operate its business substantially as presently
operated, in the ordinary course of business, and will use its best efforts to
preserve intact its relationships with persons having business dealings with it.
In addition, until the effective date, Heritage and Cardinal each has agreed not
to take, without Cardinal's consent, certain specific actions in connection with
the ongoing operation of its business. Specifically, neither Cardinal nor
Heritage may:

         o   declare or pay dividends on its capital stock;

         o   enter into any merger, consolidation or business combination (other
             than the merger with Cardinal) or any acquisition or disposition of
             a material amount of assets or securities or solicit proposals in
             respect thereof otherwise than in the ordinary course of business;

         o   amend its charter or bylaws (except as may be required by the
             merger agreement with Cardinal);



                                      I-38
<PAGE>

         o   issue any capital stock, except upon exercise of rights, warrants
             or options issued pursuant to existing employee benefits plans,
             programs or arrangements or effect any stock split or otherwise
             change its capitalization;

         o   purchase or redeem any of its capital stock; or

         o   make any change in the compensation or title of any employees,
             other than as permitted by current employment practices in the
             ordinary course of business.

No Solicitation; Board Action

         Heritage has agreed not to (i) encourage, solicit or initiate
discussions or negotiations with any person other than Cardinal concerning any
merger, share exchange, sale of substantial assets, tender offer, sale of shares
of capital stock or similar transaction involving Heritage, (ii) enter into any
agreement with any third party providing for a business combination transaction,
equity investment or sale of a significant amount of assets, or (iii) furnish
any information to any other person relating to or in support of such
transaction.

         Heritage also agreed that it will promptly communicate to Cardinal the
terms of any proposal which it may receive in respect to any of the foregoing
transactions.

Effective Date

         If the merger agreement is approved by the Heritage shareholders and
the issuance of preferred stock is approved by the Cardinal shareholders, all
required governmental and other consents are obtained and the other conditions
to the merger are satisfied or waived, the merger will be consummated and made
effective on the date and at the time indicated on the certificate of merger
issued by the Virginia State Corporation Commission pursuant to the Virginia
Stock Corporation Act. See "Terms of the Merger Agreement - Representations and
Warranties; Conditions to the Merger" on page I-37.

         It is anticipated that the effective date of the merger will occur in
the third quarter of 2000.

Surrender of Stock Certificates

         As soon as practicable after the effective date of the merger, Cardinal
will cause American Stock Transfer & Trust Company, its exchange agent, to mail
to each Heritage shareholder a letter of transmittal and instructions for use to
surrender the certificates representing shares of Heritage common stock in
exchange for certificates representing shares of Cardinal preferred stock and/or
cash.

         Heritage shareholders should not send in their certificates until they
receive such instructions.

         Promptly after surrender of one or more certificates for Heritage
common stock, together with a properly completed letter of transmittal, you will
receive a certificate or certificates representing the number of shares of
Cardinal preferred stock to which you are entitled and/or a check for the amount
payable in cash. Lost, stolen, mutilated or destroyed certificates will be
treated in accordance with the existing procedures of Cardinal.

         The merger agreement provides, however, that no dividend or
distribution payable to the holders of record of Cardinal preferred stock at or
as of any time after the effective date of the merger will be paid



                                      I-39
<PAGE>

to the holder of any Heritage certificate until such holder physically
surrenders such certificate, promptly after which time all such dividends or
distributions will be paid, without interest.

         Cardinal shareholders should not send in their certificates.

Conversion of Stock Options

         All outstanding options for shares of common stock of Heritage issued
under Heritage's stock option plans will be converted as of the close of the
merger to options for common stock of Cardinal. Converted options will continue
to be subject to the same terms and conditions as such options were subject
under Heritage's stock option plans prior to the closing, except that the number
of shares of Cardinal common stock subject to the converted options and the
exercise price for the Cardinal shares will be adjusted as follows: the number
of shares of Heritage stock subject to the option prior to the closing will be
multiplied by the Option Conversion Ratio and the exercise price of the option
prior to the closing will be divided by the Option Conversion Ratio. The "Option
Conversion Ratio" means the fraction determined by dividing $6.00 by the average
last sales price of Cardinal common stock for the twenty trading day period
ending on the closing of the merger.

Waiver and Amendment

         At any time on or before the effective date of the merger, any term or
condition of the merger may be waived by the party which is entitled to the
benefits thereof and without shareholder approval. The merger agreement may be
amended at any time before the merger by agreement of the parties whether before
or after the shareholder meetings. Any material change in a material term of the
merger agreement would require a resolicitation of Heritage's and Cardinal's
shareholders. Such a material change would include, but not be limited to, a
decrease in the merger consideration or a change in the tax consequences to
Heritage's shareholders.

Termination

         The merger agreement may be terminated by Cardinal or Heritage, whether
before or after the approval of the merger by the shareholders of Heritage:

         o   by mutual consent of Heritage and Cardinal;

         o   unilaterally by Heritage or Cardinal, if the merger has not
             occurred on or before December 31, 2000;



                                      I-40
<PAGE>

         o   unilaterally by Heritage or Cardinal if the satisfaction in any
             material respect of one or more conditions to the obligation of
             that party is rendered impossible of satisfaction;

         o   by Cardinal, if Heritage receives a subsequent offer from a third
             party and the Heritage board does not confirm in writing that the
             Heritage board will continue to support the merger with Cardinal;
             or

         o   by Heritage, if before the effective date, Cardinal enters into an
             agreement for the sale of merger of Cardinal with a party other
             than Heritage.

In the event of termination, the merger agreement shall become null and void,
except that certain provisions relating to expenses and confidentiality of
information exchanged between the parties shall survive any such termination.

Resales of Cardinal Preferred Stock

         All shares of Cardinal preferred stock received by Heritage
shareholders in connection with the merger will be freely transferable, except
that Cardinal preferred stock received by persons who are deemed to be
"affiliates" of Heritage for purposes of Rule 145 under the Securities Act of
1933, as amended. To the best knowledge of Heritage and Cardinal, the only
persons who may be deemed to be affiliates of Heritage subject to these
limitations are the directors and executive officers of Heritage.

Expenses of the Merger and Termination Fee

         In general, whether or not the merger is consummated, Heritage and
Cardinal will pay their own expenses incident to preparing, entering into and
carrying out the merger agreement, and preparing and filing the registration
statement of which this joint proxy statement/prospectus is a part.

         If either party willfully and materially breaches the merger agreement,
that party must pay the costs associated with this transaction incurred by the
non-breaching party. If Cardinal terminates the merger because Heritage received
an offer from a third party and the Heritage board did not continue to support
the merger, Heritage will pay Cardinal's expenses. Any liability incurred to the
other party under this section cannot exceed $200,000. If the merger agreement
is terminated because Heritage shareholders did not approve the merger agreement
or Cardinal shareholders did not approve the issuance of preferred stock in the
merger, then the party whose shareholders failed to grant such approval will pay
50% of the costs and expenses of the other party, except that such reimbursement
will not exceed a total of $200,000.


                           MARKET PRICES AND DIVIDENDS

Market Prices

         There is no established market for Cardinal preferred stock and there
can be no assurance that any market for Cardinal preferred stock will develop
following the merger, or if any such market develops, the prices at which
Cardinal preferred stock may trade. Each share of Cardinal preferred stock is
convertible into ____ shares of Cardinal common stock. Cardinal has applied to
list the Cardinal preferred stock on The Nasdaq SmallCap Market.



                                      I-41
<PAGE>

         Cardinal common stock is listed and traded on The Nasdaq SmallCap
Market under the symbol "CFNL." On the record date, there were _____ shares
outstanding, which were held by approximately _____ holders of record.

         Heritage common stock is listed and traded on The Nasdaq SmallCap
Market under the symbol "HBVA." On the record date, there were _____ shares
outstanding, which were held by approximately _____ holders of record.

         The following tables sets forth the high, low, and closing sales prices
of the Cardinal common stock and Heritage common stock as reported by The Nasdaq
SmallCap Market for the periods listed.

Cardinal
<TABLE>
<CAPTION>
        --------------------------------------- ------------ ------------ ------------
                                                       High          Low      Closing
        --------------------------------------- ------------ ------------ ------------
<S>                                                  <C>          <C>          <C>
        2000
        --------------------------------------- ------------ ------------ ------------
        2nd Quarter (through May 17, 2000)             6.00         4.50         5.00
        --------------------------------------- ------------ ------------ ------------
        1st Quarter                                    5.88         4.25         4.50
        --------------------------------------- ------------ ------------ ------------

        --------------------------------------- ------------ ------------ ------------
        1999
        --------------------------------------- ------------ ------------ ------------
        4th Quarter                                    7.38         5.50         5.63
        --------------------------------------- ------------ ------------ ------------
        3rd Quarter                                    7.88         6.25         6.63
        --------------------------------------- ------------ ------------ ------------
        2nd Quarter                                    8.63         6.75         7.25
        --------------------------------------- ------------ ------------ ------------
        1st Quarter                                    7.00         6.25         7.00
        --------------------------------------- ------------ ------------ ------------

        --------------------------------------- ------------ ------------ ------------
        1998
        --------------------------------------- ------------ ------------ ------------
        4th Quarter                                    8.13         6.13         6.38
        --------------------------------------- ------------ ------------ ------------
        3rd Quarter                                   10.63         7.25         7.88
        --------------------------------------- ------------ ------------ ------------

Heritage

        --------------------------------------- ------------ ------------ ------------
                                                       High          Low      Closing
        --------------------------------------- ------------ ------------ ------------
        2000
        --------------------------------------- ------------ ------------ ------------
        2nd Quarter (through May 17, 2000)             5.06         3.06       4.9375
        --------------------------------------- ------------ ------------ ------------
        1st Quarter                                    4.03        3.250        3.250
        --------------------------------------- ------------ ------------ ------------

        --------------------------------------- ------------ ------------ ------------
        1999
        --------------------------------------- ------------ ------------ ------------
        4th Quarter                                   4.625        3.625       3.6875
        --------------------------------------- ------------ ------------ ------------
        3rd Quarter                                   4.125        3.875         4.00
        --------------------------------------- ------------ ------------ ------------
        2nd Quarter                                    4.56        3.875        3.825
        --------------------------------------- ------------ ------------ ------------
        1st Quarter                                    4.75         3.50       4.5625
        --------------------------------------- ------------ ------------ ------------

        --------------------------------------- ------------ ------------ ------------
        1998
        --------------------------------------- ------------ ------------ ------------
        4th Quarter                                    4.75        3.625         3.75
        --------------------------------------- ------------ ------------ ------------
        3rd Quarter                                    5.50         3.75       3.9375
        --------------------------------------- ------------ ------------ ------------
        2nd Quarter                                   6.125         4.75        5.500
        --------------------------------------- ------------ ------------ ------------
        1st Quarter                                   4.875         4.00        4.625
        --------------------------------------- ------------ ------------ ------------
</TABLE>

         The closing price of Cardinal common stock on The Nasdaq SmallCap
Market on April 17, 2000, the last full trading day preceding the public
announcement of the proposed merger, was $4.63 per share.



                                      I-42
<PAGE>

The closing price of Cardinal common stock on The Nasdaq SmallCap Market on
________ __, 2000, the latest practicable date before the date of this joint
proxy statement/prospectus was $_____ per share.

Dividends

         Neither Cardinal nor Heritage has paid any dividends on its common
stock. Each share of Cardinal preferred stock is entitled to a dividend of
$0.3625 per year.

         No dividends can be declared or paid on Cardinal common stock unless
full dividends on Cardinal preferred stock to be received by holders of Heritage
common stock upon consummation of the merger have been paid for all past
dividend periods and a sum sufficient for the full dividends due on the next
payment date has been set aside for the payment of such dividends.

         For federal income tax purposes, a distribution is taxed as a dividend
to the extent that the distribution is paid out of current or accumulated
earnings and profits. To the extent that the amount of such distribution exceeds
current and accumulated earnings and profits, the amount of such excess
allocable to any shareholder is deemed for federal income tax purposes to be
first a nontaxable return of capital reducing such shareholder's tax basis in
his or her stock and, to the extent such non-dividend distributions exceed the
shareholder's tax basis, such distributions are treated as a taxable capital
gain. Cardinal had no accumulated earnings and profits for federal income tax
purposes through December 31, 1999. No predictions can be made as to the amount
of current and accumulated earnings and profits for 2000 or subsequent years.

         Certain state law restrictions are imposed on distributions of
dividends to shareholders of Cardinal. Cardinal shareholders are entitled to
receive dividends as declared by the Cardinal board of directors. However, no
such distribution may be made if, after giving effect to the distribution, it
would not be able to pay its debts as they become due in the usual course of
business or its total assets would be less than its total liabilities. There are
similar restrictions with respect to stock repurchases and redemptions.

         Banks have limitations imposed upon all "capital distributions,"
including cash dividends, payments to repurchase or otherwise acquire its
shares, payments to shareholders of another institution in a cash-out merger,
and other distributions charged against capital. As of March 31, 2000,
Cardinal's bank subsidiaries did not have the capacity to pay dividends to its
sole shareholder, Cardinal, and The Heritage Bank had the capacity to pay
$235,000 in total dividends to its sole shareholder, Heritage.

         Similarly, Cardinal's bank subsidiaries and The Heritage Bank each are
subject to legal limitations on capital distributions including the payment of
dividends, if, after making such distribution, the institution would become
"undercapitalized" (as such term is used in the statute). Prior regulatory
approval is required if the total of all dividends declared in any calendar year
will exceed the sum of the bank's net profits for that year and its retained net
profits for the preceding two calendar years. Federal law also generally
prohibits a depository institution from making any capital distribution
(including payment of a dividend or payment of a management fee to its holding
company) if the depository institution would thereafter fail to maintain capital
above regulatory minimums. Furthermore, because Cardinal's bank subsidiaries
have only been recently formed and Office of the Comptroller of the Currency
regulations specifically prohibit a national bank from declaring a dividend in
excess of its undivided profits, each of Cardinal's bank subsidiaries must
recover any start-up losses before it may pay a dividend to Cardinal.

         Federal bank regulators are also authorized to limit the payment of
dividends if such payment may be deemed to constitute an unsafe or unsound
practice. In addition, under Virginia law no dividend



                                      I-43
<PAGE>

may be declared or paid that would impair a Virginia chartered bank's paid-in
capital. The Virginia State Corporation Commission has general authority to
prohibit payment of dividends by a Virginia chartered bank if it determines that
the limitation is in the public interest and is necessary to ensure the bank's
financial soundness.

         Following the consummation of the merger, most of the revenues of
Cardinal and Cardinal's ability to pay dividends to its shareholders will depend
on dividends paid to it by Cardinal Bank and Heritage. Based on the current
financial condition of Cardinal Bank and Heritage, Cardinal expects that the
above-described provisions will have no impact on Cardinal's ability to obtain
dividends from Cardinal Bank and Heritage or on Cardinal's ability to pay
dividends to its shareholders.











                                      I-44
<PAGE>

                                   CHAPTER II
                INFORMATION ABOUT THE SPECIAL MEETINGS AND VOTING

General

        We are furnishing this document in connection with the solicitation of
proxies by the board of directors of Cardinal for use at the special meeting of
Cardinal shareholders including any adjournments or postponements of the
meeting, to be held on ________ __, 2000 , and by the board of directors of
Heritage for use at the special meeting of Heritage shareholders including any
adjournments or postponements of the meeting, to be held on ________ __, 2000,
at the times and places set forth in the accompanying notices.

Cardinal Meeting

         General. The Cardinal meeting will be held on ________ __, 2000 at 2:00
p.m., local time, at ______________________________________________, Virginia.
At the Cardinal meeting, holders of Cardinal common stock will be asked to
consider and vote upon a proposal to approve the issuance of shares of Cardinal
preferred stock under the merger agreement, elect three of Heritage's directors
to the Cardinal board and to transact such other business as may properly come
before the special meeting or any adjournment or postponement of the meeting.

        Record Date; Voting Power. Only holders of record of shares of Cardinal
common stock at the close of business on ________ __, 2000 are entitled to
notice of and to vote at the Cardinal meeting. On such date, there were
__________ issued and outstanding shares of Cardinal common stock held by
approximately _____ holders of record. Holders of record of Cardinal common
stock on the Cardinal record date are entitled to one vote per share on any
matter that may properly come before the Cardinal meeting. Brokers who hold
shares of Cardinal common stock as nominees will not have discretionary
authority to vote such shares in favor of the issuance of preferred stock in the
merger and the election of the three Heritage directors to the Cardinal board in
the absence of instructions from the beneficial owners. Any shares of Cardinal
common stock for which a broker has submitted an executed proxy but for which
the beneficial owner has not given instructions on voting to such broker are
referred to as "broker non-votes."

        Vote Required. The approval of the issuance of preferred stock and
election of Heritage directors to the Cardinal board at the Cardinal meeting
requires a greater number of votes cast in favor of each matter than the number
of votes opposing such matter, provided the total number of votes cast
represents a majority of the issued and outstanding shares of Cardinal common
stock.

        Broker non-votes and abstentions will be counted for purposes of
establishing the presence of a quorum at the Cardinal meeting. Abstentions and
broker non-votes will not, however, be deemed to have been cast either "for" or
"against" the proposal for approval of the issuance of preferred stock and the
election of three Heritage directors to the Cardinal board considered at the
meeting. Since approval of each proposal requires the affirmative vote of a
majority of the issued and outstanding shares of Cardinal common stock voting in
person or by proxy at the Cardinal meeting, abstentions and broker non-votes,
will have the effect of a vote against the issuance of preferred stock and the
election of directors. The Cardinal board urges Cardinal shareholders to
complete, date and sign the accompanying proxy and return it promptly in the
enclosed, postage-paid envelope.

        On the Cardinal record date, the executive officers and directors of
Cardinal, including their affiliates, had voting power with respect to an
aggregate of __________ shares of Cardinal common stock



                                      II-1
<PAGE>

or approximately _____% of the shares of Cardinal common stock then outstanding.
We expect that such directors and officers will vote all of such shares in favor
of the approval of the issuance of preferred stock.

         Recommendation of the Cardinal Board. The Cardinal board has
unanimously approved and adopted the merger agreement and the transactions
contemplated by it, including the merger. The Cardinal board believes that the
merger agreement and the transactions contemplated thereby, including the
merger, are fair to and in the best interests of Cardinal and the Cardinal
shareholders and recommends that the Cardinal shareholders vote "FOR" the
approval of the issuance of Cardinal preferred stock in the merger and "FOR" the
election of three Heritage directors to the Cardinal board of directors. See
"The Merger - Cardinal's Reasons for the Merger" on page I-15.

         Solicitation and Revocation of Proxies. A form of proxy is enclosed
with this document. All shares of Cardinal common stock represented by properly
executed proxies will, unless such proxies have been previously revoked, be
voted in accordance with the instructions indicated on such proxies. If no
instructions are indicated, such shares will be voted "FOR" the approval of the
issuance of preferred stock in the merger, "FOR" the election of three Heritage
directors to the Cardinal board of directors and in the discretion of the proxy
holder as to any other matter which may properly come before the Cardinal
special meeting.

         Each holder of Cardinal common stock is requested to complete, date and
sign the accompanying proxy and return it promptly to Cardinal in the enclosed,
postage-paid envelope.

         Any Cardinal shareholder that has previously delivered a properly
executed proxy may revoke such proxy at any time before it is voted. A proxy may
be revoked either by (i) filing with the secretary of Cardinal prior to the
Cardinal meeting, at Cardinal's principal executive offices, a written
revocation of such proxy or a duly executed proxy bearing a later date or (ii)
attending the Cardinal special meeting and voting in person. Presence at the
Cardinal meeting will not revoke a shareholder's proxy unless such shareholder
votes in person.

         The cost of soliciting proxies will be borne by Cardinal. Proxies may
be solicited by personal interview, mail or telephone. In addition, Cardinal may
reimburse brokerage firms and other persons representing beneficial owners of
shares of Cardinal common stock for their expenses in forwarding solicitation
materials to beneficial owners. Proxies may also be solicited by certain of
Cardinal's executive officers, directors and regular employees, without
additional compensation, personally or by telephone or facsimile transmission.

         Other Matters. Cardinal is unaware of any matter to be presented at the
Cardinal special meeting other than the proposal to approve the issuance of
preferred stock. If other matters are properly presented at the Cardinal
meeting, the persons named in the enclosed form of proxy will have authority to
vote all properly executed proxies in accordance with their judgment on any such
matter, including any proposal to adjourn or postpone the Cardinal meeting,
provided that no proxy that has been designated to vote against approval of the
issuance of preferred stock will be voted in favor of any proposal to adjourn or
postpone the Cardinal meeting for the purpose of soliciting additional proxies
to approve the issuance of Cardinal preferred stock.

Heritage Meeting

         General. The Heritage meeting will be held on ________ __, 2000 at
______ _.m., local time, at ____________________________________________,
Virginia. At the Heritage meeting, holders of Heritage common stock will be
asked to consider and vote upon a proposal to approve the merger



                                      II-2
<PAGE>

agreement. Heritage shareholders may also be asked to vote upon a proposal to
adjourn or postpone the Heritage meeting for the purpose of, among other things,
allowing additional time for the solicitation of proxies from Heritage
shareholders to approve the merger agreement.

         Record Date; Voting Power. Only holders of record of shares of Heritage
common stock at the close of business on ________ __, 2000 are entitled to
notice of and to vote at the Heritage meeting. As of such date, there were
_________ issued and outstanding shares of Heritage common stock held by
approximately _____ holders of record. Holders of record of Heritage common
stock on the Heritage record date are entitled to one vote per share on any
matter that may properly come before the Heritage meeting. Brokers who hold
shares of Heritage common stock as nominees will not have discretionary
authority to vote such shares in the absence of instructions from the beneficial
owners. Any such shares of Heritage common stock for which a broker has
submitted an executed proxy but for which the beneficial owner has not given
instructions on voting to such broker are referred to as "broker non-votes."

         Vote Required. The approval of the merger agreement at the Heritage
meeting requires the affirmative vote of a majority of the shares of Heritage
stock present and voted at the Heritage meeting. The presence in person or by
proxy of the holders of a majority of the shares of Heritage common stock
outstanding on the Heritage record date will constitute a quorum for the
transaction of business at the Heritage meeting. Abstentions and broker
non-votes will be counted for purposes of establishing the presence of a quorum
at the Heritage meeting. Broker non-votes and abstentions will have no effect on
the proposal to approve the merger agreement because approval of the Heritage
transaction only requires a majority of the votes cast at the Heritage meeting.

         On the Heritage record date, the executive officers and directors of
Heritage, including their affiliates, had voting power with respect to an
aggregate of ________ shares of Heritage common stock or approximately ______%
of the shares of Heritage common stock then outstanding. We currently expect
that such directors and officers will vote all of such shares in favor of the
proposal to approve the merger agreement.

         Recommendation of the Heritage Board. The Heritage board has
unanimously approved and adopted the merger agreement. The Heritage board
believes that the merger is fair to and in the best interests of Heritage and
the Heritage shareholders and recommends that the Heritage shareholders vote
"FOR" approval of the merger agreement and the transactions contemplated by it.
See "The Merger - Heritage's Reasons for the Merger" on page I-16.

         Solicitation and Revocation of Proxies. A form of proxy is enclosed
with this document. All shares of Heritage common stock represented by properly
executed proxies will, unless such proxies have been previously revoked, be
voted in accordance with the instructions indicated on such proxies. If no
instructions are indicated, such shares will be voted "FOR" approval of the
merger agreement and in the discretion of the proxy holder as to any other
matter which may properly come before the Heritage special meeting.

         Each holder of Heritage common stock is requested to vote by
completing, dating and signing the accompanying proxy card and returning it
promptly to Heritage in the enclosed, postage-paid envelope. Heritage
shareholders should not send stock certificates with their proxy cards.

         Any Heritage shareholder that has previously delivered a properly
executed proxy may revoke such proxy at any time before it is voted. A proxy may
be revoked either by (i) filing with the secretary of Heritage prior to the
Heritage meeting, at Heritage's principal executive offices, either a written
revocation of such proxy or a duly executed proxy bearing a later date or (ii)
attending the Heritage



                                      II-3
<PAGE>

special meeting and voting in person. Presence at the Heritage special meeting
will not revoke a shareholder's proxy unless such shareholder votes in person.

         The cost of soliciting proxies will be borne by Heritage. Proxies may
be solicited by personal interview, mail or telephone. In addition, Heritage may
reimburse brokerage firms and other persons representing beneficial owners of
shares of Heritage common stock for their expenses in forwarding solicitation
materials to beneficial owners. Proxies may also be solicited by certain of
Heritage's executive officers, directors and regular employees, without
additional compensation, personally or by telephone or facsimile transmission.

         Other Matters. Heritage is unaware of any matter to be presented at the
Heritage special meeting other than the proposal to approve the merger
agreement. If other matters are properly presented at the Heritage meeting, the
persons named in the enclosed form of proxy will have authority to vote all
properly executed proxies in accordance with their judgment on any such matter,
including any proposal to adjourn or postpone the Heritage meeting, provided
that no proxy that has been designated to vote against approval of the merger
agreement will be voted in favor of any proposal to adjourn or postpone the
Heritage meeting for the purpose of soliciting additional proxies to approve the
merger agreement.






                                      II-4
<PAGE>

                                   CHAPTER III
                             DESCRIPTION OF CARDINAL

                                    BUSINESS

General

         Cardinal is a bank holding company that was incorporated under Virginia
law in 1997. Cardinal's three bank subsidiaries (collectively, the "banks") are
the following:

         o   Cardinal Bank, N.A., which is based in Fairfax, Virginia and began
             operations on June 8, 1998;

         o   Cardinal Bank - Manassas/Prince William, N.A., which is based in
             Manassas, Virginia and began operations on July 26, 1999; and

         o   Cardinal Bank - Dulles, N.A., which is based in Reston, Virginia
             and began operations on August 2, 1999.

Cardinal also has an investment advisory subsidiary, Cardinal Wealth Services,
Inc., which began operations on February 1, 1999.

         Through its bank subsidiaries, Cardinal pursues a community banking
strategy by offering a broad range of banking products to individuals,
professionals and small to medium-sized businesses, with an emphasis on
personalized service and local decision-making authority. Management's expansion
strategy to date has included attracting experienced local management teams, who
have significant decision-making authority at the local bank level, and local
independent boards of directors consisting of individuals with strong community
affiliations and extensive business backgrounds and business development
potential in the identified markets. Each management team operates in a manner
that provides responsive, personalized services. Cardinal provides credit
policies and procedures as well as centralized back office functions to provide
corporate, technological and marketing support to the banks.

         Cardinal's principal executive offices are located at 10555 Main
Street, Suite 500, Fairfax, Virginia 22030, and its telephone number is (703)
934-9200. Cardinal also maintains a web site at www.cardinalbank.com.

Business Development

         Background. Cardinal was formed in late 1997, principally in response
to perceived opportunities resulting from the takeovers of several
Virginia-based banks by regional bank holding companies. Since January 1, 1997,
numerous community banks headquartered in northern Virginia have been acquired.
Collectively, these banks had deposits of approximately $1.0 billion. Moreover,
in 1997 and 1998, four statewide banks with substantial northern Virginia
operations -- Crestar Bank, Central Fidelity National Bank, Signet Bank, N.A.
and Jefferson National Bank -- were acquired by large out-of-state bank holding
companies.

         In Cardinal's market area, bank consolidations have been accompanied by
the dissolution of local boards of directors and relocation or termination of
management and customer service professionals. Cardinal believes that local
industry consolidation has disrupted customer relationships as the larger
regional financial institutions increasingly focus on larger corporate
customers, standardized loan and deposit products and other services. Generally,
these products and services are offered through less personalized delivery
systems, which has created the demand for high quality, personalized services to
small and medium-sized businesses and professionals. In addition, consolidation
in the local market has



                                     III-1
<PAGE>

created opportunities to attract experienced bankers. Bank acquisitions have
dislocated experienced and talented management personnel due to the elimination
of redundant functions and the drive to achieve cost savings. Additionally,
uncertainty over possible future acquisitions has helped enable Cardinal to
attract officers from other banks that have not been acquired. As a result of
these factors, management believes that Cardinal has taken advantage of a rare
opportunity to attract its targeted banking customers and experienced management
personnel within Cardinal's identified markets.

         Initial Capitalization of Cardinal. Cardinal funded its start-up and
organizational costs through a private offering of 1,409,509 shares of its
common stock in the fourth quarter of 1997 and the first quarter of 1998. The
total proceeds to Cardinal in the private offering were $10.6 million, of which
$8.0 million were used to capitalize Cardinal Bank, N.A., in June 1998. In
addition, Cardinal raised additional capital for general corporate purposes,
including the capitalization of Cardinal Wealth Services, Inc. and the three
additional banks, and to support the growth of assets and deposits through a
public offering of 2,830,000 shares of common stock in the third quarter of
1998. The total proceeds to Cardinal in the public offering were $26.0 million,
after deducting underwriting discounts and expenses.

         Experienced Board and Management. Cardinal's board of directors
consists of 11 individuals, seven of whom formerly were founding directors of
First Patriot Bankshares Corporation, the holding company for Patriot National
Bank, headquartered in Reston, Virginia. First Patriot was organized in 1990 and
was acquired in 1997 by an out-of-state bank holding company. John H. Rust, Jr.,
Cardinal's Chairman, served as Chairman of First Patriot. Directors of Cardinal
who were former First Patriot directors include the chairs of First Patriot's
loan, audit, strategic planning, compensation and marketing committees. Until he
joined Cardinal in late 1997, L. Burwell Gunn, Jr., Cardinal's President and
Chief Executive Officer, served as Executive Vice President and Commercial
Division head for the Greater Washington Region for Crestar Bank. The last 13
years of Mr. Gunn's 25 year career with Crestar all involved service in the
northern Virginia area. Each of Cardinal's eight other executive officers has
extensive banking experience in northern Virginia.

         Decentralized Operating Strategy. The foundation of Cardinal's strategy
is to operate a multi-community bank organization that emphasizes
decision-making at the local bank level combined with strong corporate,
technological, marketing, financial and managerial support. Cardinal's operating
model is for each bank to operate with local management and boards of directors
consisting of individuals with extensive knowledge of the local community and
the authority to make credit decisions. Cardinal believes that this operating
strategy enables the Banks to attract customers who wish to conduct their
business with a locally owned and managed institution with strong ties and an
active commitment to the community.

         Centralized Corporate Support. Cardinal provides oversight and various
services to its banks, including technology, finance and accounting, human
resources, credit administration, internal audit, compliance, loan review,
marketing, retail administration, administrative support, policies and
procedures, product development and item processing. By providing such services
and oversight, Cardinal expects not only to achieve monetary savings, compared
to its costs if the banks were individually responsible for such functions, but
also expects to achieve a uniformity of operations and service that will be
associated with the "Cardinal" name in Cardinal's northern Virginia markets. The
banks' principal focus is to generate deposits and loans. This corporate support
system will enable Cardinal to achieve administrative economies of scale while
capitalizing on the responsiveness to client needs of its decentralized
community bank network. With the support from its significant investment in
infrastructure, particularly a management information system that links Cardinal
to its banks and facilitates data processing, compliance, and reporting
requirements, Cardinal believes that it has the operational and administrative
capacity to accommodate its banks and effectively manage Cardinal's growth for
the foreseeable future.



                                     III-2
<PAGE>

Growth Strategy

         Cardinal intends to focus on the growth of its banks. Each bank's
growth is expected to come from within its primary service area through loan and
deposit business. Cardinal focuses on acquiring market share, particularly from
large bank holding companies, by emphasizing local management and
decision-making and through delivering personalized services to business
customers and individuals. Specifically, Cardinal's competitive strategy
consists of approving loan requests quickly with a local loan committee,
operating with flexible, but prudent, lending policies, personalizing service by
establishing a long-term banking relationship with the customer, and maintaining
the requisite personnel to ensure a high level of service. While Cardinal does
not currently intend to actively search for expansion opportunities beyond its
designated markets, Cardinal may consider opportunities that arise from time to
time, which could occur through acquisitions of existing institutions or
branches.

         Cardinal believes that a management team that is familiar with the
needs of its community can provide higher quality personalized service to its
customers. The local management team of each bank has a significant amount of
decision-making authority and is accessible to its customers. As a result of the
consolidation trend in the northern Virginia area, Cardinal's management
believes that there are significant opportunities to attract experienced bank
managers who would like to join an institution promoting a community banking
concept.

         As it anticipated the opening of its subsidiary banks, Cardinal
established through its first subsidiary, Cardinal Bank, N.A., loan production
offices in Manassas, the Reston area of Fairfax County, and Alexandria in order
to establish customer relationships, brand awareness and a pipeline of loan
business. Each loan production office was staffed by personnel now employed by
the bank that opened in that location.

         Each bank has a local board of directors that is comprised of prominent
members of the community, including business leaders and professionals. These
directors not only operate the banks, but also act as ambassadors of their
respective banks within the community and are expected to promote the business
development of each bank. The directors and officers of Cardinal and the
directors of the banks are active in the civic, charitable and social
organizations located in the local communities. It is anticipated that members
of the local management teams will hold leadership positions in a number of
community organizations and continue to volunteer for other positions in the
future.

         Cardinal believes that each bank's ability to compete with other
financial institutions in its respective market area will be enhanced by its
posture as a locally managed bank with a broad base of local ownership. The
directors of each of the banks, most of whom reside or work in the market area
in which their respective banks will operate, own a significant amount of common
stock. Cardinal believes that local ownership of common stock is a highly
effective means of attracting customers and fostering loyalty to the banks.

Market Areas

         Cardinal's targeted market includes areas in and around Fairfax County,
Virginia, including the independent cities of Fairfax and Alexandria, as well as
Arlington, Manassas, and Prince William and Loudoun Counties. Interstates 95,
495, and 66 all pass through the market area and provide efficient access to
other regions of the state. Prominent local newspapers, the Washington Post and
Washington Times, and a number of radio and television stations provide diverse
media outlets. The broad exposure of television, print media and radio offer
several opportunities to explore effective advertising and public relations
avenues for Cardinal.



                                     III-3
<PAGE>

         Cardinal has established banking operations in four locations in the
broad target market, each of which represents a separate market. These distinct,
but contiguous markets are: (1) the city of Fairfax and central Fairfax County;
(2) the city of Manassas and Prince William County; (3) the city of Alexandria
and Arlington County; and (4) the Reston and Herndon areas (of western Fairfax
County) and Loudoun County. As of 1997, Fairfax County, the city of Fairfax,
Prince William County, the city of Manassas, Arlington County, the city of
Alexandria and Loudoun County each ranked in the top ten for Virginia in median
household income, and collectively the population of the area represented 24.4%
of the state's total population. Northern Virginia continues to provide more
than half of all the jobs created in the state and outstrips the state in most
other measures of growth. In 1999, the number of jobs in northern Virginia
increased by 41,110, as compared to a state-wide increase of 64,137.

The Banks

         The bank subsidiaries of Cardinal engage in the commercial banking
business in their respective communities. Cardinal believes that there is a
demand for, and that the northern Virginia communities described above will
support, new locally operated community banks. Although Cardinal could have
obtained a banking presence in the identified markets by opening branch offices
of Cardinal Bank, N.A. management of Cardinal believes that separate banks with
their own local boards of directors and banking practices, tailored to the local
market, is a preferable approach. Each bank provides personalized banking
services, with emphasis on the financial needs and objectives of individuals,
professionals and small to medium-sized businesses. Additionally, substantially
all credit and related decisions are made by the banks' local management and
board of directors, thereby facilitating prompt response.

         The principal business of each bank is to accept deposits from the
public and to make loans and other investments. The principal sources of funds
for each bank's loans and investments are demand, time, savings and other
deposits, repayment of loans, and borrowings. In addition, a portion of the net
proceeds of the 1998 public offering, after having been contributed to the
capital of each bank, were used by each bank to fund loans. The principal source
of income for each bank is interest collected on loans. The principal expenses
of each bank are interest paid on savings and other deposits, employee
compensation, office expenses, and other overhead expenses. The banks do not
currently offer trust or fiduciary services.

         Cardinal is committed to providing high quality banking products and
services to its banks' customers and has made a significant investment in its
advanced automated operating accounting system, which supports virtually every
banking function. The system provides the technology that fully automates the
branches, processes bank transactions, mortgages, loans and electronic banking,
conducts database and direct response marketing, provides cash management
solutions, streamlined reporting and reconciliation support as well as sales
support.

         With this investment in technology, Cardinal offers Internet-based
delivery products for both consumers and commercial customers. Customers can
open accounts, apply for loans, check balances, check account history, transfer
funds, download images of checks, pay bills, download active statements into
QuickenTM or Microsoft MoneyTM, use interactive calculators and transmit e-mail
with Cardinal over the Internet. The Internet provides an inexpensive way for
Cardinal to expand its geographic borders and branch activities while providing
the kind of services one would expect from the larger banks.

         Cardinal also offers customers the convenience of digital imaged checks
that make it easy to reconcile statements, organize and store account
information while streamlining the back office. Every item is imaged and
available for inspection. Among the many features, check imaging allows for
instant statement reconstruction for research, which can be faxed or e-mailed
directly to a customer's personal computer.



                                     III-4
<PAGE>

Customers

         Management believes that the recent bank consolidation within northern
Virginia provides a significant opportunity to build a successful,
locally-oriented franchise. Management of Cardinal also believes that many of
the larger financial institutions do not emphasize a high level of personalized
service to the small and medium-sized commercial, professional or individual
retail customers. Cardinal focuses its marketing efforts on attracting small and
medium-sized businesses and professionals, such as physicians, accountants and
attorneys. Because Cardinal focuses on businesses and professionals, the
majority of its loan portfolio is in the commercial area with an emphasis placed
on originating sound, profitable commercial and industrial loans secured by real
estate, accounts receivable, inventory, property, plant and equipment.

         Although Cardinal expects to concentrate its lending to commercial
businesses, Cardinal attracts a significant amount of professional and consumer
business. Many of its customers are the principals of the small and medium-sized
businesses for whom the banks provide banking services. Management emphasizes
"relationship banking" in order that each customer can identify and establish a
comfort level with bank officers who come to understand their customers'
business and financial needs in depth. Management intends to develop its retail
business with individuals who appreciate a higher level of personal service,
contact with their lending officer and responsive decision-making. It is
expected that most of Cardinal's business will be further developed through its
lending officers and local boards of directors and by pursuing an aggressive
strategy of making calls on customers throughout the market area.

Banking Products and Services

         Cardinal offers a broad array of banking products and services to its
customers. These products and services are set forth below.

         Loans. Through each of its subsidiary banks, Cardinal offers a wide
range of short to long-term commercial and consumer loans, which are described
in further detail below. Cardinal has established pre-determined percentage
levels as targets for the division of Cardinal's loan portfolio across the
various categories of loans. Commercial loans, real estate-commercial loans,
real estate-construction loans, real estate-residential loans, home equity
loans, and consumer loans account for approximately 33%, 29%, 1%, 17%, 6% and
14%, respectively, of its loan portfolio. Cardinal believes that this division
reflects the current credit demands of its markets and provides a sufficient
amount of diversification to avoid over-reliance on one category. Cardinal may
adjust these levels from time to time as the credit demands of the community
change and as each bank's business evolves.

         Credit Policies. With respect to each bank's loan portfolio, Cardinal
oversees credit operations while still granting local authority to each bank.
Cardinal's chief credit officer is primarily responsible for maintaining a
quality loan portfolio and developing a strong credit culture throughout the
entire organization. The chief credit officer is responsible for developing and
updating the credit policies and procedures for the organization. The board of
directors of a bank subsidiary may make exceptions to these credit policies and
procedures as appropriate, but any such exception must be documented and made
for sound business reasons.

         Credit quality is controlled by the chief credit officer through
compliance with Cardinal's credit policies and procedures. Cardinal's
risk-decision process is actively managed in a disciplined fashion to maintain
an acceptable risk profile characterized by soundness, diversity, quality,
prudence, balance and accountability. Cardinal's credit approval process
consists of specific authorities granted to the lending officers. Loans
exceeding a particular lending officer's level of authority are reviewed and
considered for



                                     III-5
<PAGE>

approval by an officers' loan committee and, then, a bank's board of directors.
In addition, the chief credit officer works closely with each lending officer at
the bank level to ensure that the business being solicited is of the quality and
structure that fits Cardinal's desired risk profile.

         Under its credit policies, Cardinal generally limits the concentration
of credit risk by a particular bank in any loan or group of loans to 30% of that
bank's capital. Such concentration limit pertains to any group of borrowers
related as to the source of repayment or any one specific industry. Furthermore,
each bank has established limits on the total amount of that bank's outstanding
loans to one borrower, all of which are set below legal lending limits. Any loan
that a bank proposes to make that will exceed such established limits requires
the prior approval of Cardinal's board of directors.

         Commercial Loans. Cardinal makes commercial loans to qualified
businesses in its market area. Cardinal's commercial lending consists primarily
of commercial and industrial loans for the financing of accounts receivable,
inventory, property, plant and equipment. Cardinal also offers Small Business
Administration guaranteed loans and asset-based lending arrangements to certain
of its customers.

         Commercial business loans generally have a higher degree of risk than
residential mortgage loans, but have commensurately higher yields. Residential
mortgage loans generally are made on the basis of the borrower's ability to make
repayment from his or her employment and other income and are secured by real
estate whose value tends to be easily ascertainable. In contrast, commercial
business loans typically are made on the basis of the borrower's ability to make
repayment from cash flow from its business and are secured by business assets,
such as commercial real estate, accounts receivable, equipment and inventory. As
a result, the availability of funds for the repayment of commercial business
loans may be substantially dependent on the success of the business itself.
Further, the collateral for commercial business loans may depreciate over time
and cannot be appraised with as much precision as residential real estate.

         To manage these risks, Cardinal's policy is to secure commercial loans
with both the assets of the borrowing business and other additional collateral
and guarantees that may be available. In addition, Cardinal actively monitors
certain measures of the borrower, including advance rate, cash flow, collateral
value and other appropriate credit factors.

         Commercial Mortgage Loans. Cardinal also originates commercial mortgage
loans. These loans are primarily secured by various types of commercial real
estate, including office, retail, warehouse, industrial and other
non-residential types of properties and are made to the owner and/or occupiers
of such property. These loans have maturities generally ranging from one to 10
years.

         Commercial mortgage lending entails significant additional risk,
compared with residential mortgage lending. Commercial mortgage loans typically
involve larger loan balances concentrated with single borrowers or groups of
related borrowers. Additionally, the payment experience on loans secured by
income producing properties is typically dependent on the successful operation
of a business or a real estate project and thus may be subject, to a greater
extent, to adverse conditions in the real estate market or in the economy
generally. Cardinal's commercial real estate loan underwriting criteria require
an examination of debt service coverage ratios, the borrower's creditworthiness
and prior credit history and reputation, and Cardinal generally requires
personal guarantees or endorsements of borrowers. Cardinal also carefully
considers the location of the security property.

         Loan-to-value ratios for commercial mortgage loans generally do not
exceed 75%. Loan-to-value ratios up to 85% are permitted if the borrower has
unusually strong general liquidity, net worth and cash flow, and loan-to-value
ratios up to 90% are permitted if an Small Business Administration guaranty has
been obtained.



                                     III-6
<PAGE>

         Residential Mortgage Loans. Cardinal's residential mortgage loans
consist of residential first and second mortgage loans, residential construction
loans and home equity lines of credit and term loans secured by first and second
mortgages on the residences of borrowers for home improvements, education and
other personal expenditures. Cardinal makes mortgage loans with a variety of
terms, including fixed and floating or variable rates and a variety of
maturities. Maturities for construction loans generally range from six to 12
months for residential property and from 12 to 18 months for non-residential and
multi-family properties.

        Residential mortgage loans generally are made on the basis of the
borrower's ability to make repayment from his or her employment and other income
and are secured by real estate whose value tends to be easily ascertainable.
These loans are made consistent with Cardinal's appraisal policy and real estate
lending policy, which detail maximum loan-to-value ratios and maturities. Loans
for owner-occupied property generally are made with a loan-to-value ratio of up
to 80% for first liens and 75% for junior liens. Higher loan-to-value ratios may
be allowed based on the borrower's unusually strong general liquidity, net worth
and cash flow. Loan-to-value ratios for home equity lines of credit generally do
not exceed 75%. If the loan-to-value ratio exceeds 90% for residential mortgage
loans, Cardinal has determined that it is an unusually strong credit.

         Construction lending entails significant additional risks, compared
with residential mortgage lending. Construction loans often involve larger loan
balances concentrated with single borrowers or groups of related borrowers.
Construction loans also involve additional risks attributable to the fact that
loan funds are advanced upon the security of property under construction, which
is of uncertain value prior to the completion of construction. Thus, it is more
difficult to evaluate accurately the total loan funds required to complete a
project and related loan-to-value ratios. To minimize the risks associated with
construction lending, Cardinal limits loan-to-value ratios for residential
property to 85% and for non-residential property and multi-family properties to
80%, in addition to its usual credit analysis of its borrowers.

         Management expects that the loan-to-value ratios described above will
be sufficient to compensate for fluctuations in the real estate market to
minimize the risk of loss.

         Consumer Loans. Cardinal's consumer loans consist primarily of
installment loans to individuals for personal, family and household purposes.
The specific types of consumer loans made by Cardinal include home improvement
loans, debt consolidation loans and general consumer lending.

         Consumer loans may entail greater risk than residential mortgage loans
do, particularly in the case of consumer loans that are unsecured, such as lines
of credit, or secured by rapidly depreciable assets such as automobiles. In such
cases, any repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. The remaining deficiency
often does not warrant further substantial collection efforts against the
borrower. In addition, consumer loan collections are dependent on the borrower's
continuing financial stability, and thus are more likely to be adversely
affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the
application of various federal and state laws, including federal and state
bankruptcy and insolvency laws, may limit the amount that can be recovered on
such loans. A loan may also give rise to claims and defenses by a consumer loan
borrower against an assignee of such loan, such as Cardinal, and a borrower may
be able to assert against such assignee claims and defenses that it has against
the seller of the underlying collateral.

         Cardinal's policy for consumer loans is to accept moderate risk while
minimizing losses, primarily through a careful analysis of the borrower. In
evaluating consumer loans, Cardinal requires its



                                     III-7
<PAGE>

lending officers to review the borrower's level and stability of income, past
credit history and the impact of these factors on the ability of the borrower to
repay the loan in a timely manner. In addition, Cardinal requires that its
banking officers maintain an appropriate margin between the loan amount and
collateral value. Many of Cardinal's consumer loans are made to the principals
of the small and medium-sized businesses for whom the banks provide banking
services.

         In the fourth quarter of 1999, Cardinal purchased a $7.8 million
installment loan portfolio. While Cardinal does not have any current plans to
purchase additional loan portfolios, Cardinal may consider opportunities that
arise from time to time with respect to portfolios that meet established
underwriting criteria.

         Credit Card and Other Loans. Cardinal also issues credit cards to
certain of its customers. In determining to whom it will issue credit cards,
Cardinal evaluates the borrower's level and stability of income, past credit
history and other factors. Finally, Cardinal makes additional loans that are not
classified in one of the above categories. In making such loans, Cardinal
attempts to ensure that the borrower meets Cardinal's credit quality standards.

         Deposits. Management offers a broad range of interest-bearing and
noninterest-bearing deposit accounts, including commercial and retail checking
accounts, money market accounts, individual retirement accounts, regular
interest-bearing savings accounts and certificates of deposit with a range of
maturity date options. The primary sources of deposits are small and
medium-sized businesses and individuals within an identified market. In each
identified market, senior management has the authority to set rates within
specified parameters in order to remain competitive with other financial
institutions. All deposits are insured by the Federal Deposit Insurance
Corporation up to the maximum amount permitted by law. Cardinal implements a
service charge fee schedule, which is competitive with other financial
institutions in a subsidiary bank's market area, covering such matters as
maintenance fees on checking accounts, per item processing fees on checking
accounts, returned check charges and other similar fees.

         Specialized Consumer Services. Management offers specialized products
and services to its customers, such as travelers checks and safe deposit
services.

         Courier Services. Cardinal offers courier services to its business
customers. Courier services permit Cardinal to provide the convenience and
personalized service that its customers require by scheduling pick-ups of
deposits.

         Telephone and Internet Banking. Cardinal believes that there is a
strong demand within its market for telephone banking and internet banking. Both
services allow both commercial and retail customers to access detailed account
information and execute a wide variety of the banking transactions referred to
above. Management believes that these services are particularly attractive for
its customers, as it enables them to conduct their banking business and monitor
their bank accounts from remote locations. Telephone and internet banking
assists the banks in attracting and retaining customers and encourages its
customers to maintain their total banking relationships with Cardinal.

         Automatic Teller Machines ("ATMs"). Cardinal has an ATM at each office
of each bank. Management makes other financial institutions' ATMs available to
its customers and offers customers a certain number of free ATM transactions per
month.

         Other Products and Services. Cardinal evaluates other services such as
trust services, insurance, mortgage services and other permissible activities.
Management expects to introduce these services as they become economically
viable.



                                     III-8
<PAGE>

Brokerage and Investment Advisory Services

         Through Cardinal Wealth Services, Inc., Cardinal provides financial and
estate planning services. Cardinal Wealth Services, Inc. has formed a strategic
alliance with LM Financial Partners, Inc., a wholly owned subsidiary of Legg
Mason Inc. Through this alliance, Cardinal's financial advisors can offer its
customers an extensive range of financial products and services, including
estate planning, qualified retirement plans, mutual funds, annuities, life
insurance, fixed income securities and equity research and recommendations.

Competition

         Banks generally compete with other financial institutions through the
selection of banking products and services offered, the pricing of services, the
level of service provided, the convenience and availability of services, and the
degree of expertise and the personal manner in which services are offered.
Virginia law permits statewide branching by banks. Consequently, commercial
banking in Virginia is highly competitive. Many large banking organizations,
several of which are controlled by out-of-state holding companies, currently
operate in Cardinal's targeted market areas. In addition, competition between
commercial banks and thrift institutions (savings institutions and credit
unions) has intensified significantly by the elimination of many previous
distinctions between the various types of financial institutions and the
expanded powers and increased activity of thrift institutions in areas of
banking that previously had been the sole domain of commercial banks. Recent
legislation, together with other regulatory changes by the primary regulators of
the various financial institutions, has resulted in the almost total elimination
of practical distinctions between a commercial bank and a thrift institution.
Consequently, competition among financial institutions of all types is largely
unlimited with respect to legal ability and authority to provide most financial
services. Furthermore, out-of-state banks not previously allowed to operate in
Virginia are allowed to commence operations and compete in Cardinal's targeted
market areas.

         Cardinal faces competition from other banks, as well as thrift
institutions, consumer finance companies, insurance companies and other
institutions in Cardinal's markets. Some of these competitors are not subject to
the same degree of regulation and restriction imposed upon Cardinal. Many of
these competitors also have broader geographic markets and substantially greater
resources and lending limits than Cardinal's subsidiary banks and offer certain
services such as trust banking that the banks are not expected to provide in the
near term. In addition, many of these competitors have numerous branch offices
located throughout the extended market areas of the banks that may provide these
competitors with an advantage in geographic convenience that Cardinal does not
have at present. Some competitors may also be in a position to make more
effective use of media advertising, support services, and electronic technology
than Cardinal.

Employees

         At March 31, 2000, Cardinal had 88 full time employees, none of whom
are represented by a union or covered by a collective bargaining agreement.
Management considers employee relations to be good.

Government Supervision and Regulation

         The following discussion is a summary of the principal laws and
regulations that comprise the regulatory framework applicable to Cardinal and
each of its bank subsidiaries. Other laws and regulations that govern various
aspects of the operations of banks and bank holding companies are not described
in this section, although violations of such laws and regulations could result
in supervisory enforcement



                                     III-9
<PAGE>

action against Cardinal or its bank subsidiaries. The following descriptions
summarize the material terms of the principal laws and regulations and are
qualified in their entirety by reference to applicable laws and regulations.

         General. As a bank holding company, Cardinal is subject to regulation
under the Bank Holding Company Act of 1956, as amended, and the examination and
reporting requirements of the Board of Governors of the Federal Reserve System.
Under the Bank Holding Company Act, a bank holding company may not directly or
indirectly acquire ownership or control of more than 5% of the voting shares or
substantially all of the assets of any additional bank or merge or consolidate
with another bank holding company without the prior approval of the Federal
Reserve. The Bank Holding Company Act also generally limits the activities of a
bank holding company to that of banking, managing or controlling banks, or any
other activity which is determined to be so closely related to banking or to
managing or controlling banks that an exception is allowed for those activities.

         As national banks, Cardinal's subsidiaries are subject to regulation,
supervision and examination by the Office of the Comptroller of the Currency.
The banks also are subject to regulation, supervision and examination by the
FDIC. Federal law also governs the activities in which the Banks may engage and
the investments that they may make and limits the aggregate amount of loans that
may be granted to one borrower to 15% of a bank's capital and surplus. Various
consumer and compliance laws and regulations also affect the banks' operations.

         The activities permissible to bank holding companies and their
affiliates were substantially expanded by the Gramm-Leach-Bliley Act, which the
President signed on November 12, 1999. Gramm-Leach-Bliley repeals the
anti-affiliation provisions of the Glass-Steagall Act to permit the common
ownership of commercial banks, investment banks and insurance companies. Under
Gramm-Leach-Bliley, a bank holding company can elect to be treated as a
financial holding company. A financial holding company may engage in any
activity and acquire and retain any company that the Federal Reserve determines
to be financial in nature. A financial holding company also may engage in any
activity that is complementary to a financial activity and does not pose a
substantial risk to the safety and soundness of depository institutions or the
financial system generally. The Federal Reserve must consult with the Secretary
of the Treasury in determining whether an activity is financial in nature or
incidental to a financial activity.

         The earnings of Cardinal's bank subsidiaries, and therefore the
earnings of Cardinal, are affected by general economic conditions, management
policies and the legislative and governmental actions of various regulatory
authorities, including those referred to above.

         The OCC conducts regular examinations of Cardinal's bank subsidiaries
and reviews such matters as the adequacy of loan loss reserves, quality of loans
and investments, management practices, compliance with laws, and other aspects
of their operations. In addition to these regular examinations, the banks must
furnish the OCC with periodic reports containing a full and accurate statement
of its affairs. Supervision, regulation and examination of banks by these
agencies are intended primarily for the protection of depositors rather than
shareholders.

         Insurance of Accounts, Assessments and Regulation by the FDIC. The
deposits of the Banks are insured by the FDIC up to the limits set forth under
applicable law. The deposits of the Banks are subject to the deposit insurance
assessments of the Bank Insurance Fund of the FDIC.

         The FDIC has implemented a risk-based deposit insurance assessment
system under which the assessment rate for an insured institution may vary
according to regulatory capital levels of the institution and other factors
(including supervisory evaluations). Depository institutions insured by the Bank



                                     III-10
<PAGE>

Insurance Fund that are "well capitalized," are required to pay only the
statutory minimum assessment of $2,000 annually for deposit insurance, while all
other banks are required to pay premiums ranging from .03% to .30% of domestic
deposits. These rate schedules are subject to future adjustments by the FDIC. In
addition, the FDIC has authority to impose special assessments from time to
time. However, because the legislation enacted in 1996 requires that both
Savings Association Insurance Fund insured and BIF-insured deposits pay a pro
rata portion of the interest due on the obligations issued by the Financing
Corporation, the FDIC is assessing BIF-insured deposits an additional 1.30 basis
points per $100 of deposits to cover those obligations.

         The FDIC is authorized to prohibit any BIF-insured institution from
engaging in any activity that the FDIC determines by regulation or order to pose
a serious threat to the respective insurance fund. Also, the FDIC may initiate
enforcement actions against banks, after first giving the institution's primary
regulatory authority an opportunity to take such action. The FDIC may terminate
the deposit insurance of any depository institution if it determines, after a
hearing, that the institution has engaged or is engaging in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations, or has
violated any applicable law, regulation, order or any condition imposed in
writing by the FDIC. It also may suspend deposit insurance temporarily during
the hearing process for the permanent termination of insurance, if the
institution has no tangible capital. If deposit insurance is terminated, the
deposits at the institution at the time of termination, less subsequent
withdrawals, shall continue to be insured for a period from six months to two
years, as determined by the FDIC. Management is not aware of any existing
circumstances that could result in termination of any bank's deposit insurance.

         Capital. The OCC and the Federal Reserve have issued risk-based and
leverage capital guidelines applicable to banking organizations that they
supervise. Under the risk-based capital requirements, Cardinal and its banks are
each generally required to maintain a minimum ratio of total capital to
risk-weighted assets (including certain off-balance sheet activities, such as
standby letters of credit) of 8%. At least half of the total capital is to be
composed of common equity, retained earnings and qualifying perpetual preferred
stock, less certain intangibles ("Tier 1 capital"). The remainder may consist of
certain subordinated debt, certain hybrid capital instruments and other
qualifying preferred stock and a limited amount of the loan loss allowance
("Tier 2 capital" and, together with Tier 1 capital, "total capital").

         In addition, each of the federal banking regulatory agencies has
established minimum leverage capital ratio requirements for banking
organizations. These requirements provide for a minimum leverage ratio of Tier 1
capital to adjusted average quarterly assets equal to 3% for bank holding
companies that are rated a composite "1" and 4% for all other bank holding
companies. Bank holding companies are expected to maintain higher than minimum
capital ratios if they have supervisory, financial, operational or managerial
weaknesses, or if they are anticipating or experiencing significant growth.

         The risk-based capital standards of the OCC and the Federal Reserve
explicitly identify concentrations of credit risk and the risk arising from
non-traditional activities, as well as an institution's ability to manage these
risks, as important factors to be taken into account by the agency in assessing
an institution's overall capital adequacy. The capital guidelines also provide
that an institution's exposure to a decline in the economic value of its capital
due to changes in interest rates be considered by the agency as a factor in
evaluating a bank's capital adequacy. The OCC and the Federal Reserve also have
recently issued additional capital guidelines for bank holding companies that
engage in certain trading activities.

         Other Safety and Soundness Regulations. There are a number of
obligations and restrictions imposed on bank holding companies and their
depository institution subsidiaries by federal law and regulatory policy that
are designed to reduce potential loss exposure to the depositors of such
depository institutions and to the FDIC insurance funds in the event that the
depository institution becomes in danger of default or is in default. For
example, under a policy of the Federal Reserve with respect to bank



                                     III-11
<PAGE>

holding company operations, a bank holding company is required to serve as a
source of financial strength to its subsidiary depository institutions and to
commit resources to support such institutions in circumstances where it might
not do so otherwise. In addition, the "cross-guarantee" provisions of federal
law require insured depository institutions under common control to reimburse
the FDIC for any loss suffered or reasonably anticipated by the BIF as a result
of the default of a commonly controlled insured depository institution or for
any assistance provided by the FDIC to a commonly controlled insured depository
institution in danger of default. The FDIC may decline to enforce the
cross-guarantee provision if it determines that a waiver is in the best
interests of the BIF. The FDIC's claim for reimbursement is superior to claims
of shareholders of the insured depository institution or its holding company but
is subordinate to claims of depositors, secured creditors and holders of
subordinated debt (other than affiliates) of the commonly controlled insured
depository institution.

         The federal banking agencies also have broad powers under current
federal law to take prompt corrective action to resolve problems of insured
depository institutions. The Federal Deposit Insurance Act requires that the
federal banking agencies establish five capital levels for insured depository
institutions - "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized." It also
requires or permits such agencies to take certain supervisory actions should an
insured institution's capital level fall. For example, an "adequately
capitalized" institution is restricted from accepting brokered deposits. An
"undercapitalized" or "significantly undercapitalized" institution must develop
a capital restoration plan and is subject to a number of mandatory and
discretionary supervisory actions. These powers and authorities are in addition
to the traditional powers of the Federal banking agencies to deal with
undercapitalized institutions.

         Federal regulatory authorities also have broad enforcement powers over
Cardinal and its banks, including the power to impose fines and other civil and
criminal penalties, and to appoint a receiver in order to conserve the assets of
any such institution for the benefit of depositors and other creditors.

         Payment of Dividends. Cardinal is a legal entity separate and distinct
from its banks. Virtually all of the revenues of Cardinal will result from
dividends paid to Cardinal by its banks. Under OCC regulations, a national bank
may not declare a dividend in excess of its undivided profits, which means that
each bank must recover any start-up losses before it may pay a dividend to
Cardinal. Additionally, a national bank may not declare a dividend if the total
amount of all dividends, including the proposed dividend, declared by the
national bank in any calendar year exceeds the total of the national bank's
retained net income of that year to date, combined with its retained net income
of the two preceding years, unless the dividend is approved by the OCC. A
national bank may not declare or pay any dividend if, after making the dividend,
the national bank would be "undercapitalized," as defined in regulations of the
OCC. Cardinal is subject to state laws that limit the amount of dividends it can
pay. In addition, Cardinal is subject to various general regulatory policies
relating to the payment of dividends, including requirements to maintain
adequate capital above regulatory minimums. The Federal Reserve has indicated
that banking organizations should generally pay dividends only if (1) the
organization's net income available to common shareholders over the past year
has been sufficient to fund fully the dividends and (2) the prospective rate of
earnings retention appears consistent with the organization's capital needs,
asset quality and overall financial condition. These laws, regulations or
policies will materially impact the ability of Cardinal's banks and, therefore,
Cardinal to pay dividends in the early years of operations.

         Community Reinvestment. The requirements of the Community Reinvestment
Act are applicable to the Banks. The Community Reinvestment Act imposes on
financial institutions an affirmative and ongoing obligation to meet the credit
needs of their local communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of those
institutions. A financial institution's efforts in meeting community credit
needs currently are evaluated as part of the examination



                                     III-12
<PAGE>

process pursuant to twelve assessment factors. These factors also are considered
in evaluating mergers, acquisitions and applications to open a branch or
facility.

         Interstate Banking and Branching. Current federal law authorizes
interstate acquisitions of banks and bank holding companies without geographic
limitation. Effective June 1, 1997, a bank headquartered in one state is able to
merge with a bank headquartered in another state, as long as neither of the
states has opted out of such interstate merger authority prior to such date.
States are authorized to enact laws permitting such interstate bank merger
transactions prior to June 1, 1997, as well as authorizing a bank to establish
"de novo" interstate branches. Virginia enacted early "opt in" laws, permitting
interstate bank merger transactions. Once a bank has established branches in a
state through an interstate merger transaction, the bank may establish and
acquire additional branches at any location in the state where a bank
headquartered in that state could have established or acquired branches under
applicable federal or state law.

         Economic and Monetary Polices. The operations of Cardinal are affected
not only by general economic conditions, but also by the economic and monetary
policies of various regulatory authorities. In particular, the Federal Reserve
regulates money, credit and interest rates in order to influence general
economic conditions. These policies have a significant influence on overall
growth and distribution of loans, investments and deposits and affect interest
rates charged on loans or paid for time and savings deposits. Federal Reserve
monetary policies have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the
future.

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATION

General

         Cardinal is the holding company for three bank subsidiaries and one
non-bank subsidiary. Cardinal 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,
Cardinal 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 Cardinal's nonbank investment 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, Cardinal's second bank
subsidiary, Cardinal Bank -Manassas/Prince William, N.A. began operations.
Cardinal Bank - Dulles, N.A., the third banking subsidiary, began operations in
August 1999.

        The following presents management's discussion and analysis of the
consolidated financial condition and results of operation of Cardinal for the
three months ended March 31, 2000 and the years ended December 31, 1999 and
1998. The discussion should be read in conjunction with the accompanying
consolidated financial statements.






                                     III-13
<PAGE>

March 31, 2000 compared to December 31, 1999

Financial Condition

        Total assets of Cardinal 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 Cardinal'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.

        Cardinal'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 41
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, Cardinal 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, Cardinal 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
Cardinal'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



                                     III-14
<PAGE>

result, Cardinal 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 Cardinal'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

        Cardinal 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 $457 thousand compared to a net loss of $441 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
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 $155 thousand. As of March 31, 2000 total
assets were $213 thousand and total assets under management were $72.6 million.
For the three months ended March 31, 1999 the net loss was $194 thousand. As of
March 31, 1999, total assets were $189 thousand and total assets under
management were $22.6 million.



                                     III-15
<PAGE>

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 Cardinal's
tier 1 and total risk-based capital ratios were 30.9% and 31.8%, respectively.
At December 31, 1999 Cardinal's tier 1 and total risk-based capital ratios were
37.9% and 38.8%, respectively. The decline in Cardinal'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. Cardinal continues to
maintain a capital structure that places it well above minimum regulatory
requirements.

Liquidity

        Liquidity provides Cardinal 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
Cardinal's sensitivity to interest rate movements. In order to measure the
effect of interest rates on Cardinal'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 7 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.

1999 Compared to 1998

Earnings Summary

         The net loss for the year ended December 31, 1999 was $4.0 million or
$0.95 per diluted share, compared to a net loss of $1.7 million, or $0.64 per
diluted share, for the year ended December 31, 1998. The increase in the net
loss in 1999 compared to 1998 was primarily due to increased non-interest
expenses associated with the opening of three subsidiaries. Two bank
subsidiaries, Cardinal Bank - Manassas/Prince William, N.A., and Cardinal Bank -
Dulles, N.A., opened in the third quarter of 1999 and one non-bank subsidiary,
Cardinal Wealth Services, Inc., opened in the first quarter of 1999.

         These operating results represent a return on average shareholders'
equity of -12.26% for the year ended December 31, 1999 compared to -7.45% for
the year ended December 31, 1998. Return on average assets for the year ended
December 31, 1999 was -5.61% compared to -5.37% in 1998.




                                     III-16
<PAGE>

Financial Condition Summary

         Total assets were $97.0 million at December 31, 1999, an increase of
$39.7 million, or 69.4%, compared with December 31, 1998. Loans, net of unearned
income, increased $51.8 million in 1999 to $68.2 million. This increase can be
attributed to strong results from Cardinal Bank, N.A. as well as the activity
associated with two new banking subsidiaries that opened in the third quarter of
1999. Cash and cash equivalents declined $6.3 million and investment securities
available-for-sale declined $8.7 million in 1999 compared to 1998. These
declines can be attributed to funding increased loan growth.

         Total deposits grew $38.0 million to $59.9 million in 1999 from $21.9
million at year-end 1998 due again to having multiple banks operating for part
of 1999 versus only one operating in 1998. Non- interest-bearing deposits
increased $7.3 million or 144.5% and interest-bearing deposits increased $30.7
million or 182.6%. Cardinal's short-term borrowings were $6.0 million at
December 31, 1999. There were no borrowings at December 31, 1998. The short-term
borrowings are Federal Home Loan Bank advances and were utilized for loan growth
and other operating purposes.

         Shareholders' equity decreased $4.0 million or 11.5% from December 31,
1998 to December 31, 1999. Operating losses for the year ended December 31, 1999
caused the decline. At December 31, 1999 Cardinal's regulatory capital levels
exceeded those established for well-capitalized institutions.

Net Interest Income and Net Interest Margin

         The fundamental source of Cardinal's revenue, net interest income, is
defined as the difference between income on earning assets and the cost of funds
supporting those assets. The significant categories of earning assets are loans
and investment securities, while deposits and Federal Home Loan Bank advances
represent interest bearing liabilities. The level of net interest income is
impacted primarily by variations in the volume and mix of these assets and
liabilities, as well as changes in interest rates when compared to previous
periods of operation. Net interest income for 1999 was $3.02 million, 148.7%
higher than the prior year. The growth in net interest income was due to the
increase in average interest-earning assets of 144.9% which was the result of
three bank subsidiaries operating in 1999 compared to only one operating in
1998. The net interest margin increased to 4.75% in 1999 compared to 4.66% in
1998. The average rate on earning assets increased 79 basis points to 6.57% and
the average rate on interest-bearing liabilities decreased 42 basis points to
4.27%. Table 1 reflects the components of interest income and interest expense
and their applicable yields and costs.

Provision and Allowance for Loan Losses

         Management's policy is to maintain the allowance for loan losses at a
level sufficient to absorb the estimated losses inherent in the loan portfolio.
Both the amount of the provision and the level of the allowance for loan losses
are impacted by many factors, including general economic conditions, actual and
expected credit losses, loan performance measures, historical trends and
specific conditions of the individual borrower. Due to the relatively short
credit history of its subsidiaries Cardinal Bank, N.A. (18 months of operation),
Cardinal Bank - Manassas/Prince William, N.A. (five months) and Cardinal Bank -
Dulles, N.A. (five months) management is currently providing for loan losses at
a rate of 1.25% which approximates its peer group average.

         The ratio of the allowance for losses to gross loans at December 31,
1999 was 1.07% compared to 1.30% at December 31, 1998. While the calculated
reserve ratio reflects a 23 basis point decline there are two factors that need
to be taken into account in order to better understand Cardinal's level of loan
loss coverage. In the fourth quarter of 1999, Cardinal 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



                                     III-17
<PAGE>

outstanding balances. Consequently, Cardinal does not expect losses on this
portfolio and did not add to its allowance for loan losses when this transaction
was recorded. The second factor to be considered is Cardinal's Business Manager
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, Cardinal does not expect losses on those transactions and
therefore has not added to its allowance for loan losses. Table 2 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

         Non-interest income is an important factor in Cardinal's operating
results. Management continues to evaluate and identify new sources of
non-interest income as well as enhance existing ones. Non-interest income
increased to $1.3 million in 1999 from $34 thousand in 1998. The significant
increase in non-interest income for 1999 was due to $1.0 million of investment
fee income generated by Cardinal Wealth Services, Inc. which began operations on
February 1, 1999. Other non-interest income includes loan and deposit service
charges, which increased to $268 thousand in 1999 from $20 thousand in 1998.
Table 3 reflects the components of non-interest income for 1999 and 1998.

Non-Interest Expense

         Non-interest expense was $7.9 million in 1999 compared to $2.7 million
in 1998. The significant increase in expense can be attributed to the opening of
two bank subsidiaries and one non-bank subsidiary during 1999. Total personnel
expense increased to $4.3 million from $1.4 million in 1998 as a result of the
staffing of the above mentioned subsidiaries. Increases in depreciation,
occupancy and other operating expenses are also associated with start-up
subsidiary operations. Footnote 17 of the Consolidated Financial Statements
provides additional details of non-interest expense.

Income Taxes

         Cardinal has not incurred income tax liability due to the recognition
of net losses in 1999, 1998 and 1997. The ability to utilize net operating loss
carryforwards will be dependent on Cardinal's ability to generate future
earnings. Footnote 8 of the Consolidated Financial Statements provides
additional information with respect to the deferred tax accounts and the net
operating loss carryforward.

Liquidity

         The objective of liquidity management is to ensure the continuous
availability of funds to meet the demands of depositors, investors and
borrowers. Stable core deposits and a strong capital position are the components
of a solid foundation for Cardinal's liquidity position. In addition, the
availability of the investment portfolio and access to regional and national
wholesale funding sources including fed funds purchased, negotiable certificates
of deposits, securities sold under agreements to repurchase, and Federal Home
Loan Bank advances enhances Cardinal's liquidity. Cash flows from operations,
such as loan payments and pay-offs are also a significant source of liquidity.
Cardinal has a contingency plan that provides for continued monitoring of
liquidity needs and available sources of liquidity. Management believes Cardinal
has the ability to meet its liquidity needs.



                                     III-18
<PAGE>

Capital Resources

         Capital adequacy is an important measure of financial stability and
performance. Management's objectives are to maintain a level of capitalization
that is sufficient to sustain asset growth and promote depositor and investor
confidence.

         Regulatory agencies measure capital adequacy utilizing a formula that
takes into account the individual risk profiles of financial institutions. The
guidelines define capital as either Tier 1 (primarily common shareholders'
equity, defined to include certain debt obligations) and Tier 2 (to include
certain other debt obligations and a portion of the allowance for loan losses
and 45% of unrealized gains in equity securities).

         At December 31, 1999, shareholders' equity was $30.7 million compared
to $34.7 million at December 31, 1998. The decline in shareholders' equity is
attributable to the net loss incurred in 1999. Footnote 9 of the Consolidated
Financial Statements shows the minimum capital requirements and Cardinal's
capital position as of December 31, 1999 and 1998. Cardinal's regulatory capital
levels exceed those established for well-capitalized institutions.

Lending

         Cardinal has comprehensive policies and procedures which cover both
commercial and consumer loan origination and management of credit risk. Loans
are underwritten in a manner that focuses on the borrowers' ability to repay.
Cardinal's goal is not to avoid risk, but to manage it and to include credit
risk as part of the pricing decision for each product.

         Total loans, net of fees and premiums and discounts, increased to $68.2
million as of December 31, 1999 compared to $16.3 million as of December 31,
1998. The increase is the result of a full years operation of Cardinal Bank,
N.A. in addition to the activity of Cardinal Bank - Manassas/Prince William,
N.A., and Cardinal Bank - Dulles, N.A., both of which opened in the third
quarter of 1999. There were no non-performing loans at December 31, 1999 and
1998.

         Cardinal's loan portfolio consists of commercial short-term lines of
credit, term loans, mortgage financing and construction loan funds that are used
by the borrower to build or develop real estate properties. The consumer
portfolio includes residential real estate mortgages, bankcard, home equity
lines and installment loans. Table 4 reflects the components of the loan
portfolio as of December 31, 1999 and 1998. Table 5 reflects the allocation of
the allowance for loan loss by loan category.

Securities Available-for-Sale

         The investment securities portfolio of Cardinal is used as a source of
income and liquidity. The portfolio has declined to $4.8 million as of December
31, 1999 from $13.5 million as of December 31, 1998. The decline reflects
liquidity needs associated with funding the loan growth experienced in 1999.
Table 6 reflects the composition of the investment portfolio as of December 31,
1999 and 1998.

Interest Rate Sensitivity

         The most important element of asset/liability management is the
monitoring of Cardinal's sensitivity to interest rate movements. The income
stream of Cardinal is subject to risk resulting from interest rate fluctuations
to the extent there is a difference between the amount of Cardinal's interest
earning assets and the amount of interest bearing liabilities that are prepaid,
mature or reprice in specified periods. Cardinal's goal is to maximize net
interest income with acceptable levels of risk to changes in



                                     III-19
<PAGE>

interest rates. Management seeks to meet this goal by influencing the maturity
and re-pricing characteristics of the various lending and deposit taking lines
of business and by managing discretionary balance sheet asset and liability
portfolios.

         One of the ways Cardinal identifies and manages its interest rate risk
is through an analysis of the relationship between interest-earning assets and
interest-bearing liabilities to measure the impact that future changes in
interest rates will have on net interest income. The difference between rate
sensitive assets and rate sensitive liabilities for specified periods of time is
known as the "GAP." The data in Table 7 reflects re-pricing or expected
maturities of various assets and liabilities at December 31, 1999. Interest
sensitivity gap analysis presents a position that existed at one particular
point in time and assumes that assets and liabilities with similar
characteristics will re-price at the same time and to the same degree. As shown
in the table, Cardinal was liability sensitive (excess of liabilities over
assets) in the three month to one year horizon. Management has included
estimates in the table with respect to certain deposit balances of Cardinal
Bank, N.A. that reflect the fact that not all of these deposits re-price on a
contractual basis. Deposit balances for Cardinal Bank - Manassas/Prince William,
N.A. and Cardinal Bank - Dulles, N.A. have not been adjusted due to the lack of
historical data. The result of these adjustments was to reduce the negative gap
in the three-month to one-year period to that reflected in the table.

1998 Compared to 1997

         The comparison of operating results between 1998 and 1997 should be
read in the context of the start-up nature of Cardinal. The holding company
began operations on November 24, 1997 and its first bank subsidiary began
operations on June 8, 1998.

         Consolidated net loss for 1998 was $1.7 million or $0.64 per diluted
share compared to a net loss of $145 thousand or $0.12 per diluted share in
1997. Net interest income was $1.2 million in 1998 compared to $4 thousand in
1997. Non-interest income totaled $34 thousand in 1998 compared to none recorded
in 1997. Total non-interest expense increased in 1998 to $2.7 million from $149
thousand in 1997.

         Total assets increased to $57.3 million in 1998 compared to $8.8
million in 1997. The increase was due to Cardinal's initial public offering
which generated net proceeds of $26.0 million, and an increase of $21.9 million
in deposit balances. Total loans were $16.3 million at December 31, 1998
compared to zero at December 31, 1997. The remaining sources of funds were
invested into government agency securities totaling $13.7 million and fed funds
sold which increased $20.1 million to $24.3 million at December 31, 1998.

Year 2000

         Cardinal successfully completed the transition to the year 2000 with no
impact to Cardinal's financial condition. Cardinal 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 Cardinal due to
its recent formation and the ability to incorporate year 2000 ready systems and
vendors at its inception.






                                     III-20
<PAGE>

Table 1

                 Cardinal Financial Corporation and Subsidiaries
                            Rate and Volume Analysis

               For the three months ended March 31, 2000 and 1999
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                                                                        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 deposits                       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.




                                     III-21
<PAGE>

Table 1 (continued)

                 Cardinal Financial Corporation and Subsidiaries
                            Rate and Volume Analysis

                 For the Years Ended December 31, 1999 and 1998
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                                                     Variance
    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:
 $ 11,087   $   529      7.58%     10.01%       Commercial                   $   840   $    53      $   787      $ (270)  $ 1,057
    9,718       287      8.13%      8.01%       Real estate - commercial         790        23          767          12       755
      719        63      9.32%      7.89%       Real estate - construction        67         5           62          10        52
    8,089       768      7.76%      7.42%       Real estate - residential        628        57          571          28       543
    2,340       155      7.17%     10.36%       Home equity lines                168        16          152         (74)      226
    1,724       168      9.75%     13.73%       Consumer                         168        23          145         (69)      214
------------------------------------------------------------------------------------------------------------------------------------
   33,677     1,970      7.90%      8.99%            Total loans               2,661       177        2,484        (363)    2,847

    6,960     5,484      5.83%      5.62%   Investment Securities - AFS          406       308           98          15        83

      504       133      5.74%      5.97%   Other Investments                     29         8           21          (1)       22

        -       764      0.00%      4.17%   Money Market Accounts                  -        32          (32)          -       (32)

   24,804    18,574      4.97%      5.55%   Federal Funds Sold                 1,234     1,031          203        (143)      346

------------------------------------------------------------------------------------------------------------------------------------
 $ 65,945  $ 26,925      6.57%      5.78%   Total interest-earning assets    $ 4,330   $ 1,556      $ 2,774      $ (492)  $ 3,266
====================================================================================================================================

                                            Interest Expense

    2,436       535      2.01%      2.06%       Interest Checking                 49        11           38          (1)       39
    7,168     2,316      3.68%      3.71%       Money Markets                    264        86          178          (2)      180
      239        62      2.93%      3.23%       Statement Savings                  7         2            5          (1)        6
   18,980     4,336      4.67%      5.54%       Certificates of Deposit          887       240          647        (164)      811
------------------------------------------------------------------------------------------------------------------------------------
   28,823     7,249      4.19%      4.68%   Total deposits                     1,207       339          868        (168)    1,036

    1,773         -      5.53%      0.00%   Borrowings                            98         1           97          97         -

------------------------------------------------------------------------------------------------------------------------------------
   30,596     7,249      4.27%      4.69%   Total interest-bearing liabilities 1,305       340          965         (71)    1,036
====================================================================================================================================

   41,151    23,045                         Other Sources
------------------------------------------------------------------------------------------------------------------------------------
   71,747    30,294      1.82%      1.12%   Total Sources of Funds             1,305       340          965         (71)    1,036
------------------------------------------------------------------------------------------------------------------------------------

 $ 35,349  $ 19,676      4.75%      4.66%   Net Interest Margin              $ 3,025   $ 1,216      $ 1,809      $ (421)  $ 2,230
====================================================================================================================================
</TABLE>

No tax equivalent adjustment made to the above table.





                                     III-22
<PAGE>

Table 2

                 Cardinal Financial Corporation and Subsidiaries

                            Allowance for Loan Losses
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                    Three Months Ended                 Year Ended
                                                        March 31,                     December 31,
                                               -----------------------------  -----------------------------
                                                   2000            1999           1999           1998
                                               -------------   -------------  -------------  --------------
<S>                                                 <C>             <C>            <C>              <C>
Beginning balance                                   $   726         $   212        $   212          $    -

Provision for loan losses                               143              68            514             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                                           -               -              -               -

Balance at end of period                            $   869         $   280        $   726         $   212
===========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
                                                March 31,       March 31,     December 31,   December 31,
Loans:                                             2000            1999           1999           1998
                                               -------------   -------------  -------------  --------------
<S>                                                <C>             <C>            <C>             <C>
            Balance at period end                  $ 81,444        $ 21,760       $ 68,147        $ 16,343
            Allowance for loan losses to
            Period end loans                          1.07%           1.29%          1.07%           1.30%

            Less: Business Manager                 $  2,196         $   107       $  1,522          $    -
            Less: Purchased Loans                     7,331               -          7,687               -
                                               -------------   -------------  -------------  --------------
            Adjusted Loan Balance                  $ 71,917        $ 21,653       $ 58,938        $ 16,343

            Allowance for loan losses to
            Period end adjusted loans                 1.21%           1.30%          1.23%           1.30%
</TABLE>






                                     III-23
<PAGE>

Table 3

                 Cardinal Financial Corporation and Subsidiaries

                               Non-interest Income
<TABLE>
<CAPTION>
                                                Three Months Ended March 31,           Year Ended December 31,
                                           ------------------------------------  ------------------------------------
                                                 2000               1999               1999               1998
                                           -----------------  -----------------  -----------------  -----------------
<S>                                           <C>                <C>                <C>                <C>
Service charges on deposit accounts           $      20,401      $       5,087      $      41,612      $       3,388
Loan service charges                                 63,104             19,200            226,211             16,145
Investment fee income                               313,326              1,278          1,017,924                 --
Gain on sale of investment securities                    --             11,203              4,207              8,760
Other income                                         26,848              8,455             30,531              5,744
                                           -----------------  -----------------  -----------------  -----------------
                                              $     423,679      $      45,223      $   1,320,485      $      34,037
                                           =================  =================  =================  =================
</TABLE>















                                     III-24
<PAGE>

Table 4

                 Cardinal Financial Corporation and Subsidiaries

                                      Loans
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                 March 31,                       March 31,
                                                   2000                             1999
                                        ----------------------------    -----------------------------
<S>                                      <C>                <C>           <C>                <C>
Commercial                               $     24,977        30.68%       $      6,855        31.07%
Real estate - commercial                       27,032        33.20%              6,237        28.27%
Real estate - construction                        756         0.93%                829         3.76%
Real estate - residential                      14,283        17.54%              5,598        25.38%
Home equity lines                               4,902         6.02%              1,527         6.92%
Consumer                                        9,465        11.63%              1,014         4.60%
                                        ----------------------------    -----------------------------

Gross loans                              $     81,415       100.00%         $   22,060       100.00%

Less: unearned income, net                        (29)                              19
Less: allowance for loan loss                     869                              281
                                        --------------                  ---------------

Total loans, net                         $     80,575                       $   21,760
                                        ==============                  ===============
</TABLE>
<TABLE>
<CAPTION>
                                               December 31,                     December 31,
                                                   1999                             1998
                                        ----------------------------    -----------------------------
<S>                                     <C>                 <C>         <C>                  <C>
Commercial                              $      22,558        33.10%     $        5,138        31.43%
Real estate - commercial                       19,780        29.03%              3,507        21.46%
Real estate - construction                        870         1.28%                760         4.65%
Real estate - residential                      11,851        17.39%              5,529        33.83%
Home equity lines                               3,777         5.54%              1,040         6.37%
Consumer                                        9,311        13.66%                369         2.26%
                                        ----------------------------    -----------------------------

Gross loans                             $      68,147       100.00%     $       16,343       100.00%

Less: unearned income, net                        (20)                              16
Less: allowance for loan loss                     726                              212
                                        --------------                  ---------------

Total loans, net                        $      67,441                   $       16,115
                                        ==============                  ===============
</TABLE>




                                     III-25
<PAGE>

Table 5

                 Cardinal Financial Corporation and Subsidiaries

                   Allocation of the Allowance for Loan Losses
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                             March 31,                          March 31,
                                                2000                               1999
                                       -----------------------            -----------------------

<S>                                        <C>        <C>                    <C>         <C>
Commercial                                 $   300     34.52%                 $   79      28.11%
Real estate - commercial                       259     29.80%                     71      25.27%
Real estate - construction                      10      1.15%                      9       3.20%
Real estate - residential                      137     15.77%                     64      22.78%
Home equity lines                               47      5.41%                     17       6.05%
Consumer                                        26      2.99%                     11       3.91%
Unallocated                                     90     10.36%                     30      10.68%
                                       -----------------------            -----------------------

Total allowance for loan losses            $   869    100.00%                $   281     100.00%
                                       =======================            =======================
</TABLE>
<TABLE>
<CAPTION>
                                            December 31,                       December 31,
                                                1999                               1998
                                       -----------------------            -----------------------

<S>                                        <C>        <C>                     <C>        <C>
Commercial                                 $   241     33.20%                 $   59      27.83%
Real estate - commercial                       211     29.06%                     40      18.87%
Real estate - construction                       9      1.24%                      9       4.25%
Real estate - residential                      126     17.36%                     64      30.19%
Home equity lines                               40      5.51%                     12       5.66%
Consumer                                        24      3.31%                      4       1.89%
Unallocated                                     75     10.32%                     24      11.31%
                                       -----------------------            -----------------------

Total allowance for loan losses            $   726    100.00%                $   212     100.00%
                                       =======================            =======================
</TABLE>




                                     III-26
<PAGE>

Table 6

                 Cardinal Financial Corporation and Subsidiaries
                   Investment Securities - Available-for-Sale

                          As of March 31, 2000 and 1999
                             (Dollars in thousands)
<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%



As of March 31, 1999
U.S. Government Agencies and Enterprises
     Within one year                                            $ 2,000     $ 2,000      $ 1,997      $   (3)        5.31%
     One to five years                                            3,000       3,002        2,987         (15)        5.76%
     After ten years                                                500         499          494          (5)        6.26%
---------------------------------------------------------------------------------------------------------------------------
            Total U.S. Government Agencies                        5,500       5,501        5,478         (23)        5.64%
---------------------------------------------------------------------------------------------------------------------------

Mortgage-Backed Securities
     Within one year                                                777         778          778          --         5.44%
     One to five years                                              796         809          812           3         5.53%
     Five to ten years                                              858         862          852         (10)        5.92%
---------------------------------------------------------------------------------------------------------------------------
            Total Mortgage-Backed Securities                      2,431       2,449        2,442          (7)        5.64%
---------------------------------------------------------------------------------------------------------------------------

            Total Investment Securities Available-for-Sale      $ 7,931     $ 7,950      $ 7,920     $   (30)        5.64%
</TABLE>




                                     III-27
<PAGE>

Table 6 (continued)

                 Cardinal Financial Corporation and Subsidiaries
                   Investment Securities - Available-for-Sale

                        As of December 31, 1999 and 1998
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                            Amortized      Fair      Unrealized    Average
As of December 31, 1999                                        Par Value      Cost        Value     Gain/(Loss)     Yield
                                                              -------------------------------------------------------------
<S>                                                            <C>            <C>          <C>           <C>         <C>
U.S. Government Agencies and Enterprises
     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%


                                                                         Amortized      Fair      Unrealized    Average
As of December 31, 1998                                     Par Value      Cost        Value     Gain/(Loss)     Yield
                                                           ----------------------------------------------------------------
U.S. Government Agencies and Enterprises
     Within one year                                            $   300         300          300           -         5.28%
     One to five years                                            9,000       9,002        9,005           3         5.79%
     Five to ten years                                              500         501          502           1         5.79%
     After ten years                                                500         499          499           -         6.26%
---------------------------------------------------------------------------------------------------------------------------
            Total U.S. Government Agencies                     $ 10,300      10,302       10,306           4         5.78%
---------------------------------------------------------------------------------------------------------------------------

Mortgage-Backed Securities
     Within one year                                                  -           -            -           -             -
     One to five years                                              437         441          440          (1)        5.43%
     Five to ten years                                              460         460          460           -         5.27%
     After  ten years                                             2,278       2,271        2,271           -         5.87%
---------------------------------------------------------------------------------------------------------------------------
            Total Mortgage-Backed Securities                   $  3,175       3,172        3,171          (1)        5.52%
---------------------------------------------------------------------------------------------------------------------------

            Total Investment Securities Available-for-Sale     $ 13,475      13,474       13,477           3         5.65%
</TABLE>





                                     III-28
<PAGE>

Table 7

                 Cardinal Financial Corporation and Subsidiaries
                     Interest Rate Sensitivity Gap Analysis

                              As of March 31, 2000
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                     1-90       91-180     181-365      1-5       Over 5
                                                     Days        Days       Days       Years       Years      TOTAL
                                                ----------------------------------------------------------------------
                    ASSETS
<S>                                                <C>        <C>         <C>        <C>        <C>         <C>
Investment securities
U.S. Government agency securities                  $      -   $      -    $      -   $  2,920   $     440   $   3,360
Mortgage-backed securities                                -          -           -          -       1,260       1,260
                                                ----------------------------------------------------------------------
Total investment securities                               -          -           -      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                 1.05x      0.10x       0.15x      1.83x       9.49x
Liabilities
Cumulative Rate Sensitive Assets/
       Cumulative Rate Sensitive Liabilities          1.05x      0.87x       0.72x      0.99x       1.24x

</TABLE>



                                     III-29
<PAGE>


Table 7 (continued)

                 Cardinal Financial Corporation and Subsidiaries
                     Interest Rate Sensitivity Gap Analysis

                             As of December 31, 1999
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                     1-90      91-180     181-365      1-5       Over 5
                                                     Days       Days        Days      Years       Years       TOTAL
                                                ----------------------------------------------------------------------
                    ASSETS
<S>                                                <C>        <C>         <C>        <C>        <C>         <C>
Investment securities
U.S. Government agency securities                  $  1,462   $    486    $      -   $    980   $     445   $   3,373
Mortgage-backed securities                               89        215           -        367         763       1,434
                                                ----------------------------------------------------------------------
Total investment securities                           1,551        701           -      1,347       1,208       4,807
                                                ----------------------------------------------------------------------
Federal funds sold                                   13,025          -           -          -           -      13,025
                                                ----------------------------------------------------------------------
Loans
Commercial -fixed                                       546      1,112       1,140      3,851         412       7,061
Commercial - variable                                11,838        529         565     19,514       2,831      35,277
Real estate - construction fixed                          -          -           -          -           -           -
Real estate - construction variable                     870          -           -          -           -         870
Real estate - residential fixed                          10         12          23      1,482          61       1,588
Real estate - residential variable                      280         39          81      9,025         838      10,263
Home equity lines                                     3,691         86           -          -           -       3,777
Consumer - fixed                                        207         52         104        676       7,693       8,732
Consumer - variable                                     442          3           6        128           -         579
                                                ----------------------------------------------------------------------
Loans receivable, net of fees                        17,884      1,833       1,919     34,676      11,835      68,147
                                                ----------------------------------------------------------------------
Total Earning Assets                                 32,460      2,534       1,919     36,023      13,043   $  85,979
                                                ----------------------------------------------------------------------
Cumulative Rate Sensitive Assets                   $ 32,460   $ 34,994    $ 36,913   $ 72,936   $  85,979
                                                ----------------------------------------------------------------------

Liabilities and Shareholders' Equity
Deposits
Demand deposits                                    $  9,971   $    337    $    337   $    337   $   1,348   $  12,330
Interest checking                                     2,607        770         257        257           -       3,891
Statement savings                                       317         43          43         76           -         479
Money market accounts                                 7,660      2,016         672        672           -      11,020
Certificates of deposit - fixed                         558      3,860       5,560      5,404         539      15,921
Certificates of deposit - no penalty                  4,141      1,895       1,793      8,403           -      16,232
                                                ----------------------------------------------------------------------
Total Deposits                                       25,254      8,921       8,662     15,149       1,887      59,873
                                                ----------------------------------------------------------------------
Borrowings - short term                                   -      4,000       2,000          -           -       6,000
                                                ----------------------------------------------------------------------
Total Interest Bearing Liabilities                   25,254     12,921      10,662     15,149       1,887   $  65,873
                                                ----------------------------------------------------------------------
Cumulative Rate Sensitive Liabilities              $ 25,254   $ 38,175    $ 48,837   $ 63,986   $  65,873
                                                ----------------------------------------------------------------------

Gap                                                $  7,206   $(10,387)   $ (8,743)  $ 20,874   $  11,156
Cumulative Gap                                        7,206     (3,181)    (11,924)     8,950      20,106
Gap/ Total Assets                                     7.43%    -10.70%      -9.01%     21.51%      11.50%
Cumulative Gap/ Total Assets                          7.43%     -3.28%     -12.29%      9.22%      20,72%
Rate Sensitive Assets/ Rate Sensitive                 1.29x      0.20x       0.18x      2.38x       6.91x
Liabilities
Cumulative Rate Sensitive Assets/
       Cumulative Rate Sensitive Liabilities          1.29x      0.92x       0.76x      1.14x       1.31x

</TABLE>




                                     III-30
<PAGE>

                                   CHAPTER IV
                             DESCRIPTION OF HERITAGE

                                    BUSINESS

General

         Heritage, a Virginia corporation, is the holding company for The
Heritage Bank, a Virginia chartered commercial bank. On October 1, 1998,
Heritage acquired all of the capital stock of The Heritage Bank and the
shareholders of The Heritage Bank became shareholders of Heritage in a share for
share exchange under a plan of reorganization approved by The Heritage Bank's
shareholders on August 26, 1998, whereby The Heritage Bank became the
wholly-owned subsidiary of Heritage (the "Reorganization"). Heritage's sole
business activity is ownership of The Heritage Bank. Heritage's common stock
trades on The Nasdaq SmallCap Market under the symbol "HBVA." At March 31, 2000,
Heritage had total assets of $64.4 million, total deposits of $48.0 million and
total stockholders' equity of $8.6 million. Net income for the quarter ended
March 31, 2000 was $25,000, a decrease of $152,000 from net income of $177,000
for the comparable period in 1999. Basic earnings per share for the quarter
ended March 31, 2000 were $0.01 ($0.01 per share, assuming dilution), down from
$0.08 per share ($0.08 per share, assuming dilution) for the quarter ended March
31, 1999. Unless otherwise disclosed, the information presented in this joint
proxy statement/prospectus represents the activity of The Heritage Bank for the
period prior to October 1, 1998 and the activity of Heritage consolidated
thereafter. Unless the context otherwise requires, all references to The
Heritage Bank or Heritage include Heritage and The Heritage Bank on a
consolidated basis.

         The Heritage Bank is the only independent financial institution
headquartered in McLean, Virginia. Established in 1987, The Heritage Bank
operated as a wholly-owned subsidiary of Heritage Bankshares, Inc. (formerly
Independent Banks of Virginia, Inc.), until 1992 when it became an independent
bank. The Heritage Bank is a well-capitalized, profitable community bank
dedicated to financing small business and consumer needs in its market area and
providing personalized "hometown" quality service to its customers by tailoring
its products and services to appeal to a local market. The Heritage Bank
currently operates two full-service offices in McLean and Sterling, Virginia and
engages in a broad range of lending and deposit services aimed at individual and
commercial customers in Fairfax and Loudoun Counties, Virginia. A third branch
in Tysons Corner, Virginia opened May 15, 2000. The Heritage Bank closed its
secondary offering of common stock in which it sold 805,000 shares of common
stock to the public at a per share price of $5.50, resulting in the raising of
net proceeds to The Heritage Bank of approximately $4.1 million in May 1998.

         The business of The Heritage Bank consists of attracting deposits from
the general public and using these funds to originate various types of
individual and commercial loans primarily in the McLean area, as well as in
Fairfax and Loudoun counties. The Heritage Bank's commercial activities include
providing checking accounts, money market accounts and certificates of deposit
to small and medium-sized businesses. The Heritage Bank also provides credit
services, such as lines of credit, term loans, construction loans, and letters
of credit, as well as real estate loans and other forms of collateralized
financing. The Heritage Bank's personal services include checking accounts, NOW
accounts, savings accounts, certificates of deposit, installment loans,
construction and other personal loans, home improvement loans, automobile and
other consumer financing.

         The Heritage Bank's profitability depends primarily on its net interest
income, the difference between the interest income it earns on its loans and
investment portfolio and its cost of funds, which consists mainly of interest
paid on deposits. Net interest income is affected by the relative amounts of
interest-earning assets and interest-bearing liabilities and the interest rates
earned or paid on these



                                      IV-1
<PAGE>

balances. When interest-earning assets approximate or exceed interest-bearing
liabilities, any positive interest rate spread will generate net interest
income.

         The Heritage Bank's profitability is also affected by the level of
other non-interest income and operating expenses. Other income consists
primarily of service fees, loan servicing and other loan fees and gains on sales
of investment securities. Operating expenses consist of salaries and benefits,
occupancy-related expenses, and other general operating expenses.

         The operations of The Heritage Bank, and banking institutions in
general, are significantly influenced by general economic conditions and related
monetary and fiscal policies of financial institutions' regulatory agencies.
Deposit flows and the cost of funds are influenced by interest rates on
competing investments and general market rates of interest. Lending activities
are affected by the demand for financing real estate and other types of loans,
which in turn are affected by the interest rates at which such financing may be
offered, strength of the economy and other factors affecting loan demand and the
availability of funds.

Asset/Liability Management

         A principal operating objective of The Heritage Bank is to produce
stable earnings by achieving a favorable interest rate spread that can be
sustained during fluctuations in prevailing interest rates. Since The Heritage
Bank's principal interest-earning assets have longer terms to maturity than its
primary source of funds, i.e., deposit liabilities, increases in general
interest rates will generally result in an increase in The Heritage Bank's cost
of funds before the yield on its asset portfolio adjusts upward. The Heritage
Bank has sought to reduce its exposure to adverse changes in interest rates by
attempting to achieve a closer match between the periods in which its
interest-bearing liabilities and interest-earning assets can be expected to
reprice through the origination of adjustable-rate mortgages and loans with
shorter terms and the purchase of other shorter term interest-earning assets.

         The term "interest rate sensitivity" refers to those assets and
liabilities which mature and reprice periodically in response to fluctuations in
market rates and yields. As noted above, one of the principal goals of The
Heritage Bank's asset/liability program is to maintain and match the interest
rate sensitivity characteristics of the asset and liability portfolios.

         In order to properly manage interest rate risk, The Heritage Bank's
board of directors has established an Asset/Liability Management Committee made
up of members of management and outside directors to monitor the difference
between The Heritage Bank's maturing and repricing assets and liabilities and to
develop and implement strategies to decrease the "negative gap" between the two.
The primary responsibilities of the committee are to assess The Heritage Bank's
asset/liability mix, recommend strategies to the board that will enhance income
while managing The Heritage Bank's vulnerability to changes in interest rates
and report to the board the results of the strategies used.

Credit Policies

         The Heritage Bank utilizes written policies and procedures to enhance
management of credit risk. The loan portfolio is managed under a
specifically-defined credit process. This process includes formulation of
portfolio management strategy, guidelines for underwriting standards and risk
assessment, procedures for ongoing identification and management of credit
deterioration, and regular portfolio reviews to estimate loss exposure and
ascertain compliance with The Heritage Bank's policies. Lending authority is
granted to individual lending officers with the current highest limit being
$150,000 for secured and $25,000 for unsecured loans. Any two officers acting
together may approve a loan up to the amount of the lower lending authority of
the two officers. An Officers' Loan Committee comprised of six



                                      IV-2
<PAGE>

officers is authorized to approve credit of up to $400,000 for secured loans and
$200,000 for unsecured loans. Approval of such credits requires a majority vote
of the Officers' Loan Committee. The directors' Loan Committee is authorized to
approve loans up to the legal lending limit of The Heritage Bank.

         The Heritage Bank's management generally requires that secured loans
have a loan-to-value ratio of 80% or less. Management believes that when a
borrower has significant equity in the assets securing the loan, the borrower is
less likely to default on the outstanding loan balance.

         A major element of credit risk management is diversification. The
Heritage Bank's objective is to maintain a diverse loan portfolio to minimize
the impact of any single event or set of circumstances. Concentration parameters
are based on factors of individual risk, policy constraints, economic
conditions, collateral and product type.

         Lending activities include a variety of consumer, real estate and
commercial loans with a strong emphasis on serving the needs of customers within
The Heritage Bank's market territory. Consumer loans are made primarily on a
secured basis in the form of installment obligations or personal lines of
credit. The focus of real estate lending is commercial mortgages, but also
includes home improvement loans, construction lending and home equity lines of
credit. Commercial lending is provided to businesses seeking credit for working
capital and the purchase of equipment and facilities. The principal lending
activity of The Heritage Bank is concentrated in mortgage loans secured by
commercial real estate, usually consisting of commercial and warehouse
facilities in The Heritage Bank's market area.

Market Area

         The Heritage Bank currently has three offices serving the McLean area
of Fairfax County, Virginia; Sterling, Virginia, which primarily serves Loudoun
County, Virginia; and Tysons Corner, Virginia. From these offices, The Heritage
Bank serves its customers, many of whom own businesses or reside in the
McLean/Great Falls area of Northern Virginia, which is located eight miles west
of Washington, DC. The remainder of The Heritage Bank's customers reside
primarily in other communities in Fairfax, Arlington and Loudoun counties.

         McLean resides in the northernmost part of Fairfax County, Virginia, by
most measures, the wealthiest county in Virginia. Fairfax County's labor force
of 523,863 ranks 11th out of the 20 largest U.S. cities and ninth in number of
residents that can be employed. The employment industries with the largest share
of the Fairfax County market are services with 40% of the market and trade with
23% of that market. Both of these areas contain customers that fit well into the
small to medium sized businesses The Heritage Bank serves. Fairfax County is
also home to many information technology firms including UUNet and PSINet. It is
estimated that nearly one-half of all international Internet traffic flows
through one of the Fairfax-based access providers.

         McLean is home to the Central Intelligence Agency, McLean's largest
employer, and the Federal Home Loan Mortgage Corporation. The Heritage Bank
provides financial services to the many professional service firms, including
lawyers, accountants, consultants and engineers. Fairfax County also includes
the Tysons Corner area, an office and commercial district that is home to a
significant number of high-technology employers. Major employers in Tysons
Corner include INOVA Health Systems, EDS, SAIC and AT&T. Tysons Corner is also
home to two major shopping centers and several major hotels. The Heritage Bank's
projected new branch will service this area.

         With the opening of the Sterling branch, The Heritage Bank has expanded
its market area to include a significant portion of Loudoun County, one of the
fastest growing counties in the United States. According to Loudoun county's
Department of Economic Development in January 2000, the county has



                                      IV-3
<PAGE>

one of the fastest growing populations and employment bases in the country with
the average income per household of $93,769. This area is experiencing
significant economic growth as a result of the expansion of the Dulles
International Airport technology corridor and the influx of "high-tech"
companies from Fairfax County. The Loudoun County market is predominately
residential with a healthy mix of retail, service activities and light industry.

         The Sterling branch is located in the CountrySide Shopping and
Professional Center, a 350,000 square foot retail/professional/medical campus
near the entrance to the 2,500 unit CountrySide residential community that is
home to over 12,000 persons. The Heritage Bank believes that development now
taking place along the Route 7 and Route 28 corridors, coupled with the rapid
population growth in eastern Loudoun County, will provide The Heritage Bank with
the opportunity to expand its consumer and small business services.

Competition

         The Heritage Bank operates in the highly competitive environment of
Fairfax County, as well as in Loudoun County, Virginia. It competes for deposits
and loans with commercial banks, savings and loans, credit unions and other
financial institutions, including non-bank competitors such as loan companies,
insurance companies and large securities firms. Many of these organizations
possess substantially greater financial and technical resources than The
Heritage Bank.

         In Fairfax County, The Heritage Bank commands 0.39% of the market,
according to the most recent survey of deposits by the Federal Deposit Insurance
Corporation. Seventeen banks with 31 branches operate in the greater McLean area
and 17 of these branches are located in proximity to The Heritage Bank in the
McLean Central Business District.

         The market is mature and the growth of deposits and loan demand has
slowed in recent years. While it can produce stable earnings from its operations
in the McLean office, The Heritage Bank believes the future growth of The
Heritage Bank will be in expansion to other parts of Northern Virginia.

         There are numerous commercial banks located in Loudoun County. A number
of mortgage companies along with several non-bank financial institutions also
compete in the area. All are full-service banks and provide a wide array of bank
products and services like The Heritage Bank. The Heritage Bank believes that it
will enjoy a competitive advantage due to its local community bank orientation
and reputation for providing personalized service to its customers.

         With the opening of the Sterling branch in April 1999 and the Tysons
Corner branch in May 2000, The Heritage Bank increased its deposit base, which
in turn increased the funds available for loans and other profitable
opportunities for The Heritage Bank. While The Heritage Bank will continue to
experience a competitive environment in Fairfax and Loudoun counties, there
still exist opportunities to establish new branches in those areas where
significant population increases and economic growth are occurring.

Employees

         At March 31, 2000, The Heritage Bank had 30 full-time equivalent
employees. None of its employees is represented by any collective bargaining
unit. The Heritage Bank considers relations with its employees to be good.



                                      IV-4
<PAGE>

Federal Taxation

         General. The following is intended only as a discussion of material
federal income tax matters and does not purport to be a comprehensive
description of the federal income tax rules applicable to The Heritage Bank or
Heritage. For federal income tax purposes, Heritage and The Heritage Bank, as
members of the same affiliated group, file consolidated income tax returns on a
December 31 fiscal year basis using the accrual method of accounting and are
subject to federal income taxation in the same manner as other corporations.

         Distributions. To the extent that The Heritage Bank makes "non-dividend
distributions" to Heritage, such distributions will be considered to have been
made from The Heritage Bank's "base year reserve," and then from The Heritage
Bank's supplemental reserve for losses on loans, to the extent thereof, and an
amount based on the amount distributed (but not in excess of the amount of such
reserves) will be included in The Heritage Bank's income. Non-dividend
distributions include distributions in excess of The Heritage Bank's current and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation. Dividends paid out of The Heritage Bank's current or accumulated
earnings and profits will not be so included in The Heritage Bank's income.

         The amount of additional taxable income created from a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if The Heritage Bank
makes a non-dividend distribution to Heritage, approximately one and one-half
times the amount of such distribution (but not in excess of the amount of such
reserves) would be includible in income, assuming a 34% federal corporate income
tax rate. The Heritage Bank does not intend to pay dividends that would result
in a recapture of any portion of its bad debt reserves.

         Corporate Alternative Minimum Tax. The Code imposes a tax on
alternative minimum taxable income at a rate of 20%. Only 90% of alternative
minimum taxable income can be offset by net operating loss carryovers of which
The Heritage Bank currently has none. Alternative minimum taxable income is also
adjusted by determining the tax treatment of certain items in a manner that
negates the deferral of income resulting from the regular tax treatment of those
items. Heritage and The Heritage Bank have not been subject to the alternative
minimum tax during the past five years.

         Elimination of Dividends; Dividends Received Deduction. Heritage may
exclude from its income 100% of dividends received from The Heritage Bank as a
member of the same affiliated group of corporations.

State Taxation

         The Heritage Bank is exempt from paying state income tax to the
Commonwealth of Virginia. Under Virginia law, however, banks must pay a
franchise tax at the rate of $1 on each $100 of net capital as defined under
Virginia law. For additional information regarding taxation, see Note 8 of the
Notes to Financial Statements.

Regulation and Supervision

         The Heritage Bank is extensively regulated under both federal and state
law. The following is a brief summary of certain statutes, rules and regulations
affecting Heritage and The Heritage Bank. This summary is qualified in its
entirety by reference to the particular statutory and regulatory provisions
referred to below and is not intended to be an exhaustive description of the
statutes or regulations applicable to The Heritage Bank's business.



                                      IV-5
<PAGE>

Financial Services Modernization Legislation

         On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Financial Services Modernization Act of 1999, federal
legislation intended to modernize the financial services industry by
establishing a comprehensive framework to permit affiliations among commercial
banks, insurance companies, securities firms and other financial service
providers.

         Bank holding companies will be permitted to engage in a wider variety
of financial activities than permitted under prior law, particularly with
respect to insurance and securities activities. In addition, in a change from
prior law, bank holding companies will be in a position to be owned, controlled
or acquired by any company engaged in financially-related activities.

         Heritage does not believe that the Act will have a material adverse
effect on its operations in the near-term. However, to the extent that it
permits banks, securities firms and insurance companies to affiliate, the
financial services industry may experience further consolidation. This could
result in a growing number of larger financial institutions that offer a wider
variety of financial services than Heritage currently offers and that can
aggressively compete in the markets that it currently serves.

Regulation of The Heritage Bank

         The Heritage Bank is regulated and supervised by the Virginia State
Corporation Commission. In addition, as a state member bank, The Heritage Bank
is regulated and supervised by the Federal Reserve, which serves as its primary
federal regulator, and is subject to certain regulations promulgated by the
FDIC. The Virginia State Corporation Commission and the Federal Reserve conduct
regular examinations of The Heritage Bank, reviewing the adequacy of its loan
loss reserves, the quality of its loans and investments, the propriety of
management practices, compliance with laws and regulations, and other aspects of
The Heritage Bank's operations. In addition to these regular examinations, The
Heritage Bank must furnish to the Federal Reserve semi-annual reports containing
detailed financial statements and schedules.

         Federal and Virginia banking laws and regulations govern all areas of
the operations of The Heritage Bank, including reserves, loans, mortgages,
capital, issuance of securities, payment of dividends and establishment of
branches. Federal and state bank regulatory agencies also have the general
authority to limit the dividends paid by insured banks. See "--Limits on
Dividends and Other Payments." As its primary federal regulator, the Federal
Reserve has authority to impose penalties, initiate civil and administrative
actions and take other steps intended to prevent The Heritage Bank from engaging
in unsafe or unsound practices. In this regard, the Federal Reserve has adopted
capital adequacy requirements applicable to state member banks such as The
Heritage Bank. See "--Capital Requirements."

         Transactions with Affiliates and Insiders of The Heritage Bank.
Transactions between an insured bank, such as The Heritage Bank, and any of its
affiliates are governed by Sections 23A and 23B of the Federal Reserve Act. An
affiliate of a bank is any company or entity which controls, is controlled by or
is under common control with The Heritage Bank. Generally, Sections 23A and 23B
(i) limit the extent to which The Heritage Bank or its subsidiaries may engage
in "covered transactions" with any one affiliate to an amount equal to 10% of
such institution's capital stock and surplus, and limit all such transactions
with all affiliates to an amount equal to 20% of such capital stock and surplus
and (ii) require that all such transactions be on terms that are consistent with
safe and sound banking practices. In addition, any purchase of assets or
services by a bank from an affiliate must be on terms that are substantially the
same, or at least as favorable, to the institution as those that would be
provided to a non-affiliate. The term



                                      IV-6
<PAGE>

"covered transaction" includes the making of loans, purchase of assets, issuance
of guarantees and similar other types of transactions. Further, most loans by a
bank to its affiliate must be supported by collateral in amounts ranging from
100 to 130 percent of the loan amounts.

         Banks are also subject to the restrictions contained in Section 22(h)
of the Federal Reserve Act and the Federal Reserve Board's Regulation O
thereunder on loans to executive officers, directors and principal shareholders.
Under Section 22(h), loans to a director, an executive officer or a greater than
10% shareholder of a bank as well as certain affiliated interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such
person and affiliated interests, the loans-to-one-borrower limit applicable to
national banks (generally 15% of the institution's unimpaired capital and
surplus), and all loans to all such persons in the aggregate may not exceed the
institution's unimpaired capital and unimpaired surplus. Regulation O also
prohibits the making of loans in an amount greater than $25,000, or 5% of
capital and surplus but in any event over $500,000, to directors, executive
officers and greater than 10% shareholders of a bank, and their respective
affiliate, unless such loans are approved in advance by a majority of the board
of directors of The Heritage Bank with any "interested" director not
participating in the voting. Further, Regulation O requires that loans to
directors, executive officers and principal shareholders be made on terms
substantially the same as those that are offered in comparable transactions to
other persons. Regulation O also prohibits a depository institution from paying
the overdrafts over $1,000 of any of its executive officers or directors unless
they are paid pursuant to written pre-authorized extension of credit or transfer
of funds plans.

         Community Reinvestment. Under the Community Reinvestment Act, any
insured depository institution, including The Heritage Bank, has a continuing
and affirmative obligation consistent with its safe and sound operation to help
meet the credit needs of its entire community, including low and moderate income
neighborhoods. The Community Reinvestment Act does not establish specific
lending requirements or programs for financial institutions, nor does it limit
an institution's discretion to develop the types of products and services that
it believes are best suited to its particular community. The Community
Reinvestment Act requires the Federal Reserve, in connection with its
examination of a state member bank, to assess the depository institution's
record of meeting the credit needs of its community and to take such record into
account in its evaluation of certain applications by such institution, including
applications for additional branches and acquisitions.

         Among other things, the current Community Reinvestment Act regulations
replace the prior process-based assessment factors with a new evaluation system
that rates an institution based on its actual performance in meeting community
needs. In particular, the current evaluation system focuses on three tests:

         o   a lending test, to evaluate the institution's record of making
             loans in its service areas;

         o   an investment test, to evaluate the institution's record of
             investing in community development projects, affordable housing,
             and programs benefiting low or moderate income individuals and
             businesses; and

         o   a service test, to evaluate the institution's delivery of services
             through its branches, ATMs and other offices.

         The Community Reinvestment Act requires the Federal Reserve to provide
a written evaluation of an institution's Community Reinvestment Act performance
utilizing a four-tiered descriptive rating system and requires public disclosure
of an institution's Community Reinvestment Act rating. The Heritage Bank
received a "satisfactory" rating in its last Community Reinvestment Act
examination conducted by the Federal Reserve.



                                      IV-7
<PAGE>

         Safety and Soundness Standards. Pursuant to the requirements of FDIC
Improvement Act, as amended by the Riegle Community Development and Regulatory
Improvement Act of 1994, each federal banking agency, including the Federal
Reserve, has adopted guidelines establishing general standards relating to
internal controls, information and internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, asset quality,
earnings, and compensation, fees and benefits. In general, the guidelines
require, among other things, appropriate systems and practices to identify and
manage the risks and exposures specified in the guidelines. The guidelines
prohibit excessive compensation as an unsafe and unsound practice and describe
compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director, or principal shareholder.

         Uniform Real Estate Lending Standards. Under the FDIC Improvement Act,
the federal banking agencies adopted uniform regulations prescribing standards
for extensions of credit that are secured by liens on interests in real estate
or made for the purpose of financing the construction of a building or other
improvements to real estate. Under the joint regulations adopted by the federal
banking agencies, all insured depository institutions must adopt and maintain
written policies that establish appropriate limits and standards for extensions
of credit that are secured by liens or interests in real estate or are made for
the purpose of financing permanent improvements to real estate. These policies
must establish loan portfolio diversification standards, prudent underwriting
standards, including loan-to-value limits, that are clear and measurable, loan
administration procedures, and documentation, approval and reporting
requirements. The real estate lending policies must reflect consideration of the
Interagency Guidelines for Real Estate Lending Policies that have been adopted
by the federal bank regulators.

         The Interagency Guidelines, among other things, require a depository
institution to establish internal loan-to-value limits for real estate loans
that are not in excess of the following supervisory limits:

         o   for loans secured by raw land, the supervisory loan-to-value limit
             is 65% of the value of the collateral;

         o   for land development loans, or loans for the purpose of improving
             unimproved property prior to the erection of structures, the
             supervisory limit is 75%;

         o   for loans for the construction of commercial, multi-family or other
             non-residential property, the supervisory limit is 80%;

         o   for loans for the construction of one- to four-family properties,
             the supervisory limit is 85%; and

         o   for loans secured by other improved property, for example,
             farmland, completed commercial property and other income-producing
             property including non-owner occupied, one- to four-family
             property, the limit is 85%.

         Although no supervisory loan-to-value limit has been established for
owner-occupied, one to four-family and home equity loans, the Interagency
Guidelines state that for any such loan with a loan-to-value ratio that equals
or exceeds 90% at origination, an institution should require appropriate credit
enhancement in the form of either mortgage insurance or readily marketable
collateral.

         Deposit Insurance. Pursuant to FDIC Improvement Act, the FDIC
established a system for setting deposit insurance premiums based upon the risks
a particular bank or savings association posed to



                                      IV-8
<PAGE>

its deposit insurance funds. Under the risk-based deposit insurance assessment
system, the FDIC assigns an institution to one of three capital categories based
on the institution's financial information, as of the reporting period ending
six months before the assessment period. The three capital categories are (1)
well capitalized, (2) adequately capitalized and (3) undercapitalized. The FDIC
also assigns an institution to one of three supervisory subcategories within
each capital group. With respect to the capital ratios, institutions are
classified as well capitalized, adequately capitalized or undercapitalized using
ratios that are substantially similar to the prompt corrective action capital
ratios discussed below. The FDIC also assigns an institution to supervisory
subgroup based on a supervisory evaluation provided to the FDIC by the
institution's primary federal regulator and information that the FDIC determines
to be relevant to the institution's financial condition and the risk posed to
the deposit insurance funds, which may include information provided by the
institution's state supervisor.

         An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned. Under the final risk-based
assessment system, there are nine assessment risk classifications, or
combinations of capital groups and supervisory subgroups, to which different
assessment rates are applied. Assessment rates for deposit insurance currently
range from 0 basis points to 27 basis points. The capital and supervisory
subgroup to which an institution is assigned by the FDIC is confidential and may
not be disclosed.

         A bank's rate of deposit insurance assessments will depend upon the
category and subcategory to which The Heritage Bank is assigned by the FDIC. Any
increase in insurance assessments could have an adverse effect on the earnings
of insured institutions, including The Heritage Bank.

         Under the Deposit Insurance Funds Act of 1996 the assessment base for
the payments on the bonds issued in the late 1980's by the Financing Corporation
to recapitalize the now defunct Federal Savings and Loan Insurance Corporation
was expanded to include, beginning January 1, 1997, the deposits of institutions
insured by Bank Insurance Fund. Until December 31, 1999, or such earlier date on
which the last savings association ceases to exist, the rate of assessment for
Bank Insurance Fund-assessable deposits will be one-fifth of the rate imposed on
deposits insured by the Savings Association Insurance Fund. The annual rate of
assessments for the payments on the Financing Corporation bonds for the
quarterly period beginning on January 1, 1999 was 0.0122% for Bank Insurance
Fund-assessable deposits and 0.0610% for Savings Association Insurance
Fund-assessable deposits.

         Under the Federal Deposit Insurance Act, the FDIC may terminate the
insurance of an institution's deposits upon a finding that the institution has
engaged in unsafe or unsound practices, is in an unsafe or unsound condition to
continue operations or has violated any applicable law, regulation, rule, order
or condition imposed by the FDIC. The management of The Heritage Bank does not
know of any practice, condition or violation that might lead to termination of
deposit insurance.

Capital Requirements

         The FDIC Act of 1991 requires the Federal Reserve to take "prompt
corrective action" with respect to any insured depository institution which does
not meet specified minimum capital requirements. The applicable regulations
establish five capital levels, ranging from "well-capitalized" to "critically
undercapitalized," and require or permit the Federal Reserve to take supervisory
action in certain circumstances. Under these regulations, an insured depository
institution is considered well-capitalized if it has a total risk-based capital
ratio of 10.0% or greater, a tier 1 risk-based capital ratio of 6.0% or greater,
and a leverage ratio of 5.0% or greater, and it is not subject to an order,
written agreement, capital directive or prompt corrective action directive to
meet and maintain a specific capital level for any capital measure. An insured
depository institution is considered adequately capitalized if it has a total
risk-based capital ratio of 8.0% or greater, a tier I risk-based capital ratio
and leverage ratio of



                                      IV-9
<PAGE>

4.0% or greater (or a leverage ratio of 3.0% or greater if the institution is
rated composite 1 in its most recent report of examination, subject to
appropriate federal banking agency guidelines), and the institution does not
meet the definition of an undercapitalized institution. An insured depository
institution is considered undercapitalized if it has a total risk-based capital
ratio that is less than 8.0%, a tier 1 risk-based capital ratio that is less
than 4.0%, or a leverage ratio that is less than 4.0%. A significantly
undercapitalized institution is one which has a total risk-based capital ratio
that is less than 6.0%, a tier 1 risk-based capital ratio that is less than
3.0%, or a leverage ratio that is less than 3.0%. A critically undercapitalized
institution is one which has a ratio of tangible equity to total assets that is
equal to or less than 2.0%. As of March 31, 2000, The Heritage Bank was
classified as well-capitalized. The Heritage Bank's tier 1 and total risk-based
capital ratios as of March 31, 2000 were 18.3% and 19.1%, respectively.

         The severity of action authorized or required to be taken under prompt
corrective action regulations increases as a bank's capital deteriorates within
the three undercapitalized categories. All banks are prohibited from paying
dividends or other capital distributions or paying management fees to any
controlling person, if, following such distribution, The Heritage Bank will be
undercapitalized. The Federal Reserve is authorized by this legislation and
under Regulation H (which regulates state member banks) to take various
enforcement actions against any undercapitalized insured depository institution
and any insured depository institution that fails to submit an acceptable
capital restoration plan or fails to implement a plan accepted by the Federal
Reserve. These powers include, among other things, requiring the institution to
be recapitalized, prohibiting asset growth, restricting interest rates paid,
requiring prior approval of capital distributions by any bank holding company
which controls the institution, requiring divestiture by the institution of its
subsidiaries or by the holding company of the institution itself, requiring new
election of directors, and requiring the dismissal of directors and officers.

         With certain exceptions, insured depository institutions will be
prohibited from making capital distributions or paying management fees if the
payment of such distributions or fees will cause them to become
undercapitalized. Furthermore, undercapitalized insured depository institutions
will be required to file capital restoration plans with the Federal Reserve.
Undercapitalized insured depository institutions also will be subject to
restrictions on growth, acquisitions, branching and engaging in new lines of
business unless they have an approved capital plan that permits otherwise. The
Federal Reserve also may, among other things, require an undercapitalized
insured depository institution to issue shares or obligations, which could be
voting stock, to recapitalize the institution or, under certain circumstances,
to divest itself of any subsidiary.

         Significantly and critically undercapitalized insured depository
institutions may be subject to more extensive control and supervision. The
Federal Reserve may prohibit any such institutions from, among other things,
entering into any material transaction not in the ordinary course of business,
amending their articles of incorporation or bylaws, or engaging in certain
transactions with affiliates. In addition, critically undercapitalized
institutions generally will be prohibited from making payments of principal or
interest on outstanding subordinated debt. Within 90 days of an insured
depository institution becoming critically undercapitalized, the Federal Reserve
must appoint a receiver or conservator unless certain findings are made with
respect to the prospect for the institution's continued viability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Analysis of Financial Condition - Capital Requirements" for more
information about The Heritage Bank's capital ratios and applicable minimum
ratios.

Branching

         Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994, the Federal Reserve may approve bank holding company acquisitions of
banks in other states, subject to certain aging and deposit concentration
limits. As of June 1, 1997, banks in one state may merge with banks in another



                                     IV-10
<PAGE>

state, unless the other state has chosen not to implement this section of the
Riegle Act. These mergers are also subject to similar aging and deposit
concentration limits.

         Virginia "opted-in" to the provisions of the Riegle Act. Since July 1,
1995, an out-of-state bank that did not already maintain a branch in Virginia
was permitted to establish and maintain a de novo branch in Virginia, or acquire
a branch in Virginia, if the laws of the home state of the out-of-state bank
permit Virginia banks to engage in the same activities in that state under
substantially the same terms as permitted by Virginia. Also, Virginia banks may
merge with out-of-state banks, and an out-of-state bank resulting from such an
interstate merger transaction may maintain and operate the branches in Virginia
of a merged Virginia bank, if the laws of the home state of the out-of-state
bank involved in the interstate merger transaction permit interstate merger.

Federal Reserve System

         Under Federal Reserve Board regulations, The Heritage Bank is required
to maintain non-interest-earning reserves against its transaction accounts. The
Federal Reserve Board regulations generally require that reserves of 3% must be
maintained against aggregate transaction accounts of $44.3 million or less,
subject to adjustment by the Federal Reserve Board, and an initial reserve of
$1.3 million plus 10%, subject to adjustment by the Federal Reserve Board
between 8% and 14%, against that portion of total transaction accounts in excess
of $44.3 million. The first $5.0 million of otherwise reservable balances,
subject to adjustments by the Federal Reserve Board, are exempted from the
reserve requirements. The Heritage Bank is in compliance with these
requirements. Because required reserves must be maintained in the form of either
vault cash, a non-interest-bearing account at a Federal Reserve bank or a
pass-through account as defined by the Federal Reserve Board, the effect of this
reserve requirement is to reduce The Heritage Bank's interest-earning assets.

Effect of Economic Environment

         The policies of regulatory authorities, including the monetary policy
of the Federal Reserve, have a significant effect on the operating results of
banks and their subsidiaries. Among the means available to the Federal Reserve
to affect the money supply are open market operations in U.S. government
securities, changes in the discount rate on member bank borrowings, and changes
in reserve requirements against member bank deposits. These means are used in
varying combinations to influence overall growth and distribution of bank loans,
investments and deposits, and their use may affect interest rates charged on
loans or paid for deposits.

         Federal Reserve monetary policies have materially affected the
operating results of commercial banks in the past and are expected to continue
to do so in the future. The nature of future monetary policies and the effect of
such policies on the business and income of The Heritage Bank cannot be
predicted.

Regulation of Holding Company

         Federal Regulation. Heritage is a bank holding company. Bank holding
companies are subject to examination, regulation and periodic reporting under
Bank Holding Company Act, as administered by the Federal Reserve Board. The
Federal Reserve Board has adopted capital adequacy guidelines for bank holding
companies on a consolidated basis. As of March 31, 2000, Heritage's total
capital and tier 1 capital ratios exceeded these minimum capital requirements.

         Regulations of the Federal Reserve Board provide that a bank holding
company must serve as a source of strength to any of its subsidiary banks and
must not conduct its activities in an unsafe or



                                     IV-11
<PAGE>

unsound manner. Under the prompt corrective action provisions of the FDIC
Improvement Act, a bank holding company parent of an undercapitalized subsidiary
bank would be directed to guarantee, within limitations, the capital restoration
plan that is required of such an undercapitalized bank. See "- Federal Banking
Regulation - Prompt Corrective Action" above. If the undercapitalized bank fails
to file an acceptable capital restoration plan or fails to implement an accepted
plan, the Federal Reserve Board may prohibit the bank holding company parent of
the undercapitalized bank from paying any dividend or making any other form of
capital distribution without the prior approval of the Federal Reserve Board.

         As a bank holding company, Heritage is required to obtain the prior
approval of the Federal Reserve Board to acquire all, or substantially all, of
the assets of any bank or bank holding company. Prior Federal Reserve Board
approval will be required for Heritage to acquire direct or indirect ownership
or control of any voting securities of any bank or bank holding company if,
after giving effect to such acquisition, it would, directly or indirectly, own
or control more than 5% of any class of voting shares of such bank or bank
holding company.

         A bank holding company is required to give the Federal Reserve Board
prior written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, will be equal to 10% or more of Heritage's
consolidated net worth. The Federal Reserve Board may disapprove such a purchase
or redemption if it determines that the proposal would constitute an unsafe and
unsound practice, or would violate any law, regulation, Federal Reserve Board
order or directive, or any condition imposed by, or written agreement with, the
Federal Reserve Board. Such notice and approval is not required for a bank
holding company that would be treated as "well capitalized" under applicable
regulations of the Federal Reserve Board, that has received a composite "1" or
"2" rating at its most recent bank holding company inspection by the Federal
Reserve Board, and that is not the subject of any unresolved supervisory issues.

         In addition, a bank holding company which does not qualify as a
financial holding company under the Bank Holding Company Act is generally
prohibited from engaging in, or acquiring direct or indirect control of any
company engaged in non-banking activities. One of the principal exceptions to
this prohibition is for activities found by the Federal Reserve Board to be so
closely related to banking or managing or controlling banks as to be
permissible. Some of the principal activities that the Federal Reserve Board has
determined by regulation to be so closely related to banking as to be
permissible are:

         o   making or servicing loans;

         o   performing certain data processing services;

         o   providing discount brokerage services;

         o   acting as fiduciary, investment or financial advisor;

         o   leasing personal or real property;

         o   making investments in corporations or projects designed primarily
             to promote community welfare; and

         o   acquiring a savings and loan association.



                                     IV-12
<PAGE>

         Bank holding companies that do qualify as a financial holding company
may engage in activities that are financial in nature or incident to activities
which are financial in nature. Bank holding companies may qualify to become a
financial holding company if:

         o   each of its depository institution subsidiaries is "well
             capitalized";

         o   each of its depository institution subsidiaries is "well managed";

         o   each of its depository institution subsidiaries has at least a
             "satisfactory" Community Reinvestment Act rating at its most recent
             examination; and

         o   the bank holding company has filed a certification with the Federal
             Reserve Board that it elects to become a financial holding company.

         Under the Federal Deposit Insurance Act, depository institutions are
liable to the FDIC for losses suffered or anticipated by the FDIC in connection
with the default of a commonly controlled depository institution or any
assistance provided by the FDIC to such an institution in danger of default.
This law would potentially be applicable to Heritage if it ever acquired as a
separate subsidiary a depository institution in addition to The Heritage Bank.

Federal Securities Laws

         Heritage's common stock is registered with the Securities and Exchange
Commission under Section 12(g) of the Securities Exchange Act of 1934. Heritage
is subject to the information, proxy solicitation, insider trading restrictions
and other requirements under the Securities Exchange Act of 1934.







                                     IV-13
<PAGE>

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS

         The following discussion is intended to assist readers in understanding
and evaluating the financial condition and results of operations of Heritage and
The Heritage Bank. This review should be read in conjunction with the audited
financial statements and accompanying notes. This analysis provides an overview
of the significant changes that occurred during the periods presented.

Results of Operations

         The Heritage Bank's operating results depend primarily upon its net
interest income, the difference between the interest earned on its
interest-bearing assets (loans and investment securities) and the interest paid
on interest-bearing liabilities (deposits and securities sold under agreement to
repurchase). Operating results are significantly affected by provisions for loan
losses, other income and operating expenses. Each of these factors is
significantly affected not only by The Heritage Bank's policies, to varying
degrees, but general economic and competitive conditions and by policies of
state and federal regulatory authorities.

Comparison of Financial Condition at March 31, 2000 and December 31, 1999

         As of March 31, 2000 Heritage's total assets were $64.4 million as
compared to $59.9 million as of December 31, 1999, which represents an increase
of 7.5%. The 2000 increase in total assets of $4.5 million was primarily due to
the increased loan production. Total loans increased by 13.7% or $4.4 million to
$36.0 million at March 31, 2000 from $31.7 million at December 31, 1999.

         Total deposits increased $40,000 to $48.0 million at March 31, 2000 as
compared to $47.9 million at December 31, 1999. Repurchase agreements at March
31, 2000 were $7.6 million or 153.3% greater than the December 31, 1999 balance
of $3.0 million. The Heritage Bank temporarily funded loans with a repurchase
agreement with another bank using its investment securities as collateral. At
March 31, 2000, the total of The Heritage Bank's repurchase agreements with
another bank was $4.5 million. Customer related repurchase agreements totaled
$3.1 million and $3.0 million at March 31, 2000 and December 31, 1999,
respectively.

         Federal funds sold and cash and due from banks represent Heritage's
cash and cash equivalents. Federal funds sold and cash and cash due from banks
at March 31, 2000 totaled $3.0 million compared to $2.7 million at December 31,
1999, representing an increase of $323,000, or 12.1%. The Heritage Bank had no
balances in federal funds sold at March 31, 2000 and December 31, 1999. The
increase in due from banks was attributable to usual fluctuations in clearing
balances at the Federal Reserve Bank.

         Securities available for sale decreased $290,000 or 1.2% to $23.8
million at March 31, 2000 from $24.1 million at December 31, 1999. The net
$290,000 decrease was primarily due to the sale of two securities for liquidity
in January and the purchase of one additional floating rate security to increase
the yield on earning assets.




                                     IV-14
<PAGE>

Comparison of Financial Condition at December 31, 1999 and 1998

         As of December 31, 1999, Heritage's total assets were $59.9 million, as
compared to $64.8 million at December 31, 1998, which represents a decrease of
$4.9 million, or 7.5%. The 1999 decline in total assets was primarily due to the
loss of funds provided by a one time $8.0 million deposit into attorneys escrow
accounts at the end of fiscal 1998. These funds were withdrawn the first week of
January 1999 in the normal course of business, decreasing total deposits. Total
deposits decreased by $5.4 million to $48.0 million at December 31, 1999, as
compared to $53.4 million at December 31, 1998. Adjusting for the $8.0 million
in escrow deposits, total assets at December 31, 1999 increased $3.1 million
over December 31, 1998 and total deposits increased $2.6 at December 31, 1999 as
compared to December 31, 1998.

         Securities sold under agreements to repurchase at December 31, 1999
were $3.0 million or 31.2% greater than the December 31, 1998 balance of $2.3
million. The Heritage Bank increased the offering of repurchase agreements for
customers with larger short term funds in fiscal 1999. Federal funds sold and
cash and due from banks represent Heritage's cash and cash equivalents. Federal
funds sold and cash and cash due from banks at December 31, 1999 totaled $2.7
million, compared to $14.4 million at December 31,1998, representing a decrease
of $11.7 million, or 81.4%. Federal funds sold represented $8.6 million of the
decrease with cash and due from banks decreasing $3.2 million. Increased loan
production and the decrease of deposits in January 1999 was the primary cause
for the decrease in federal funds sold.

         Securities available for sale increased $4.2 million, or 21.3%, to
$24.1 million at December 31, 1999 from $19.8 million at December 31, 1998. This
investment in securities was made to increase the yield on earning assets as
compared to the lower yield of federal funds sold.

         Net loans were $31.3 million at December 31, 1999 as compared to $29.2
million at December 31, 1998. This net increase of $2.1 million, or 7.2%, was
primarily due to the change in lending officers prior to year end and the new
customer relationships developed by the new lending officers. Stockholders'
equity at December 31, 1999 was $8.6 million, as compared to $8.9 million at
December 31, 1998, representing a decrease of $330,000, or 3.7%. This decline
was primarily due to an increase in the unrealized loss net of income taxes on
the available for sale security portfolio due to market declines.

         Heritage's return on average assets was 0.30% and its return on average
equity was 2.06% in fiscal year 1999. The Heritage Bank's return on average
assets was 0.26% and its return on average equity was 1.79% in fiscal year 1998.

         The Heritage Bank is required to meet certain capital requirements as
established by the Federal Reserve Board. At December 31, 1999 and 1998, The
Heritage Bank met all capital adequacy requirements to which it was subject.

Results of Operations For The Three Months Ended March 31, 2000 and 1999

         Net income. Heritage reported net income for the three months ended
March 31, 2000 of $25,000 or $.01 basic and diluted earnings per share as
compared to the $177,000 net income or $.08 basic and diluted earnings per share
for the same period of 1999. Net income decreased $152,000 from March 31, 1999
as compared to the same period of 2000. This decrease was primarily due to
increased operational and facility costs due to the Sterling branch which opened
in April of 1999 and additional space rented for operational expansion at the
main office address in McLean in March of 1999.

         Net-interest income. Net interest income is the difference between
interest earned on loans, investment securities and short-term investments, and
the interest paid on deposits and repurchase



                                     IV-15
<PAGE>

agreements. Factors affecting net interest income include interest rates earned
on loans and investments and those paid on deposits and repurchase agreements,
the mix and volume of earning assets and interest bearing liabilities and the
level of non-earning assets and non-interest bearing liabilities. Net interest
income for the quarter ended March 31, 2000 increased $5,000 or .7% over the
same quarter of 1999.

         Non-interest income. During the three-month period ended March 31, 2000
non-interest income decreased $1,000 over the same period of 1999. A loss on
sale of securities of $13,000 in January 2000 was partially offset by increases
in overdraft and return check charges, and other commission fees such as ATM
fees and merchant discount fees. The securities were sold to provide some
liquidity for loan funding.

         Non-interest expense. In the first quarter of 2000 non-interest
expenses increased $198,000 or 34.7% over the same period of 1999 due to
increased operational and facility costs due to the Sterling branch which opened
in April of 1999 and additional space rented for operational expansion at the
main office address in March of 1999. These increased leases raised occupancy
expense by $53,000 for the three months ended March 31, 2000 as compared to the
same period of 1999. Additional salaries of $41,000 due to increase employees at
the Sterling branch also contributed to the increased non-interest expenses for
the quarter.

         Provision for loan losses. In view of the loan growth for the first
three months of 1999 and the fact that there was no deterioration in The
Heritage Bank's loan portfolio, a provision of $7,000 was made for loan losses
in the first quarter of 1999. The allowance for loan losses at March 31, 1999
was 1.33% of outstanding loans. In view of the improvement in The Heritage
Bank's loan portfolio, an analysis of the reserve for loan losses indicated that
the reserves were greater than required. Management determined that a reserve of
1.10% would be an acceptable level. A credit of $28,000 was made to the
provision to reduce the reserve balance at March 31, 2000. The level of the
allowance for loan losses is based upon management's review of the loan
portfolio and includes the present and prospective financial condition of
borrowers, consideration of actual loan loss experience and projected economic
conditions in general and for The Heritage Bank's service areas in particular.
Management believes that the provision for loan losses and the allowance for
loan losses are reasonable and adequate to cover any known losses and any losses
reasonably expected in the existing loan portfolio. While management estimates
loan losses using the best available information, such as independent appraisals
on collateral, no assurance can be given that future additions to the allowance
will not be necessary based on changes in economic and real estate market
conditions, further information obtained regarding known problem loans,
identification of additional problem loans and other factors, both within and
outside management's control.

         Income Taxes. Heritage recognized a net income tax expense of $12,000
in the first quarter of 2000, as compared to $19,000 in the same period of 1999.
A net operating loss carryforward of Heritage became completely utilized for
accounting purposes in 1999.

Results of Operations For The Years Ended December 31, 1999 and 1998

         Net Income. Net income for the year ended December 31, 1999 was
$182,000, an increase of 36.4% from $133,000 for the same period of 1998. Net
income per basic and diluted share increased 14.3% to $.08 from $.07 for the
same period of 1998. The increase in net income for the year ended December 31,
1999 as compared to the same period of 1998 was primarily the result of
increases in net interest, which were partially offset by increases in
non-interest expenses. In addition, the allowance for loan losses was considered
adequate without additional provision expense for 1999, due to an improvement in
the quality of the loan portfolio as compared to year end 1998. In 1998, the net
operating loss carryforward was fully utilized. This change in tax status
created a $133,000 variance in tax expense.



                                     IV-16
<PAGE>

Net income before taxes for the year ended December 31, 1999 increased 195.7% to
$275,000 as compared to $93,000 for the same period of 1998.

         Interest Income. Interest income totaled $4.4 million for the year
ended December 31, 1999, an increase of $615,000, or 16.3%, from $3.8 million
for the year ended December 31, 1998. The increase in interest income was
primarily due to a $304,000 increase in interest on increased loan balances and
an increase of $296,000 on securities available for sale.

         Interest Expense. Total interest expense increased $167,000, or 13.1%,
from $1.3 million for the year ended December 31, 1998 to $1.4 million for the
year ended December 31, 1999. Increased interest expense was due to a shift from
balances in non-interest deposits to interest bearing deposits and securities
sold under agreements to repurchase.

         Net Interest Income. Net interest income is the difference between
interest earned on loans, investment securities and short term investments, and
the interest paid on deposits and repurchase agreements. Factors affecting net
interest income include interest rates earned on loans and investments and those
paid on deposits and repurchase agreements, the mix and volume of earning assets
and interest bearing liabilities and the level of non-earning assets and
non-interest bearing liabilities. Net interest income for the year ended
December 31, 1999 increased $448,000, or 18.0%, from $2.5 million for the year
ended December 31, 1998 to $2.9 million for the year ended December 31, 1999.
The increase in net interest income is primarily due to the growth in the loan
portfolio.

         Non-interest income. During the year ended December 31, 1999,
non-interest income increased $85,000 over the same period in 1998. This
increase resulted from increased overdraft and return check charges, loan
service fees and other commission fees such as ATM fees and merchant discount
fees. The Heritage Bank also had a gain on the sale of other real estate of
$57,000 in fiscal 1999, a nonrecurring item.

         Non-interest Expense. During the year ended December 31, 1999,
non-interest expenses increased $468,000, or 19.3%, over the same period of
1998. This increase was partially due to increased operational and facility
costs of the Sterling branch that opened in April 1999 and additional space
rented for operational expansion at the main office address in McLean during
1999. These increased leases raised occupancy and equipment expense by $196,000
for the year ended December 31, 1999, as compared to fiscal 1998. Salaries and
employee benefits expense increased by $398,000, from $1.1 million for the year
ended December 31, 1998 to $1.5 million for the year ended December 31, 1999.
This increase is due, in part, to the increase in employees at the Sterling
branch. Incentive bonuses of $52,000 were also paid to employees during the year
ended December 31, 1999. Salaries and benefits increased partially due to
$15,000 in severance pay to bank employees during 1999. Other expenses decreased
by $126,000, or 11.8%, from $1.1 million for the year ended December 31, 1998 to
$943,000 for the year ended December 31, 1999. This decrease is due primarily to
a decrease in professional fees, which was partially offset by an increase in
business development fees paid in connection with a possible branch location in
Great Falls, Virginia. Other expenses were also affected by $42,000 of non-loan
charge-offs, of which a large part was the payment due under the terms of a
lawsuit settled in March 1999.

         Provision for Loan Losses. In view of the loan balances for 1999, and
the improvement in The Heritage Bank's loan portfolio, no provision was made for
loan losses in the year ended December 31, 1999. A provision of $117,000 was
made for loan losses in the year ended December 31, 1998 to return the reserve
for loan losses to an acceptable level. The reserve had been reduced due to a
charge resulting from the settlement of a lawsuit. The allowance for loan losses
at December 31, 1999 was 1.33% of outstanding loans. At December 31, 1998, the
allowance for loan losses was 1.45% of outstanding loans.



                                     IV-17
<PAGE>

The level of the allowance for loan losses is based upon management's review of
the loan portfolio and includes the present and prospective financial condition
of borrowers, consideration of actual loan loss experience and projected
economic conditions in general and for The Heritage Bank's service areas in
particular. Management believes that the provision for loan losses and the
allowance for loan losses are reasonable and adequate to cover any known losses
and any losses reasonably expected in the existing loan portfolio. While
management estimates loan losses using the best available information, such as
independent appraisals on collateral, no assurance can be given that future
additions to the allowance will not be necessary. Additions may be necessary
based on changes in economic and real estate market condition, further
information obtained regarding known problem loans, identification of additional
problem loans and other factors, both within and outside management's control.

         Income Taxes. Heritage recognized a net income tax expense of $93,000
for the year ended December 31, 1999, as compared to a tax benefit of $41,000
for the year ended December 31, 1998. This increase in income tax expense for
the year ended December 31, 1999 is primarily due to the fact that a net
operating loss carryforward of Heritage became completely utilized for
accounting purposes by January 1, 1999.

Results of Operations For The Years Ended December 31, 1998 and 1997

         Net Income. Net income for the year ended December 31, 1998 decreased
$437,000 to $133,000, or $0.07 basic earnings per share ($0.07 per share,
assuming dilution), from net income of $570,000, or $0.45 basic earnings per
share ($0.44 per share, assuming dilution) for the year ended December 31, 1997.
The decrease in net income was primarily due to loan loss from a bankruptcy
during the third quarter totaling $141,456, an increase in stockholder expenses
of $89,944 incurred in connection with the formation of the holding company, an
increase in legal fees of $175,000 incurred in defending lawsuits and the
$25,000 settlement of a lawsuit plus a $25,000 loss due to a robbery. The
expenses associated with the formation of the holding company, the opening of
the Sterling branch in Sterling, Virginia, and the legal fees incurred in
connection with the settlement of a lawsuit are nonrecurring items and are not
expected to have an impact on the long-term profitability of The Heritage Bank.

         Interest Income. The major component of The Heritage Bank's net
earnings is net interest income, which is the excess of interest income on
interest-earning assets over the interest expense on interest-bearing
liabilities. Net interest income is affected by changes in volume resulting from
growth and alterations of the balance sheet composition as well as fluctuations
in interest rates ("interest rate spread") and maturities of sources and uses of
funds. The Heritage Bank's management seeks to maximize net interest income by
managing the balance sheet and determining the optimal product mix with respect
to yields on assets and costs of funds in light of projected economic
conditions, while maintaining an acceptable level of risk.

         Interest income totaled $3.7 million for the year ended December 31,
1998, an increase of $509,000 or 15.6% from $3.2 million from the year ended
December 31, 1997. The increase in interest income was due to a $108,000
increase in interest on federal funds sold and an increase of $302,000 on
securities available for sale. Loan interest income also increased by $99,000.
The increase in interest on securities available for sale was the result of The
Heritage Bank investing the funds received from the sale of stock in the
offering in investment bonds. The increase in federal funds sold interest was
the result of the increase in deposits. The increase in interest income on loans
was the result of an increase in the loan portfolio, due to the ability of The
Heritage Bank to increase its legal lending limit as a result of proceeds
received in the offering and favorable interest rates in fiscal 1998.

         Interest Expense. Total interest expense increased $162,000, or 14.6%,
from $1.1 million for the year ended December 31, 1997 to $1.3 million for the
year ended December 31, 1998. This increase was



                                     IV-18
<PAGE>

primarily due to the $3.1 million increase in the average balance of
interest-bearing liabilities from $30.2 million for the year ended December 31,
1997 to $33.3 million for the year ended December 31, 1998.

         Net Interest Income. Net interest income increased by $349,000, or
16.3%, from $2.1 million for the year ended December 31, 1997 to $2.5 million
for the year ended December 31, 1998.

         The Heritage Bank's net interest margin (net interest income expressed
as a percentage of total average interest-earning assets) decreased to 5.09% for
the year ended December 31, 1998 compared to 5.25% for the year ended December
31, 1997. The Heritage Bank's interest spread (the average yield earned on
interest-earning assets less the average rate incurred on interest-bearing
liabilities) was 3.87% and 4.29% for the years ended December 31, 1998 and 1997,
respectively.

         Provision for Loan Losses. The provision for loan losses for the year
ended December 31, 1998 was $117,000 as compared to $3,825 for the year ended
December 31, 1997. This increase was necessary due to a loss on a loan in
connection with a bankruptcy and the need to replenish some of the reserves
used.

         Management believes that the provision for loan losses and the
allowance for loan losses are reasonable and adequate to cover any known losses
and any losses reasonably expected in the loan portfolio. While management
estimates loan losses using the best available information, no assurance can be
made that future additions to the allowance will not be necessary.

         Non-interest Income. Non-interest income consists primarily of service
charges and fees associated with The Heritage Bank's loan and savings accounts
and gains on the sale of securities. Non-interest income for the year ended
December 31, 1998 was $137,000, representing a decrease of $44,000 from the
non-interest income of $181,000 for the year ended December 31, 1997. This
decrease was caused primarily by a $47,000 decrease in gains on the sale of
government securities.

         Non-interest Expense. Non-interest expense consists primarily of
operating expenses for compensation and related benefits, occupancy, federal
insurance premiums and operating assessments, and equipment expenses.

         Non-interest expense increased $585,000, or 31.9%, from $1.8 million
for the year ended December 31, 1997 to $2.4 million for the year ended December
31, 1998. This increase was due in part to an increase in salaries and employee
benefits expense of $121,000 or 12.7% from $953,000 for the year ended December
31, 1997 to $1,074,000 for the year ended December 31, 1998. Other operating
expenses increased by $489,000 or 84.3% from $580,000 to $1,069,000 for the
years ended December 31, 1997 and 1998, respectively. This increase was due to
settlement of a lawsuit of $108,800, loss on a bankruptcy of $141,456, legal
fees of $175,732 incurred in defending a lawsuit, expenses associated with the
formation of the holding company of $89,944 and the $25,000 loss in a robbery.

         Income Taxes. The Heritage Bank had an income tax benefit of $41,000
for the year ended December 31, 1998 compared to a benefit of $85,000 in 1997.
At December 31, 1998, The Heritage Bank had effectively used all of its
operating loss carryforwards. The Heritage Bank expects to have tax expense for
the fiscal year 1999.




                                     IV-19
<PAGE>

Performance Ratios and Per Share Data

         The table below presents per share data regarding Heritage and The
Heritage Bank, as well as performance and asset quality ratios for the time
periods indicated.

                             Selected Financial Data
                (Dollars in thousands, except for per share data)
<TABLE>
<CAPTION>
                                    Three Months Ended
                                          March 31,                                Years Ended December 31,
                                 --------------------------  --------------------------------------------------------------------
                                     2000          1999          1999          1998          1997          1996          1995
                                 ------------  ------------  ------------  ------------  ------------  ------------  ------------
<S>                                <C>           <C>           <C>           <C>           <C>           <C>           <C>
PER SHARE DATA
   Net income, basic               $    0.01     $    0.08     $    0.08     $    0.07     $    0.45     $    0.32     $    0.15
   Net income, diluted                  0.01          0.08          0.08          0.07          0.44          0.32          0.15
   Cash dividends                         --            --            --            --            --            --            --
   Dividend payout ratio                  --            --            --            --            --            --            --
   Book value at period end        $    3.73     $    3.94     $    3.75     $    3.89     $    3.18     $    2.84          2.52
   Common shares outstanding       2,294,617     2,294,617     2,294,617     2,294,617     1,489,636     1,249,634     1,249,634
PERFORMANCE AND ASSET
QUALITY RATIOS
   Return on average assets (1)        0.16%         1.18%         0.30%         0.26%         1.33%         0.87%         0.46%
   Return on average equity (1)        1.17%         7.86%         2.06%         1.79%        15.24%        12.05%         5.89%
   Average stockholders'
     equity to average total assets   14.06%        15.07%        14.49%        14.47%         8.74%         7.19%         7.74%

   Non-accrual and past due
     loans to total loans              0.00%         0.46%         0.00%         1.35%         0.98%         1.85%         2.93%
   Allowance for loan losses
     to total loans                    1.10%         1.44%         1.33%         1.45%         2.71%         2.45%         2.81%
   Net yield                           4.13%         4.06%         4.07%         3.87%         4.29%         3.69%         3.96%
   Net interest margin (2)             5.20%         5.20%         5.16%         5.09%         5.25%         4.54%         4.93%
</TABLE>

(1) Annualized for the three months ended March 31, 2000 and March 31, 1999.
(2) Net interest margin is calculated as net interest income divided by average
    earning assets and represents Heritage's net yield on its earning assets.




                                     IV-20
<PAGE>

Average Balances, Interest and Average Yields

         The following table sets forth information relating to The Heritage
Bank's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid for the periods indicated. Such yields and costs are
derived by dividing income or expense by the average daily balances of assets
and liabilities, respectively, for the periods presented.

                 Average Balances, Interest Income and Expenses
                          and Average Yields and Rates
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                         Three Months Ended March 31,
                                      --------------------------------------------------------------------
                                                    2000                              1999
                                      --------------------------------- ----------------------------------
                                                  INTEREST    AVERAGE               INTEREST    AVERAGE
                                       AVERAGE    INCOME/     YIELD/     AVERAGE     INCOME/     YIELD/
                                       BALANCE    EXPENSE      RATE      BALANCE     EXPENSE      RATE
                                      ---------- ----------- ---------- ----------- ---------- -----------
<S>                                    <C>            <C>        <C>      <C>           <C>        <C>
EARNING ASSETS:
Loans receivable(1)                    $ 32,932       $ 725      8.81%    $ 29,231      $ 699      9.57%
Investment securities, taxable           23,772         386      6.50%      20,708        319      6.16%
Federal funds sold                          508           7      5.51%       6,891         81      4.70%
                                      ---------- -----------            ----------- ----------
Total earning assets                     57,212       1,118      7.82%      56,830      1,099      7.74%
                                      ---------- -----------            ----------- ----------

NON-EARNING ASSETS:
Cash and due from banks                   2,373                              1,862
Other assets                              1,469                              1,089
                                      ----------                        -----------
Total non-earning assets                  3,842                              2,951
                                      ----------                        -----------
Total assets                           $ 61,054                           $ 59,781
                                      ==========                        ===========

INTEREST-BEARING LIABILITIES:
Deposits:
Interest-bearing demand (NOW)
 deposits                               $ 7,402        $ 33      1.78%    $  6,725       $ 36      2.14%
Money market deposits                    10,122          79      3.12%      11,978         90      3.00%
Savings deposits                          3,168          23      2.90%       3,268         22      2.69%
Time deposits                            15,623         195      4.99%      15,664        200      5.11%
Repurchase agreements                     3,351          33      3.94%       1,505         12      3.19%
Federal Funds purchased                     847          11      5.19%           -          -      0.00%
                                      ---------- -----------            ----------- ----------
Total interest-bearing
 Liabilities                             40,513         374      3.69%      39,140        360      3.68%
                                      ---------- -----------            ----------- ----------

NON-INTEREST-BEARING LIABILITIES:
Demand deposits                          11,781                             11,490
Other liabilities                           177                                142
                                      ----------                        -----------
Total non-interest-bearing
 liabilities                             11,958                             11,632
                                      ----------                        -----------
Stockholders' equity                      8,583                              9,009
                                      ----------                        -----------
Total liabilities and
 stockholders' equity                  $ 61,054                           $ 59,781
                                      ==========                        ===========
Interest spread                                                  4.13%                             4.06%
Net interest margin                                   $ 744      5.20%                  $ 739      5.20%
                                                 ===========                        ==========
</TABLE>




                                     IV-21
<PAGE>

<TABLE>
<CAPTION>
                                                                       Years Ended December 31,
                                                 1999                            1998                             1997
                                    ------------------------------ ------------------------------- -------------------------------
                                               INTEREST   AVERAGE             INTEREST   AVERAGE              INTEREST   AVERAGE
                                     AVERAGE   INCOME/    YIELD/    AVERAGE    INCOME/    YIELD/    AVERAGE   INCOME/    YIELD/
                                     BALANCE   EXPENSE     RATE     BALANCE    EXPENSE     RATE     BALANCE   EXPENSE     RATE
                                    --------- ---------- --------- ---------- --------- ---------- --------- ---------- ----------
<S>                                 <C>        <C>           <C>    <C>       <C>           <C>    <C>        <C>           <C>
EARNING ASSETS:
Loans receivable(1)                 $  29,383  $   2,690     9.15%  $  25,978 $   2,386     9.18%  $  24,533  $   2,286     9.32%
Investment securities, taxable         22,583      1,414     6.26      18,208     1,118     6.14      13,432        816     6.08
Federal funds sold                      5,523        277     5.02       4,830       262     5.42       2,867        154     5.37
                                    --------- ----------           ---------- ---------            --------- ----------
Total earning assets                   57,489      4,381     7.62      49,016     3,766     7.68      40,832      3,256     7.97
                                    --------- ----------           ---------- ---------            --------- ----------

NON-EARNING ASSETS:
Cash and due from banks                 2,141                           1,691                          1,649
Other assets                            1,329                             802                            414
                                    ---------                      ----------                      ---------
Total non-earning assets                3,470                           2,493                          2,063
                                    ---------                      ----------                      ---------
Total assets                        $  60,959                       $  51,509                      $  42,895
                                    =========                      ==========                      =========

INTEREST-BEARING LIABILITIES:
Deposits:
Interest-bearing demand (NOW)
 deposits                           $   7,387   $    130     1.76%  $   5,696  $    133     2.33%  $   5,073   $    113     2.23%
Money market deposits                  11,808        350     2.96      10,875       363     3.34      10,377        331     3.19
Savings deposits                        3,250         90     2.77       3,298        97     2.94       3,369         99     2.94
Time deposits                          15,373        772     5.02      12,424       640     5.15      11,196        561     5.01
Repurchase agreements                   2,675         97     3.63       1,069        39     3.65         159          7     4.40
                                    --------- ----------           ---------- ---------            --------- ----------
Total interest-bearing
 liabilities                           40,493      1,439     3.55      33,362     1,272     3.81      30,174      1,111     3.68
                                    --------- ----------           ---------- ---------            --------- ----------

NON-INTEREST-BEARING LIABILITIES:
Demand deposits                        11,522                          10,546                          8,829
Other liabilities                         114                             149                            145
                                    ---------                      ----------                      ---------
Total non-interest-bearing
 liabilities                           11,636                          10,695                          8,974
                                    ---------                      ----------                      ---------
Stockholders' equity                    8,830                           7,452                          3,747
                                    ---------                      ----------                      ---------
Total liabilities and
 stockholders' equity               $  60,959                       $  51,509                      $  42,895
                                    =========                      ==========                      =========
Interest spread                                             4.07%                          3.87%                            4.29%
Net interest margin                             $   2,942   5.12%              $   2,494   5.09%               $   2,145    5.25%
                                               ==========                      =========                      ==========
</TABLE>
------------------
(1)  Non-accrual loan balances are included in the calculation of average
     balances.



                                     IV-22
<PAGE>

Rate/Volume Analysis

         The following table sets forth certain information regarding changes in
interest income and interest expense of The Heritage Bank for the periods
indicated. For each category of interest-earning asset and interest-bearing
liability, information is provided on changes attributable to: (i) changes in
volume (changes in volume multiplied by old rate); and (ii) changes in rates
(change in rate multiplied by old volume). Changes in rate-volume (changes in
rate multiplied by the changes in volume) are allocated between changes in rate
and changes in volume.

                            Rate and Volume Analysis
                             (Dollars in thousands)

                                                 Three Months Ended
                                                   March 31, 2000
                                                     Compared To
                                                    March 31, 1999
                                              Increase (Decrease) Due To
                                       ---------------------------------------
                                          Rate         Volume         Total
                                       -----------  ------------  ------------
INTEREST EARNED ON:
Loans receivable, net                  $            $             $       26
                                              (44)          70
Investment securities, taxable                 18           49            67
Federal funds sold                             17          (91)          (74)
                                       -----------  ------------  ------------
  Total interest income                        (9)          28            19
                                       -----------  ------------  ------------

INTEREST PAID ON:
Interest-bearing (NOW) deposits                (7)           4            (3)
Money market deposits                           4          (15)          (11)
Savings deposits                                2           (1)            1
Time deposits                                  (4)          (1)           (5)
Securities sold under agreement to
  repurchase                                    3           18            21
Federal funds purchased                        --           11            11
                                       -----------  ------------  ------------
  Total interest expense                       (2)         (16)           14
                                       -----------  ------------  ------------
        Net interest income            $       (7)  $       12    $        5
                                       ===========  ============  ============
<TABLE>
<CAPTION>
                                                     Year Ended                              Year Ended
                                                 December 31, 1999                        December 31, 1998
                                                    Compared To                              Compared To
                                                 December 31, 1998                        December 31, 1997
                                             Increase (Decrease) Due To              Increase (Decrease) Due To
                                       -------------------------------------  ---------------------------------------
                                          Rate        Volume        Total         Rate        Volume       Total
                                       -----------  -----------  -----------  ------------  -----------  ------------
<S>                                    <C>          <C>          <C>          <C>           <C>          <C>
INTEREST EARNED ON:
Loans receivable, net                  $       29   $      275   $      304   $       (34)  $      134   $       100
Investment securities, taxable                 22          274          296             8          294           302
Federal funds sold                            (16)          31           15             1          107           108
                                       -----------  -----------  -----------  ------------  -----------  ------------
  Total interest income                        35          580          615           (25)         535           510
                                       -----------  -----------  -----------  ------------  -----------  ------------

INTEREST PAID ON:
Interest-bearing (NOW) deposits                14          (17)          (3)            5           15            20
Money market deposits                         (53)          40          (13)           16           17            33
Savings deposits                               (6)          (1)          (7)           --           (2)           (2)
Time deposits                                 (16)         148          132            15           63            78
Securities sold under agreement to
  repurchase                                   --           58           58            --           32            32
                                       -----------  -----------  -----------  ------------  -----------  ------------
  Total interest expense                      (61)         228          167            36          125           161
                                       -----------  -----------  -----------  ------------  -----------  ------------
        Net interest income            $       96   $      352   $      448   $       (61)  $      410   $       349
                                       ===========  ===========  ===========  ============  ===========  ============
</TABLE>


                                     IV-23
<PAGE>

Interest Rate Sensitivity

         An important element of both earnings performance and liquidity is
management of interest rate sensitivity. Interest rate sensitivity reflects the
potential effect on net interest income of a movement in interest rates. The
difference between The Heritage Bank's interest-sensitive assets and
interest-sensitive liabilities for a specified time frame is referred to as
"gap." A financial institution is considered to be asset-sensitive, or having a
positive gap, when the amount of its earning assets maturing or repricing within
a given time period exceeds the amount of its interest-bearing liabilities also
maturing or repricing within that time period. Conversely, a financial
institution is considered to be liability-sensitive, or have a negative gap,
when the amount of its interest-bearing liabilities maturing or repricing within
a given period exceeds the amount of earning assets also maturing or repricing
within that time period. During a period of rising interest rates, a positive
gap would tend to increase net interest income, while a negative gap would tend
to have an adverse effect on net interest income. During a period of falling
interest rates, a positive gap would tend to have an adverse effect on net
interest income, while a negative gap would tend to increase net interest
income.

         The Heritage Bank evaluates interest sensitivity risk and then
formulates guidelines regarding asset generation and pricing, funding sources
and pricing, and off-balance sheet commitments in order to decrease sensitivity
risk. These guidelines are based upon management's outlook regarding future
interest rate movements, the state of the regional and national economy and
other financial and business risk factors. The Heritage Bank uses a static gap
model and a computer simulation to measure the effect on net interest income of
various interest rate scenarios over selected time periods. The gap can be
managed by repricing assets or liabilities, selling investments available for
sale, replacing an asset or liability prior to maturity or adjusting the
interest rate during the life of an asset or liability. Matching the amount of
assets and liabilities repricing during the same time interval helps to reduce
the risk and minimize the impact on net interest income in periods of rising or
falling interest rates.

         As of March 31, 2000, The Heritage Bank's static one-year cumulative
gap to total interest-sensitive assets position was a negative 31.0% and The
Heritage Bank was, therefore, in an asset-sensitive position. It is The Heritage
Bank's goal to control the mix and rate sensitivity of assets and liabilities
such that the revolving gap (the gap is less than one year) will not exceed 10%
(positive or negative) of assets.

         The following table illustrates the interest sensitivity gap position
of The Heritage Bank as of March 31, 2000 (focusing only on repricing schedules,
not fixed versus variable rates). This table presents a position as of a
particular day, which position changes continually and is not necessarily
indicative of The Heritage Bank's position at any other time.




                                     IV-24
<PAGE>

                          Interest Sensitivity Analysis
                                 March 31, 2000
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                     MATURING OR REPRICING IN:
                                             --------------------------------------------------------------------------
                                               3 MONTHS          4-12          1 TO 5       MORE THAN
                                                OR LESS         MONTHS          YEARS        5 YEARS         TOTAL
                                             -------------- -------------- -------------- -------------- --------------
<S>                                          <C>            <C>            <C>            <C>            <C>
INTEREST-SENSITIVE ASSETS:
   Federal funds sold                        $           -  $           -  $           -  $           -  $           -
   Loans (1)                                        11,147          5,326          12,990          6,582        36,045
   Securities                                          999            508          21,047          1,210        23,764
                                             -------------- -------------- -------------- -------------- --------------
         Total interest-sensitive assets     $      12,146  $       5,834  $       34,037 $        7,792 $      59,809
                                             ============== ============== ============== ============== ==============

INTEREST-SENSITIVE LIABILITIES:

   Certificates of deposit > $100,000        $       1,122  $       1,513  $        3,928 $          692  $      7,255
   Certificates of deposit < $100,000                9,279          3,182           3,076            245        15,782
   Super NOW accounts/Money Market deposit          13,844              -               -              -        13,844
   Federal funds purchased and securities
sold                                                 7,603              -               -              -         7,603
under agreement to repurchase
                                             -------------- -------------- -------------- -------------- --------------
         Total interest-sensitive            $      31,848  $       4,695  $        7,004 $          937   $    44,484
liabilities
                                             ============== ============== ============== ============== ==============

Period gap                                   $     (19,702) $       1,139  $       27,033  $       6,855   $    15,325

Cumulative gap                               $     (19,702) $     (18,563) $        8,470  $      15,325

Ratio of cumulative interest-
     sensitive liabilities to
interest-sensitive
     assets                                         262.2%         203.1%          83.7%          74.4%
                                             ============== ============== ============== ==============
</TABLE>

(1)  Excludes non-accrual loans.
(2)  Non-certificate deposit accounts are shown as repricing within the three
     month or less time frame, although The Heritage Bank believes, based on
     historical experience, that such deposits are less interest sensitive.

Analysis of Financial Condition

Loan Portfolio

         The loan portfolio is the largest category of The Heritage Bank's
earning assets and is comprised of commercial real estate loans, commercial
loans, home equity loans, construction loans, consumer loans and participation
loans with other financial institutions. The primary markets in which The
Heritage Bank makes loans include Fairfax and Loudoun Counties, Virginia. The
mix of the loan portfolio is weighted toward loans secured by real estate and
commercial loans. In management's opinion, there are no significant
concentrations of credit with particular borrowers engaged in similar
activities.

         Net loans consist of total loans minus the allowance for loan losses,
unearned discount. The Heritage Bank's net loans at March 31, 2000 were $35.6
million, representing a 14.0% increase over net loans of $31.3 million at
December 31, 1999. Loan volume increased in 1999 and the first quarter of 2000
due to The Heritage Bank's ability to make larger loans as a result of the
increase in The Heritage Bank's legal lending limit from the offering. Gross
loans increased 7.1% in 1999 from a balance of $29.2



                                     IV-25
<PAGE>

million at December 31, 1998. The average balance of total loans as a percentage
of average earning assets was 57.6% for March 31, 2000, up from 51.1% for
December 31,1999. The average balance of total loans as a percentage of average
earnings assets was 53.0% for 1998.

         In the normal course of business, The Heritage Bank makes various
commitments to meet the financing needs of its customers and incurs certain
contingent liabilities, including standby letters of credit and commitments to
extend credit. At March 31, 2000, commitments for standby letters of credit
totaled $73,300 and commitments to extend credit totaled $10.0 million.
Commitments for standby letters of credit totaled $92,300 and $182,000 for the
years ended December 31, 1999 and 1998, respectively. Commitments to extend
credit totaled $10.6 million and $8.7 million for the years ended December 31,
1999 and 1998.

         The following table summarizes the composition of The Heritage Bank's
loan portfolio at the periods indicated:

                                 Loan Portfolio
                             (Dollars in thousands)

                                    March 31,
                     ---------------------------------------
                        2000                1999
                     ----------          ----------
                       Amount   Percent    Amount   Percent
                     ---------- -------- ---------- --------
Real estate:
  Construction       $    1,696     4.7% $      438     1.5%
  Residential (1-4)      10,541    29.2%     10,377    35.7%
  Commercial             16,680    46.3%     12,676    43.6%
Commercial                4,475    12.4%      2,294     7.9%
Agricultural                966     2.7%        987     3.4%
Consumer                  1,331     3.7%      1,681     5.8%
All other                   356     1.0%        630     2.1%
                     ----------          ----------
Loan, gross              36,045   100.0%     29,083   100.0%
                     ----------          ----------
Less: allowance for
   loan losses             (396)               (418)
                     ----------          ----------
Loans, net           $   35,649          $   28,665
                     ==========          ==========












                                     IV-26
<PAGE>

<TABLE>
<CAPTION>
                                                                 December 31,
                       --------------------------------------------------------------------------------------------------------
                          1999                 1998                 1997                 1996                1995
                       ----------           ----------           ----------           ----------           ----------
                         Amount    Percent    Amount    Percent    Amount    Percent    Amount    Percent    Amount    Percent
                       ---------- --------- ---------- --------- ---------- --------- ---------- --------- ---------- ---------
<S>                    <C>         <C>      <C>         <C>      <C>         <C>      <C>          <C>     <C>         <C>
Real estate:
   Mortgage            $   24,653   77.8%   $   24,077   81.3%   $   17,532   75.0%   $   19,524    77.5%  $   18,735   76.9%
   Construction             1,157    3.6           441    1.5           448    1.9           633     2.5          147    0.6
Commercial                  4,372   13.8         3,789   12.8         4,191   17.9         4,210    16.7        4,526   18.6
Consumer                    1,507    4.8         1,306    4.4         1,219    5.2           835     3.3          938    3.9
                       ----------           ----------           ----------           ----------           ----------
Loan, gross                31,689  100.0%       29,610  100.0%       23,390  100.0%       25,202   100.0%      24,346  100.0%
                       ----------           ----------           ----------           ----------           ----------
Less: allowance for
   loan losses               (421)                (429)                (634)                (617)                (685)
                       ----------           ----------           ----------           ----------           ----------
Loans, net             $   31,268           $   29,181           $   22,756           $   24,585           $   23,661
                       ==========           ==========           ==========           ==========           ==========
</TABLE>

         The following table sets forth certain information with respect to The
Heritage Bank's non-accrual, restructured and past due loans, as well as
foreclosed assets, for the periods indicated.

                              Non-Performing Assets
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                          Three Month Ended March 31,                  Years Ended December 31,
                                       -----------------------------------------------------------------------------------
                                            2000          1999          1999      1998       1997       1996       1995
                                       -----------------------------------------------------------------------------------
<S>                                             <C>   <C>                <C>    <C>        <C>        <C>        <C>
Non-accrual loans                                --   $       3            --   $    395   $    222   $    465   $    445
Real estate owned                                --         263            --        263        263        263        300
                                       ------------- -------------   --------- ---------- ---------- ---------- ----------
  Total non-performing loans                     --         266            --        658        485        728        745
                                       ============= =============   ========= ========== ========== ========== ==========

Loans past due 90 or more days accruing          --          14            --         --          7         --        268
interest
Non-performing loans to total loans, at         0.0%        0.0%          0.0%       1.3%       0.9%       1.8%       1.8%
period end
Non-performing assets to period end             0.0%        0.4%          0.0%       1.0%       1.1%       1.6%       1.6%
assets
Non-performing assets: total loans
    and other real estate owned                 0.0%        0.9%          0.0%       2.2%       2.1%       2.9%       3.0%
</TABLE>

         The amount of interest on non-accrual loans which would have been
recorded as income under the original terms of such loans was approximately $0,
$26,800 and $34,300 for the years ended December 31, 1999, 1998 and 1997,
respectively. There were no nonaccrual loans at March 31, 2000. Loans are placed
on non-accrual when a loan is specifically determined to be impaired or when
principal or interest is delinquent for 90 days or more.

         In addition to the nonaccrual loans, past due loans, and other real
estate owned listed above, loans totaling $1.2 million or 3.4% of total loans at
March 31, 2000 were either internally classified or specially mentioned, require
more than normal attention, and are potential problem loans. These potential
problem loans represent a decrease from $1.7 million of potential problem loans,
or 5.4% of total loans, at December 31, 1999. The decrease is related primarily
to The Heritage Bank's efforts to improve loan quality.

Loan Maturity

         The following table shows the contractual maturity at March 31, 2000.
The table reflects the entire unpaid principal balance in the maturity period
that includes the final loan payment date and, accordingly, does not give effect
to periodic principal repayments or possible prepayments.



                                     IV-27
<PAGE>

                     Maturity and Rate Sensitivity of Loans
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                             At March 31, 2000
                                   -----------------------------------------------------------------------

                                                        Over One Year
                                     One Year        Through Five Years             Over Five Years
                                     Or Less      Fixed Rate   Floating Rate   Fixed Rate   Floating Rate
                                   ------------- ------------- -------------- ------------- --------------
<S>                                  <C>           <C>            <C>           <C>            <C>
Commercial                           $   1,495     $   2,934      $     --      $     46       $     --
Real Estate-construction             $   1,696            --            --            --             --
</TABLE>

Allowance For Loan Losses

         In originating loans, The Heritage Bank recognizes that credit losses
will be experienced and the risk of loss will vary with, among other things,
general economic conditions, the type of loan being made, the creditworthiness
of the borrower over the term of the loan and, in the case of a collateralized
loan, the quality of the collateral for such loan. The Heritage Bank maintains
an allowance for loan losses based upon, among other things, such factors as
changes in the character and size of the loan portfolio and related loan loss
experience, a review and examination of overall loan quality which includes the
assessment of problem loans, the amount of non-performing assets, regulatory
policies, generally accepted accounting principles, general economic conditions,
and other factors related to the collectibility of loans in The Heritage Bank's
portfolios. In addition to unallocated allowances, specific allowances are
provided for individual loans when ultimate collection is considered
questionable by management after reviewing the current status of loans which are
contractually past due and after considering the net realizable value of any
collateral for the loan.

         Management actively monitors The Heritage Bank's asset quality in a
continuing effort to identify potential loans that would be charged against the
allowance for loan losses and to provide specific loss allowances when
necessary. The Heritage Bank employs an outside consultant to provide the loan
review function. Although management believes it uses the best information
available to make determinations with respect to the allowance for loan losses,
future adjustments may be necessary if economic conditions differ from the
assumptions used in making the initial determinations. The Heritage Bank's
allowance for loan losses was $396,000, or 1.10% of total loans, as of March 31,
2000 and $429,000, or 1.45% of total loans, as of December 31, 1998.

         Management believes the allowance is adequate to absorb losses inherent
in the loan portfolio. The Heritage Bank expects to grow its loan portfolio and
believes it will add to the reserves in the allowance for loan losses to mirror
the growth in the loan portfolio.

         In view of The Heritage Bank's plans for expansion and possible loan
growth, management will continue to closely monitor the performance of its
portfolio and make additional provisions as necessary. The Heritage Bank does
not presently anticipate that such provisions will have a material adverse
impact on The Heritage Bank's results of operations in future periods.



                                     IV-28
<PAGE>

         An analysis of the allowance for loan losses, including charge-off
activity, is presented below:

                            Allowance For Loan Losses
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                     Three Months Ended
                                         March 31,                          Years Ended December 31,
                                   ----------------------  ----------------------------------------------------------
                                      2000        1999        1999        1998        1997        1996        1995
                                   ----------  ----------  ----------  ----------  ----------  ----------  ----------
<S>                                <C>         <C>         <C>         <C>         <C>         <C>         <C>
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of year       $      421  $      429  $      429  $      634  $      617  $      685  $    1,164


CHARGE-OFFS:
Commercial                                 --          20          20         332           8          70         360
Real estate                                --          --          --          --          50          34         158
Consumer                                   --          --          --           7           3           5           2
                                   ----------  ----------  ----------  ----------  ----------  ----------  ----------
Total loans charged off                    --          20          20         339          61         109         520
                                   ----------  ----------  ----------  ----------  ----------  ----------  ----------
RECOVERIES:
Commercial                                 --          --           6          13          60          15          32
Real estate                                --          --           3          --          14          26          96
Consumer                                    3           2           3           4          --          --          --
                                   ----------  ----------  ----------  ----------  ----------  ----------  ----------
Total recoveries                            3           2          12          17          74          41         128
                                   ----------  ----------  ----------  ----------  ----------  ----------  ----------
Net charge-offs (recoveries)               (3)         18           8         322         (13)         68         392
                                   ----------  ----------  ----------  ----------  ----------  ----------  ----------
Provision for (recovery of)
loan losses                               (28)          7          --         117           4          --         (87)
                                   ----------  ----------  ----------  ----------  ----------  ----------  ----------
Balance at end of year             $      396  $      418  $      421  $      429  $      634  $      617  $      685
                                   ==========  ==========  ==========  ==========  ==========  ==========  ==========
Ratio of net charge-offs
(recoveries) to average loans
outstanding                            (0.01%)      0.06%       0.03%       1.24%      (0.05%)      0.28%       1.49%
Ratio of allowance for loan
losses to loans at period-end           1.10%       1.44%       1.33%       1.45%       2.71%       2.45%       2.81%
</TABLE>

         A breakdown of the allowance for loan losses is provided in the
following table. However, The Heritage Bank's management does not believe that
the allowance for loan losses can be allocated by category with a degree of
precision that would be useful to investors. Because all of these factors are
subject to change, the allocation of loan losses in the following table is not
necessarily predictive of future loan losses in the indicated categories. See
Note 1 of the notes to the financial statements for further information
regarding the classification of loan losses.

                     Allocation of Allowance For Loan Losses
                             (Dollars in thousands)

                                     March 31,
                     -----------------------------------------------
                             2000                     1999
                     -----------------------------------------------
                       Amount   Percent (1)    Amount    Percent (1)
                     -----------------------------------------------
Commercial           $       49     12.4%    $       33       7.9%
Real Estate
   Mortgage and
   Construction             328     82.8%           352      84.2%
Consumer and other           19      4.8%            33       7.9%
                     ----------              ----------

Total Allowance for
    Loan Losses      $      396              $      418
                     ==========              ==========


                                     IV-29
<PAGE>

<TABLE>
<CAPTION>
                                                                     December 31,
                        --------------------------------------------------------------------------------------------------------
                               1999                 1998                 1997                1996                 1995
                        --------------------------------------------------------------------------------------------------------
                         Amount  Percent (1)  Amount  Percent (1)  Amount  Percent (1)  Amount  Percent (1)  Amount  Percent (1)
                        -------- ----------- -------- ----------- -------- ----------- -------- ----------- -------- -----------
<S>                     <C>            <C>   <C>            <C>   <C>            <C>   <C>            <C>   <C>            <C>
Commercial              $     60       14.3% $     82       12.8% $    109       17.9% $    105       16.7% $     88       18.6%
Real Estate
Mortgage and
Construction                 351       83.3%      334       82.8%      502       76.9%      492       80.0%      560       77.5%
Consumer                      10        2.4%       13        4.4%       23        5.2%       20        3.3%       37        3.9%
                        --------             --------             --------             --------             --------

Total Allowance for
    Loan Losses         $    421             $    429             $    634             $    617             $    685
                        ========             ========             ========             ========             ========
</TABLE>
-----------
(1)  Represents percentage of loans in each category to total loans.

Investment Activities

         The Heritage Bank is required to maintain an amount of liquid assets
appropriate to its level of net savings withdrawals and current borrowings. It
has generally been The Heritage Bank's policy to maintain a liquidity portfolio
in excess of regulatory requirements. At March 31, 2000, The Heritage Bank's
liquidity ratio was 41.7%. Liquidity levels may be increased or decreased
depending upon the yields on investment alternatives, management's judgment as
to the attractiveness of the yields then available in relation to other
opportunities, management's expectations of the level of yield that will be
available in the future and management's projections as to the short-term demand
for funds to be used in The Heritage Bank's loan origination and other
activities.

         Interest income from investments in various types of liquid assets
provides a significant source of revenue for The Heritage Bank. The Heritage
Bank invests in U.S. Treasury and federal agency securities, bank certificates
of deposits, equity securities, corporate debt securities, taxable municipals
and overnight federal funds. The balance of investment securities maintained by
The Heritage Bank in excess of regulatory requirements reflects management's
historical objective of maintaining liquidity at a level that assures the
availability of adequate funds, taking into account anticipated cash flows and
available sources of credit, for meeting withdrawal requests and loan
commitments and making other investments. See "Liquidity and Capital Resources."

         The Heritage Bank purchases securities through a primary dealer of U.S.
government obligations or such other securities dealers authorized by the board
of directors and requires that the securities be delivered to a safekeeping
agent before the funds are transferred to the broker or dealer. The Heritage
Bank purchases investment securities pursuant to an investment policy
established by the board of directors.

         Investment securities are recorded on the books of The Heritage Bank in
accordance with generally accepted accounting principles. The Heritage Bank does
not purchase investment securities for trading. Effective January 1, 1994, The
Heritage Bank implemented SFAS No. 115. Available- for-sale securities are
reported at fair value with unrealized gains or losses reported as a separate
component of net worth, net of tax effects. Held-to-maturity securities are
carried at amortized cost. Substantially all purchases of investment securities
conform to The Heritage Bank's interest rate risk policy.



                                     IV-30
<PAGE>

         The following table summarizes the carrying value of securities for the
dates indicated:

                              Securities Portfolio
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                            March 31,                             December 31,
                                                  ------------------------------  ---------------------------------------------
                                                      2000            1999            1999            1998           1997
                                                  --------------  --------------  --------------  -------------- --------------
AVAILABLE FOR SALE:
<S>                                                  <C>             <C>             <C>             <C>            <C>
    U.S. treasury and other government agencies      $   22,387      $   20,837      $   22,273      $   17,333     $    9,828
    State, county and municipal                             508           1,655           1,007           1,685          1,854
    Other                                                   869             265             775             806            112
                                                  --------------  --------------  --------------  -------------- --------------
    Total available for sale                             23,764          22,757          24,055          19,824         11,794
                                                  --------------  --------------  --------------  -------------- --------------
HELD TO MATURITY:
                                                  --------------  --------------  --------------  -------------- --------------
  U.S. treasury and other government agencies                 --              --              --              --            250
                                                  --------------  --------------  --------------  -------------- --------------
    Total held to maturity                                   --              --              --              --            250
                                                  --------------  --------------  --------------  -------------- --------------
  Total securities                                   $   23,764      $   22,757      $   24,055      $   19,824     $   12,044
                                                  ==============  ==============  ==============  ============== ==============
</TABLE>

         The following table sets forth the maturity distribution and weighted
average yields of the investment portfolio at March 31, 2000. The weighted
average yields are calculated on the basis of the book value of' the investment
portfolio and on the interest income of investments adjusted for amortization of
premium and accretion of discount.

                   Investment Portfolio - Maturity and Yields
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                      1 Year           5 Years           After
                                                 1 Year or Less     To 5 Years       To 10 Years        10 Years
                                                 --------------    -------------     -------------    -------------
<S>                                                <C>               <C>                <C>              <C>
MATURITY DISTRIBUTION:
U.S. Agency Issues                                 $     999         $  20,440          $    942         $     --
Municipal Issues                                         508                --                --               --
Other Corp Securities                                     --               608                --               --
Federal Reserve Bank Stock                                --                --                --              265
                                                 --------------    -------------     -------------    -------------
  Total Maturity Distribution                      $   1,507         $  21,048          $    942         $    265
                                                 --------------    -------------     -------------    -------------

WEIGHTED AVERAGE YIELD:
U.S. Agency Issues                                      8.77%             6.21%             6.02%              --
Municipal Issues                                        6.34%               --                --               --
Other Corp Securities                                     --              5.98%               --               --
Federal Reserve Bank Stock                                --                --                --             6.00%
  Total Portfolio Weighted Average Yield                7.95%             6.20%             6.02%            6.00%
</TABLE>




                                     IV-31
<PAGE>

Deposits

         The Heritage Bank primarily uses deposits to fund its loans and
investment portfolio. The Heritage Bank offers a variety of deposit accounts to
individuals and small to medium-sized businesses. Deposit accounts include
checking, savings, escrow accounts, money market and certificates of deposit.
Certificates of deposit in amounts of $100,000 or more totaled $7.3 million at
March 31, 2000 and $4.7 million at December 31, 1999. Many of these deposits are
from long-standing customers and, therefore, are believed by The Heritage Bank's
management to be as stable as, and for all practical purposes, no more rate
sensitive than, core deposits.

         The following table details the average amount of, and the average rate
paid on, the following primary deposit categories for the periods indicated:

                     Average Deposits and Average Rates Paid
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                        Three Months Ended March 31,
                                            ------------------------------------------------------
                                                      2000                        1999
                                            -------------------------   --------------------------
                                              Average       Average       Average       Average
Interest-bearing deposits:                    Balance        Rate         Balance         Rate
                                            -------------  ----------   -------------  -----------
<S>                                           <C>              <C>        <C>              <C>
  NOW accounts                                $   7,402        1.78%      $   6,725        2.14%
  Money market savings                           10,122        3.12%         11,978        3.00%
  Regular savings                                 3,168        2.90%          3,268        2.69%
  Certificates of deposit                        15,623        4.99%         15,664        5.11%
                                            -------------               -------------
  Total interest-bearing deposits                36,315        3.63%         37,635        3.70%

Non-interest-bearing deposits                    11,781                      11,490
                                            -------------               -------------

Total deposits                               $   48,096                   $  49,125
                                            =============               =============
</TABLE>

<TABLE>
<CAPTION>
                                                                                        Years Ended December 31,
                                            ----------------------------------------------------------------------------------------
                                                       1999                          1998                          1997
                                            --------------------------   ---------------------------   -----------------------------
                                               Average       Average        Average       Average          Average         Average
Interest-bearing deposits:                     Balance        Rate          Balance         Rate           Balance          Rate
                                            ------------  ------------   -------------  ------------   ---------------  ------------
<S>                                          <C>              <C>         <C>              <C>          <C>                 <C>
  NOW accounts                               $    7,387       1.76%       $     5,696      2.33%        $       5,073       2.23%
  Money market savings                           11,808       2.96             10,875      3.34                10,377       3.19
  Regular savings                                 3,250       2.77              3,298      2.94                 3,369       2.94
  Certificates of deposit                        15,373       5.02             12,424      5.14                11,196       5.01
                                            ------------                 -------------                 ---------------
  Total interest-bearing deposits            $   37,818       3.55%       $    32,293      3.82%        $      30,015       3.68%

Non-interest-bearing deposits                    11,522                        10,546                           8,829
                                            ------------                 -------------                 ---------------

Total deposits                               $   49,340                   $    42,839                   $      38,844
                                            ============                 =============                 ===============
</TABLE>



                                     IV-32
<PAGE>

         The following is a summary of the maturity distribution of certificates
of deposit in amounts of $100,000 or more as of March 31, 2000:

            Maturities of Certificates of Deposit of $100,000 or More

                      Maturity Period                 Amount          Percent
      -----------------------------------------   --------------   -------------
         3 months or less                             $ 1,122          15.4%
        Over 3 months to 6 months                       1,124          15.5%
        Over 6 months to 12 months                        389           5.4%
        Over 12 months                                  4,620          63.7%
                                                  --------------   -------------
        Total                                          $7,255         100.0%
                                                  ==============   =============

Short-Term Borrowings

         The Heritage Bank occasionally finds it necessary to purchase funds on
a short-term basis due to fluctuations in loan and deposit levels. The Heritage
Bank has several arrangements under which it may purchase funds. For the periods
ended December 31, 1999 and 1998, the expense for federal funds purchased
totaled approximately $0 and $7,000, respectively. For the three month period
ended March 31, 2000, interest expense for these arrangements was $11,000.

Capital Requirements

         The determination of capital adequacy depends upon a number of factors,
such as asset quality, liquidity, earnings, growth trends and economic
conditions. The Heritage Bank seeks to maintain a strong capital base to support
its growth and expansion plans, provide stability to current operations and
promote public confidence in The Heritage Bank.

         Management believes that The Heritage Bank's capital position, as of
December 31, 1999, exceeds all regulatory minimums. The federal banking
regulators have defined three tests for assessing the capital strength and
adequacy of banks, based on two definitions of capital. "Tier 1 Capital" is
defined as a combination of common and qualifying preferred stockholders' equity
less goodwill. "Tier 2 Capital" is defined as qualifying subordinated debt and a
portion of the allowance for loan losses. "Total Capital" is defined as Tier 1
Capital plus Tier 2 Capital. Three risk-based capital ratios are computed using
the above capital definitions, total assets and risk-weighted assets and are
measured against regulatory minimums to ascertain adequacy. All assets and
off-balance sheet risk items are grouped into categories according to degree of
risk and assigned a risk weighing and the resulting total is risk-weighted
assets. "Tier 1 Risk-based Capital" is Tier 1 Capital divided by risk-weighted
assets. "Total Risk-based Capital" is Total Capital divided by risk-weighted
assets. The Leverage Ratio is Tier 1 Capital divided by total average assets.
See "Supervision and Regulation--Capital Requirements."

         The following table shows The Heritage Bank's capital ratios and the
minimum ratios currently required by the Federal Reserve to be well-capitalized:

                                 Capital Ratios
<TABLE>
<CAPTION>
                                       March 31,                         December 31,
                               --------------------------- ----------------------------------------   Regulatory
                                   2000          1999          1999          1998          1997         Minimum
                               ------------- ------------- ------------- ------------  ------------  ------------
<S>                                <C>           <C>           <C>           <C>           <C>            <C>
Tier 1 Risk-based Capital          18.3%         24.9%         23.3%         24.5%         17.4%          4.0%
Total Risk-based Capital           19.1%         26.1%         24.4          25.7          18.6           8.0
Leverage ratio                     14.8%         15.0%         14.7          17.2          11.0           4.0
</TABLE>



                                     IV-33
<PAGE>

Liquidity And Capital Resources

         Liquidity is a measure of The Heritage Bank's ability to generate
sufficient cash to meet present and future financial obligations in a timely
manner through either the sale or maturity of existing assets or the acquisition
of additional funds through liability management. These obligations include the
credit needs of customers, funding deposit withdrawals, and the day-to-day
operations of The Heritage Bank. Liquid assets include cash, interest-bearing
deposits with banks, federal funds sold, and certain investment securities. As a
result of The Heritage Bank's management of liquid assets and the ability to
generate liquidity through liability funding, management believes that The
Heritage Bank maintains overall liquidity sufficient to satisfy its depositors'
requirements and meet its customers' credit needs.

         As of March 31, 2000, cash, federal funds sold, held-to-maturity
investment securities maturing within one year and available-for-sale securities
represented 47.90% of deposits and other liabilities compared to 52.05% at
December 31, 1999 and 61.23% at December 31, 1998. See "-- Interest
Sensitivity." At March 31, 2000, based upon The Heritage Bank's investment
policy, approximately 100% of total investment securities were available for
sale, and were primarily invested in U.S. Treasury and agency securities. See
"-- Investment Activities." Asset liquidity is also provided by managing loan
maturities. At March 31, 2000, approximately 45.7% or $16.5 million of loans
would mature or reprice within a one-year period.

         The following table summarizes The Heritage Bank's liquid assets for
the periods indicated:

                            Summary of Liquid Assets
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                        March 31,                        December 31,
                                                               -------------------------   ----------------------------------------
                                                                   2000          1999          1999         1998           1997
                                                               -----------   -----------   -----------  ------------  -------------
<S>                                                              <C>           <C>           <C>          <C>           <C>
Cash and due from banks                                          $  2,990      $  1,870      $  2,667     $   5,824     $   1,987
Federal funds sold                                                     --         6,000            --         8,550         7,600
Available-for-sale securities, at fair value                       23,764        22,757        24,055        19,824        11,794
                                                               -----------   -----------   -----------  ------------  -------------

Total liquid assets                                              $ 26,754      $ 30,627      $ 26,722     $  34,198     $  21,381
                                                               ===========   ===========   ===========  ============  =============

Deposits and other liabilities                                   $ 55,853      $ 52,019      $ 51,341     $  55,848     $  40,719
Ratio of liquid assets to deposits and other liabilities           47.90%        58.88%        52.05%        61.23%        52.51%
</TABLE>

Impact of Inflation, Changing Prices and Monetary Policies

         The financial statements and related financial data concerning The
Heritage Bank presented in this document have been prepared in accordance with
generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. The primary effect of inflation on the operations of The Heritage
Bank is reflected in increased operating costs. Unlike industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, changes in interest rates have a more
significant effect on the performance of a financial institution than do the
effects of changes in the general rate of inflation and changes in prices.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. Interest rates are highly
sensitive to many factors which are beyond the control of The Heritage Bank,
including the influence of domestic and foreign economic conditions and the


                                     IV-34
<PAGE>

monetary and fiscal policies of the U.S. government and federal agencies,
particularly the Federal Reserve.

         The Federal Reserve implements national monetary policies such as
seeking to curb inflation and combat recession by its open market operations in
U.S. government securities, control of the discount rate applicable to borrowing
by banks, and establishment of reserve requirements against bank deposits. The
actions of the Federal Reserve in these areas influence the growth of bank
loans, investments and deposits, and affect the interest rates charged on loans
and paid on deposits. The nature, timing and impact of any future changes in
federal monetary and fiscal policies on The Heritage Bank and its results of
operations are not predictable.

Accounting Matters

         In June 1998, the FASB issued Statement No. 133 "Accounting for
Derivative Instruments and Hedging Activities," which is required to be adopted
in years beginning after June 15, 2000. The statement permits early adoption as
of the beginning of any fiscal quarter after its issuance. This statement
establishes accounting and reporting standards for derivative instruments and
hedging activities, including certain derivative instruments embedded in other
contracts, and requires that an entity recognize all derivatives as assets or
liabilities in the balance sheet and measure them at fair value. Because
Heritage does not use these derivative instruments and strategies, management
does not expect the adoption of this statement to have any effect on earnings or
financial position.








                                     IV-35
<PAGE>

                                    CHAPTER V
                         MANAGEMENT FOLLOWING THE MERGER

The Board of Directors

         The Cardinal board of directors currently is comprised of ten members.
The board of directors is divided into three classes, two of which consists of
three members and one of which has four members. These directors serve, and will
continue to serve following the merger, for the terms of their respective
classes, which expire in 2000, 2001 and 2002.

         The merger agreement requires that Cardinal increase the size of the
board to 13 members and appoint three current directors of Heritage to become
directors of Cardinal.

         The following table sets forth the composition of the board of
directors following the merger.
<TABLE>
<CAPTION>
                Class A                                 Class B                                Class C
        (Term Expiring in 2001)                 (Term Expiring in 2002)                (Term Expiring in 2003)
<S>                                              <C>                                     <C>
          Wayne W. Broadwater                       Nancy K. Falck                        Robert M. Barlow
         Harvey W. Huntzinger                    L. Burwell Gunn, Jr.                       Anne B. Hazel
           John H. Rust, Jr.                        Jones V. Isaac                         James D. Russo
          Harold E. Lieding*                      J. Hamilton Lambert                    George P. Shafran*
                                                    Kevin B. Tighe*
</TABLE>
______________
*        Heritage director

         The following information sets forth as of May 24, 2000 the names,
ages, principal occupations and business experience for the past five years for
incumbent directors and the three Heritage directors who will become Cardinal
directors following the merger.

                                Directors Serving
                           for Terms Expiring in 2001

Wayne W. Broadwater, 76, has been a director of Cardinal since 1997.
         Mr. Broadwater served as President and CEO of Shipmates, Ltd., a chain
         of tool and equipment rental and sales companies that he founded in
         1972, until its sale in 1997.

Harvey W. Huntzinger, 73, has been a director of Cardinal since 1997.
         Mr. Huntzinger is a founder of National Systems Management Corporation,
         a service company organized in 1972, and was its President and CEO
         until his retirement in 1998.

John H. Rust, Jr., 52, has been Chairman of the Board of Cardinal since 1997.
         Mr. Rust is an attorney with the law firm of Wilkes Artis in Fairfax,
         Virginia. He had previously been of counsel in the law firm of
         McCandlish and Lillard. Mr. Rust is a member of the Virginia House of
         Delegates.



                                      V-1
<PAGE>

Harold E. Lieding, 63, has been a director of The Heritage Bank since 1990 and a
         director of Heritage since 1998.
         Mr. Lieding is a senior partner in the law firm of Lieding and
         Anderson, P.C., in McLean Virginia, and has practiced law in McLean
         since 1970. He is a member of the Fairfax Bar Association and the
         McLean Bar Association. Mr. Lieding is the Chairman of the Board of
         Heritage and The Heritage Bank.

                                Directors Serving
                           for Terms Expiring in 2002

Nancy K. Falck, 70, has been a director of Cardinal since 1997.
         Ms. Falck has been Secretary of Cardinal since 1998. She is active in
         community affairs and is past President of the Board of Directors of
         the Family Respite Center (a day program that helps people with
         Alzheimer's disease) and is a Commissioner on the Fairfax Area Council
         on Aging.

L. Burwell Gunn, Jr., 55, has been a director of Cardinal since 1997.
         Mr. Gunn has been President and Chief Executive Officer of Cardinal and
         President of Cardinal Bank, N.A., a subsidiary of Cardinal, since 1997.
         Prior to 1997, he was Executive Vice President and Commercial Division
         Head of the Greater Washington Region of Crestar Bank, where he worked
         in various positions for 25 years.

Jones V. Isaac, 68, has been a director of Cardinal since 1997.
         Mr. Isaac is President of Isaac Enterprises, Inc., a service oriented
         firm located in Potomac, Maryland. Prior to 1995, Mr. Isaac was the
         Administrator of Finance and Administration for the Construction
         Specifications Institute, where he had been employed since 1967.

J. Hamilton Lambert, 59, has been a director of Cardinal since 1999.
         Mr. Lambert is President of J. Hamilton Lambert and Associates, a
         consulting firm based in Leesburg, Virginia. He served as County
         Executive of Fairfax County from August 1980 to December 1990.

Kevin B. Tighe, 55, has been a director of The Heritage Bank since 1994 and a
         director of Heritage since 1998.
         Mr. Tighe is a senior partner in the law firm of Tighe, Patton,
         Tabackman and Babbin in Washington, D.C. Mr. Tighe is also the owner
         and Chairman of the Board of Directors of the McLean Racquet and Health
         Club in McLean, Virginia.

                                Directors Serving
                           for Terms Expiring in 2003

Robert M. Barlow, 70, has been a director of Cardinal since 1997.
         Mr. Barlow was the founder and principal shareholder of a group of
         companies engaged in construction, manufacturing and real estate in
         northern Virginia for 38 years. In 1995, he sold those ventures and is
         now retired.

Anne B. Hazel, 60, has been a director of Cardinal since 1997.
         Ms. Hazel serves as a Director of the Corcoran Museum of Art,
         Washington, D.C., the Florida House, Washington, D.C., the Morikani
         Museum and Japanese Gardens Foundation, Delray Beach, Florida and the
         Concert Hall at Mizner Park, Boca Raton, Florida.



                                      V-2
<PAGE>

James D. Russo, 53, has been a director of Cardinal since 1997.
         Mr. Russo is the Senior Vice President, Chief Financial Officer and
         Treasurer of Shire Laboratories, Inc., a pharmaceutical research and
         development company in Rockville, Maryland.

George P. Shafran, 72, has been a director of The Heritage Bank and Heritage
         since 1998.
         Mr. Shafran is a business consultant to a number of varied clients. He
         is also involved in several partnerships and is the chairman of the AAA
         MidAtlantic Advisory Board. He is president of Geo. P. Shafran &
         Associates, Inc., a consulting firm in McLean, Virginia. Mr. Shafran
         serves as Vice Chairman of Heritage and has served as Vice Chairman of
         the Board of Directors of The Heritage Bank since August 1998.

Executive Officers Who Are Not Directors

         Edgar M. Andrews, III, 53, has been Executive Vice President of
Cardinal and head of Cardinal's Alexandria loan production office since 1998.
Most recently, Mr. Andrews was President and Chief Executive Officer of the
Civil War Trust, a 501(c)(3) non-profit organization that he helped organize in
1992. Prior to 1992, Mr. Andrews held several senior management positions with
financial institutions in Cardinal's market area.

         Christopher W. Bergstrom, 40, has been President of Cardinal Bank -
Manassas/Prince William, N.A., a subsidiary of Cardinal, since 1999 and
Executive Vice President and Commercial Lending Officer of Cardinal since 1998.
Prior to 1998, Mr. Bergstrom was employed with Crestar Bank, where he served in
a variety of retail and commercial functions.

         Joseph L. Borrelli, 52, has been Executive Vice President and Chief
Financial Officer of Cardinal since 1998. Prior to 1998, Mr. Borrelli served as
the Regional Finance Manager for the greater Washington Region for Crestar Bank.

         Carl E. Dodson, 45, was Senior Vice President and Chief Credit Officer
of Cardinal from May 1998 until March 1999 and has served as Executive Vice
President since March 1999. From 1997 to 1998, Mr. Dodson was Chief Financial
Officer of C.C. Pace Resources, Inc., an engineering company in Fairfax,
Virginia. Prior to 1997, he was the senior commercial lending officer of Palmer
National Bank ("Palmer") in Washington, D.C. and, following Palmer's sale to
George Mason Bank ("George Mason") in 1996, Senior Vice President of Credit
Administration of George Mason.

         Thomas C. Kane, 38, has been President of Cardinal Wealth Services,
Inc., a wholly-owned subsidiary of Cardinal that offers full service investment
management products, since December 1998. Prior to that time, Mr. Kane was
Senior Vice President and Division Manager, Retail Securities & Personal Trust &
Investment Management Sales for Crestar Bank in its Greater Washington Region.

         F. Kevin Reynolds, 40, has been President of Cardinal Bank, N.A. since
1999 and Executive Vice President and Senior Lending Officer of Cardinal since
1998. Prior to 1998, Mr. Reynolds was the senior lending officer responsible for
all facets of the commercial lending business of George Mason and helped create
George Mason's commercial lending group.

         Eleanor D. Schmidt, 39, has been Executive Vice President and Retail
Banking Head of Cardinal since March 1999. From January 1998 until March 1999
she was a Senior Vice President with the same responsibility. Prior to 1998, Ms.
Schmidt was employed with NationsBank, where she managed multiple branches in
the Fairfax area serving a large and diverse deposit and loan base.



                                      V-3
<PAGE>

         Greg D. Wheeless, 38, has been President of Cardinal Bank - Dulles,
N.A., a subsidiary of Cardinal, since 1999 and Executive Vice President of
Cardinal since 1998. Prior to 1998, Mr. Wheeless was employed with Crestar Bank,
which he joined in 1989 as Vice President, Commercial Lender, and where he
served most recently as Senior Vice President and Northern Virginia Middle
Market Manager.

Security Ownership of Management

         The following table sets forth, based on information as of May 1, 2000,
the beneficial ownership of Cardinal common stock and the beneficial ownership
of Heritage common stock by each director of Cardinal and Heritage, by each
person named in the "Summary Compensation Table" on page V-6 and by all
directors and executive officers of each of Cardinal and Heritage as a group.








                                      V-4
<PAGE>

<TABLE>
<CAPTION>
                                          Cardinal Common Stock                    Heritage Common Stock
                                          ---------------------                    ---------------------
                                       Number              Percent              Number               Percent
                                    of Shares (1)        of Class (%)        of Shares (1)         of Class (%)
                                    -------------        ------------        -------------         ------------
<S>                                     <C>                   <C>                <C>                   <C>
Cardinal:
  Robert M. Barlow                      100,900                2.4                 --                   --
  Christopher W. Bergstrom               15,407                 *                  --                   --
  Joseph L. Borrelli                     12,674                 *                  --                   --
  Wayne W. Broadwater                    31,000                 *                  --                   --
  Nancy K. Falck                         63,336                1.5                 --                   --
  L. Burwell Gunn                        21,548                 *                  --                   --
  Anne B. Hazel                          17,334                 *                  --                   --
  Harvey W. Huntzinger                   90,500                2.1                 --                   --
  Jones V. Isaac                         47,400                1.1                 --                   --
  J. Hamilton Lambert                    13,000                 *                  4,000                *
  Dale B. Peck                           26,667                 *                  --                   --
  F. Kevin Reynolds                      16,080                 *                  --                   --
  James D. Russo                         63,600                1.5                 --                   --
  John H. Rust, Jr.                      40,158                 *                  --                   --
  Greg D. Wheeless                          991                 *                  --                   --

  All current Cardinal directors
    and executive officers as a
    group (19 persons)                    604,449             14.1                 4,000                *

Heritage Directors:
  George K. Degnon                        --                  --                  27,100               1.2
  Philip F. Herrick, Jr.                  --                  --                 136,058               5.9
  Ronald W. Kosh                          --                  --                  10,900                *
  Harold E. Lieding                       --                  --                 368,993               16.0
  Stanley I. Richards                     --                  --                  18,102                *
  Terrie G. Spiro                         --                  --                  45,000               1.9
  Kevin P. Tighe                          --                  --                  11,000                *
  George P. Shafran                       --                  --                  50,269               2.1

  All current Heritage directors
    and executive officers as a
    group (10 persons)
                                          --                  --                 679,422               22.9
</TABLE>
________________
*    Percentage of ownership is less than one percent of the shares of
     outstanding common stock of Cardinal or Heritage, respectively.

(1)  Amounts include beneficial ownership of shares of common stock, if any,
     held in the name of the spouse, minor children or other relatives of a
     director living in such person's home, as well as shares, if any, held in
     the name of another person under an arrangement whereby the director or
     executive officer can vest title in himself at once or at some future time.
     Amounts also include beneficial ownership of shares of common stock
     issuable upon the exercise of stock options exercisable within 60 days of
     May 1, 2000.






                                      V-5
<PAGE>

Security Ownership of Certain Beneficial Owners

         The following table sets forth, to the knowledge of Cardinal and
Heritage and based on information as of May 1, 2000, the beneficial ownership of
each person who owns more than five percent of the outstanding shares of
Heritage common stock. No person is known to be the beneficial owner of more
than five percent of the outstanding shares of Cardinal common stock.
<TABLE>
<CAPTION>
                                                Cardinal Common Stock                 Heritage Common Stock
                                                ---------------------                 ---------------------
                                              Number             Percent            Number            Percent
                                           of Shares (1)       of Class (%)      of Shares (1)      of Class (%)
                                           -------------       ------------      -------------      ------------
<S>                                              <C>                <C>             <C>                 <C>
Philip F. Herrick, Jr.                           --                 --              136,058             5.9
  c/o Heritage Bancorp, Inc.
  1313 Dolley Madison Boulevard
  McLean, Virginia  22101

Harold E. Lieding                                --                 --              368,993            16.0
  c/o Heritage Bancorp, Inc.
  1313 Dolley Madison Boulevard
  McLean, Virginia  22101
</TABLE>
___________________
(1)  Amounts include beneficial ownership of shares of common stock, if any,
     held in the name of the spouse, minor children or other relatives of a
     director living in such person's home, as well as shares, if any, held in
     the name of another person under an arrangement whereby the director or
     executive officer can vest title in himself at once or at some future time.
     Amounts also include beneficial ownership of shares of common stock
     issuable upon the exercise of stock options exercisable within 60 days of
     May 1, 2000.

Executive Compensation

         The following table shows, for the fiscal years ended December 31,
1999, 1998 and 1997, the cash compensation paid by Cardinal and its
subsidiaries, as well as certain other compensation paid or accrued for those
years, to each of the named executive officers in all capacities in which they
served:

                           Summary Compensation Table
<TABLE>
<CAPTION>
                                                      Annual Compensation                      Long Term Compensation
                                                      -------------------                      ----------------------
                                                                                          Securities
           Name and                                                    Other Annual       Underlying          All Other
      Principal Position       Year       Salary ($)    Bonus ($)    Compensation ($)   Options (#)(1)   Compensation ($)(2)
      ------------------       ----       ----------    ---------    ----------------   --------------   -------------------
<S>                            <C>                         <C>              <C>              <C>                <C>
L. Burwell Gunn, Jr.           1999         159,497        42,325           *                14,750             12,959
President and Chief            1998         150,000        50,000           *                 1,250              5,247
   Executive Officer           1997          27,174        25,000           *                     -                981


F. Kevin Reynolds              1999         104,587        26,000           *                 3,131              3,685
President, Cardinal Bank,      1998(3)       98,640        30,000           *                     -                545
   N.A.





                                      V-6
<PAGE>

                                                      Annual Compensation                      Long Term Compensation
                                                      -------------------                      ----------------------
                                                                                          Securities
           Name and                                                    Other Annual       Underlying          All Other
      Principal Position       Year       Salary ($)    Bonus ($)    Compensation ($)   Options (#)(1)   Compensation ($)(2)
      ------------------       ----       ----------    ---------    ----------------   --------------   -------------------

Christopher W. Bergstrom       1999         105,504        23,000           *                 3,131              8,060
President, Cardinal Bank -     1998(4)       70,189        30,000           *                     -              3,405
   Manassas/Prince William,
   N.A.

Joseph L. Borrelli             1999         103,846        20,000           *                 2,818              8,565
Executive Vice President       1998(5)       90,670        27,000           *                     -              3,544
   and Chief Financial
   Officer

Greg D. Wheeless,              1999         103,726        18,540           *                 2,159              7,301
President, Cardinal Bank -     1998(6)       30,006        13,000           *                     -                  -
   Dulles, N.A.
</TABLE>
_______________

*    All benefits that might be considered of a personal nature did not exceed
     the lesser of $50,000 or 10% of total annual salary and bonus.

(1)  Amounts disclosed include 750 shares of Cardinal common stock for the year
     ended December 31, 1999 and 1,250 shares of common stock for the year ended
     December 31, 1998 that underlie options granted to Mr. Gunn in his capacity
     as a director of Cardinal.
(2)  Amounts presented represent (i) gross value of payments made by Cardinal
     pursuant to life insurance agreements between Cardinal and the named
     executive officers and (ii) total contributions to Cardinal's 401(k) plan
     on behalf of each of the named executive officers to match pre-tax elective
     deferral contributions (which are included under the "Salary" column) made
     by each to such plan. The 1997 amount reflects COBRA payments to Mr. Gunn's
     former employer to continue insurance benefits.
(3)  Mr. Reynolds' employment with Cardinal commenced on January 19, 1998.
(4)  Mr. Bergstrom's employment with Cardinal commenced on April 6, 1998.
(5)  Mr. Borrelli's employment with Cardinal commenced on January 1, 1998.
(6)  Mr. Wheeless' employment with Cardinal commenced on August 31, 1998.


Stock Options

         The following table sets forth for the year ended December 31, 1999,
the grants of stock options to the named executive officers.




                                      V-7
<PAGE>

                        Option Grants In Last Fiscal Year
<TABLE>
<CAPTION>
                                                        Percent of Total
                                    Number of            Options Granted
                              Securities Underlying      to Employees in      Exercise or Base
Name                           Options Granted (1)      Fiscal Year (%)(2)   Price ($/Share) (3)    Expiration Date
----                           -------------------      ------------------   -------------------    ---------------
<S>                                  <C>                       <C>                   <C>            <C>
L. Burwell Gunn, Jr.                 14,750                    11.5                  7.50           January 1, 2009

F. Kevin Reynolds                     3,131                     2.4                  6.38           January 1, 2009

Christopher W. Bergstrom              3,131                     2.4                  6.38           January 1, 2009

Joseph L. Borrelli                    2,818                     2.2                  6.38           January 1, 2009

Greg D. Wheeless                      2,159                     1.7                  6.38           January 1, 2009
</TABLE>
__________________
(1)  Amounts disclosed include 750 shares of Cardinal common stock that underlie
     options granted to Mr. Gunn in his capacity as a director of Cardinal.
(2)  Options to purchase a total of 127,929 shares of Cardinal common stock were
     granted to employees during the year ended December 31, 1999.
(3)  Stock options were awarded at or above the fair market value of the shares
     of Cardinal common stock at the date of award.


         The following table sets forth the amount and value of stock options
held by the named executive officers as of December 31, 1999.

                          Fiscal Year End Option Values
<TABLE>
<CAPTION>
                                               Number of
                                         Securities Underlying                 Value of Unexercised
                                        Unexercised Options at                 In-the-Money Options
                                            Fiscal Year End                  at Fiscal Year End ($)(2)
                                            ---------------                  -------------------------
Name                               Exercisable(1)     Unexercisable       Exercisable      Unexercisable
----                               --------------     -------------       -----------      -------------
<S>                                    <C>               <C>                  <C>                <C>
L. Burwell Gunn, Jr.                   2,000             14,000               --                 --

F. Kevin Reynolds                       --                3,131               --                 --

Christopher W. Bergstrom                --                3,131               --                 --

Joseph L. Borrelli                      --                2,818               --                 --

Greg D. Wheeless                        --                2,159               --                 --
</TABLE>
_____________________
(1)  Amounts disclosed represent shares of Cardinal common stock that underlie
     options granted to Mr. Gunn in his capacity as a director of Cardinal.
(2)  The value of in-the-money options at fiscal year end is calculated by
     determining the difference between the closing price of a share of Cardinal
     common stock as reported on The Nasdaq SmallCap Market on December 31, 1999
     and the exercise price of the options. No options disclosed in the table
     were in-the-money as of December 31, 1999.



                                      V-8
<PAGE>

Directors' Fees

         Directors of Cardinal do not receive any cash compensation. In lieu of
cash fees for service on the board of directors, each director of Cardinal is
granted annually options to purchase 2,000 shares of Cardinal common stock. Such
options are granted with an exercise price at or above the fair market value of
the Cardinal common stock and expire ten years from the date of grant.

Compensation and Other Employment Arrangements

         On September 30, 1997, Mr. Gunn entered into an employment contract to
serve as President and Chief Executive Officer of Cardinal and to perform such
services and duties as each entity's board of directors may designate. Under the
contract, Mr. Gunn is entitled to an annual base salary of $150,000. Any
increases in base salary are at the discretion of the boards of directors. In
addition, Mr. Gunn earned a bonus in 1997 of $25,000 in connection with the
completion of various aspects of the organization of Cardinal and Cardinal Bank,
N.A., and may be entitled to up to an additional $50,000 in connection with the
first year of operations of Cardinal and Cardinal Bank, N.A. and up to $50,000
per year for future performance.

         The contract is for a term of three years and may be extended for at
least two additional years. Mr. Gunn serves at the pleasure of Cardinal's board
of directors. If, during the term of the contract, Mr. Gunn's employment is
terminated without cause, Mr. Gunn will be entitled to a severance payment equal
to his annual base salary at that time. The contract also provides for certain
non-competition covenants for a period of one year following Mr. Gunn's
termination.

         During each year under his three-year employment contract, Mr. Gunn
will be granted an option to purchase 14,000 shares of Cardinal common stock at
$7.50 per share, or such number of shares as may be determined by the board of
directors in its discretion. The grant of any option for any particular year,
however, shall be conditioned on Cardinal's financial performance exceeding
certain amounts budgeted for that year.

         Each of F. Kevin Reynolds, Christopher W. Bergstrom, Joseph L. Borrelli
and Greg D. Wheeless have also entered into employment agreements with Cardinal.
Mr. Reynolds' agreement, which is dated as of February 12, 1999, provides for
his service as Executive Vice President of Cardinal and President and Chief
Executive Officer of Cardinal Bank, N.A. Mr. Bergstrom's agreement, which is
dated as of December 17, 1998, provides for his service as Executive Vice
President of Cardinal and President and Chief Executive Officer of Cardinal Bank
- Manassas/Prince William Bank, N.A. Mr. Borrelli's agreement, which is dated as
of February 17, 1999, provides for his service as Executive Vice President and
Chief Financial Officer of Cardinal. Mr. Wheeless' agreement, which is dated as
of August 31, 1998, provides for his service as Executive Vice President of
Cardinal and President and Chief Executive Officer of Cardinal Bank - Dulles,
N.A.

         Each of the agreements for Messrs. Reynolds, Bergstrom, Borrelli and
Wheeless provide for annual base salaries of $100,000 and includes annual
increases at the discretion of the board of directors and cash bonuses up to 30%
of the salary based on the attainment of certain performance objectives by the
individual. The agreements also include stock option grants up to 20% of salary
based on the attainment of such objectives. Such grants are awarded with an
option exercise price equal to the fair market value of shares of Common Stock
at the date of grant, and the options vest and become exercisable in equal
installments over a three-year period from the date of grant. Each of these
agreements is for a term that expires in 2001 and may be renewed for an
additional two-year period.



                                      V-9
<PAGE>

Transactions with Management

         Some of the directors and officers of Cardinal are at present, as in
the past, customers of Cardinal and, Cardinal has had, and expects to have in
the future, banking transactions in the ordinary course of its business with
directors, officers, principal shareholders and their associates, on
substantially the same terms, including interest rates and collateral on loans,
as those prevailing at the same time for comparable transactions with others.
These transactions do not involve more than the normal risk of collectibility or
present other unfavorable features. The aggregate outstanding balance of loans
to directors, executive officers and their associates, as a group, at December
31, 1999 totaled approximately $2.9 million, or 9.4% of Cardinal's equity
capital at that date.

         Any future transactions between Cardinal and its officers and
directors, as well as transactions with any person who acquires five percent or
more of Cardinal's voting stock will be on substantially the same terms,
including interest rates and security for loans, as those prevailing at the time
for comparable transactions with others.

         There are no legal proceedings to which any director, officer,
principal shareholder or associate is a party that would be material and adverse
to Cardinal.







                                      V-10
<PAGE>

                                   CHAPTER VI
                                  LEGAL MATTERS

                      DESCRIPTION OF CARDINAL CAPITAL STOCK

         Cardinal is authorized to issue up to 50,000,000 shares of common stock
and 10,000,000 shares of preferred stock. The board of directors is authorized
to issue the preferred stock in one or more series and, subject to certain
restrictions imposed by state and federal law, to fix the number and designation
of shares, rate of dividends, redemption terms (including purchase and sinking
fund provisions), conversion rights, liquidation amounts, voting rights, and any
other lawful rights, preferences and limitations of each such series.

The Cardinal Preferred Stock

         Cardinal has designated the shares of preferred stock to be issued in
the merger as the 7.25% Cumulative Convertible Preferred Stock, Series A.

Dividends

         Dividends on the preferred stock accrue each calendar quarter at an
annual rate of $0.3625 per share. Dividends are cumulative and are payable
quarterly if, as and when declared by the board of directors from funds legally
available therefor on the last day of each calendar quarter, commencing on the
last day of the calendar quarter in which Cardinal and Heritage merge. For a
description of limits on the declaration and payment of dividends and of certain
tax effects of dividend payments by Cardinal, see "Market Prices and Dividends
-- Dividends" on page I-43.

         Unless dividends accrued on all outstanding shares of each series of
preferred stock for all past dividend periods have been declared and paid, or
declared and a sum sufficient for the payment thereof set apart, and full
dividends (to the extent that the amount has become determinable) on all
outstanding shares of such stock due on the respective following payment dates
have been declared and a sum sufficient for payment set part, then:

o    no dividend (other than a dividend payable solely in common stock) may be
     declared or paid upon, or any sum set part for the payment of dividends on
     any shares of common stock;

o    no other distribution may be made upon any shares of common stock;

o    no shares of common stock may be purchased, redeemed or otherwise acquired
     for value by Cardinal or by any subsidiary; and

o    no monies may be paid into or set part or made available for a sinking or
     other like fund for the purchase, redemption or other acquisition for value
     of any shares of common stock by Cardinal or any subsidiary.



                                      VI-1
<PAGE>

Conversion to Common Stock

         Each share of preferred stock is convertible, at the option of the
holder, at any time, into shares of Cardinal common stock. The number of shares
of common stock into which each share of preferred stock will be convertible
shall be equal to the number arrived at by dividing $5.00, without any payment
or adjustment for dividends accrued, by the conversion price per share of the
common stock. The conversion price shall initially be $_______ per share, which
means that each share of preferred stock initially will be convertible into
_____ shares of Cardinal common stock. If any fractional interest in a share of
Cardinal common stock would be deliverable upon conversion, the number of shares
of common stock deliverable will be rounded up to the nearest full share.

         The conversion rate is subject to adjustment in certain events,
including the issuance of Cardinal capital stock as a stock dividend;
combinations and subdivisions of the common stock; the issuance after the date
hereof securities convertible into or exchangeable for common stock or warrants,
rights or options to acquire common stock (except pursuant to employee benefit
plans) at less than the then current market price of the common stock; certain
distributions of debt securities or assets (other than cash dividends) of
Cardinal; and certain reclassifications of the common stock. Upon conversion of
any preferred stock, a payment shall be made for all dividends declared and
unpaid on such shares up to the dividend date immediately preceding surrender of
the shares for conversion. No payment or adjustment will be made for any
dividends accrued but undeclared as of such date.

         In case of any consolidation or merger to which Cardinal is a party but
not the surviving corporation, or in case of any sale or conveyance to another
corporation of the property of Cardinal as an entirety or substantially as an
entirety, each holder of shares of preferred stock will thereafter have the
right to convert the shares into (and any successor corporation shall expressly
assume the obligation to deliver) the kind and amount of shares of stock and
other securities and property receivable upon such consolidation, merger, sale
or conveyance by a holder of the number of shares of common stock into which the
preferred stock was convertible immediately prior to such consolidation, merger,
sale or conveyance.

         The election to convert shares of preferred stock into common stock can
be made by delivering written notice of election to convert to Cardinal's
transfer agent, accompanied by the certificates for any preferred stock being
converted.

         If, for 20 consecutive trading days beginning on or after the end of
the 42nd calendar month following the effective date of the merger of Cardinal
and Heritage, the last sale price of Cardinal common stock as reported by NASDAQ
or its successor exceeds 1.30 times the conversion price, each share of
preferred stock will automatically convert into Cardinal common stock.

Liquidation Preference

         In the event of an involuntary liquidation, dissolution or winding-up
of Cardinal, the holders of the preferred stock will be entitled to receive,
before any distribution or payment is made upon any shares of stock of Cardinal
ranking junior to the preferred stock, $5.00 per share in cash, together with an
amount in cash equal to all accrued and unpaid dividends thereon on the date of
distribution or payment. In the event of a voluntary liquidation, dissolution or
winding-up of the affairs of Cardinal, the holders of the preferred stock will
be entitled, before any distribution or payment upon any shares of common stock
of Cardinal, to a liquidation preference equal to the then applicable redemption
price per share as described below plus accrued dividends to the date of
distribution. If, upon any liquidation, dissolution or winding-up, the assets of
Cardinal distributable among the holders of the preferred stock in respect of
the



                                      VI-2
<PAGE>

liquidation, are insufficient to permit payment in full to such holders of the
amounts to which they are respectively entitled, the assets will then be
distributed among such holders on a pro rata basis.

         A voluntary sale, lease, exchange or transfer of all or any part of
Cardinal property or assets, the consolidation or merger of Cardinal into or
with one or more corporations, or a redemption of Cardinal capital stock shall
not be deemed a liquidation, dissolution or winding-up of Cardinal.

Redemption

         Cardinal generally may not redeem the preferred stock for a period of
20 years from the date of issue. However, if a merger is approved by holders of
Cardinal common stock and disapproved by holders of the preferred stock,
Cardinal may redeem the preferred stock at any time after the vote is taken. If
the redemption is less than 42 months from the date of the merger, Cardinal must
also pay the amount of dividends that would accrue from the redemption date to
the end of the 42nd month after the merger closes.

         If less than all of the outstanding shares of preferred stock are to be
redeemed, Cardinal will select those to be redeemed pro rata, by lot or in such
other equitable manner as the board of directors may determine. There is no
mandatory redemption or sinking fund obligation with respect to the preferred
stock.

         Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of record of preferred stock
to be redeemed at the address shown on Cardinal books. On and after the earlier
of the date that the redemption price is paid or the date that such price is
deposited in trust for the benefit of the holders of the shares to be redeemed,
all rights of the holders of such preferred stock shall terminate except the
right to convert or to receive the redemption price. The right of conversion
with respect to such shares shall cease and terminate at the close of business
five days prior to the date fixed for such redemption.

Voting Rights

         Except as expressly provided by applicable law, the holders of the
preferred stock are not entitled to receive notice of, or to participate in, or
to vote on any matter at any meeting of the Cardinal shareholders.



                                      VI-3
<PAGE>

The Common Stock

         Holders of Cardinal common stock are entitled to one vote for each
share held of record on all matters voted on by shareholders. The shares of
common stock do not have cumulative voting rights, which means that the holders
of more than 50% of the shares of common stock voting for the election of
directors can elect all of the directors, in which event the holders of the
remaining shares of common stock will not be able to elect any director. Subject
to the prior rights of the holders of preferred stock and any class or series of
stock of Cardinal ranking on a parity with the preferred stock in respect of
payment of dividends, holders of common stock are entitled to receive dividends
when, as and if declared by the board of directors out of funds legally
available for the payment of dividends. Upon any liquidation, dissolution or
winding-up of the affairs of Cardinal, holders of common stock are entitled to
receive pro rata all of the assets of Cardinal available for distribution to
shareholders after payment of the liquidation preference of any preferred stock
and any class or series of stock of Cardinal ranking on a parity with the
preferred stock in respect of liquidation outstanding at the time. Holders of
common stock have no subscription, redemption, sinking fund, conversion or
preemptive rights. The outstanding shares of common stock are fully paid and
nonassessable.

                       COMPARATIVE RIGHTS OF SHAREHOLDERS

General

         Cardinal and Heritage are corporations subject to the provisions of the
Virginia Stock Corporation Act. Rights as a shareholder of Heritage are governed
by the Heritage articles of incorporation and bylaws and by the Virginia Stock
Corporation Act. Upon consummation of the merger, Heritage shareholders will
become shareholders of Cardinal, and as such shareholder rights will then be
governed by the articles of incorporation of Cardinal, the Cardinal bylaws and
by the Virginia Stock Corporation Act.

         The following is a summary of the material differences in the rights of
shareholders of Heritage and Cardinal. This summary is qualified in its entirety
by reference to the articles of incorporation and bylaws of Cardinal and
Heritage and to the Virginia Stock Corporation Act.

Authorized Capital

         Heritage. The Heritage Articles authorize the issuance of up to
10,000,000 shares of Heritage common stock, without par value, of which
2,294,617 shares were issued and outstanding as of May 24, 2000. Heritage is not
authorized to issue preferred stock.

         Cardinal. The Cardinal Articles authorize the issuance of up to
50,000,000 shares of Cardinal common stock, par value $1.00 per share, of which
4,245,759 shares were issued and outstanding as of May 1, 2000, and 10,000,000
shares of preferred stock, $1.00 par value, of which no shares are issued and
outstanding.

         Cardinal's Articles authorize the Cardinal board, without shareholder
approval, to fix the preferences and relative rights of the preferred stock,
within certain limitations, and to establish series of such preferred stock and
determine the variations, such as in dividends, voting rights, redemption price
and conditions, and conversion features, between each series. Although series
may have different features, all series shall rank on a parity as to dividends
and assets with all other series according to the respective dividend rates and
amounts distributable upon any voluntary or involuntary liquidation of the
corporation fixed for each such series and without preference or priority of any
series over any other series. All shares of preferred stock within a series
shall be identical, and all shares of preferred stock



                                      VI-4
<PAGE>

shall be preferred over common stock as to both dividends and amounts
distributable upon any voluntary or involuntary liquidation of the corporation.
If any additional shares of preferred stock are issued, the rights of holders of
Cardinal common stock would be subject to the rights and preferences conferred
to holders of such preferred stock.

         The authority to create and issue separate classes and series of
preferred stock allows a corporation greater flexibility in structuring
financings and acquisitions. While such issuances could, under certain
circumstances, be considered to have the effect of making a change in control
more difficult, any issuance of such stock would be subject to applicable law,
including, without limitation, the duty of the Cardinal board to exercise its
good faith business judgment in the best interests of Cardinal and its
shareholders. Under Cardinal's Articles, the Cardinal board would be authorized
to issue a series of preferred stock with more than one vote, less than one
vote, no vote or one vote per share.

         Cardinal's ability to pay dividends is limited by restrictions imposed
by the Virginia Stock Corporation Act on Virginia corporations. In general,
dividends paid by a Virginia corporation may be paid only if, after giving
effect to the distribution, (i) the corporation is still able to pay its debts
as they become due in the usual course of business, or (ii) the corporation's
total assets are greater than or equal to the sum of its total liabilities plus
(unless the corporation's articles permit otherwise) the amount that would be
needed, if the corporation were to be dissolved at the time of the distribution,
to satisfy the preferential rights, upon the dissolution, of shareholders whose
preferential rights are superior to those receiving the distribution.

         Dividends on the Cardinal preferred stock are cumulative, which means
that no dividends may be declared or paid on the common stock unless all
dividends accrued on the preferred stock have been paid, or declared and a sum
sufficient for the payment thereof set apart for such payment.

Amendment of Articles of Incorporation or Bylaws

         The Virginia Stock Corporation Act provides that an amendment to a
corporation's articles of incorporation must be approved by each voting group
entitled to vote on the proposed amendment. Under Virginia law, an amendment to
the corporation's articles of incorporation must be approved by more than
two-thirds of all votes entitled to be cast by that voting group. However, the
corporation's articles of incorporation may require a greater vote or a lesser
vote, which may not be not less than a majority, by each voting group entitled
to vote on the transaction. A corporation's board of directors may require a
greater vote.

         Heritage. The Heritage Articles provide that amendments to the Heritage
Articles must be approved by two-thirds of all votes entitled to be cast by each
voting class; however, the Heritage Articles further provide that the Heritage
board, at its sole discretion, may decrease the required vote to not less than a
majority of all the votes cast by each voting class.

         The Heritage Bylaws provide that the Heritage Bylaws may be amended,
repealed or altered by a majority vote of the full board of directors at any
regular or special meeting. The Heritage Bylaws also permit the shareholders to
change, repeal or prescribe new bylaws and to prescribe that any bylaws made by
them shall not be altered or repealed by the board.

         Cardinal. As noted above, amendments to the articles of incorporation
of Virginia corporations, such as Cardinal, can be submitted to the shareholders
for a vote only by the board of directors. Additionally, Virginia law provides,
as a general rule, that an amendment to the articles of incorporation must be
approved by each voting group entitled to vote on the proposed amendment by more
than two-thirds of all votes entitled to be cast by such voting group. However,
Virginia law also permits the



                                      VI-5
<PAGE>

articles of incorporation to provide for a greater or lesser vote. Cardinal's
Articles contain such a provision. Cardinal's Articles provide that amendments
must be approved by a majority of the votes entitled to be cast by each voting
group entitled to vote and, unless such action is approved by at least
two-thirds of the directors, by holders of at least two-thirds of the issued and
outstanding shares of Cardinal common stock.

         Cardinal's Bylaws generally may be amended by either the board of
directors or the shareholders by a majority vote.

Mergers, Consolidations and Sales of Assets

         Heritage. The Heritage Articles provide that a merger, share exchange,
or direct or indirect sale, lease, exchange or other disposition of all or
substantially all of the property of Heritage must be approved by two-thirds of
the issued and outstanding shares of each voting class. However, the Heritage
Articles further provide that the Heritage board, at its sole discretion, may
decrease the required vote to not less than a majority of all the votes cast by
each voting class.

         Cardinal. Cardinal's Articles provide that a plan of merger or share
exchange, or direct or indirect sale, lease, exchange or other disposition of
all or substantially all of the property of Cardinal not in the ordinary course
of business may be approved by the same vote that is required in order to amend
the articles of incorporation. Additionally, consistent with Virginia law, the
Cardinal board may condition its submission of such plan of merger or share
exchange or such a sale or disposition of assets to the shareholders on any
basis, including the requirement of a greater vote than the required vote
described above.

         A proposed merger, share exchange or sale of substantially all assets
of Cardinal that is favored by two-thirds of the directors could be adopted as
long as a majority (rather than two-thirds) of the outstanding shares entitled
to vote in each voting group entitled to vote are voted in favor of the proposed
action. In addition to requiring the affirmative vote of a majority of the
shares entitled to vote in each voting group entitled to vote, Cardinal's
Articles would require that, unless a proposed action is approved by at least
two-thirds of the directors, holders of at least two-thirds of the issued and
outstanding shares of Cardinal common stock must vote in favor of the proposed
action.

         As with amendments to the articles of incorporation, however, if at
least two-thirds of the directors of Cardinal do not approve such corporate
action upon which shareholders are voting, the additional requirement would
permit a minority of the holders of Cardinal common stock to defeat the proposed
action.

Size and Classification of Board of Directors

         Heritage. The Heritage Articles provide that the initial number of
directors is nine, and the Heritage Bylaws provide that the board of directors
will not consist of less than five or more than nine individuals. The Heritage
Articles provide for the division of the directors into three classes, as nearly
equal in number as possible. The first Class A directors' initial terms expire
at the first annual meeting of shareholder after their election. The first Class
B directors' terms expire at the second annual meeting of shareholders after
their election. The first Class C directors' initial terms expire at the third
annual meeting of shareholders after their election. Upon expiration of the
initial terms, successor directors are elected for three-year terms and continue
to hold office until their respective successors are elected and qualify, unless
the director dies, resigns, retires, becomes disqualified, is removed from
office, or leaves due to another cause. At least three directors must be elected
at each annual meeting.



                                      VI-6
<PAGE>

         The Heritage Articles further provide that in the event of an increase
or decrease in the number of directors within the range permitted by the
Heritage Bylaws, all classes of directors shall be increased or decreased as
equally as may be practicable. No decrease in the number of directors
constituting the Heritage board shall shorten the term of any incumbent
director.

         Cardinal. Cardinal's Articles and Bylaws contain similar provisions to
that of Heritage, except that its board of directors shall consist of nine
individuals.

         A classified board of directors makes it more difficult for
shareholders, including those holding a majority of shares, to force an
immediate change in the composition of a majority of the board of directors,
even when the reason for a proposed removal is poor performance. Since the terms
of only approximately one-third of Cardinal's directors expire each year, it
requires at least two annual elections for the shareholders to change a
majority, whereas a majority of a non-classified board may be changed in one
year.

Vacancies and Removal of Directors

         Heritage. The Heritage Articles provide that directors may be removed
only for good cause shown. Under the Heritage Bylaws, a vacancy on the board of
directors, however occurring, may be filled by a majority vote of the remaining
directors, although the remaining directors may be less than a quorum.

         Cardinal. The Cardinal Articles contain similar provisions to that of
Heritage with respect to the filling of vacancies on the board of directors.
Cardinal's Articles allow removal of a director from office only for cause, and
only by the affirmative vote of at least two-thirds of the votes cast by each
class of Cardinal voting stock then outstanding at a meeting called for that
purpose. Such a meeting could be the annual shareholder meeting or a special
shareholder meeting, although only the president, the chairman of the board, or
the board itself has a right to call a special shareholder meeting.

         The provisions of Cardinal's Articles relating to the removal of
directors and the filling of vacancies would preclude a holder of a majority of
the voting stock from removing incumbent directors and simultaneously gaining
control of the board of directors by filling the vacancies so created with its
own nominees. Accordingly, except with the concurrence of a majority of the
directors remaining in office, persons seeking representation either by
enlarging the board of directors or by filling the newly created directorships
with their own nominees would be unsuccessful.

Director Liability and Indemnification

         The Virginia Stock Corporation Act provides that in any proceeding
brought by or in the right of a corporation or brought by or on behalf of
shareholders of the corporation, the damages assessed against an officer or
director arising out of a single transaction, occurrence or course of conduct
may not exceed the lesser of (1) the monetary amount, including the elimination
of liability, specified in the articles of incorporation or, if approved by the
shareholders, in the bylaws as a limitation on or elimination of the liability
of the officer or director; or (2) the greater of (a) $100,000 or (b) the amount
of cash compensation received by the officer or director from the corporation
during the twelve months immediately preceding the act or omission for which
liability was imposed. The liability of an officer or director is not limited
under the Virginia Stock Corporation Act or a corporation's articles of
incorporation and bylaws if the officer or director engaged in willful
misconduct or a knowing violation of the criminal law or of any federal or state
securities law.



                                      VI-7
<PAGE>

         In addition, the Virginia Stock Corporation Act permits a Virginia
corporation to indemnify any director or officer for reasonable expenses
incurred in any legal proceeding in advance of final disposition of the
proceeding, if the director or officer furnishes the corporation a written
statement of his or her good faith belief that he or she has conducted himself
or herself in good faith and that he or she believed that his or her conduct was
in the best interests of the corporation, and a determination is made by the
board of directors that such standard has been met. In a proceeding by or in the
right of the corporation, no indemnification shall be made in respect of any
matter as to which an officer or director is adjudged to be liable to the
corporation, unless the court in which the proceeding took place determines
that, despite such liability, such person is reasonably entitled to
indemnification in view of all the relevant circumstances. In any other
proceeding, no indemnification shall be made if the director or officer is
adjudged liable to the corporation on the basis that personal benefit was
improperly received by him or her. Corporations are given the power to make any
other or further indemnity, including advancement of expenses, to any director
or officer that may be authorized by the articles of incorporation or any bylaw
made by the shareholders, or by any resolution adopted, before or after the
event, by the shareholders, except an indemnity against willful misconduct or a
knowing violation of the criminal law. Unless limited by its articles of
incorporation, indemnification of a director or officer is mandatory when he or
she entirely prevails in the defense of any proceeding to which he or she is a
party because he or she is or was a director or officer.

         Heritage. The Heritage Articles provide that, to the fullest extent
that Virginia permits the limitation or elimination of liability of directors or
officers, a director or officer shall not be liable to Heritage or its
shareholders for monetary damages. To the fullest extent permitted by Virginia
law, the Heritage Bylaws require Heritage to indemnify any director or officer
of Heritage who is made a party to any proceeding against any liability incurred
in the proceeding, because he or she was or is a director or officer of Heritage
or because he or she served at the request of Heritage as a director, trustee,
partner or officer of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise. Under the Heritage Bylaws,
"proceeding" is broadly defined to include pending, threatened or completed
actions of all types, and includes actions by or in the right of Heritage.
Similarly, "liability" is defined to include, not only judgments, but also
settlements, penalties, fines, and certain excise taxes. The Heritage Bylaws
also provide that the Heritage board may, upon majority vote of a quorum, but is
not obligated to, indemnify its other employees or agents and any person by
reason of the fact that he or she was serving at the request of Heritage as an
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise. The indemnification provisions of the
Heritage Bylaws also permit Heritage to pay reasonable expenses, including
counsel fees, incurred by a director or officer of Heritage in a proceeding in
advance of the final disposition of any such proceeding, provided that the
indemnified person (i) provides Heritage with a written statement of his or her
good faith belief that he or she met the statutory standard of conduct and (ii)
undertakes to repay Heritage if it is ultimately determined that such person was
not entitled to indemnification. Determination of eligibility for
indemnification and of meeting the requisite standard of conduct shall be made
by the Heritage board of directors by a majority vote of a disinterested quorum,
or by the majority vote of disinterested shareholders, or by special legal
counsel appointed by the board of directors. At this time, Virginia law does not
permit indemnification against willful misconduct or a knowing violation of the
criminal law.

         Cardinal. Cardinal's Articles provide that, to the full extent that
Virginia permits the limitation or elimination of liability of directors or
officers, a director of officer shall not be liable to Cardinal or its
shareholders for monetary damages. Cardinal's Articles permit, but do not
require, it to indemnify, to the fullest extent permitted by Virginia law, any
person who is made a party to any proceeding because he or she was or is a
director, officer, employee or agent of Cardinal against any liability,
including reasonable expenses and legal fees, incurred in the proceeding. Under
Cardinal's articles of incorporation, "proceeding" is broadly defined to include
pending, threatened or completed actions of all types. Cardinal shall be
required to indemnify a person in connection with a proceeding initiated by such
person



                                      VI-8
<PAGE>

only if the proceeding was authorized by the Cardinal board. "Liability" is
defined to include, not only judgments, but also settlements, penalties, fines
and certain excise taxes. Cardinal may also indemnify any person who is or was
serving at the written request of Cardinal as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, enterprise or
nonprofit entity, including service with respect to employee benefit plans, to
the full extent provided by Virginia law. The indemnification so provided by
Cardinal will be reduced by the amount of indemnification received from the
other entity.

         The indemnification provisions also require Cardinal to pay reasonable
expenses incurred by a director or officer of Cardinal in a proceeding in
advance of the final disposition of any such proceeding, provided that the
indemnified person undertakes to repay Cardinal if it is ultimately determined
that such person was not entitled to indemnification. At this time, Virginia law
does not permit indemnification against willful misconduct or a knowing
violation of the criminal law. If a claim for indemnification or payment of
expenses is not paid within 60 days after the claim is received by Cardinal, the
claimant may bring suit to recover the unpaid claim. The indemnification
provided under the Cardinal Articles also applies to a director, officer,
employee or agent of a constituent corporation acquired through a consolidation
or merger.

         The rights of indemnification provided in Cardinal's Articles are not
exclusive of any other rights which may be available under any insurance or
other agreement, by vote of shareholders or disinterested directors or
otherwise. In addition, the Cardinal Articles authorize Cardinal to maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of Cardinal, whether or not Cardinal would have the power to provide
indemnification to such person. The rights of indemnification provided to
directors of Cardinal could reduce the likelihood of shareholder derivative
actions and may discourage other third party claims against the directors, even
if such actions otherwise would be beneficial to shareholders of Cardinal.

         Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling
Cardinal pursuant to the foregoing provisions, Cardinal has been informed that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is
therefore unenforceable.

Special Meetings of Shareholders

         Heritage. The Heritage Bylaws provide that special meetings of
shareholders may be held on the call of the chairman of the board, the president
or a majority of the board, which means that the shareholders of Heritage do not
have the right to call special meetings.

         Cardinal. Cardinal's Bylaws provide that special meetings of
shareholders may be held whenever called by the president, chairman of the board
of directors or by the board of directors, itself, which means that the
shareholders of Cardinal do not have the right to call special meetings. The
inability of shareholders to call a special meeting could affect changes in
control of Cardinal by delaying the presentation to shareholders of proposals
relating to, or facilitating, such a change in control until the annual meeting.

Shareholder Nominations and Proposals

         Heritage. Under the Heritage Bylaws, notice of a director nomination or
a proposal from a shareholder must be received by Heritage not less than 60 nor
more than 90 days prior to the scheduled annual meeting of shareholders,
provided in each case that if fewer than 70 days' notice of the meeting or



                                      VI-9
<PAGE>

prior public disclosure of the date of the meeting is given to shareholders,
such notice from the shareholder shall be received not later than the close of
the 10th day following the earlier of the day on which notice of the meeting was
mailed to shareholders or public disclosure of the date of the meeting was
given.

         The Heritage Bylaws require that the shareholder's notice of nomination
set forth as to each nominee (i) the name, age, business address and residence
address of such nominee, (ii) the principal occupation or employment of such
nominee, (iii) the class and number of shares of Heritage common stock which are
owned of record and beneficially by such nominee, and (iv) any other information
relating to such nominee that is required under federal securities laws to be
disclosed in solicitations of proxies for the election of directors, or is
otherwise required (including, without limitation, such nominee's written
consent to being named in a proxy statement as nominee and to serving as a
director if elected). The Heritage Bylaws further require that the shareholder's
notice set forth as to the shareholder giving the notice (i) the name and
address of such shareholder and of any other Heritage shareholder known to
support such nominee, and (ii) the class and amount of record and beneficial
ownership of Heritage capital stock by the nominating shareholder and the
supporting shareholder.

         The Heritage Bylaws require that the notice relating to a shareholder
proposal contain (i) a brief description of the shareholder proposal and the
reason for conducting such business at the annual meeting, (ii) the name and
record address of the shareholder proposing such business and of any other
shareholder who is known to support such proposal, and (iii) the class and
number of shares of Heritage which are beneficially owned by the shareholder
making the proposal and by the other supporting shareholder(s), and (iv) any
material interest (financial or otherwise) of such shareholder in the proposal.

         If the information supplied by a shareholder is deficient in any
material aspect or if the foregoing procedure is not followed, the chairman of
the annual meeting may announce to the meeting that such shareholder's
nomination or proposal should not be brought before the annual meeting and that
such nominee shall not be eligible for election as a director of Heritage of
such business is not properly brought before the meeting.

         Cardinal. Under Cardinal's Bylaws, notice of a proposed nomination or a
shareholder proposal meeting certain specified requirements must be received by
Cardinal not less than 60 nor more than 90 days prior to any meeting of
shareholders called for the election of directors, provided in each case that if
fewer than 70 days' notice of the meeting is given to shareholders, such written
notice shall be received not later than the close of the 10th day following the
earlier of the day on which notice of the meeting was mailed to shareholders or
public disclosure of the date of the meeting was given.

         Cardinal's Bylaws require that the shareholder's notice of nomination
set forth as to each nominee (i) the name, age, business address and residence
address of such nominee, (ii) the principal occupation or employment of such
nominee, (iii) the class and number of shares of Cardinal which are beneficially
owned by such nominee, and (iv) any other information relating to such nominee
that is required under federal securities laws to be disclosed in solicitations
of proxies for the election of directors, or is otherwise required (including,
without limitation, such nominee's written consent to being named in a proxy
statement as nominee and to serving as a director if elected). Cardinal's Bylaws
further require that the shareholder's notice set forth as to the shareholder
giving the notice (i) the name and address of such shareholder and of any other
shareholder known to support such nominee, and (ii) the class and amount of
record and beneficial ownership of Cardinal capital stock by the nominating
shareholder and the supporting shareholder(s).

         Cardinal's Bylaws require that the notice relating to a shareholder
proposal contain (i) a brief description of the shareholder proposal and the
reason for conducting such business at the annual meeting,



                                     VI-10
<PAGE>

(ii) the name and record address of the shareholder proposing such business and
of any other shareholder who is known to support such proposal, and (iii) the
class and number of shares of Cardinal which are beneficially owned by the
shareholder making the proposal and by the other supporting shareholder(s), and
(iv) any material interest (financial or otherwise) of such shareholder in the
proposal.

         If the information supplied by a shareholder is deficient in any
material aspect or if the foregoing procedure is not followed, the chairman of
the annual meeting may announce to the meeting that such shareholder's
nomination or purpose should not be brought before the annual meeting and that
such nominee shall not be eligible for election as a director of Cardinal or
such business is not properly brought before the meeting.

Shareholder Voting Rights in General

         The Virginia Stock Corporation Act generally provides that shareholders
do not have cumulative voting rights unless those rights are provided in the
corporation's articles of incorporation. The Virginia Stock Corporation Act also
specifies additional voting requirements for Affiliated Transactions which are
discussed below under "State Anti-Takeover Statutes."

         Heritage. The Heritage Articles do provide shareholders cumulative
voting rights for the election of directors, provided that the shareholder gives
notice of his or her intent to cumulate votes to the secretary of Heritage 60
days before the date established in the Heritage Bylaws for the annual meeting
or no later than 10 days following the mailing of the notice of a special
meeting.

         The Heritage Articles eliminate the pre-emptive right of shareholders
to subscribe for and purchase unissued shares of Heritage common stock.

         Cardinal. Cardinal's Articles do not provide shareholders cumulative
rights for the election of directors. Therefore, the holders of a majority of
the shares voted in the election of directors can elect all of the directors
then standing for election. The holders of Cardinal common stock are entitled to
one vote per share on all matters submitted to a vote of shareholders. Except to
the extent to which the board of directors shall have specified voting power
with respect to any other class of stock and except as otherwise provided by
law, the exclusive voting power shall be vested in the holders of Cardinal
common stock.

         The Cardinal Articles eliminate the pre-emptive right of shareholders
to subscribe for and purchase any shares of any class of Cardinal stock or other
securities, or any other options, warrants, or rights to purchase.

State Anti-Takeover Statutes

         The Virginia Stock Corporation Act restricts transactions between a
corporation and its affiliates and potential acquirors. The summary below is
necessarily general and is not intended to be a complete description of all the
features and consequences of those provisions, and is qualified in its entirety
by reference to the statutory provisions contained in the Virginia Stock
Corporation Act. Because both Heritage and Cardinal are Virginia corporations,
the provisions of the Virginia Stock Corporation Act described below apply to
Heritage and Cardinal and will continue to apply to Cardinal after the merger.

         Affiliated Transactions. The Virginia Stock Corporation Act contains
provisions governing "Affiliated Transactions," found at Sections 13.1-725 -
727.1 of the Virginia Stock Corporation Act. Affiliated Transactions include
certain mergers and share exchanges, certain material dispositions of corporate
assets not in the ordinary course of business, any dissolution of a corporation
proposed by or on



                                     VI-11
<PAGE>

behalf of an interested shareholder, as defined below, and reclassifications,
including reverse stock splits, recapitalizations or mergers of a corporation
with its subsidiaries, or distributions or other transactions which have the
effect of increasing the percentage of voting shares beneficially owned by an
interested shareholder by more than five percent. For purposes of the Virginia
Stock Corporation Act, an interested shareholder is defined as any beneficial
owner of more than 10% of any class of the voting securities of a Virginia
corporation.

         Subject to certain exceptions discussed below, the provisions governing
affiliated transactions require that, for three years following the date upon
which any shareholder becomes an interested shareholder, any affiliated
transaction must be approved by the affirmative vote of holders of two-thirds of
the outstanding shares of the corporation entitled to vote, other than the
shares beneficially owned by the interested shareholder, and by a majority (but
not less than two) of the disinterested directors, as defined below. A
disinterested director is defined in the Virginia Stock Corporation Act as a
member of a corporation's board of directors who (i) was a member before the
later of January 1, 1988 or the date on which an interested shareholder became
an interested shareholder and (ii) was recommended for election by, or was
elected to fill a vacancy and received the affirmative vote of, a majority of
the disinterested directors then on the corporation's board of directors. At the
expiration of the three year period after a shareholder becomes an interested
shareholder, these provisions require approval of the affiliated transaction by
the affirmative vote of the holders of two-thirds of the outstanding shares of
the corporation entitled to vote, other than those beneficially owned by the
interested shareholder.

         The principal exceptions to the special voting requirement apply to
affiliated transactions occurring after the three year period has expired and
require either that the transaction be approved by a majority of the
corporation's disinterested directors or that the transaction satisfy certain
fair price requirements of the statute. In general, the fair price requirements
provide that the shareholders must receive the higher of: the highest per share
price for their shares as was paid by the interested shareholder for his, her or
its shares, or the fair market value of the shares. The fair price requirements
also require that, during the three years preceding the announcement of the
proposed affiliated transaction, all required dividends have been paid and no
special financial accommodations have been accorded the interested shareholder,
unless approved by a majority of the disinterested directors.

         None of the foregoing limitations and special voting requirements
applies to a transaction with an interested shareholder who has been an
interested shareholder continuously since the effective date of the statute
(January 26, 1988) or who became an interested shareholder by gift or
inheritance from such a person or whose acquisition of shares making such person
an interested shareholder was approved by a majority of the disinterested
directors of the corporation.

         These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the Virginia Stock Corporation Act provides that by
affirmative vote of a majority of the voting shares other than shares owned by
any interested shareholder, a corporation may adopt by meeting certain voting
requirements, an amendment to its articles of incorporation or bylaws providing
that the affiliated transactions provisions shall not apply to the corporation.
Neither Heritage nor Cardinal has adopted such an amendment. Currently, no
shareholder of Cardinal owns or controls 10% or more of Cardinal common stock,
and there are no interested shareholders of Cardinal as defined by the Virginia
Stock Corporation Act.

         Control Share Acquisitions. The Virginia Control Share Acquisitions
statute, found at Sections 13.1-728.1 - 728.8 of the Virginia Stock Corporation
Act, also is designed to afford shareholders of a public company incorporated in
Virginia protection against certain types of non-negotiated acquisitions in
which a person, entity or group seeks to gain voting control of that
corporation. With certain enumerated exceptions, the statute applies to
acquisitions of shares of a corporation which would result in an



                                     VI-12
<PAGE>

acquiring person's ownership of the corporation's shares entitled to vote in the
election of directors falling within any one of the following ranges: 20% to
33-1/3%, 33-1/3% to 50% or 50% or more. Shares that are the subject of a control
share acquisition will not be entitled to voting rights unless the holders of a
majority of the disinterested shares vote at an annual or special meeting of
shareholders of the corporation to accord the control shares with voting rights.
Disinterested shares do not include shares owned by the acquiring person or by
officers and inside directors of the target company. Under certain
circumstances, the statute permits an acquiring person to call a special
shareholders' meeting for the purpose of considering granting voting rights to
the holders of the control shares. As a condition to having this matter
considered at either an annual or special meeting, the acquiring person must
provide shareholders with detailed disclosures about his or her identity, the
method and financing of the control share acquisition and any plans to engage in
certain transactions with, or to make fundamental changes to, the corporation,
its management or business. Under certain circumstances, the statute grants
dissenters' rights to shareholders who vote against granting voting rights to
the control shares. The Virginia Control Share Acquisitions Statute also enables
a corporation to make provisions for redemption of control shares with no voting
rights. A corporation may opt-out of the statute, which Heritage has not done,
by so providing in its articles of incorporation or bylaws. Cardinal, however,
has opted out of the statute by so providing in its Bylaws. Among the
acquisitions specifically excluded from the statute are acquisitions which are a
part of certain negotiated transactions to which the corporation is a party and
which, in the case of mergers or share exchanges, have been approved by the
corporation's shareholders under other provisions of the Virginia Stock
Corporation Act.

                              SHAREHOLDER PROPOSALS

Heritage

         Heritage will hold its 2000 annual meeting of shareholders only if the
merger is not consummated. In order to be eligible for inclusion in Heritage's
proxy materials for the 2000 annual meeting, if held, any Heritage shareholder
proposal to take action at such meeting must have been received at Heritage's
executive offices at 1313 Dolley Madison Boulevard, McLean, Virginia 22101-3926,
no later than __________, 2000. Any such proposals shall be subject to the
requirements of the proxy rules adopted under the Securities Exchange Act of
1934, Virginia law and Heritage's articles of incorporation and bylaws.

Cardinal

         Cardinal expects to hold its next annual meeting of shareholders in
________, 2000. Under the rules of the Securities and Exchange Commission,
proposals of Cardinal shareholders intended to be presented at that meeting must
have been received by Cardinal at its principal executive offices no later than
__________, 2000, to be included in the proxy statement for the meeting. Any
such proposals shall be subject to the requirements of the proxy rules adopted
under the Securities Exchange Act of 1934, Virginia law and Cardinal's articles
of incorporation and bylaws.

           CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

         This joint proxy statement/prospectus, including information included
or incorporated by reference herein, contains certain forward-looking statements
with respect to the financial condition, results of operations, plans,
objectives, future performance and businesses of each of Cardinal and Heritage.
These forward-looking statements involve certain risks and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities:



                                     VI-13
<PAGE>

         o   competitive pressure from banks and other financial service
             providers increases significantly;
         o   changes in the interest rate environment reduce margins;
         o   general economic conditions, either nationally or regionally, are
             less favorable than expected, resulting in, among other things, a
             deterioration in credit quality;
         o   changes occur in the regulatory environment;
         o   changes occur in business conditions and inflation; and
         o   changes occur in the securities markets.

                                     EXPERTS

         The financial statements of Cardinal as of December 31, 1999 and 1998
and for each of the years then ended have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.

         The financial statements of Heritage as of December 31, 1999 and 1998
and for each of the years ended December 31, 1999, 1998 and 1997 have been
included herein and in the registration statement in reliance upon the report of
Yount, Hyde & Barbour, P.C., independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.

                                 LEGAL OPINIONS

         The validity of the shares of Cardinal common stock offered hereby is
being passed upon for Cardinal by Williams, Mullen, Clark & Dobbins, Richmond,
Virginia. Williams, Mullen, Clark & Dobbins will deliver an opinion to Cardinal
and Heritage concerning certain federal income tax consequences of the merger.
See "The Merger - Material Federal Income Tax Consequences of the Merger" on
page I-17.

         Certain matters relating to the merger will be passed upon for Heritage
by Thacher Proffitt & Wood, Washington, D.C.

                       WHERE YOU CAN FIND MORE INFORMATION

         Cardinal and Heritage file annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any document that Cardinal and Heritage file at the
Securities and Exchange Commission's public reference room facility located at
450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's regional offices
at 7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and
Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. The SEC maintains an Internet site at www.sec.gov that contains
reports, proxy and information statements and other information regarding
issuers, including Cardinal, that file documents with the SEC electronically
through the SEC's electronic data gathering, analysis and retrieval system known
as EDGAR. Cardinal's and Heritage's reports, proxy and information statements
may also be reviewed at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington D.C. 20006.

         This joint proxy statement/prospectus is part of a registration
statement filed by and constitutes a prospectus of Cardinal in addition to being
a joint proxy statement of Cardinal and Heritage for their special meetings.
Because the rules and regulations of the SEC allow the omission of certain
portions of



                                     VI-14
<PAGE>

the registration statement from this document, this joint proxy
statement/prospectus does not contain all the information contained in the
registration statement. You may review the registration statement and the
exhibits filed with the registration statement for further information. The
registration statement and its exhibits may be inspected at the public reference
facilities of the SEC at the addresses mentioned above.

         Cardinal also maintains an Internet site at www.cardinalbank.com, which
contains information relating to Cardinal and its business.






                                     VI-15
<PAGE>

                                                                      Appendix A









                              AMENDED AND RESTATED

                      AGREEMENT AND PLAN OF REORGANIZATION

                                     BETWEEN

                             HERITAGE BANCORP, INC.,

                         CARDINAL FINANCIAL CORPORATION

                                       AND

                              CARDINAL MERGER CORP.

                            _________________________



                                  June __, 2000




<PAGE>

                                TABLE OF CONTENTS


                                    ARTICLE 1
                     The Reorganization and Related Matters
<TABLE>
<CAPTION>
                                                                                  Page
                                                                                  ----
<S>                                                                                <C>
1.1    The Reorganization...................................................        1
1.2    Management of CFC ...................................................        1
1.3    The Closing and Effective Date.......................................        2
1.4    Definitions..........................................................        2


                                  ARTICLE 2
                        Basis and Manner of Exchange

2.1    Conversion of HBI Stock..............................................        3
2.2    Exchange and Payment Procedures......................................        4
2.3    No Fractional Shares.................................................        5
2.4    Dividends............................................................        5
2.5    Rights of Dissenting Shareholders....................................        5


                                  ARTICLE 3
                       Representations and Warranties

3.1    Representations and Warranties of HBI ...............................        5
       (a)      Organization, Standing and Power............................        5
       (b)      Authority...................................................        6
       (c)      Capital Structure...........................................        6
       (d)      Ownership of the HBI Subsidiaries; Capital Structure
                of the HBI Subsidiaries; and Organization of the HBI
                Subsidiaries................................................        6
       (e)      Financial Statements........................................        7
       (f)      Absence of Undisclosed Liabilities..........................        8
       (g)      Legal Proceedings; Compliance with Laws.....................        8
       (h)      Regulatory Approvals........................................        8
       (i)      Labor Relations.............................................        8
       (j)      Tax Matters.................................................        8
       (k)      Property....................................................        9
       (l)      Reports.....................................................        9
       (m)      Employee Benefit Plans......................................        9
       (n)      Investment Securities.......................................       10
       (o)      Certain Contracts...........................................       10
       (p)      Insurance...................................................       11



                                       ii
<PAGE>

       (q)      Loans, OREO and Allowance for Loan Losses...................       11
       (r)      Absence of Material Changes and Events......................       12
       (s)      Statements True and Correct.................................       12
       (t)      Brokers and Finders.........................................       12
       (u)      Administration of Trust Accounts............................       12
       (v)      Environmental Matters.......................................       13

3.2    Representations and Warranties of CFC ...............................       15
       (a)      Organization, Standing and Power............................       15
       (b)      Authority...................................................       15
       (c)      Capital Structure...........................................       16
       (d)      Ownership of the CFC Subsidiaries; Capital Structure
                of the CFC Subsidiaries; and Organization of the CFC
                Subsidiaries................................................       16
       (e)      Financial Statements........................................       16
       (f)      Absence of Undisclosed Liabilities..........................       17
       (g)      Legal Proceedings; Compliance with Laws.....................       17
       (h)      Regulatory Approvals........................................       17
       (i)      Labor Relations.............................................       18
       (j)      Tax Matters.................................................       18
       (k)      Property....................................................       18
       (l)      Reports.....................................................       18
       (m)      Employee Benefit Plans......................................       19
       (n)      Investment Securities.......................................       19
       (o)      Certain Contracts...........................................       19
       (p)      Insurance...................................................       20
       (q)      Loans, OREO and Allowance for Loan Losses...................       20
       (r)      Absence of Material Changes and Events......................       21
       (s)      Statements True and Correct.................................       21
       (t)      Brokers and Finders.........................................       22
       (u)      Administration of Trust Accounts............................       22
       (v)      Environmental Matters.......................................       22


                                  ARTICLE 4
                     Conduct Prior to the Effective Date

4.1    Access to Records and Properties.....................................       23
4.2    Confidentiality......................................................       24
4.3    Registration Statement, Proxy Statement and Shareholder Approval.....       24
4.4    Operation of the Business of HBI and CFC ............................       25
4.5    Dividends............................................................       27
4.6    No Solicitation......................................................       27
4.7    Regulatory Filings...................................................       27
4.8    Public Announcements.................................................       27
4.9    Notice of Breach.....................................................       27



                                      iii
<PAGE>

4.10   Reorganization Consummation.................................................................            27
4.11   Adjustments.................................................................................            28
4.12   Certain Payments............................................................................            28


                                  ARTICLE 5
                            Additional Agreements

5.1    Conversion of Stock Options.................................................................            28
5.2    Benefit Plans...............................................................................            29
5.3    Indemnification.............................................................................            29
5.4    Agreement with Terrie G. Spiro..............................................................            30
5.5    Data Processing.............................................................................            30


                                  ARTICLE 6
                      Conditions to the Reorganization

6.1    Conditions to Each Party's Obligations to Effect the Reorganization.........................            30
       (a)      Shareholder Approvals..............................................................            30
       (b)      Regulatory Approvals...............................................................            30
       (c)      Registration Statement.............................................................            30
       (d)      Tax Opinion........................................................................            31
       (e)      Opinions of Counsel................................................................            31
       (f)      Legal Proceedings..................................................................            31

6.2    Conditions to Obligations of CFC ...........................................................            31
       (a)      Representations and Warranties.....................................................            31
       (b)      Performance of Obligations.........................................................            31
       (c)      Affiliate Letters..................................................................            31
       (d)      Investment Banking Letter..........................................................            32

6.3    Conditions to Obligations of  HBI ..........................................................            32
       (a)      Representations and Warranties.....................................................            32
       (b)      Performance of Obligations.........................................................            32
       (c)      Investment Banking Letter..........................................................            32


                                  ARTICLE 7
                                 Termination

7.1    Termination.................................................................................            32
7.2    Effect of Termination.......................................................................            33
7.3    Non-Survival of Representations, Warranties and Covenants...................................            33
7.4    Expenses....................................................................................            33



                                       iv
<PAGE>

                                  ARTICLE 8
                             General Provisions

8.1    Entire Agreement............................................................................            34
8.2    Waiver and Amendment........................................................................            34
8.3    Descriptive Headings........................................................................            34
8.4    Governing Law...............................................................................            34
8.5    Notices.....................................................................................            34
8.6    Counterparts................................................................................            35
8.7    Severability................................................................................            35
8.8    Subsidiaries................................................................................            36

</TABLE>

Exhibit A - Plan of Merger between Heritage Bancorp, Inc. and Cardinal Merger
            Corp.
Exhibit B - Articles of Amendment to the Articles of Incorporation of Cardinal
            Financial Corporation
Exhibit C - Amendment to the Bylaws of Cardinal Financial Corporation
Exhibit D - Agreement among Terrie G. Spiro, Cardinal Financial Corporation,
            Heritage Bancorp, Inc. and The Heritage Bank.




                                       v
<PAGE>

                              AMENDED AND RESTATED
                      AGREEMENT AND PLAN OF REORGANIZATION

         THIS AMENDED AND RESTATED  AGREEMENT  AND PLAN OF  REORGANIZATION  (the
"Agreement")  is  made  and  entered  into as of June  __,  2000 by and  between
Heritage Bancorp, Inc., a Virginia corporation with its principal office located
in  McLean,  Virginia  ("HBI"),  Cardinal  Financial  Corporation,   a  Virginia
corporation with its principal office located in Fairfax,  Virginia ("CFC"), and
Cardinal Merger Corp., a Virginia corporation and wholly-owned subsidiary of CFC
("CMC"),  and amends and restates the Agreement and Plan of Reorganization  (the
"Original Agreement") dated as of April 17, 2000 by and between HBI and CFC.

                                   WITNESSETH:

         WHEREAS, HBI and CFC desire to combine their respective businesses; and

         WHEREAS,  pursuant to the Original Agreement, HBI and CFC agreed to the
affiliation of their two companies through a merger under Virginia law, in which
HBI would merge with and into CFC; and

         WHEREAS,  HBI  and CFC  now  desire,  pursuant  to  Section  8.2 of the
Original  Agreement,  to amend and restate the  Original  Agreement  in order to
agree to the affiliation of their two companies  through a merger under Virginia
law, in which HBI will merge with and into CMC and the  shareholders of HBI will
become preferred  shareholders of CFC, all as more specifically provided in this
Agreement and the Plan of Merger in the form  attached  hereto as Exhibit A (the
"Plan"); and

         WHEREAS,  the  respective  Boards  of  Directors  of HBI and  CFC  have
resolved that the transactions described herein are in the best interests of the
parties and their  respective  shareholders and have authorized and approved the
execution and delivery of this Agreement.

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants and agreements set forth herein, the parties hereby agree as follows:

                                    ARTICLE 1

                     The Reorganization and Related Matters

         1.1      The  Reorganization.  Subject to the terms and  conditions  of
this Agreement, at the Effective Date as defined in Section 1.3 hereof, HBI will
be  merged  with and into CMC (the  "Reorganization").  The  separate  corporate
existence  of  HBI  thereupon  shall  cease,  and  CMC  will  be  the  surviving
corporation.



                                       1
<PAGE>

         1.2      Management  of  CFC.  (a) On the  Effective  Date,  CFC  shall
increase  the size of its Board of  Directors  by three (3)  members.  Harold E.
Lieding,  George P.  Shafran and Kevin B. Tighe shall be  appointed  to fill the
vacancies  so  created.  Mr.  Lieding  shall  become  a member  of the  class of
Directors whose terms expire in 2001 and Messrs.  Tighe and Shafran shall become
members  of the  classes  of  Directors  whose  terms  expire  in 2002 and 2003,
respectively.  At the Effective Date,  Section 2.3 of the Bylaws of CFC shall be
amended to read as set forth in Exhibit C hereto.

                  (b)      On or after the Effective  Date, The Heritage Bank, a
wholly owned subsidiary of HBI, will change its name to "Cardinal Bank", with an
appropriate modifier to denote its location. Messrs. Lieding, Tighe, Shafran and
Philip F. Herrick and Terrie G. Spiro shall continue as Directors, together with
Jones V. Isaac and up to seven  additional  individuals who will be appointed by
CFC.  Fees to Directors of The Heritage  Bank will not be reduced as a result of
the Reorganization.

         1.3      The  Closing   and   Effective   Date.   The  closing  of  the
transactions contemplated by this Agreement and the Plan shall take place at the
offices of Williams,  Mullen, Clark & Dobbins, 1021 East Cary Street,  Richmond,
Virginia or at such other place as may be mutually  agreed upon by the  parties.
The  Reorganization  shall become effective on the date shown on the Certificate
of Merger  issued by the State  Corporation  Commission  of Virginia the ("SCC")
effecting the  Reorganization  (the "Effective  Date").  Unless otherwise agreed
upon in writing by the chief executive  officers of CFC and HBI,  subject to the
conditions to the obligations of the parties to effect the Reorganization as set
forth in Article 6, the parties  shall cause the  Effective  Date to occur on or
before  the  first  day of the  second  month  following  the month in which the
conditions set forth in Sections 6.1(a) and 6.1(b) are satisfied.  All documents
required  by the  terms  of  this  Agreement  to be  delivered  at or  prior  to
consummation  of the  Reorganization  will be  exchanged  by the  parties at the
closing of the Reorganization  (the  "Reorganization  Closing"),  which shall be
held on or before the Effective Date. Prior to the Reorganization  Closing,  CMC
and HBI shall execute and deliver to the SCC Articles of Merger  containing  the
Plan in substantially the form of Exhibit A hereto.

         1.4      Definitions. Any term defined anywhere in this Agreement shall
have the meaning  ascribed  to it for all  purposes  of this  Agreement  (unless
expressly noted to the contrary). In addition:

                  (a)      "Effective  Time"  means  the  time  of  day  on  the
Effective Date that the Reorganization is effective.

                  (b)      the term  "knowledge"  when  used with  respect  to a
party shall mean the knowledge, after due inquiry, of any "Executive Officer" of
such party, as such term is defined in Regulation O, (12 C.F.R. 215);

                  (c)      the term "Material Adverse Effect", when applied to a
party,  shall  mean an event,  occurrence  or  circumstance  (including  without
limitation  (i) the making of any provisions for possible loan and lease losses,
write-downs   or  other  real  estate  and  taxes  and  (ii)  any  breach  of  a
representation  or warranty by such party) which (a) has or is reasonably likely
to  have a  material  adverse  effect  on the  financial  position,  results  of
operations or business of the party and its  subsidiaries,  taken as a whole, or
(b) would materially impair the party's ability to perform its



                                       2
<PAGE>

obligations under this Agreement or the consummation of the  Reorganization  and
the other transactions contemplated by this Agreement;  provided,  however, that
solely for purposes of measuring  whether an event,  occurrence or  circumstance
has a material  adverse effect on such party's  results of operations,  the term
"results of operations" shall mean net interest income plus non-interest  income
(less securities gains) less gross expenses; and provided further, that material
adverse effect and material impairment shall not be deemed to include the impact
of (i)  changes  in  banking  and  similar  laws  of  general  applicability  or
interpretations thereof by courts or governmental  authorities,  (ii) changes in
generally accepted accounting principles or regulatory  accounting  requirements
applicable  to  banks  and bank  holding  companies  generally,  and  (iii)  the
Reorganization  on the operating  performance of the parties to this  Agreement;
and

                  (d)      the term "Previously Disclosed" by a party shall mean
information set forth in a written  disclosure  letter that is delivered by that
party to the other party prior to or  contemporaneously  with the  execution  of
this Agreement and specifically designated as information "Previously Disclosed"
pursuant to this Agreement.

                  (e)      "Series A Preferred Stock" means a share of the 7.25%
Cumulative  Convertible  Preferred  Stock,  Series A of CFC, par value $1.00 per
share,  which  shall have the rights  and  preferences  set forth in the form of
articles of amendment to the articles of incorporation of CFC that are set forth
in Exhibit B hereto.  The  initial  conversion  price to be set forth in Section
4(a) of such  articles of  amendment  shall be equal to 1.30  multiplied  by the
average of the last sale price of Cardinal  Common  Stock for the  fifteen  (15)
business day period that ends seven (7) business days prior to the date that the
Proxy Statement (as hereafter defined) is first mailed to shareholders of HBI or
CFC.

                                    ARTICLE 2

                          Basis and Manner of Exchange

         2.1      Conversion of HBI Stock.  (a) At the Effective Date, by virtue
of the Reorganization and without any action on the part of the holders thereof,
each  share of common  stock,  par value  $1.00 per share,  of HBI ("HBI  Common
Stock")  issued and  outstanding  immediately  prior to the Effective Date shall
cease to be outstanding  and (other than  dissenting  shares) shall be converted
into and exchanged  either for $6.00 in cash or 1.2 shares of Series A Preferred
Stock and cash for fractional shares.  Each holder of shares of HBI Common Stock
shall thereafter cease to have any rights with respect to such HBI Common Stock,
except the consideration described in Sections 2.1 and 2.3 upon the surrender of
such certificate in accordance with Section 2.2.

         The form of  consideration  into  which each  individual  shareholder's
shares of HBI Common Stock will be converted  will be  determined  in the manner
described in Sections 2.1(b) and 2.1(c).

         (b)      By written notice to CFC in the manner described  below,  each
HBI  shareholder  may  elect  the  form of  consideration  (shares  of  Series A
Preferred  Stock or cash) into which his or her shares of HBI Common  Stock will
be converted  on the  Effective  Date;  provided  that  despite such  elections,
shareholders  of HBI may be required  to receive a  different  amount of cash or
shares  of Series A  Preferred  Stock in the event of a  proration  pursuant  to
Section  2.1(c).  Within



                                       3
<PAGE>

ten  (10)  days  following  approval  of this  Agreement  and the  Plan by HBI's
shareholders, HBI will mail written instructions to each of its shareholders for
making the election,  together  with a form (a "Notice of Election")  which each
shareholder  shall be required to use to make such election.  HBI's notice shall
specify a date by which a  shareholder's  election  must be made (the  "Election
Date," which shall be twenty (20) days following the date the  instructions  and
Notice  of  Election  form are first  distributed  to HBI's  shareholders).  The
instructions and Notice of Election  distributed to HBI's  shareholders shall be
provided by and in a form satisfactory to CFC and HBI.

         In order to make an effective  election,  a shareholder must deliver to
CFC a  properly  completed  Notice of  Election  on or  before  the close of its
business  on the  Election  Date in  accordance  with CFC's  instructions.  Each
shareholder may elect any combination of cash and Series A Preferred  Stock. Any
shareholder  who does not make an  election  or whose  Notice of Election is not
timely  received  by CFC or  otherwise  is not  made in  accordance  with  CFC's
instructions will be deemed to have elected that each share of the shareholder's
HBI Common Stock be converted into the right to receive $6.00 in cash.

         (c)      Notwithstanding  anything contained herein to the contrary, in
no event shall cash be paid  (whether  pursuant to  shareholders'  elections  to
receive cash, proration or exercise of dissenters' rights) for more or less than
50% of the total outstanding shares of HBI Common Stock.

                  (i)      If the aggregate number of shares of HBI Common Stock
         held by the HBI  shareholders  who dissent and by HBI  shareholders who
         effectively  elect (and who are  deemed to have  elected)  as  provided
         above to receive cash is more than 50% of the total outstanding  shares
         of HBI  Common  Stock  then,  in the case of each  shareholder  who has
         effectively elected to receive cash for any or all of his or her shares
         of HBI Common Stock,  CFC will reduce (by the same  percentage for each
         such  shareholder and by rounding to the nearest full share) the number
         of shares of HBI Common Stock held by such  shareholders for which cash
         will be paid,  such that the  aggregate  number of shares of HBI Common
         Stock for which cash will be paid is as nearly equal as possible to 50%
         of the total outstanding shares of HBI Common Stock and each share held
         by each  such  shareholder  for  which  cash  will not be paid  will be
         converted into 1.2 shares of Series A Preferred Stock.

                  (ii)     If the aggregate number of shares of HBI Common Stock
         held by the HBI  shareholders  who dissent and by HBI  shareholders who
         effectively  elect (and who are  deemed to have  elected)  as  provided
         above to receive cash is less than 50% of the total outstanding  shares
         of HBI  Common  Stock,  then,  in the  case  of  each  shareholder  who
         effectively  has elected to receive Series A Preferred Stock for any or
         all of his or her shares of HBI Common  Stock,  CFC will reduce (by the
         same  percentage  for each  such  shareholder  and by  rounding  to the
         nearest  full share) the number of shares of HBI Common Stock that will
         be  converted  into  Series A Preferred  Stock such that the  aggregate
         number of shares of HBI  Common  Stock to be  converted  into  Series A
         Preferred  Stock is as  nearly  equal as  possible  to 50% of the total
         outstanding shares of HBI Common Stock and each share held by each such
         shareholder  which will not be converted into Series A Preferred  Stock
         will be converted into $6.00 in cash.



                                       4
<PAGE>

                  (iii)    A shareholder who beneficially  owns HBI Common Stock
         in more than one account or capacity  may direct how cash and shares of
         Series A Preferred Stock will be allocated among such accounts.

         2.2      Exchange and Payment Procedures. Following the Effective Date,
certificates  representing  shares  of  HBI  Common  Stock  outstanding  at  the
Effective  Time  (herein  sometimes  referred  to as "Old  Certificates")  shall
evidence only the right of the registered holder thereof to receive,  and may be
exchanged   for,  the  form  of   consideration   into  which  each   individual
shareholder's  shares of HBI Common Stock have been  converted as  determined by
and based on the  shareholder's  election  in the manner  described  in Sections
2.1(b) and 2.1(c).

         As promptly as practicable following the Effective Date, CFC shall send
or cause to be sent to each  former  shareholder  of HBI of  record  immediately
prior to the Effective Date written  instructions  and transmittal  materials (a
"Transmittal Letter") for use in surrendering Old Certificates to American Stock
Transfer & Trust Company ("the Transfer  Agent").  Upon the proper surrender and
delivery to the  Transfer  Agent (in  accordance  with CFC's  instructions,  and
accompanied by a properly completed  Transmittal Letter) by a former shareholder
of HBI of his or her Old Certificate(s),  and in exchange therefor, the Transfer
Agent shall,  (i) in the case of a  shareholder  whose HBI Common Stock has been
converted  into Series A Preferred  Stock,  issue,  register  and deliver to the
shareholder a certificate  evidencing the number of shares of Series A Preferred
Stock  to  which  the  shareholder  is  entitled  and/or  (ii) in the  case of a
shareholder  whose HBI Common Stock has been converted into the right to receive
cash,  issue and  deliver  to the  shareholder  a check in the amount of cash to
which the shareholder is entitled.

         Following the Effective Time there shall be no further transfers of HBI
Common  Stock on the  stock  transfer  books of HBI or the  registration  of any
transfer of an Old Certificate by any holder thereof,  and the surrender of each
Old Certificate as provided herein must be made by or on behalf of its holder of
record at the Effective Date.

         2.3      No Fractional  Shares. No certificates or scrip for fractional
shares of Series A Preferred Stock will be issued. In lieu thereof, CFC will pay
the value of such  fractional  shares in cash on the basis of $5.00 per share of
Series A Preferred Stock.

         2.4      Dividends.  No dividend or other  distribution  payable to the
holders  of record of Series A  Preferred  Stock at or as of any time  after the
Effective  Date  shall be paid to the  holder  of any  certificate  representing
shares of HBI Common Stock issued and  outstanding  at the Effective  Date until
such holder  physically  surrenders such certificate for exchange as provided in
Section 2.2 of this  Agreement,  promptly after which time all such dividends or
distributions shall be paid (without interest).

         2.5      Rights of Dissenting Shareholders. Shareholders of HBI will be
entitled  to the rights and  remedies  set forth in  sections  13.1-729  through
13.1-741 of the Virginia Stock Corporation Act.



                                       5
<PAGE>

                                    ARTICLE 3

                          Representation and Warranties

         3.1      Representations  and  Warranties  of HBI. HBI  represents  and
warrants to CFC as follows:

                  (a)      Organization,   Standing   and   Power.   HBI   is  a
corporation duly organized, validly existing and in good standing under the laws
of Virginia.  It has all requisite corporate power and authority to carry on its
business as now being  conducted  and to own and operate its assets,  properties
and  business,  and HBI has the  corporate  power and  authority  to execute and
deliver this  Agreement and perform the  respective  terms of this Agreement and
Plan.  HBI is duly  registered as a bank holding  company under the Bank Holding
Company Act of 1956. The Heritage  Bank, a wholly owned  subsidiary of HBI, is a
Virginia corporation and a Virginia state bank, duly organized, validly existing
and in good  standing  under  the  laws of  Virginia,  is in  compliance  in all
material  respects with all rules and  regulations  promulgated  by any relevant
regulatory authority,  and it has all requisite corporate power and authority to
carry on a commercial  banking  business as now being  conducted  and to own and
operate its assets, properties and business.

                  (b)      Authority.  (1) The  execution  and  delivery of this
Agreement and the Plan and the consummation of the Reorganization have been duly
and validly  authorized  by all necessary  corporate  action on the part of HBI,
except the approval of shareholders.  The HBI Board has taken action  sufficient
to permit this  Agreement  and the Plan to be approved and adopted by a majority
of the  votes  cast on this  Agreement  and  the  Plan at the HBI  Shareholders'
Meeting (as hereinafter defined). The Agreement represents the legal, valid, and
binding obligation of HBI,  enforceable against HBI in accordance with its terms
(except  in all such  cases  as  enforceability  may be  limited  by  applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors'  rights  generally and except that the availability of
the equitable remedy of specific  performance or injunctive relief is subject to
the discretion of the court before which any proceeding may be brought).

                  (2)      Neither the execution and delivery of the  Agreement,
the consummation of the transactions contemplated therein, nor the compliance by
HBI with any of the  provisions  thereof will (i)  conflict  with or result in a
breach of any provision of the Articles of  Incorporation or Bylaws of HBI, (ii)
except as Previously Disclosed,  constitute or result in the breach of any term,
condition or provision  of, or  constitute  default  under,  or give rise to any
right of termination, cancellation or acceleration with respect to, or result in
the creation of any lien,  charge or encumbrance upon, any property or assets of
the HBI  Companies  (as  hereafter  defined)  pursuant  to (A) any  note,  bond,
mortgage,  indenture,  or (B) any material  license,  agreement,  lease or other
instrument  or  obligation,  to which any of the HBI  Companies is a party or by
which any of them or any of their  properties  or assets may be bound,  or (iii)
subject to the receipt of the  requisite  approvals  referred to in Section 4.7,
violate  any  order,  writ,  injunction,  decree,  statute,  rule or  regulation
applicable to any of the HBI Companies or any of their properties or assets.

                  (c)      Capital  Structure.  The authorized  capital stock of
HBI consists  of:  10,000,000  shares of HBI Common  Stock,  of which  2,294,617
shares are issued and outstanding,



                                       6
<PAGE>

fully paid and nonassessable,  not subject to shareholder preemptive rights, and
not issued in  violation  of any  agreement to which HBI is a party or otherwise
bound,  or of any  registration  or  qualification  provisions of any federal or
state securities laws. Except as Previously Disclosed,  there are no outstanding
understandings or commitments of any character  pursuant to which HBI and any of
the HBI  Companies  could be required  or  expected  to issue  shares of capital
stock.

                  (d)      Ownership of the HBI Subsidiaries;  Capital Structure
of HBI Subsidiaries;  and Organization of the HBI Subsidiaries. (1) HBI does not
own,  directly or  indirectly,  5% or more of the  outstanding  capital stock or
other voting securities of any corporation,  bank or other organization actively
engaged in  business  except as  Previously  Disclosed  (collectively  the "HBI"
Subsidiaries"  and each individually an "HBI Subsidiary" and, together with HBI,
the "HBI  Companies").  The  outstanding  shares  of  capital  stock of each HBI
Subsidiary have been duly authorized and are validly issued,  and are fully paid
and  nonassessable  and all such shares are directly or indirectly  owned by HBI
free and clear of all liens, claims and encumbrances.  No rights are authorized,
issued or  outstanding  with respect to the capital stock of any HBI  Subsidiary
and there are no agreements, understandings or commitments relating to the right
of HBI to vote or to dispose of said shares. None of the shares of capital stock
of any HBI Subsidiary  has been issued in violation of the preemptive  rights of
any person or of any state or federal securities law.

                  (2)      Each HBI Subsidiary is a duly organized  corporation,
validly existing and in good standing under applicable laws. Each HBI Subsidiary
(i) has full  corporate  power  and  authority  to own,  lease and  operate  its
properties  and to carry on its  business  as now  conducted  except  where  the
absence of such power or authority  would not have a Material  Adverse Effect on
the  financial  condition,  results  of  operations  or  business  of  HBI  on a
consolidated  basis,  and (ii) is duly qualified to do business in the states of
the United  States and foreign  jurisdictions  where its ownership or leasing of
property or the conduct of its business  requires such  qualification  and where
failure to so qualify  would have a  material  adverse  effect on the  financial
condition,  results of  operations or business of HBI on a  consolidated  basis.
Each HBI  Subsidiary  has all  federal,  state,  local and foreign  governmental
authorizations  and licenses necessary for it to own or lease its properties and
assets and to carry on its business as it is now being  conducted,  except where
failure  to obtain  such  authorization  or  license  would not have a  material
adverse effect on the business of such HBI Subsidiary.

                  (e)      Financial  Statements.  HBI's  Annual  Report on Form
10-KSB for the fiscal year ended  December  31,  1999,  and all other  documents
filed or to be filed  subsequent  to  December  31, 1999 under  Sections  13(a),
13(c), 14 or 15(d) of the Securities  Exchange Act of 1934, as amended (together
with the rules and  regulations  thereunder,  the "Exchange  Act"),  in the form
filed with the United States Securities and Exchange  Commission (the "SEC") (in
each such case, the "HBI Financial Statements") did not and will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein,  in light of
the  circumstances  under which they were made, not misleading;  and each of the
balance sheets in or incorporated by reference into the HBI Financial Statements
(including  the related notes and schedules  thereto)  fairly  presents and will
fairly  present  the  financial  position  of the entity or entities to which it
relates  as of its date and each of the  statements  of income  and  changes  in
stockholders'  equity  and  cash  flows  or  equivalent  statements  in the  HBI
Financial Statements  (including any related notes and schedules thereto) fairly
presents  and  will  fairly  present  the  results  of  operations,  changes  in
stockholders'  equity



                                       7
<PAGE>

and  changes in cash  flows,  as the case may be, of the entity or  entities  to
which it relates for the periods set forth  therein,  in each case in accordance
with generally accepted accounting principles  consistently applied to banks and
bank  holding  companies  during the  periods  involved,  except as may be noted
therein,  subject to normal and recurring year-end audit adjustments in the case
of unaudited statements.

                  (f)      Absence of Undisclosed  Liabilities.  At December 31,
1999,  none of the HBI Companies had any obligation or liability  (contingent or
otherwise)  of  any  nature  which  were  not  reflected  in the  HBI  Financial
Statements,  except for those which in the aggregate are immaterial or have been
Previously Disclosed.

                  (g)      Legal  Proceedings;  Compliance with Laws.  Except as
Previously Disclosed,  there are no actions,  suits or proceedings instituted or
pending or, to the best knowledge of HBI's management, threatened or probable of
assertion  against any of the HBI  Companies,  or against any  property,  asset,
interest or right of any of them, that are reasonably  expected to have,  either
individually  or in the  aggregate,  a material  adverse effect on the financial
condition  of HBI on a  consolidated  basis or that are  reasonably  expected to
threaten or impede the  consummation  of the  transactions  contemplated by this
Agreement.  None of the HBI  Companies is a party to any agreement or instrument
or subject to any judgment,  order, writ, injunction,  decree or rule that might
reasonably  be  expected  to have a  material  adverse  effect on the  condition
(financial or otherwise),  business or prospects of HBI on a consolidated basis.
Except as Previously  Disclosed,  as of the date of this Agreement,  none of the
HBI  Companies  nor any of their  properties  is a party to or is subject to any
order,  decree,  agreement,  memorandum of understanding or similar  arrangement
with,  or a  commitment  letter or similar  submission  to, any federal or state
governmental  agency or authority  charged with the supervision or regulation of
depository  institutions  or  mortgage  lenders or engaged in the  insurance  of
deposits  which  restricts or purports to restrict in any  material  respect the
conduct of the business of it or any of its  subsidiaries  or properties,  or in
any manner relates to the capital,  liquidity,  credit policies or management of
it; and  except as  Previously  Disclosed,  none of the HBI  Companies  has been
advised by any such  regulatory  authority that such authority is  contemplating
issuing or  requesting  (or is  considering  the  appropriateness  of issuing or
requesting)  any such order,  decree,  agreement,  memorandum of  understanding,
commitment letter or similar  submission.  To the best knowledge of HBI, the HBI
Companies  have  complied in all material  respects  with all laws,  ordinances,
requirements,  regulations  or  orders  applicable  to its  business  (including
environmental laws, ordinances, requirements, regulations or orders).

                  (h)      Regulatory Approvals.  HBI knows of no reason why the
regulatory  approvals  referred  to in Section  6.1(b)  should  not be  obtained
without  the  imposition  of any  condition  of the type  referred to in Section
6.1(b).

                  (i)      Labor Relations. None of the HBI Companies is a party
to,  or is bound  by any  collective  bargaining  agreement,  contract  or other
agreement or understanding with a labor union or labor  organization,  nor is it
the subject of a  proceeding  asserting  that it has  committed  an unfair labor
practice  (within the meaning of the National Labor Relations Act) or seeking to
compel it to bargain with any labor  organization  as to wages and conditions of
employment, nor is there any strike or other labor dispute involving it, pending
or, to the best of its  knowledge,  threatened,  nor is it aware of any activity
involving  its  employees  seeking to certify a  collective  bargaining  unit or
engaging in any other organizational activity.



                                       8
<PAGE>

                  (j)      Tax  Matters.   The  HBI  Companies  have  filed  all
federal,  state, and local tax returns and reports required to be filed, and all
taxes  shown  by  such  returns  to be due and  payable  have  been  paid or are
reflected as a liability in the HBI Financial  Statements or are being contested
in good faith and have been  Previously  Disclosed.  Except to the  extent  that
liabilities therefor are specifically reflected in the HBI Financial Statements,
there are no federal,  state or local tax liabilities of the HBI Companies other
than  liabilities  that have arisen since  December 31, 1999,  all of which have
been properly accrued or otherwise  provided for on the books and records of the
HBI Companies. Except as Previously Disclosed, no tax return or report of any of
the HBI Companies is under examination by any taxing authority or the subject of
any administrative or judicial proceeding, and no unpaid tax deficiency has been
asserted against any of the HBI Companies by any taxing authority.

                  (k)      Property.  Except as disclosed or reserved against in
the HBI Financial Statements,  all of the HBI Companies have good and marketable
title free and clear of all material liens,  encumbrances,  charges, defaults or
equities of whatever  character  to all of the material  properties  and assets,
tangible or intangible, reflected in the HBI Financial Statements as being owned
by the HBI Companies as of the dates thereof.  To the best knowledge of HBI, all
buildings, and all fixtures,  equipment, and other property and assets which are
material to its business on a consolidated basis, held under leases or subleases
by the HBI Companies are held under valid instruments  enforceable in accordance
with their respective terms, subject to bankruptcy, insolvency,  reorganization,
moratorium and similar laws. The buildings, structures, and appurtenances owned,
leased,  or occupied by the HBI Companies  are, to the best knowledge of HBI, in
good  operating  condition,  in a state of good  maintenance  and repair and (i)
comply with applicable zoning and other municipal laws and regulations, and (ii)
there are no latent defects therein.

                  (l)      Reports.  Since  January 1, 1996,  the HBI  Companies
have filed all reports and statements,  together with any amendments required to
be made with respect  thereto,  that were required to be filed with the SEC, the
Federal Reserve,  the SCC, and any other governmental or regulatory authority or
agency having jurisdiction over their operations, and such reports were prepared
in all material respects in accordance with the applicable statutes, regulations
and instructions in existence as of the date of filing of such reports.

                  (m)      Employee  Benefit  Plans.  (1) HBI will  deliver  for
CFC's review,  as soon as practicable,  true and complete copies of all material
pension, retirement, profit-sharing, deferred compensation, stock option, bonus,
vacation or other material incentive plans or agreements,  all material medical,
dental or other health plans,  all life  insurance  plans and all other material
employee benefit plans or fringe benefit plans,  including,  without limitation,
all  "employee  benefit  plans" as that term is defined  in Section  3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), currently
adopted,  maintained by,  sponsored in whole or in part by, or contributed to by
HBI for the benefit of employees,  retirees or other  beneficiaries  eligible to
participate  (collectively,  the "HBI  Benefit  Plans").  Any of the HBI Benefit
Plans which is an "employee  pension  benefit  plan," as that term is defined in
Section  3(2) of ERISA,  is  referred  to herein as a "HBI  ERISA  Plan." No HBI
Benefit Plan is or has been a multi-employer  plan within the meaning of Section
3(37) of ERISA.

                  (2)      Except as Previously Disclosed, all HBI Benefit Plans
are in compliance



                                       9
<PAGE>

with the  applicable  terms of ERISA and the Internal  Revenue Code of 1986,  as
amended (the "IRC") and any other  applicable  laws,  rules and  regulations the
breach or violation  of which could  result in a material  liability to HBI on a
consolidated basis.

                  (3)      No HBI ERISA Plan which is a defined  benefit pension
plan has any "unfunded  current  liability,"  as that term is defined in Section
302(d)(8)(A)  of ERISA,  and the present  fair market value of the assets of any
such plan exceeds the plan's "benefit  liabilities,"  as that term is defined in
Section 4001(a)(16) of ERISA, when determined under actuarial factors that would
apply  if the plan was  terminated  in  accordance  with  all  applicable  legal
requirements.

                  (n)      Investment  Securities.  Except for pledges to secure
public and trust deposits and obligations under agreements pursuant to which any
of the HBI Companies has sold securities subject to an obligation to repurchase,
none of the investment  securities  reflected in the HBI Financial Statements is
subject to any restriction,  contractual,  statutory, or otherwise,  which would
impair materially the ability of the holder of such investment to dispose freely
of any such investment at any time.  With respect to any agreements  pursuant to
which any of the HBI Companies has purchased securities subject to any agreement
to resell,  it has a valid,  perfected  first lien or  security  interest in the
government securities or other collateral securing such agreement, and the value
of such collateral equals or exceeds the amount of the debt secured thereby.

                  (o)      Certain   Contracts.   (1)   Except   as   Previously
Disclosed, neither HBI nor any HBI Subsidiary is a party to, or is bound by, (i)
any material agreement, arrangement or commitment, (ii) any agreement, indenture
or  other  instrument  relating  to the  borrowing  of  money  by HBI or any HBI
Subsidiary or the guarantee by HBI or any HBI Subsidiary of any such obligation,
(iii) any agreement,  arrangement or commitment  relating to the employment of a
consultant or the employment,  election, retention in office or severance of any
present or former  director or officer,  (iv) any agreement to make loans or for
the provision,  purchase or sale of goods,  services or property  between HBI or
any HBI Subsidiary and any director or officer of HBI or any HBI Subsidiary,  or
any member of the immediate family or affiliate of any of the foregoing,  or (v)
any agreement  between HBI or any HBI Subsidiary and any 5% or more  shareholder
of HBI; in each case other than  agreements  entered into in the ordinary course
of the  banking  business  of  HBI  or a HBI  Subsidiary  consistent  with  past
practice.

                  (2)      Neither  HBI  or  any  HBI  Subsidiary,  nor  to  the
knowledge  of HBI,  the other party  thereto,  is in default  under any material
agreement, commitment,  arrangement, lease, insurance policy or other instrument
whether  entered into in the ordinary  course of business or otherwise,  nor has
there  occurred  any event  that,  with the lapse of time or giving of notice or
both, would constitute such a default, other than defaults of loan agreements by
borrowers from HBI or a HBI Subsidiary in the ordinary course of its business.

                  (3)      Since  December  31,  1999,  neither  HBI nor any HBI
Subsidiary  has  incurred  or paid any  obligation  or  liability  that would be
material  to  HBI,  except  obligations  incurred  or paid  in  connection  with
transactions  in the  ordinary  course of business  of HBI or an HBI  Subsidiary
consistent with its practice and, except as Previously Disclosed,  from December
31, 1999 to the date hereof,  neither HBI nor any HBI  Subsidiary  has taken any
action that,  if taken after the date hereof,  would breach any of the covenants
contained in Section 4.4 hereof.



                                       10
<PAGE>

                  (p)  Insurance. A complete list of all policies or binders
of fire, liability,  product liability,  workmen's  compensation,  vehicular and
other  insurance held by or on behalf of the HBI Companies has  previously  been
furnished to CFC and all such policies or binders are valid and  enforceable  in
accordance  with their terms,  are in full force and effect,  and insure against
risks and liabilities to the extent and in the manner customary for the industry
and are deemed  appropriate  and sufficient by HBI. The HBI Companies are not in
default with respect to any provision contained in any such policy or binder and
have not failed to give any notice or present any claim under any such policy or
binder in due and timely fashion.  None of the HBI Companies has received notice
of  cancellation  or non-renewal  of any such policy or binder.  None of the HBI
Companies has knowledge of any inaccuracy in any  application  for such policies
or binders,  any failure to pay premiums  when due or any similar state of facts
or the  occurrence of any event that is reasonably  likely to form the basis for
any material  claim  against it not fully  covered  (except to the extent of any
applicable deductible) by the policies or binders referred to above. None of the
HBI  Companies has received  notice from any of its insurance  carriers that any
insurance  premiums will be increased  materially in the future or that any such
insurance coverage will not be available in the future on substantially the same
terms as now in effect.

                  (q)      Loans,  OREO,  and  Allowance  for Loan  Losses.  (1)
Except as Previously Disclosed,  and except for matters which individually or in
the aggregate,  do not materially  adversely  affect the  Reorganization  or the
financial  condition of HBI, to HBI's best  knowledge  each loan reflected as an
asset in the HBI Financial Statements (i) is evidenced by notes, agreements,  or
other evidences of indebtedness which are true, genuine and what they purport to
be, (ii) to the extent  secured,  has been  secured by valid liens and  security
interests which have been perfected,  and (iii) is the legal,  valid and binding
obligation  of the obligor named  therein,  enforceable  in accordance  with its
terms,   subject  to   bankruptcy,   insolvency,   and  other  laws  of  general
applicability  relating to or affecting  creditors' rights and to general equity
principles.  All loans and  extensions of credit which are subject to regulation
of the  Federal  Reserve  which  have been made by HBI and the HBI  Subsidiaries
comply therewith.

                  (2)      The  classification  on the books and  records of HBI
and each HBI  Subsidiary of loans and/or  non-performing  assets as  nonaccrual,
troubled debt restructuring,  OREO or other similar classification,  complies in
all  material  respects  with  generally  accepted  accounting   principles  and
applicable regulatory accounting principles.

                  (3)      Except  for  liens,   security   interests,   claims,
charges,  or such other encumbrances as have been appropriately  reserved for in
the HBI Financial Statements or are not material,  title to the OREO is good and
marketable,  and there are no adverse  claims or  encumbrances  on the OREO. All
title,  hazard and other  insurance  claims and  mortgage  guaranty  claims with
respect  to the  OREO  have  been  timely  filed  and  neither  HBI  nor any HBI
Subsidiary has received any notice of denial of any such claim.

                  (4)      HBI and each HBI  Subsidiary are in possession of all
of the OREO or, if any of the OREO remains  occupied by the mortgagor,  eviction
or summary proceedings have been commenced or rental arrangements  providing for
market rental rates have been agreed upon and HBI and/or each HBI Subsidiary are
diligently  pursuing  such  eviction  of  summary  proceedings  or  such  rental
arrangements. Except as Previously Disclosed, no legal proceeding or quasi-legal
proceeding  is  pending  or, to the  knowledge  of HBI and each HBI  Subsidiary,



                                       11
<PAGE>

threatened  concerning any OREO or any servicing activity or omission to provide
a servicing activity with respect to any of the OREO.

                  (5)      Except as Previously Disclosed, all loans made by any
of the HBI Companies to facilitate  the  disposition  of OREO are  performing in
accordance with their terms.

                  (6)      The  allowance  for possible loan losses shown on the
HBI Financial  Statements  was, and the allowance for possible loan losses shown
on the financial  statements  of HBI as of dates  subsequent to the execution of
this Agreement  will be, in each case as of the dates  thereof,  adequate in all
material respects to provide for possible losses, net of recoveries  relating to
loans previously  charged off, on loans outstanding  (including accrued interest
receivable)  of the HBI  Companies  and other  extensions  of credit  (including
letters of credit and commitments to make loans or extend credit) by HBI.

                  (r)      Absence of Material  Changes  and  Events.  Except as
Previously  Disclosed,  since December 31, 1999, there has not been any material
adverse change in the condition  (financial or otherwise),  aggregate  assets or
liabilities,  cash  flow,  earnings  or  business  of  the  HBI  Companies  on a
consolidated  basis,  and each of the HBI  Companies  has conducted its business
only in the ordinary course consistent with past practice.

                  (s)      Statements True and Correct.  None of the information
supplied or to be supplied by HBI for inclusion in the  registration  statement,
the Proxy  Statement  (as hereafter  defined) or any other  document to be filed
with  the  SEC  or  any  other  regulatory  authority  in  connection  with  the
transactions  contemplated  hereby,  will, at the respective time such documents
are  filed,  and,  in the case of the  registration  statement,  when it becomes
effective  and with  respect to the Proxy  Statement,  when first  mailed to CFC
shareholders,  be false or misleading  with respect to any material fact or omit
to state any material fact necessary in order to make the statements therein not
misleading, or, in the case of the Proxy Statement or any supplement thereto, at
the time of the CFC Shareholders'  Meeting,  be false or misleading with respect
to any material fact or omit to state any material fact necessary to correct any
statement in any earlier  communication  with respect to the solicitation of any
proxy for the CFC Shareholders'  Meeting.  All documents that HBI is responsible
for filing with the SEC or any other regulatory authority in connection with the
transactions  contemplated,  hereby  will  comply  as to  form  in all  material
respects with the provisions of applicable law, including applicable  provisions
of federal and state securities law.

                  (t)      Brokers  and   Finders.   Neither  HBI  nor  any  HBI
Subsidiary,  nor any of their respective officers,  directors or employees,  has
employed any broker,  finder or financial  advisor or incurred any liability for
any fees or commissions in connection with the transactions contemplated herein,
except for Ferris, Baker Watts, Incorporated.

                  (u)      Administration   of  Trust  Accounts.   HBI  and  HBI
Subsidiaries  have  properly  administered,  in all respects  material and which
could  reasonably  be expected to be material  to the  business,  operations  or
financial condition of HBI and HBI Subsidiaries,  taken as a whole, all accounts
for which they act as  fiduciaries  including  but not limited to  accounts  for
which they serve as  trustees,  agents,  custodians,  personal  representatives,
guardians,  conservators or investment advisors, in accordance with the terms of
the governing  documents and applicable state and federal law and regulation and
common  law.  Neither HBI nor a HBI



                                       12
<PAGE>

Subsidiary, nor any director, officer or employee of HBI or a HBI Subsidiary has
committed any breach of trust with respect to any such  fiduciary  account which
is material to or could  reasonably  be expected to be material to the business,
operations or financial condition of HBI, or a HBI Subsidiary, taken as a whole,
and the accountings for each such fiduciary  account are true and correct in all
material respects and accurately reflect the assets of such fiduciary account in
all material respects.

                  (v)      Environmental   Matters.  (1)  Except  as  Previously
Disclosed,  to the best of HBI's  knowledge,  neither HBI nor any HBI Subsidiary
owns or  leases  any  properties  affected  by toxic  waste,  radon gas or other
hazardous  conditions or constructed  in part with the use of asbestos.  Each of
HBI and the HBI Subsidiaries is in substantial compliance with all Environmental
Laws  applicable  to real or  personal  properties  in which it has a direct fee
ownership  or, with respect to a direct  interest as lessee,  applicable  to the
leasehold  premises or, to the best  knowledge of HBI and the HBI  Subsidiaries,
the  premises  on which  the  leasehold  is  situated.  Neither  HBI nor any HBI
Subsidiary has received any Communication  (as hereafter  defined) alleging that
HBI or such HBI Subsidiary is not in such  compliance and, to the best knowledge
of HBI and the HBI Subsidiaries,  there are no present circumstances  (including
Environmental Laws (as hereafter defined) that have been adopted but are not yet
effective)  that  would  prevent  or  interfere  with the  continuation  of such
compliance.

                  (2)      There are no legal, administrative, arbitral or other
claims, causes of action or governmental  investigations of any nature,  seeking
to  impose,  or  that  could  result  in the  imposition,  on HBI  and  the  HBI
Subsidiaries of any liability arising under any  Environmental  Laws pending or,
to the best knowledge of HBI and the HBI  Subsidiaries,  threatened  against (A)
HBI or any HBI  Subsidiary,  (B) any person or entity  whose  liability  for any
Environmental  Claim,  HBI or any HBI  Subsidiary  has or may have  retained  or
assumed either contractually or by operation of law, or (C) any real or personal
property  which  HBI or any HBI  Subsidiary  owns or  leases,  or has been or is
judged to have managed or to have  supervised or  participated in the management
of,  which  liability  might have a  material  adverse  effect on the  business,
financial   condition  or  results  of  operations  of  HBI.  HBI  and  the  HBI
Subsidiaries  are not  subject  to any  agreement,  order,  judgment,  decree or
memorandum by or with any court,  governmental  authority,  regulatory agency or
third party imposing any such liability.

                  (3)      To  the   best   knowledge   of  HBI   and   the  HBI
Subsidiaries, there are no legal, administrative, arbitral or other proceedings,
or  Environmental  Claims or other  claims,  causes  of  action or  governmental
investigations  of any nature,  seeking to impose,  or that could  result in the
imposition,  on HBI or any HBI  Subsidiary  of any  liability  arising under any
Environmental  Laws pending or threatened  against any real or personal property
in which HBI or any HBI Subsidiary holds a security  interest in connection with
a loan or a loan  participation  which liability  might have a Material  Adverse
Effect on the business, financial condition or results of operations of HBI. HBI
and the HBI  Subsidiaries  are not subject to any  agreement,  order,  judgment,
decree or memorandum by or with any court,  governmental  authority,  regulatory
agency or third party imposing any such liability.

                  (4)      With respect to all real and personal  property owned
or leased by HBI or any HBI Subsidiary,  other than OREO, HBI has made available
to CFC copies of any environmental  audits,  analyses and surveys that have been
prepared  relating to such  properties.  With respect to all OREO held by HBI or
any HBI  Subsidiary  and all  real or  personal  property



                                       13
<PAGE>

which HBI or any HBI Subsidiary has been or is judged to have managed or to have
supervised or  participated  in the management of, HBI has made available to CFC
the  information  relating  to  such  OREO  available  to  HBI.  HBI and the HBI
Subsidiaries are in compliance in all material respects with all recommendations
contained in any environmental  audits,  analyses and surveys relating to any of
the properties, real or personal, described in this subsection (4).

                  (5)      There  are no past or  present  actions,  activities,
circumstances,  conditions, events or incidents,  including, without limitation,
the release,  emission,  discharge or disposal of any Materials of Environmental
Concern (as  hereafter  defined),  that could  reasonably  form the basis of any
Environmental Claim or other claim or action or governmental  investigation that
could result in the imposition of any liability  arising under any Environmental
Laws currently in effect or adopted but not yet effective against HBI or any HBI
Subsidiary or against any person or entity whose liability for any Environmental
Claim HBI or any HBI  Subsidiary  has or may have  retained  or  assumed  either
contractually or by operation of law.

                  (6)      For the  purpose  of this  Agreement,  the  following
terms shall have the following meanings:

                  (i)      "Communication"  means a communication  which is of a
substantive nature and which is made (A) in writing to HBI or any HBI Subsidiary
on the one hand or to CFC or any CFC Subsidiary on the other hand, or (B) orally
to a  senior  officer  of HBI  or  any  HBI  Subsidiary  or of  CFC  or any  CFC
Subsidiary, whether from a governmental authority or a third party.

                  (ii)     "Environmental  Claim" means any  Communication  from
any  governmental   authority  or  third  party  alleging  potential   liability
(including,  without limitation,  potential  liability for investigatory  costs,
cleanup costs,  governmental response costs, natural resources damages, property
damages,  personal injuries, or penalties) arising out of, based on or resulting
from  the  presence,  or  release  into  the  environment,  of any  Material  of
Environmental Concern (as hereafter defined).

                  (iii)    "Environmental  Laws" means all  applicable  federal,
state and local laws and regulations,  including the Comprehensive Environmental
Response,  Compensation  and Liability  Act of 1980, as amended,  that relate to
pollution or protection of human health or the environment  (including,  without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata).  This definition  includes,  without  limitation,  laws and regulations
relating to emissions,  discharges, releases or threatened releases of Materials
of Environmental Concern, or otherwise relating to the manufacture,  processing,
distribution,  use,  treatment,  storage,  disposal,  transport  or  handling of
Materials of Environmental Concern.

                  (iv)     "Materials   of    Environmental    Concern"    means
pollutants,  contaminants,  wastes,  toxic  substances,  petroleum and petroleum
products and any other materials regulated under Environmental Laws.

         3.2      Representations  and  Warranties  of CFC. CFC  represents  and
warrants to HBI as follows:

                  (a)      Organization,   Standing   and   Power.   CFC   is  a
corporation duly



                                       14
<PAGE>

organized,  validly existing and in good standing under the laws of Virginia. It
has all requisite  corporate power and authority to carry on its business as now
being conducted and to own and operate its assets,  properties and business, and
CFC has the corporate  power and authority to execute and deliver this Agreement
and perform the  respective  terms of this  Agreement and the Plan.  CFC is duly
registered as a bank holding company under the Bank Holding Company Act of 1956.
Cardinal Bank, N.A., Cardinal Bank - Manassas/Prince  William, N.A. and Cardinal
Bank - Dulles,  N.A.,  each, is a wholly owned  subsidiary of CFC and a national
banking  association validly existing and in good standing under the laws of the
United  States,  is in  compliance  in all material  respects with all rules and
regulations  promulgated by any relevant  regulatory  authority,  and it has all
requisite  corporate  power  and  authority  to  carry on a  commercial  banking
business as now being  conducted  and to own and operate its assets,  properties
and business.

                  (b)      Authority.  (1) The  execution  and  delivery of this
Agreement and the Plan and the consummation of the Reorganization have been duly
and validly  authorized  by all necessary  corporate  action on the part of CFC,
except the approval of shareholders.  The Agreement represents the legal, valid,
and binding  obligation of CFC,  enforceable  against CFC in accordance with its
terms (except in all such cases as  enforceability  may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors'  rights  generally and except that the availability of
the equitable remedy of specific  performance or injunctive relief is subject to
the discretion of the court before which any proceeding may be brought).

                  (2)      Neither the execution and delivery of the  Agreement,
the consummation of the transactions contemplated therein, nor the compliance by
CFC with any of the  provisions  thereof will (i)  conflict  with or result in a
breach of any provision of the Articles of  Incorporation or Bylaws of CFC, (ii)
except as Previously Disclosed,  constitute or result in the breach of any term,
condition or provision  of, or  constitute  default  under,  or give rise to any
right of termination, cancellation or acceleration with respect to, or result in
the creation of any lien,  charge or encumbrance upon, any property or assets of
the CFC Companies pursuant to (A) any note, bond,  mortgage,  indenture,  or (B)
any material  license,  agreement,  lease or other instrument or obligation,  to
which  any of the CFC  Companies  is a party or by  which  any of them or any of
their  properties or assets may be bound, or (iii) subject to the receipt of the
requisite  approvals  referred  to in Section  4.7,  violate  any  order,  writ,
injunction,  decree,  statute,  rule or regulation  applicable to any of the CFC
Companies or any of their properties or assets.

                  (c)      Capital  Structure.  The authorized  capital stock of
CFC consists of:  50,000,000  shares of common stock,  par value $1.00 per share
("CFC Common Stock), of which 4,242,634 shares are issued and outstanding, fully
paid and  nonassessable,  not subject to shareholder  preemptive rights, and not
issued in violation of any agreement to which CFC is a party or otherwise bound,
or of any  registration  or  qualification  provisions  of any  federal or state
securities  laws; and 10,000,000  shares of preferred stock, par value $1.00 per
share,  of which  none are  issued  and  outstanding.  The  shares  of  Series A
Preferred  Stock to be issued in  exchange  for shares of HBI Common  Stock upon
consummation  of the  Reorganization  will have been duly  authorized  and, when
issued in accordance with the terms of this  Agreement,  will be validly issued,
fully paid and  nonassessable  and subject to no  preemptive  rights.  Except as
Previously Disclosed,  there are no outstanding understandings or commitments of
any  character  pursuant  to  which  CFC and any of the CFC  Companies  could be
required or expected to issue



                                       15
<PAGE>

shares of capital stock.

                  (d)      Ownership of the CFC Subsidiaries;  Capital Structure
of the CFC Subsidiaries;  and Organization of the CFC Subsidiaries. (1) CFC does
not own, directly or indirectly,  5% or more of the outstanding capital stock or
other voting securities of any corporation,  bank or other organization actively
engaged in  business  except as  Previously  Disclosed  (collectively  the "CFC"
Subsidiaries"  and each  individually a "CFC Subsidiary" and, together with CFC,
the "CFC  Companies").  The  outstanding  shares  of  capital  stock of each CFC
Subsidiary have been duly authorized and are validly issued,  and are fully paid
and  nonassessable  and all such shares are directly or indirectly  owned by CFC
free and clear of all liens, claims and encumbrances.  No rights are authorized,
issued or  outstanding  with respect to the capital stock of any CFC  Subsidiary
and there are no agreements, understandings or commitments relating to the right
of CFC to vote or to dispose of said shares. None of the shares of capital stock
of any CFC Subsidiary  has been issued in violation of the preemptive  rights of
any person or of any state or federal securities law.

                  (2)      Each CFC Subsidiary is a duly organized  corporation,
validly existing and in good standing under applicable laws. Each CFC Subsidiary
(i) has full  corporate  power  and  authority  to own,  lease and  operate  its
properties  and to carry on its  business  as now  conducted  except  where  the
absence of such power or authority  would not have a material  adverse effect on
the  financial  condition,  results  of  operations  or  business  of  CFC  on a
consolidated  basis,  and (ii) is duly qualified to do business in the states of
the United  States and foreign  jurisdictions  where its ownership or leasing of
property or the conduct of its business  requires such  qualification  and where
failure to so qualify  would have a  material  adverse  effect on the  financial
condition,  results of  operations or business of CFC on a  consolidated  basis.
Each CFC  Subsidiary  has all  federal,  state,  local and foreign  governmental
authorizations  and licenses necessary for it to own or lease its properties and
assets and to carry on its business as it is now being  conducted,  except where
failure  to obtain  such  authorization  or  license  would not have a  Material
Adverse Effect on the business of such CFC Subsidiary.

                  (e)      Financial  Statements.  CFC's  Annual  Report on Form
10-KSB for the fiscal year ended  December  31,  1999,  and all other  documents
filed or to be filed  subsequent  to  December  31, 1999 under  Sections  13(a),
13(c),  14 or 15(d) of the Exchange Act, in the form filed with the SEC (in each
such case,  the "CFC  Financial  Statements")  did not and will not  contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein,  in light of
the  circumstances  under which they were made, not misleading;  and each of the
balance sheets in or incorporated by reference into the CFC Financial Statements
(including  the related notes and schedules  thereto)  fairly  presents and will
fairly  present  the  financial  position  of the entity or entities to which it
relates  as of its date and each of the  statements  of income  and  changes  in
stockholders'  equity  and  cash  flows  or  equivalent  statements  in the  CFC
Financial Statements  (including any related notes and schedules thereto) fairly
presents  and  will  fairly  present  the  results  of  operations,  changes  in
stockholders'  equity  and  changes  in cash  flows,  as the case may be, of the
entity or entities to which it relates  for the  periods set forth  therein,  in
each  case  in  accordance  with  generally   accepted   accounting   principles
consistently  applied to banks and bank  holding  companies  during the  periods
involved,  except  as may be noted  therein,  subject  to normal  and  recurring
year-end audit adjustments in the case of unaudited statements.



                                       16
<PAGE>

                  (f)      Absence of Undisclosed  Liabilities.  At December 31,
1999,  none of the CFC Companies had any obligation or liability  (contingent or
otherwise)  of  any  nature  which  were  not  reflected  in the  CFC  Financial
Statements,  except for those which in the aggregate are immaterial or have been
Previously Disclosed.

                  (g)      Legal  Proceedings;  Compliance with Laws.  Except as
Previously Disclosed,  there are no actions,  suits or proceedings instituted or
pending or, to the best knowledge of CFC's management, threatened or probable of
assertion  against any of the CFC  Companies,  or against any  property,  asset,
interest or right of any of them, that are reasonably  expected to have,  either
individually  or in the  aggregate,  a material  adverse effect on the financial
condition  of CFC on a  consolidated  basis or that are  reasonably  expected to
threaten or impede the  consummation  of the  transactions  contemplated by this
Agreement.  None of the CFC  Companies is a party to any agreement or instrument
or subject to any judgment,  order, writ, injunction,  decree or rule that might
reasonably  be  expected  to have a  material  adverse  effect on the  condition
(financial or otherwise),  business or prospects of CFC on a consolidated basis.
Except as Previously  Disclosed,  as of the date of this Agreement,  none of the
CFC  Companies  nor any of their  properties  is a party to or is subject to any
order,  decree,  agreement,  memorandum of understanding or similar  arrangement
with,  or a  commitment  letter or similar  submission  to, any federal or state
governmental  agency or authority  charged with the supervision or regulation of
depository  institutions  or  mortgage  lenders or engaged in the  insurance  of
deposits  which  restricts or purports to restrict in any  material  respect the
conduct of the business of it or any of its  subsidiaries  or properties,  or in
any manner relates to the capital,  liquidity,  credit policies or management of
it; and  except as  Previously  Disclosed,  none of the CFC  Companies  has been
advised by any such  regulatory  authority that such authority is  contemplating
issuing or  requesting  (or is  considering  the  appropriateness  of issuing or
requesting)  any such order,  decree,  agreement,  memorandum of  understanding,
commitment letter or similar  submission.  To the best knowledge of CFC, the CFC
Companies  have  complied in all material  respects  with all laws,  ordinances,
requirements,  regulations  or  orders  applicable  to its  business  (including
environmental laws, ordinances, requirements, regulations or orders).

                  (h)      Regulatory Approvals.  CFC knows of no reason why the
regulatory  approvals  referred  to in Section  6.1(b)  should  not be  obtained
without  the  imposition  of any  condition  of the type  referred to in Section
6.1(b).  CFC has funds  sufficient to enable it to pay the cash component of the
merger consideration and, provided it receives the dividend described in Section
4.7, will have sufficient sources of funds to pay the dividend obligation on the
Series A  Preferred  Stock  without  seeking  funding  from third  parties.  CFC
believes  that it can  satisfy all  capital  and other  regulatory  requirements
referred to Section 6.1(b).

                  (i)      Labor Relations. None of the CFC Companies is a party
to,  or is bound  by any  collective  bargaining  agreement,  contract  or other
agreement or understanding with a labor union or labor  organization,  nor is it
the subject of a  proceeding  asserting  that it has  committed  an unfair labor
practice  (within the meaning of the National Labor Relations Act) or seeking to
compel it to bargain with any labor  organization  as to wages and conditions of
employment, nor is there any strike or other labor dispute involving it, pending
or, to the best of its  knowledge,  threatened,  nor is it aware of any activity
involving  its  employees  seeking to certify a  collective  bargaining  unit or
engaging in any other organizational activity.

                  (j)      Tax  Matters.   The  CFC  Companies  have  filed  all
federal,  state, and local



                                       17
<PAGE>

tax  returns  and  reports  required  to be filed,  and all taxes  shown by such
returns to be due and payable have been paid or are  reflected as a liability in
the CFC Financial  Statements or are being contested in good faith and have been
Previously  Disclosed.  Except  to the  extent  that  liabilities  therefor  are
specifically  reflected in the CFC Financial  Statements,  there are no federal,
state or local tax liabilities of the CFC Companies other than  liabilities that
have arisen since December 31, 1999, all of which have been properly  accrued or
otherwise provided for on the books and records of the CFC Companies.  Except as
Previously  Disclosed,  no tax return or report of any of the CFC  Companies  is
under  examination by any taxing authority or the subject of any  administrative
or judicial  proceeding,  and no unpaid tax deficiency has been asserted against
any of the CFC Companies by any taxing authority.

                  (k)      Property.  Except as disclosed or reserved against in
the CFC Financial Statements,  all of the CFC Companies have good and marketable
title free and clear of all material liens,  encumbrances,  charges, defaults or
equities of whatever  character  to all of the material  properties  and assets,
tangible or intangible, reflected in the CFC Financial Statements as being owned
by the CFC Companies as of the dates thereof.  To the best knowledge of CFC, all
buildings, and all fixtures,  equipment, and other property and assets which are
material to its business on a consolidated basis, held under leases or subleases
by the CFC Companies are held under valid instruments  enforceable in accordance
with their respective terms, subject to bankruptcy, insolvency,  reorganization,
moratorium and similar laws. The buildings, structures, and appurtenances owned,
leased,  or occupied by the CFC Companies  are, to the best knowledge of CFC, in
good  operating  condition,  in a state of good  maintenance  and repair and (i)
comply with applicable zoning and other municipal laws and regulations, and (ii)
there are no latent defects therein.

                  (l)      Reports.  Since  January 1, 1996,  the CFC  Companies
have filed all reports and statements,  together with any amendments required to
be made with respect  thereto,  that were required to be filed with the SEC, the
Federal Reserve,  the SCC, and any other governmental or regulatory authority or
agency having jurisdiction over their operations, and such reports were prepared
in all material respects in accordance with the applicable statutes, regulations
and instructions in existence as of the date of filing of such reports.

                  (m)      Employee  Benefit  Plans.  (1) CFC will  deliver  for
HBI's review,  as soon as practicable,  true and complete copies of all material
pension, retirement, profit-sharing, deferred compensation, stock option, bonus,
vacation or other material incentive plans or agreements,  all material medical,
dental or other health plans,  all life  insurance  plans and all other material
employee benefit plans or fringe benefit plans,  including,  without limitation,
all "employee  benefit  plans" as that term is defined in Section 3(3) of ERISA,
currently  adopted,  maintained  by,  sponsored  in  whole  or in  part  by,  or
contributed  to  by  CFC  for  the  benefit  of  employees,  retirees  or  other
beneficiaries eligible to participate  (collectively,  the "CFC Benefit Plans").
Any of the CFC Benefit  Plans which is an "employee  pension  benefit  plan," as
that term is defined in Section  3(2) of ERISA,  is referred to herein as a "CFC
ERISA Plan." No CFC Benefit Plan is or has been a multi-employer plan within the
meaning of Section 3(37) of ERISA.

                  (2)      Except as Previously Disclosed, all CFC Benefit Plans
are in compliance  with the applicable  terms of ERISA and the IRC and any other
applicable  laws,  rules and  regulations the breach or violation of which could
result in a material liability to CFC on a



                                       18
<PAGE>

consolidated basis.

                  (3)      No CFC ERISA Plan which is a defined  benefit pension
plan has any "unfunded  current  liability,"  as that term is defined in Section
302(d)(8)(A)  of ERISA,  and the present  fair market value of the assets of any
such plan exceeds the plan's "benefit  liabilities,"  as that term is defined in
Section 4001(a)(16) of ERISA, when determined under actuarial factors that would
apply  if the plan was  terminated  in  accordance  with  all  applicable  legal
requirements.

                  (n)      Investment  Securities.  Except for pledges to secure
public and trust deposits and obligations under agreements pursuant to which any
of the CFC Companies has sold securities subject to an obligation to repurchase,
none of the investment  securities  reflected in the CFC Financial Statements is
subject to any restriction,  contractual,  statutory, or otherwise,  which would
impair materially the ability of the holder of such investment to dispose freely
of any such investment at any time.  With respect to any agreements  pursuant to
which any of the CFC Companies has purchased securities subject to any agreement
to resell,  it has a valid,  perfected  first lien or  security  interest in the
government securities or other collateral securing such agreement, and the value
of such collateral equals or exceeds the amount of the debt secured thereby.

                  (o)      Certain   Contracts.   (1)   Except   as   Previously
Disclosed, neither CFC nor any CFC subsidiary is a party to, or is bound by, (i)
any material agreement, arrangement or commitment, (ii) any agreement, indenture
or  other  instrument  relating  to the  borrowing  of  money  by CFC or any CFC
Subsidiary or the guarantee by CFC or any CFC Subsidiary of any such obligation,
(iii) any agreement,  arrangement or commitment  relating to the employment of a
consultant or the employment,  election, retention in office or severance of any
present or former  director or officer,  (iv) any agreement to make loans or for
the provision,  purchase or sale of goods,  services or property  between CFC or
any CFC Subsidiary and any director or officer of CFC or any CFC Subsidiary,  or
any member of the immediate family or affiliate of any of the foregoing,  or (v)
any agreement  between CFC or any CFC Subsidiary and any 5% or more  shareholder
of CFC; in each case other than  agreements  entered into in the ordinary course
of the  banking  business  of  CFC  or a CFC  Subsidiary  consistent  with  past
practice.

                  (2)      Neither  CFC  or  any  CFC  Subsidiary,  nor  to  the
knowledge  of CFC,  the other party  thereto,  is in default  under any material
agreement, commitment,  arrangement, lease, insurance policy or other instrument
whether  entered into in the ordinary  course of business or otherwise,  nor has
there  occurred  any event  that,  with the lapse of time or giving of notice or
both, would constitute such a default, other than defaults of loan agreements by
borrowers from CFC or a CFC Subsidiary in the ordinary course of its business.

                  (3)      Since  December  31,  1999  neither  CFC  nor any CFC
Subsidiary  has  incurred  or paid any  obligation  or  liability  that would be
material  to  CFC,  except  obligations  incurred  or paid  in  connection  with
transactions  in the  ordinary  course of  business  of CFC or a CFC  Subsidiary
consistent  with its practice and, except as Previous  Disclosed,  from December
31, 1999 to the date hereof,  neither CFC nor any CFC  Subsidiary  has taken any
action that,  if taken after the date hereof,  would breach any of the covenants
contained in Section 4.4 hereof.

                  (p)      Insurance. A complete list of all policies or binders
of fire, liability,  product liability,  workmen's  compensation,  vehicular and
other  insurance held by or on behalf of



                                       19
<PAGE>

the CFC Companies has previously  been furnished to HBI and all such policies or
binders are valid and  enforceable in accordance  with their terms,  are in full
force and effect,  and insure against risks and liabilities to the extent and in
the manner customary for the industry and are deemed  appropriate and sufficient
by CFC . The CFC  Companies  are not in default  with  respect to any  provision
contained in any such policy or binder and have not failed to give any notice or
present  any claim  under any such  policy or binder in due and timely  fashion.
None of the CFC Companies has received  notice of cancellation or non-renewal of
any such  policy or  binder.  None of the CFC  Companies  has  knowledge  of any
inaccuracy in any application  for such policies or binders,  any failure to pay
premiums when due or any similar  state of facts or the  occurrence of any event
that is  reasonably  likely to form the basis for any material  claim against it
not fully covered  (except to the extent of any  applicable  deductible)  by the
policies or binders  referred to above.  None of the CFC  Companies has received
notice from any of its insurance  carriers  that any insurance  premiums will be
increased  materially in the future or that any such insurance coverage will not
be available in the future on substantially the same terms as now in effect.

                  (q)      Loans,  OREO,  and  Allowance  for Loan  Losses.  (1)
Except as Previously Disclosed,  and except for matters which individually or in
the aggregate,  do not materially  adversely  affect the  Reorganization  or the
financial  condition of CFC, to CFC's best  knowledge  each loan reflected as an
asset in the CFC Financial Statements (i) is evidenced by notes, agreements,  or
other evidences of indebtedness which are true, genuine and what they purport to
be, (ii) to the extent  secured,  has been  secured by valid liens and  security
interests which have been perfected,  and (iii) is the legal,  valid and binding
obligation  of the obligor named  therein,  enforceable  in accordance  with its
terms,   subject  to   bankruptcy,   insolvency,   and  other  laws  of  general
applicability  relating to or affecting  creditors' rights and to general equity
principles.  All loans and  extensions of credit which are subject to regulation
of the  Federal  Reserve  which  have been made by CFC and the CFC  Subsidiaries
comply therewith.

                  (2)      The  classification  on the books and  records of CFC
and each CFC  Subsidiary of loans and/or  non-performing  assets as  nonaccrual,
troubled debt restructuring,  OREO or other similar classification,  complies in
all  material  respects  with  generally  accepted  accounting   principles  and
applicable regulatory accounting principles.

                  (3)      Except  for  liens,   security   interests,   claims,
charges,  or such other encumbrances as have been appropriately  reserved for in
the CFC Financial Statements or are not material,  title to the OREO is good and
marketable,  and there are no adverse  claims or  encumbrances  on the OREO. All
title,  hazard and other  insurance  claims and  mortgage  guaranty  claims with
respect  to the  OREO  have  been  timely  filed  and  neither  CFC  nor any CFC
Subsidiary has been received any notice of denial of any such claim.

                  (4)      CFC and each CFC  Subsidiary are in possession of all
of the OREO or, if any of the OREO remains  occupied by the mortgagor,  eviction
or summary proceedings have been commenced or rental arrangements  providing for
market rental rates have been agreed upon and CFC and/or each CFC Subsidiary are
diligently  pursuing  such  eviction  of  summary  proceedings  or  such  rental
arrangements. Except as Previously Disclosed, no legal proceeding or quasi-legal
proceeding  is  pending  or, to the  knowledge  of CFC and each CFC  Subsidiary,
threatened  concerning any OREO or any servicing activity or omission to provide
a servicing activity with respect to any of the OREO.



                                       20
<PAGE>

                  (5)      Except as Previously Disclosed, all loans made by any
of the CFC Companies to facilitate  the  disposition  of OREO are  performing in
accordance with their terms.

                  (6)      The  allowance  for possible loan losses shown on the
CFC Financial  Statements  was, and the allowance for possible loan losses shown
on the financial  statements  of CFC as of dates  subsequent to the execution of
this Agreement  will be, in each case as of the dates  thereof,  adequate in all
material respects to provide for possible losses, net of recoveries  relating to
loans previously  charged off, on loans outstanding  (including accrued interest
receivable)  of the CFC  Companies  and other  extensions  of credit  (including
letters of credit and commitments to make loans or extend credit) by CFC.

                  (r)      Absence of Material  Changes  and  Events.  Except as
Previously  Disclosed,  since December 31, 1999, there has not been any material
adverse change in the condition  (financial or otherwise),  aggregate  assets or
liabilities,  cash flow, earnings or business or CFC Companies on a consolidated
basis,  and each of the CFC  Companies  has  conducted  its business only in the
ordinary course consistent with past practice.

                  (s)      Statements True and Correct.  None of the information
supplied or to be supplied by CFC for inclusion in the  registration  statement,
the Proxy  Statement or any other document to be filed with the SEC or any other
regulatory  authority in connection with the transactions  contemplated  hereby,
will, at the respective  time such documents are filed,  and, in the case of the
registration statement,  when it becomes effective and with respect to the Proxy
Statement,  when first mailed to HBI  shareholders,  be false or misleading with
respect to any  material  fact or omit to state any material  fact  necessary in
order to make the  statements  therein  not  misleading,  or, in the case of the
Proxy Statement or any supplement  thereto, at the time of the HBI Shareholders'
Meeting,  be false or  misleading  with respect to any material  fact or omit to
state any  material  fact  necessary  to correct  any  statement  in any earlier
communication  with  respect  to the  solicitation  of any  proxy  for  the  HBI
Shareholders' Meeting. All documents that CFC is responsible for filing with the
SEC or any  other  regulatory  authority  in  connection  with the  transactions
contemplated,  hereby will comply as to form in all material  respects  with the
provisions of applicable  law,  including  applicable  provisions of federal and
state securities law.

                  (t)      Brokers  and   Finders.   Neither  CFC  nor  any  CFC
Subsidiary,  nor any of their respective officers,  directors or employees,  has
employed any broker,  finder or financial  advisor or incurred any liability for
any fees or commissions in connection with the transactions contemplated herein,
except for the Scott & Stringfellow, Inc.

                  (u)      Administration   of  Trust  Accounts.   CFC  and  CFC
Subsidiaries  have  properly  administered,  in all respects  material and which
could  reasonably  be expected to be material  to the  business,  operations  or
financial condition of CFC and CFC Subsidiaries,  taken as a whole, all accounts
for which they act as  fiduciaries  including  but not limited to  accounts  for
which they serve as  trustees,  agents,  custodians,  personal  representatives,
guardians,  conservators or investment advisors, in accordance with the terms of
the governing  documents and applicable state and federal law and regulation and
common  law.  Neither CFC nor a CFC  Subsidiary,  nor any  director,  officer or
employee  of CFC or a CFC  Subsidiary  has  committed  any  breach of trust with
respect to any such fiduciary  account which is material to or could  reasonably
be expected to be material to the business, operations or financial condition of
CFC,



                                       21
<PAGE>

or a CFC  Subsidiary,  taken  as a whole,  and the  accountings  for  each  such
fiduciary  account are true and correct in all material  respects and accurately
reflect the assets of such fiduciary account in all material respects.

                  (v)      Environmental   Matters.  (1)  Except  as  Previously
Disclosed,  to the best of CFC's  knowledge,  neither CFC nor any CFC Subsidiary
owns or  leases  any  properties  affected  by toxic  waste,  radon gas or other
hazardous  conditions or constructed  in part with the use of asbestos.  Each of
CFC and the CFC Subsidiaries is in substantial compliance with all Environmental
Laws  applicable  to real or  personal  properties  in which it has a direct fee
ownership  or, with respect to a direct  interest as lessee,  applicable  to the
leasehold  premises or, to the best  knowledge of CFC and the CFC  Subsidiaries,
the  premises  on which  the  leasehold  is  situated.  Neither  CFC nor any CFC
Subsidiary  has  received  any  Communication  alleging  that  CFC or  such  CFC
Subsidiary is not in such  compliance  and, to the best knowledge of CFC and the
CFC Subsidiaries,  there are no present circumstances  (including  Environmental
Laws that have been  adopted but are not yet  effective)  that would  prevent or
interfere with the continuation of such compliance.

                  (2)      There are no legal, administrative, arbitral or other
claims, causes of action or governmental  investigations of any nature,  seeking
to  impose,  or  that  could  result  in the  imposition,  on CFC  and  the  CFC
Subsidiaries of any liability arising under any  Environmental  Laws pending or,
to the best knowledge of CFC and the CFC  Subsidiaries,  threatened  against (A)
CFC or any CFC  Subsidiary,  (B) any person or entity  whose  liability  for any
Environmental  Claim,  CFC or any CFC  Subsidiary  has or may have  retained  or
assumed either contractually or by operation of law, or (C) any real or personal
property  which  CFC or any CFC  Subsidiary  owns or  leases,  or has been or is
judged to have managed or to have  supervised or  participated in the management
of,  which  liability  might have a  material  adverse  effect on the  business,
financial   condition  or  results  of  operations  of  CFC.  CFC  and  the  CFC
Subsidiaries  are not  subject  to any  agreement,  order,  judgment,  decree or
memorandum by or with any court,  governmental  authority,  regulatory agency or
third party imposing any such liability.

                  (3)      To  the   best   knowledge   of  CFC   and   the  CFC
Subsidiaries, there are no legal, administrative, arbitral or other proceedings,
or  Environmental  Claims or other  claims,  causes  of  action or  governmental
investigations  of any nature,  seeking to impose,  or that could  result in the
imposition,  on CFC or any CFC  Subsidiary  of any  liability  arising under any
Environmental  Laws pending or threatened  against any real or personal property
in which CFC or any CFC Subsidiary holds a security  interest in connection with
a loan or a loan  participation  which liability  might have a material  adverse
effect on the business, financial condition or results of operations of CFC. CFC
and the CFC  Subsidiaries  are not subject to any  agreement,  order,  judgment,
decree or memorandum by or with any court,  governmental  authority,  regulatory
agency or third party imposing any such liability.

                  (4)      With respect to all real and personal  property owned
or leased by CFC or any CFC Subsidiary,  other than OREO, CFC has made available
to HBI copies of any environmental  audits,  analyses and surveys that have been
prepared  relating to such  properties.  With respect to all OREO held by CFC or
any CFC  Subsidiary  and all  real or  personal  property  which  CFC or any CFC
Subsidiary  has been or is  judged  to have  managed  or to have  supervised  or
participated in the management of, CFC has made available to HBI the information
relating to such OREO  available  to CFC.  CFC and the CFC  Subsidiaries  are in
compliance in all material



                                       22
<PAGE>

respects  with  all  recommendations  contained  in  any  environmental  audits,
analyses  and  surveys  relating  to any of the  properties,  real or  personal,
described in this subsection (4).

                  (5)      There  are no past or  present  actions,  activities,
circumstances,  conditions, events or incidents,  including, without limitation,
the release,  emission,  discharge or disposal of any Materials of Environmental
Concern,  that could  reasonably  form the basis of any  Environmental  Claim or
other claim or action or  governmental  investigation  that could  result in the
imposition of any liability  arising under any  Environmental  Laws currently in
effect or adopted but not yet  effective  against CFC or any CFC  Subsidiary  or
against any person or entity whose liability for any Environmental  Claim CFC or
any CFC Subsidiary has or may have retained or assumed either  contractually  or
by operation of law.

                                    ARTICLE 4

                       Conduct Prior to the Effective Date

         4.1      Access to Records and  Properties.  HBI will keep CFC, and CFC
will keep HBI advised of all material  developments relevant to their respective
businesses prior to consummation of the  Reorganization.  Prior to the Effective
Date,  CFC,  on the one hand,  and HBI on the other,  agree to give to the other
party reasonable access to all the premises and books and records (including tax
returns filed and those in preparation) of it and its  subsidiaries and to cause
its officers to furnish the other with such  financial  and  operating  data and
other information with respect to the business and properties as the other shall
from time to time  request for the  purposes of  verifying  the  warranties  and
representations set forth herein; provided, however, that any such investigation
shall be  conducted  in such manner as not to  interfere  unreasonably  with the
operation  of the  respective  business  of the  other.  CFC will  designate  an
individual as the  transition  officer for the  Reorganization.  The  transition
officer will be an officer of CFC. HBI will provide  office  facilities and such
support as  necessary  to enable  him to  perform  his  duties.  The  transition
officer's  duties will include  (i)supervising  the data  processing  conversion
described in Section 5.5,  (ii) meeting with  employees of The Heritage  Bank to
familiarize  them with CFC's  business  practices  and  programs  and to prepare
employees  for any changes  that may result from the  Reorganization;  and (iii)
attending  such  meetings  he  deems  necessary  in  order  to  gain a  thorough
understanding  of HBI and The Heritage  Bank.  The  transition  officer shall be
given the same reports on  operations of The Heritage Bank that are given to the
President of HBI.  The  transition  officer  will have no direct  contact or any
opportunities  to meet with the  customers  of The  Heritage  Bank  without  the
written consent of HBI.

         4.2      Confidentiality.  Between the date of this  Agreement  and the
Effective  Date,  CFC and HBI each will  maintain in  confidence,  and cause its
directors,  officers,  employees, agents and advisors to maintain in confidence,
and not use to the  detriment  of the other party,  any  written,  oral or other
information  obtained  in  confidence  from the other  party or a third party in
connection with this Agreement or the  transactions  contemplated  hereby unless
such information is already known to such party or to others not bound by a duty
of confidentiality or unless such information becomes publicly available through
no  fault  of  such  party,  unless  use of such  information  is  necessary  or
appropriate  in making any filing or obtaining any consent or approval  required
for the  consummation  of the  transactions  contemplated  hereby or unless  the
furnishing or use of such information is required by or necessary or appropriate
in connection



                                       23
<PAGE>

with legal  proceedings.  If the  Reorganization is not consummated,  each party
will return or destroy as much of such written  information as may reasonably be
requested.

         4.3      Registration   Statement,   Proxy  Statement  and  Shareholder
Approval.  The Board of  Directors of HBI and the Board of Directors of CFC each
will duly call and will hold a meeting of  shareholders  as soon as  practicable
for  the  purpose  of  approving  the  Reorganization  or,  in the  case of CFC,
obtaining such shareholder  approvals as are necessary for CFC to consummate the
Reorganization  and  perform  its  obligations  under this  Agreement  (the "HBI
Shareholders'  Meeting"  and the  "CFC  Shareholders'  Meeting",  respectively).
Subject  to the  fiduciary  duties of the Board of  Directors  of HBI and of CFC
(each as advised in writing by its counsel), HBI and CFC each shall use its best
efforts to solicit and obtain  votes of the holders of its Common Stock in favor
of the matters presented for a vote at the HBI Shareholders' Meeting and the CFC
Shareholders'  Meeting and will comply with the  provisions  in its  Articles of
Incorporation  and  Bylaws  relating  to the call and  holding  of a meeting  of
shareholders for such purpose.  HBI will not take any action that would increase
the vote  required,  as described in Section  3.1(b),  to approve and adopt this
Agreement  and the Plan.  Each member of the Boards of  Directors of HBI and CFC
shall vote all shares of HBI Common  Stock and CFC Common Stock under his or her
control (and not held in a fiduciary capacity) in favor of the matters presented
for a vote at the HBI Shareholders' Meeting and the CFC Shareholders' Meeting.

Without  the  consent  of CFC and  HBI,  neither  CFC  nor HBI nor any of  their
respective  directors  shall  bid for or  purchase  or sell or offer to sell any
shares of CFC Common Stock during the period of twenty (20)  business  days that
ends  seven (7)  business  days  before  the date that the Proxy  Statement  (as
hereafter defined) is first mailed to shareholders of HBI or CFC.

         HBI and CFC each shall, at the other's  request,  recess or adjourn the
meeting if such recess or  adjournment is deemed by the other to be necessary or
desirable. CFC and HBI will prepare jointly the proxy statement/prospectus to be
used in connection with the HBI Shareholders'  Meeting and the CFC Shareholders'
Meeting (the "Proxy Statement"). Within forty-five (45) days of the date hereof,
CFC will prepare and file with the SEC the registration statement, of which such
Proxy  Statement  shall be a part and  will  use its  best  efforts  to have the
registration statement declared effective as promptly as possible, under federal
law and the laws of any  states  in which  the  Reorganization  is not an exempt
transaction.

         When the  registration  statement  or any  post-effective  amendment or
supplement  thereto shall become effective,  and at all times subsequent to such
effectiveness,  up to and including the date of the meeting,  such  registration
statement  and all  amendments  or  supplements  thereto,  with  respect  to all
information  set forth  therein  furnished or to be furnished by HBI relating to
the HBI Companies and by CFC relating to the CFC  Companies,  (i) will comply in
all material  respects with the provisions of the Securities Act of 1933 and any
other  applicable  statutory or regulatory  requirements,  including  applicable
state  blue-sky  and  securities  laws,  and (ii) will not  contain  any  untrue
statement  of a material  fact or omit to state a material  fact  required to be
stated  therein  or  necessary  to make the  statements  contained  therein  not
misleading;  provided, however, in no event shall any party hereto be liable for
any untrue  statement of a material fact or omission to state a material fact in
the  registration  statement  made in reliance  upon,  and in  conformity  with,
written  information  concerning  another  party  furnished  by such other party
specifically for use in the registration statement.



                                       24
<PAGE>

         CFC will use its best efforts to cause the Series A Preferred  Stock to
be listed on the Nasdaq  SmallCap  Market.  CFC will register Series A Preferred
stock  under the  Exchange  Act and,  once  registered,  will not take action to
terminate such registration.  CFC shall use its reasonable best efforts to cause
KPMG LLP, its independent public accounting firm to deliver to HBI and HBI shall
use its  reasonable  best  efforts  to cause  Yount,  Hyde &  Barbour,  PC,  its
independent  public  accounting  firm to deliver to CFC and to its  officers and
directors who sign the  registration  statement,  a "comfort  letter" or "agreed
upon procedures  letter" in form customarily  issued by such accountants at such
time in transactions of this type dated (a) the date of the mailing of the Proxy
Statement for the CFC Shareholders' Meeting and the date of mailing of the Proxy
Statement for the HBI Shareholders'  Meeting,  respectively,  and (b) a date not
earlier  than  fourteen  (14)  days  preceding  the  date of the  Reorganization
Closing.

         4.4      Operation  of the  Business  of HBI and CFC.  HBI and CFC each
agrees  that from the date  hereof to the  Effective  Date it will  operate  its
business  substantially  as presently  operated and only in the ordinary course,
and,  consistent with such  operation,  it will use its best efforts to preserve
intact its relationships  with persons having business dealings with it. Without
limiting the generality of the  foregoing,  HBI and CFC each agrees that it will
not, without the prior written consent of the other:

                  (a)      Except as  Previously  Disclosed,  make any change in
its  authorized  capital  stock,  or  issue or sell any  additional  shares  of,
securities convertible into or exchangeable for, or options,  warrants or rights
to  purchase,  its capital  stock,  nor shall it  purchase,  redeem or otherwise
acquire any of its  outstanding  shares of capital stock,  provided that CFC and
HBI each may issue shares of common stock pursuant to options  granted or issued
prior to the date hereof;

                  (b)      Except as Previously Disclosed,  voluntarily make any
changes in the  composition  of its officers,  directors or other key management
personnel;

                  (c)      Except as  Previously  Disclosed,  make any change in
the compensation or title of any officer, director or key management employee or
make any change in the  compensation or title of any other employee,  other than
permitted by current employment policies in the ordinary course of business, any
of which changes shall be reported promptly to the other party;

                  (d)      Except as Previously Disclosed, enter into any bonus,
incentive  compensation,  stock option,  deferred compensation,  profit sharing,
thrift,  retirement,  pension,  group  insurance  or other  benefit  plan or any
employment or consulting agreement;

                  (e)      Incur any obligation or liability  (whether  absolute
or  contingent,  excluding  suits  instituted  against it), make any pledge,  or
encumber  any of its  assets,  nor  dispose  of any of its  assets  in any other
manner, except in the ordinary course of its business and for adequate value, or
as otherwise specifically permitted in this Agreement;

                  (f)      Except as permitted by Section 4.4(a)  hereof,  issue
or contract to issue any shares of its Common  Stock,  options for shares of its
Common Stock, or securities exchangeable for or convertible into such shares;

                  (g)      Knowingly waive any right of substantial value;



                                       25
<PAGE>

                  (h)      Enter into material  transactions  otherwise  than in
the  ordinary  course of its  business,  including  any equity  investment  that
exceeds $100,000;

                  (i)      Take any action with respect to  accounting  methods,
principles  or  practices,  other than  changes  required by  applicable  law or
generally accepted accounting  principles or regulatory  accounting as concurred
in by its  independent  public  accounts;  or make any tax election or settle or
compromise any federal, state, local or foreign tax liability;

                  (j)      Change in any  material  respect  its loan  policies,
except as required by regulatory authorities;

                  (k)      Alter,  amend or repeal  its  Bylaws or  Articles  of
Incorporation; or

                  (l)      Propose or take any other action which would make any
representation or warranty in Section 3.1 or Section 3.2 hereof untrue.

         4.5      Dividends.  CFC  and  HBI  each  agree  not  to pay  any  cash
dividends from the date of this Agreement through the Effective Date.

         4.6      No  Solicitation.  Unless and until this Agreement  shall have
been  terminated  pursuant to its terms,  neither  HBI nor any of its  officers,
directors,   representatives  or  agents  shall,  directly  or  indirectly,  (i)
encourage, solicit or initiate discussions or negotiations with any person other
than CFC  concerning any merger,  share  exchange,  sale of substantial  assets,
tender offer, sale of shares of capital stock or similar  transaction  involving
HBI, (ii) enter into any agreement with any third party providing for a business
combination  transaction,  equity investment or sale of a significant  amount of
assets,  or (iii) furnish any  information to any other person relating to or in
support of such transaction.  HBI will promptly  communicate to CFC the terms of
any  proposal  which  it  may  receive  in  respect  to  any  of  the  foregoing
transactions.  Unless and until the Effective Date or until this Agreement shall
have been terminated pursuant to its terms, neither CFC nor any of its officers,
directors, representatives or agents shall enter into any agreement or letter of
intent that  provides for the  acquisition  by CFC of  substantially  all of the
assets or voting stock of a third party.

         4.7      Regulatory  Filings.  CFC and HBI shall  prepare  jointly  all
regulatory  filings required to consummate the transactions  contemplated by the
Agreement  and the Plan and submit the  filings  for  approval  with the Federal
Reserve Board and the SCC, and any other governing regulatory authority, as soon
as practicable  after the date hereof.  The  applications  of CFC to the Federal
Reserve and SCC shall include a request for  permission for The Heritage Bank to
pay a dividend  of $3.0  million on the  Effective  Date.  CFC and HBI shall use
their best efforts to obtain approvals of such filings.

         4.8      Public  Announcements.  Each party will consult with the other
before issuing any press release or otherwise making any public  statements with
respect to the Reorganization and shall not issue any such press release or make
any such public statement prior to such consultations  except as may be required
by law.

         4.9      Notice of Breach.  CFC and HBI will give written notice to the
other promptly



                                       26
<PAGE>

upon becoming aware of the impending or threatened occurrence of any event which
would cause or constitute a breach of any of the representations,  warranties or
covenants  made to the  other  party  in this  Agreement  and  will use its best
efforts to prevent or promptly remedy the same.

         4.10     Reorganization   Consummation.   Subject   to  the  terms  and
conditions  of this  Agreement,  each party  shall use its best  efforts in good
faith to take, or cause to be taken, all actions,  and to do or cause to be done
all things necessary,  proper or desirable,  or advisable under applicable laws,
as promptly as practicable so as to permit consummation of the Reorganization at
the earliest possible date, consistent with Section 1.3 herein, and to otherwise
enable consummation of the transactions  contemplated hereby and shall cooperate
fully with the other  parties  hereto to that end, and each of HBI and CFC shall
use,  and shall cause each of their  respective  subsidiaries  to use,  its best
efforts to obtain all consents  (governmental  or other)  necessary or desirable
for the consummation of the transactions contemplated by this Agreement.

         4.11     Adjustments.

                  (a)      HBI and CFC shall  consult  and  cooperate  with each
other with respect to determining  the amount and the timing for recognizing for
financial  accounting  purposes  the  expenses  of the  Reorganization  and  the
restructuring  charges  related  to or to be  incurred  in  connection  with the
Reorganization,  provided that any such  accounting  shall be in accordance with
generally accepted accounting principles.

                  (b)      At the  request  of CFC,  HBI shall  sell  investment
securities in order to conform its  securities  portfolio to the amounts,  types
and  maturities  that CFC deems  advisable.  At the  request  of CFC,  HBI shall
promptly  establish  and take such reserves and accruals as CFC shall request in
order to conform on a mutually  satisfactory  basis,  HBI's  loan,  accrual  and
reserve policies to CFC's policies. It is the objective of CFC and HBI that such
reserves, accruals and charges be taken on or before the Effective Date.

                  However,  no such  securities  sales and no such  reserves and
accruals shall be deemed to have a Material Adverse Effect on HBI, and HBI shall
not be obligated to take any such action pursuant to this Section 4.11(b) unless
and until (i) all conditions to the obligations of HBI and CFC to consummate the
Reorganization  set  forth in  Sections  6.1  through  6.3 have  been  waived or
satisfied by the appropriate party, and (ii) such reserves, accruals and charges
conform  with  generally  accepted  accounting   principles,   applicable  laws,
regulations, and the requirements of governmental entities.

         4.12     Certain  Payments.   Notwithstanding   Section  4.4,  HBI,  in
consultation  and  concurrence  with CFC, may agree to pay bonuses  and/or grant
stock options to key employees who are not to be offered continued employment by
CFC  or who  determine  not to  continue  employment  with  CFC to  induce  such
employees to remain  employees  of HBI until the  Effective  Date,  or such date
after the  Effective  Date that is necessary  to protect the  parties'  business
interests.  Unless CFC consents,  such  payments will not exceed  $50,000 in the
aggregate  and  options  will not be granted  on more than  8,000  shares of HBI
Common Stock.



                                       27
<PAGE>

                                    ARTICLE 5

                              Additional Agreements

         5.1      Conversion of Stock  Options.  (a) On the Effective  Date, all
rights  with  respect  to HBI  Common  Stock  pursuant  to stock  options  ("HBI
Options") granted by HBI under an HBI stock option plan which are outstanding on
the Effective Date, whether or not they are exercisable, shall be converted into
and become  rights with respect to CFC Common  Stock,  and CFC shall assume each
HBI Option in accordance  with the terms of the stock option plan under which it
was issued and the stock  option  agreement,  including  amounts  vested and any
vesting schedule, by which it is evidenced. From the Effective Date forward, (i)
each HBI Option  assumed  by CFC may be excised  solely for shares of CFC Common
Stock,  (ii) the number of shares of CFC Common Stock subject to each HBI Option
shall be equal to the  number of  shares of HBI  Common  Stock  subject  to such
option  immediately  prior to the Effective Date multiplied by Option Conversion
Ratio (as hereafter  defined) and (iii) the per share  exercise price under each
such HBI Option shall be adjusted by dividing the per share exercise price under
each such option by Option  Conversion  Ratio and  rounding  down to the nearest
cent; provided,  however, that the terms of each HBI Option shall, in accordance
with its terms,  be subject to further  adjustment as appropriate to reflect any
stock split, stock dividend, recapitalization or other similar transaction after
the  Effective  Date.  It is intended  that the  foregoing  assumption  shall be
undertaken in a manner that will not constitute a  "modification"  as defined in
Section  424 of the IRC, as to any stock  option  which is an  "incentive  stock
option." The "Option Conversion Ratio" shall mean the fraction, the numerator of
which is $6.00 and the  denominator  of which is equal to the average  last sale
price of CFC Common Stock for the twenty (20)  trading day period  ending on the
Effective Date.

         5.2      Benefit Plans.  (a) Upon  consummation of the  Reorganization,
employees  of HBI shall be  entitled to  participate  in CFC  pension,  benefit,
health and similar  plans on the same terms and  conditions  as employees of CFC
and its  subsidiaries,  without waiting  periods or exceptions for  pre-existing
conditions  and giving  effect to years of service  with HBI as if such  service
were with CFC. CFC also shall cause HBI to honor in accordance  with their terms
as in effect on the date  hereof (or as amended  after the date  hereof with the
prior written consent of CFC), all employment,  severance,  consulting and other
compensation  contracts  and  agreements  Previously  Disclosed  and executed in
writing by HBI on the one hand and any  individual  current or former  director,
officer or employee  thereof on the other hand,  copies of which have previously
been delivered by HBI to CFC.  Employees of HBI shall receive credit under CFC's
group health plans for all deductibles  and  co-payments  made by such employees
under the group health plans maintained by HBI prior to the Effective Date.

         (b)      For a period of six months  following the Effective  Date, CFC
agrees not to amend or terminate HBI's current  severance policy and agrees that
any  employee of HBI whose  employment  is  terminated  within six months of the
Effective  Date for reasons  other than cause  shall be  entitled  to  severance
benefits in the amounts determined in accordance with such severance policy. For
the  purpose  of  this  provision,   "cause"  shall  mean  personal  dishonesty,
incompetence,  intentional failure to perform stated duties, willful misconduct,
breach of fiduciary duty involving  personal profit,  conviction of a felony, or
willful violation of any law, rule or regulation (other than traffic  violations
or similar offenses).



                                       28
<PAGE>

         5.3      Indemnification. CFC agrees that following the Effective Date,
it  shall   indemnify   and  hold   harmless   any  person  who  has  rights  to
indemnification  from HBI, to the same extent and on the same conditions as such
person  is  entitled  to  indemnification  pursuant  to  Virginia  law and HBI's
Articles of Incorporation or Bylaws, as in effect on the date of this Agreement,
to the extent legally  permitted to do so, with respect to matters  occurring on
or prior to the Effective  Date. CFC further agrees that any such person who has
rights to indemnification pursuant to this Section 5.3 is expressly made a third
party  beneficiary  of  this  Section  5.3 and may  directly,  in such  person's
personal capacity,  enforce such rights through an action at law or in equity or
through any other manner or means of redress allowable under Virginia law to the
same  extent  as if  such  person  were a party  hereto.  Without  limiting  the
foregoing, in any case in which corporate approval may be required to effectuate
any  indemnification,  CFC  shall  direct,  at the  election  of the party to be
indemnified,  that the determination of permissibility of indemnification  shall
be  made  by  independent  counsel  mutually  agreed  upon  between  CFC and the
indemnified  party.  CFC shall apply to its  directors  and  officers  liability
insurance  carrier for  coverage for persons who are  currently  covered by such
insurance of HBI and shall  purchase and maintain such insurance for three years
after the  Effective  Date for coverage not to exceed  $15,000 per year for such
individuals.

         5.4      Agreement with Terrie G. Spiro.  Notwithstanding  Section 4.4,
an  agreement  with  Terrie G.  Spiro in the form of  Exhibit D hereto  has been
executed by The Heritage  Bank,  HBI,  CFC, and such parties will take all steps
necessary and desirable to perform such agreement.

         5.5      Data  Processing.  CFC and HBI agree to use their best efforts
to take all steps  necessary,  including HBI's  notification to its outside data
processing  service  provider  of its intent to  terminate  its data  processing
contract,  to coordinate and effect,  no later than five business days following
the Effective Date of the Merger,  the transition of the data processing systems
of HBI and The Heritage Bank to those of CFC. The termination by HBI of its data
processing  contract as provided in this paragraph shall not constitute a breach
of any warranty, representation or covenant contained in this Agreement.

                                    ARTICLE 6

                        Conditions to the Reorganization

         6.1      Conditions   to  Each  Party's   Obligations   to  Effect  the
Reorganization.  The respective obligations of each of CFC and HBI to effect the
Reorganization and the other  transactions  contemplated by this Agreement shall
be subject to the fulfillment or waiver at or prior to the Effective Date of the
following conditions:

                  (a)      Shareholder  Approvals.  Shareholders  of HBI and CFC
shall  have   approved  all  matters   relating  to  this   Agreement   and  the
Reorganization  required to be approved by such  shareholders in accordance with
Virginia law and the requirements of The Nasdaq Stock Market, including, but not
limited to the election of HBI  Directors to the Cardinal  Board of Directors in
accordance with Section 1.2(a).

                  (b)      Regulatory  Approvals.  This  Agreement  and the Plan
(including  permission  for The Heritage Bank to pay a $3.0 million  dividend on
the Effective  Date) shall



                                       29
<PAGE>

have been  approved by the Federal  Reserve,  the SCC, and any other  regulatory
authority  whose  approval  is required  for  consummation  of the  transactions
contemplated  hereby, and such approvals shall not have imposed any condition or
requirement which would so materially  adversely impact the economic or business
benefits  of the  transactions  contemplated  by  this  Agreement  as to  render
inadvisable the consummation of the  Reorganization in the reasonable opinion of
the Board of Directors of CFC or HBI.

                  (c)      Registration  Statement.  The registration  statement
shall have been  declared  effective and shall not be subject to a stop order or
any threatened stop order.

                  (d)      Tax  Opinion.  CFC and HBI  shall  have  received  an
opinion of  Williams,  Mullen,  Clark &  Dobbins,  or other  counsel  reasonably
satisfactory  to CFC  and  HBI,  to the  effect  that  the  Reorganization  will
constitute  a  reorganization  within the  meaning of Section 368 of the IRC and
that no gain or loss will be recognized by the shareholders of HBI to the extent
they receive Series A Preferred  Stock in exchange for their HBI Common Stock in
the Reorganization. Such opinion shall be reasonably satisfactory to each of the
parties and counsel to HBI.

                  (e)      Opinions of Counsel.  HBI shall have delivered to CFC
and CFC  shall  have  delivered  to HBI  opinions  of  counsel,  dated as of the
Effective  Date,  as to such  matters as they may each  reasonably  request with
respect  to  the  transactions  contemplated  by  this  Agreement  and in a form
reasonably acceptable to each of them.

                  (f)      Legal  Proceedings.  Neither  CFC  nor HBI  shall  be
subject to any order,  decree or  injunction  of a court or agency of  competent
jurisdiction which enjoins or prohibits the consummation of the Reorganization.

                  (g)      Articles of  Amendment.  The Articles of Amendment in
the form  attached  hereto  shall have been filed  with the SCC,  reflecting  an
effective date prior to date of the Reorganization closing.

         6.2      Conditions to  Obligations  of CFC. The  obligations of CFC to
effect the  Reorganization  shall be subject to the  fulfillment or waiver at or
prior to the Effective Date of the following additional conditions:

                  (a)      Representations   and   Warranties.   Each   of   the
representations and warranties contained herein of HBI shall be true and correct
as of the date of the Original  Agreement and upon the  Effective  Date with the
same effect as though all such  representations  and warranties had been made on
the Effective Date, except (i) for any such  representations and warranties made
as of a specified date, which shall be true and correct as of such date, (ii) as
expressly  contemplated  by this  Agreement,  or (iii) for  representations  and
warranties the inaccuracies of which relate to matters that,  individually or in
the aggregate,  do not materially  adversely affect the  Reorganization  and the
other transactions  contemplated by this Agreement and CFC shall have received a
certificate  or  certificates  signed by the Chief  Executive  Officer and Chief
Financial Officer of HBI dated the Effective Date, to such effect.

                  (b)      Performance of Obligations.  HBI shall have performed
in all material  respects all  obligations  required to be performed by it under
this  Agreement  prior to the  Effective



                                       30
<PAGE>

Date,  and CFC shall have received a certificate  signed by the Chief  Executive
Officer of HBI to that effect.

                  (c)      Affiliate Letters. Each shareholder of HBI who may be
deemed by counsel for CFC to be an "affiliate" of HBI within the meaning of Rule
145 under the  Securities  Act of 1933  shall  have  executed  and  delivered  a
commitment and undertaking to the effect that (1) such  shareholder will dispose
of the shares of Series A Preferred  Stock  received by him or her in connection
with the Reorganization  only in accordance with the provisions of paragraph (d)
of Rule 145; (2) such shareholders will not dispose of any such shares until CFC
has  received  an  opinion  of  counsel  acceptable  to it  that  such  proposed
disposition  will not violate the provisions of any applicable  securities laws;
and (3) the certificates  representing said shares may bear a conspicuous legend
referring to the forgoing restrictions.

                  (d)      Investment  Banking Letter. CFC shall have received a
written  opinion  in  form  and  substance  satisfactory  to CFC  from  Scott  &
Stringfellow,  Inc.  addressed to CFC and dated the date the Proxy  Statement is
mailed  to   shareholders   of  CFC,  to  the  effect  that  the  terms  of  the
Reorganization, are fair, from a financial point of view, to CFC.

         6.3      Conditions to  Obligations  of HBI. The  obligations of HBI to
effect the  Reorganization  shall be subject to the  fulfillment or waiver at or
prior to the Effective Date of the following additional conditions:

                  (a)      Representations   and   Warranties.   Each   of   the
representations and warranties contained herein of CFC shall be true and correct
as of the date of the Original  Agreement and upon the  Effective  Date with the
same effect as though all such  representations  and warranties had been made on
the Effective date, except (i) for any such  representations and warranties made
as of a specified date, which shall be true and correct as of such date, (ii) as
expressly  contemplated  by this  Agreement,  or (iii) for  representations  and
warranties the inaccuracies of which relate to matters that,  individually or in
the aggregate,  do not materially  adversely affect the  Reorganization  and the
other transactions  contemplated by this Agreement and HBI shall have received a
certificate  or  certificates  signed by the Chief  Executive  Officer and Chief
Financial Officer of CFC dated the Effective Date, to such effect.

                  (b)      Performance of Obligations.  CFC shall have performed
in all material  respects all  obligations  required to be performed by it under
this  Agreement  prior to the  Effective  Date,  and HBI shall  have  received a
certificate signed by Chief Executive Officer of CFC to that effect.

                  (c)      Investment  Banking Letter. HBI shall have received a
written  opinion in form and substance  satisfactory  to HBI from Ferris,  Baker
Watts,  Incorporated  addressed to HBI and dated the date the Proxy Statement is
mailed  to   shareholders   of  HBI,  to  the  effect  that  the  terms  of  the
Reorganization, are fair, from a financial point of view, to HBI.



                                       31
<PAGE>

                                    ARTICLE 7

                                   Termination

         7.1      Termination.  Notwithstanding  any  other  provision  of  this
Agreement,  and  notwithstanding  the approval of this Agreement and the Plan by
the  shareholders  of CFC and HBI,  this  Agreement  may be  terminated  and the
Reorganization abandoned at any time prior to the Effective Date:

                  (a)      By the mutual  consent of the Board of  Directors  of
each of CFC and HBI;

                  (b)      By the  respective  Boards of Directors of CFC or HBI
if the  conditions  set forth in Section  6.1 have not been met or waived by CFC
and HBI;

                  (c)      By the Board of  Directors  of CFC if the  conditions
set forth in Section 6.2 have not been met or waived by CFC;

                  (d)      By the Board of  Directors  of HBI if the  conditions
set forth in Section 6.3 have not been met or waived by HBI;

                  (e)      By the  respective  Boards of Directors CFC or HBI if
the Reorganization is not consummated by December 31, 2000;

                  (f)      By the  Board  of  Directors  of CFC if the  Board of
Directors of HBI receives a subsequent  offer to acquire HBI and does not within
fourteen (14) days after receipt of such subsequent  offer confirm in writing to
CFC  that  each  member  of  the  Board  of   Directors   of  HBI  supports  the
Reorganization,  will  vote  his  shares  of HBI  Common  Stock  in favor of the
Reorganization,  and will recommend to the shareholders of HBI that they approve
the Reorganization; or

                  (g)      By the  Board  of  Directors  of HBI if,  before  the
Effective Date, CFC shall enter into any agreement or letter of intent providing
for the direct or indirect  acquisition of  substantially  all of the assets and
liabilities or voting stock of CFC.

         7.2      Effect of  Termination.  In the event of the  termination  and
abandonment  of this agreement and the  Reorganization  pursuant to Section 7.1,
this  Agreement  shall become void and have no effect,  except that (i) the last
sentence of Section 4.2 and all of Sections  4.8 and 7.4 shall  survive any such
termination and abandonment and (ii) no party shall be relieved or released from
any  liability  arising out of an  intentional  breach of any  provision of this
Agreement.

         7.3      Non-Survival  of  Representations,  Warranties  and Covenants.
Except for Sections  1.2(a),  1.4,  2.1, 2.2, 2.3, 2.4, 5.1, 5.2, 5.3 and 7.4 of
this  Agreement,   none  of  the  respective   representations  and  warranties,
obligations, covenants and agreements of the parties shall survive the Effective
Date, provided that no such representations,  warranties, obligations, covenants
and agreements shall be deemed to be terminated or extinguished so as to deprive
CFC or HBI (or any director,  officer,  or  controlling  person  thereof) of any
defense in law or equity which otherwise  would be available  against the claims
of  any  person,   including  without



                                       32
<PAGE>

limitation any shareholder or former shareholder of either CFC or HBI.

         7.4      Expenses.  The parties  provide for the payment of expenses as
follows:

                  (a)      Except as  provided  in Section  7.4(b) or in Section
7.4(c),  each of the parties shall bear and pay all costs and expenses  incurred
by it or on its behalf in connection with the transactions  contemplated herein,
including  fees  and  expenses  of  its  own  consultants,  investment  bankers,
accountants and counsel.

                  (b)      If for any reason the  Reorganization is not approved
by the  shareholders of either party, it shall bear and pay 50% of the costs and
expenses  incurred  by the  other  with  respect  to the  accountants,  counsel,
printers  and  persons  involved  in  the  transactions   contemplated  by  this
Agreement, including the preparation of the registration statement and the Proxy
Statement.

                  (c)      If this  Agreement is  terminated  by CFC pursuant to
Section 7.1(f), then HBI shall pay all of the costs and expenses incurred by CFC
relating to the  Reorganization  including,  fees and  expenses of  consultants,
investment bankers,  accountants,  counsel, printers and persons involved in the
transactions  contemplated by this  Agreement,  including the preparation of the
registration statement and the Proxy Statement.

                  (d)      Any  liability  to the other  incurred  by HBI or CFC
pursuant to this Section 7.4 shall not exceed a total of $200,000.

                  (e)      Final  settlement with respect to the payment of such
fees and expenses by the parties shall be made within thirty (30) days after the
termination of this Agreement.

                                    ARTICLE 8

                               General Provisions

         8.1      Entire Agreement. This Agreement contains the entire agreement
among  CFC  and  HBI  with  respect  to  the   Reorganization  and  the  related
transactions  and  supersedes  all prior  arrangements  or  understandings  with
respect thereto.

         8.2      Waiver and Amendment.  Any term or provision of this Agreement
may be  waived  in  writing  at any  time  by  the  party  which  is,  or  whose
shareholders are,  entitled to the benefits  thereof,  and this Agreement may be
amended or  supplemented  by written  instructions  duly executed by the parties
hereto  at any  time,  whether  before  or  after  the  meetings  of HBI and CFC
shareholders referred to in Section 6.1(a) hereof, except statutory requirements
and requisite approvals of shareholders and regulatory authorities.

         8.3      Descriptive Headings. Descriptive headings are for convenience
only and shall not  control  or  affect  the  meaning  and  construction  of any
provisions of this Agreement.

         8.4      Governing  Law.  Except as  required  otherwise  or  otherwise
indicated  herein,  this Agreement shall be construed and enforced  according to
the laws of the Commonwealth of Virginia.



                                       33
<PAGE>

         8.5      Notices.   All  notices  or  other  communications  which  are
required or permitted  hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail,  postage prepaid,  addressed
as follows:

         If to CFC:
                  L. Burwell Gunn, President
                  Cardinal Financial Corporation
                  10555 Main Street, Suite 500
                  P. O. Box 1147
                  Fairfax, Virginia 22030
                  (Tel. 703- 279-5060)

         Copy to:
                  Wayne A. Whitham, Jr.
                  Williams, Mullen, Clark & Dobbins
                  1021 East Cary Street
                  P.O. Box 1320
                  Richmond, Virginia 23210-1320
                  (Tel. 804-783-6473)

         If to  HBI :
                  Terrie G. Spiro, President
                     and Harold E. Lieding, Chairman of the Board
                  Heritage Bancorp, Inc.
                  1313 Dolley Madison Boulevard
                  McLean, Virginia 22101-7207 (Tel. 703-873-0320)

         Copy to:
                  Richard A. Schaberg
                  Thacher Proffitt & Wood
                  1700 Pennsylvania Avenue, N.W.
                  Washington, DC 20006
                  (Tel. 202-626-5630)


         8.6      Counterparts.  This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts together
shall constitute one and the same agreement.

         8.7      Severability.  In the event any  provisions of this  Agreement
shall be held invalid or unenforceable  by any court of competent  jurisdiction,
such holding shall not invalidate or render  unenforceable  any other provisions
hereof.  Any provision of this Agreement held invalid or  unenforceable  only in
part or degree  shall  remain in full  force and  effect to the  extent not held
invalid or unenforceable.  Further,  the parties agree that a court of competent
jurisdiction  may  reform  any  provision  of this  Agreement  held  invalid  or
unenforceable so as to reflect the intended agreement of the parties hereto.



                                       34
<PAGE>

         8.8      Subsidiaries.  All representations,  warranties, and covenants
herein,   where  pertinent,   include  and  shall  apply  to  the  wholly  owned
subsidiaries belonging to the party making such representations, warranties, and
covenants.

                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Agreement to be executed in counterparts  by their duly authorized  officers and
their corporate  seals to be affixed  hereto,  all as of the dates first written
above.

                                       CARDINAL FINANCIAL CORPORATION


                                       By:
                                           -------------------------------------
                                           L. Burwell Gunn, Jr.
                                           President and Chief Executive Officer
ATTEST:


---------------------------------
Secretary


                                       CARDINAL MERGER CORP.


                                       By:
                                           -------------------------------------
                                           L. Burwell Gunn, Jr.
                                           President and Chief Executive Officer
ATTEST:


---------------------------------
Secretary


                                       HERITAGE BANCORP, INC.


                                       By:
                                           -------------------------------------
                                           Terrie G. Spiro
                                           President and Chief Executive Officer
ATTEST:


---------------------------------
Secretary





                                       35
<PAGE>

                             HERITAGE BANCORP, INC.
                               BOARD OF DIRECTORS

         Each of the  undersigned  members of the Board of Directors of Heritage
Bancorp,  Inc. agrees to be bound by his or her personal obligations as provided
in Section 4.3 and 4.6 of this Agreement.


--------------------------------                --------------------------------
Harold E. Lieding                               Terrie G. Spiro


--------------------------------                --------------------------------
George K. Degnon                                Kevin P. Tighe


--------------------------------                --------------------------------
Philip F. Herrick, Jr.                          Stanley I. Richards


--------------------------------                --------------------------------
George P. Shafran                               Ronald W. Kosh











                                       36
<PAGE>

                         CARDINAL FINANCIAL CORPORATION
                               BOARD OF DIRECTORS

         Each of the  undersigned  members of the Board of Directors of Cardinal
Financial  Corporation agrees to be bound by his or her personal  obligations as
provided in Section 4.3 and 4.6 of this Agreement.


--------------------------------                --------------------------------
Robert M. Barlow                                Wayne W. Broadwater


--------------------------------                --------------------------------
Nancy K. Falck                                  L. Burwell Gunn, Jr.


--------------------------------                --------------------------------
Anne B. Hazel                                   Harvey W. Huntzinger


--------------------------------                --------------------------------
Jones V. Isaac                                  Dale B. Peck


--------------------------------                --------------------------------
James D. Russo                                  John S. Rust, Jr.


--------------------------------
J. Hamilton Lambert











                                       37
<PAGE>

                                                              EXHIBIT A
                                                              to the
                                                              Agreement and Plan
                                                              of Reorganization



                                 PLAN OF MERGER
                                     BETWEEN
                             HERITAGE BANCORP, INC.
                                       AND
                              CARDINAL MERGER CORP.

         Pursuant to this Plan of Merger ("Plan of Merger"),  Heritage  Bancorp,
Inc. ("HBI"), a Virginia corporation,  shall merge with and into Cardinal Merger
Corp.  ("CMC"), a Virginia  corporation and wholly-owned  subsidiary of Cardinal
Financial Corporation ("CFC"), a Virginia corporation, in a merger under Section
13.1-716 of the Virginia Stock Corporation Act.

                                    ARTICLE 1

                               Terms of the Merger

         Subject  to the  terms  and  conditions  of the  Amended  and  Restated
Agreement and Plan of Reorganization, dated as of June __, 2000 between HBI, CFC
and CMC (the "Agreement"),  at the Effective Date, HBI shall merge with and into
CMC, which shall be the surviving corporation.  Each outstanding share of common
stock of HBI shall be converted  into and  exchanged  for cash and shares of the
preferred stock of CFC in accordance with Section 2.1 of this Plan of Merger and
Section  13.1-716 of the Virginia Stock  Corporation Act (the "Merger").  At the
Effective Date, the Merger shall have the effect as provided in Section 13.1-721
of the Virginia  Stock  Corporation  Act.  Unless  otherwise  specified  herein,
capitalized  terms in this Plan of Merger  shall have the same meaning as in the
Agreement.

                                    ARTICLE 2

                           Manner of Converting Shares

         2.1      Conversion of Shares.

         (a)      Conversion of HBI Stock.  At the Effective  Date, by virtue of
the Merger and without any action on the part of the holders thereof, each share
of common stock,  par value $1.00 per share,  of HBI ("HBI Common Stock") issued
and  outstanding  immediately  prior to the  Effective  Date  shall  cease to be
outstanding  and (other than  dissenting  shares)  shall be  converted  into and
exchanged either for $6.00 in cash or 1.2 shares of 7.25% Cumulative Convertible
Preferred  Stock,  Series A of CFC  ("Series A  Preferred  Stock")  and cash for
fractional  shares.  Each holder of shares of HBI Common Stock shall  thereafter
cease to have any  rights  with



                                      A-1
<PAGE>

respect to such HBI Common Stock, except the consideration described in Sections
2.1 and 2.4 upon the surrender of such  certificate  in accordance  with Section
2.2.

         The form of  consideration  into  which each  individual  shareholder's
shares of HBI Common Stock will be converted  will be  determined  in the manner
described in Sections 2.1(b) and 2.1(c).

         (b)      Election  of  Consideration.  By written  notice to CFC in the
manner described below, each HBI shareholder may elect the form of consideration
(shares of Series A Preferred Stock or cash) into which his or her shares of HBI
Common Stock will be converted on the Effective Date; provided that despite such
elections,  shareholders of HBI may be required to receive a different amount of
cash or shares of Series A Preferred Stock in the event of a proration  pursuant
to Section 2.1(c). Within ten (10) days following approval of this Agreement and
the Plan of Merger by HBI's shareholders,  HBI will mail written instructions to
each of its  shareholders  for  making  the  election,  together  with a form (a
"Notice of Election")  which each  shareholder  shall be required to use to make
such  election.  HBI's  notice  shall  specify  a date by which a  shareholder's
election  must be made (the  "Election  Date,"  which  shall be twenty (20) days
following  the date the  instructions  and  Notice  of  Election  form are first
distributed  to HBI's  shareholders).  The  instructions  and Notice of Election
distributed  to  HBI's   shareholders  shall  be  provided  by  and  in  a  form
satisfactory to CFC and HBI.

         In order to make an effective  election,  a shareholder must deliver to
CFC a  properly  completed  Notice of  Election  on or  before  the close of its
business  on the  Election  Date in  accordance  with CFC's  instructions.  Each
shareholder may elect any combination of cash and Series A Preferred  Stock. Any
shareholder  who does not make an  election  or whose  Notice of Election is not
timely  received  by CFC or  otherwise  is not  made in  accordance  with  CFC's
instructions will be deemed to have elected that each share of the shareholder's
HBI Common Stock be converted into the right to receive $6.00 in cash.

         (c)      Limit on  Election;  Proration  of Cash and Series A Preferred
Stock.  Notwithstanding  anything contained herein to the contrary,  in no event
shall cash be paid (whether pursuant to shareholders' elections to receive cash,
proration  or exercise of  dissenters'  rights) for more or less than 50% of the
total outstanding shares of HBI Common Stock.

                  (i)      If the aggregate number of shares of HBI Common Stock
         held by the HBI  shareholders  who dissent and by HBI  shareholders who
         effectively  elect (and who are  deemed to have  elected)  as  provided
         above to receive cash is more than 50% of the total outstanding  shares
         of HBI  Common  Stock  then,  in the case of each  shareholder  who has
         effectively elected to receive cash for any or all of his or her shares
         of HBI Common Stock,  CFC will reduce (by the same  percentage for each
         such  shareholder and by rounding to the nearest full share) the number
         of shares of HBI Common Stock held by such  shareholders for which cash
         will be paid,  such that the  aggregate  number of shares of HBI Common
         Stock for which cash will be paid is as nearly equal as possible to 50%
         of the total outstanding shares of HBI Common Stock and each share held
         by each  such  shareholder  for  which  cash  will not be paid  will be
         converted into 1.2 shares of Series A Preferred Stock.



                                      A-2
<PAGE>

                  (ii)     If the aggregate number of shares of HBI Common Stock
         held by the HBI  shareholders  who dissent and by HBI  shareholders who
         effectively  elect (and who are  deemed to have  elected)  as  provided
         above to receive cash is less than 50% of the total outstanding  shares
         of HBI  Common  Stock,  then,  in the  case  of  each  shareholder  who
         effectively  has elected to receive Series A Preferred Stock for any or
         all of his or her shares of HBI Common  Stock,  CFC will reduce (by the
         same  percentage  for each  such  shareholder  and by  rounding  to the
         nearest  full share) the number of shares of HBI Common Stock that will
         be  converted  into  Series A Preferred  Stock such that the  aggregate
         number of shares of HBI  Common  Stock to be  converted  into  Series A
         Preferred  Stock is as  nearly  equal as  possible  to 50% of the total
         outstanding shares of HBI Common Stock and each share held by each such
         shareholder  which will not be converted into Series A Preferred  Stock
         will be converted into $6.00 in cash.

                  (iii)    A shareholder who beneficially  owns HBI Common Stock
         in more than one account or capacity  may direct how cash and shares of
         Series A Preferred Stock will be allocated among such accounts.

         2.2      Exchange and Payment Procedures. Following the Effective Date,
certificates  representing  shares  of  HBI  Common  Stock  outstanding  at  the
Effective  Time  (herein  sometimes  referred  to as "Old  Certificates")  shall
evidence only the right of the registered holder thereof to receive,  and may be
exchanged   for,  the  form  of   consideration   into  which  each   individual
shareholder's  shares of HBI Common Stock have been  converted as  determined by
and based on the  shareholder's  election  in the manner  described  in Sections
2.1(b) and 2.1(c).

         As promptly as practicable following the Effective Date, CMC shall send
or cause to be sent to each former  shareholder of the HBI of record immediately
prior to the Effective Date written  instructions  and transmittal  materials (a
"Transmittal Letter") for use in surrendering Old Certificates to American Stock
Transfer & Trust Company ("the Transfer  Agent").  Upon the proper surrender and
delivery to the  Transfer  Agent (in  accordance  with CFC's  instructions,  and
accompanied by a properly completed  Transmittal Letter) by a former shareholder
of the HBI of his or her  Old  Certificate(s),  and in  exchange  therefor,  the
Transfer  Agent shall,  (i) in the case of a shareholder  whose HBI Common Stock
has been converted into Series A Preferred Stock, issue, register and deliver to
the  shareholder  a  certificate  evidencing  the  number  of shares of Series A
Preferred  Stock to which the shareholder is entitled and/or (ii) in the case of
a  shareholder  whose  HBI  Common  Stock has been  converted  into the right to
receive cash, issue and deliver to the shareholder a check in the amount of cash
to which the shareholder is entitled.

         Following the Effective Time there shall be no further transfers of HBI
Common Stock on the stock transfer books of the HBI or the  registration  of any
transfer of an Old Certificate by any holder thereof,  and the surrender of each
Old Certificate as provided herein must be made by or on behalf of its holder of
record at the Effective Date.

         2.3      Conversion of Stock Options. On the Effective Date, all rights
with  respect to HBI Common  Stock  pursuant to stock  options  ("HBI  Options")
granted  by HBI under a HBI stock  option  plan  which  are  outstanding  on the
Effective  Date,  whether or not then  exercisable,  shall be converted into and
become  rights with respect to CFC Common  Stock,  and CFC shall



                                      A-3
<PAGE>

assume  each HBI Option in  accordance  with the terms of the stock  option plan
under  which it was issued and the stock  option  agreement,  including  amounts
vested and any vesting  schedule by which it is  evidenced.  From the  Effective
Date  forward,  (i) each HBI Option  assumed by CFC may be exercised  solely for
shares of CFC  Common  Stock,  (ii) the  number of  shares of CFC  Common  Stock
subject to each HBI Option  shall be equal to the number of shares of HBI Common
Stock subject to such option  immediately prior to the Effective Date multiplied
by the Option Conversion Ratio and (iii) the per share exercise price under each
such HBI Option shall be adjusted by dividing the per share exercise price under
each such option by the Option Conversion Ratio and rounding down to the nearest
cent; provided,  however, that the terms of each HBI Option shall, in accordance
with its terms,  be subject to further  adjustment as appropriate to reflect any
stock split, stock dividend, recapitalization or other similar transaction after
the  Effective  Date.  It is  intended  that the  forgoing  assumption  shall be
undertaken in a manner that will not constitute a  "modification"  as defined in
Section 425 of the Internal  Revenue Code of 1986,  as to any stock option which
is an "incentive  stock  option." The "Option  Conversion  Ratio" shall mean the
fraction,  the numerator of which is $6.00 and the denominator of which is equal
to the average  last sale price of CFC Common  Stock for the twenty (20) trading
day period ending on the Effective Date.

         2.4      No Fractional  Shares. No certificates or scrip for fractional
shares of Series A Preferred Stock will be issued. In lieu thereof, CFC will pay
the value of such  fractional  shares in cash on the basis of $5.00 per share of
Series A Preferred Stock.

         2.5      Dividends.  No dividend or other  distribution  payable to the
holders of record of CFC Common  Stock at or as of any time after the  Effective
Date shall be paid to the holder of any certificate  representing  shares of HBI
Common Stock issued and  outstanding  immediately  prior to the  Effective  Date
until such  holder  physically  surrenders  such  certificate  for  exchange  as
provided  in  Section  2.3,  promptly  after  which time all such  dividends  or
distributions shall be paid by CFC (without interest).

         2.6      Rights of Dissenting Shareholders. Shareholders of HBI and CFC
will be entitled to the  dissenters'  rights and  remedies set forth in sections
13.1-729 through 13.1-741 of the Virginia Stock Corporation Act.

                                    ARTICLE 3

                                   Termination

         This  Plan  of  Merger  may be  terminated  at any  time  prior  to the
Effective Date by the parties hereto as provided in Article 7 of the Amended and
Restated  Agreement  and Plan of  Reorganization,  dated  as of June  __,  2000,
between the parties.



                                      A-4
<PAGE>

                                    ARTICLE 4

                            Name, Charter and Bylaws

         At the Effective Date, the name, Charter of HBI and bylaws of HBI shall
be the name, Charter and bylaws of CMC.


                                   CARDINAL FINANCIAL CORPORATION


                                   By:__________________________________
                                      L. Burwell, Gunn, Jr., President and Chief
                                      Executive Officer

                                   CARDINAL MERGER CORP.


                                   By:__________________________________
                                      L. Burwell, Gunn, Jr., President and Chief
                                      Executive Officer


                                   HERITAGE BANCORP, INC.


                                   By:________________________________
                                      Terrie G. Spiro, President and Chief
                                      Executive Officer









                                      A-5
<PAGE>

                                                                       EXHIBIT B
                                                            to the Agreement and
                                                          Plan of Reorganization

                              ARTICLES OF AMENDMENT

                                     TO THE

                            ARTICLES OF INCORPORATION

                                       OF

                         CARDINAL FINANCIAL CORPORATION


         A.       The name of the Corporation is Cardinal Financial Corporation.

         B.       The following  resolution,  setting forth the  designation and
the  number of shares of a series of  Preferred  Stock  ($1.00 par value) of the
Corporation and the relative rights and preferences thereof, was duly adopted by
the Board of Directors of the Corporation at a meeting held on _______ __, 2000:

         RESOLVED,  that  ___________  authorized  but  unissued  shares of this
Corporation's  Preferred  Stock  ($1.00 par value)  are hereby  designated  as a
series of Preferred  Stock  called the 7.25%  Cumulative  Convertible  Preferred
Stock,  Series A (the "Series A Preferred  Stock"),  with the  following  voting
powers, rights and preferences:

         1.       Dividends.

                  (a)      The  holders  of the  outstanding  shares of Series A
Preferred  Stock shall be  entitled to receive,  if, when and as declared by the
Board of  Directors  of the  Corporation,  out of any  funds  legally  available
therefor,  cash dividends at the rate and payable on the dates  hereinafter  set
forth.  The rate of dividends  payable on the Series A Preferred  Stock shall be
$.3625  per share per annum and no more.  Dividends  shall be  payable  in equal
quarterly installments on the last day of March, June, September and December of
each  year,  commencing  on the last day of the  calendar  quarter  in which the
Corporation and Heritage Bancorp, Inc. merge.  Dividends shall be cumulative and
accrue on the  Series A  Preferred  Stock  from and  after the date of  issuance
thereof.  Dividends payable on the last day of the calendar quarter in which the
Corporation and Heritage  Bancorp,  Inc. merge or on any other date which is not
the last day of March,  June,  September or December  shall be calculated on the
basis of a 360 day year and the actual number of days elapsed.

                  (b)      No  dividend  whatsoever  shall be  declared  or paid
upon,  or any sum set apart for the  payment  of  dividends  upon any  shares of
Parity Stock for any dividend  period unless a like  proportionate  dividend for
the same dividend period (in proportion to the respective



                                       B-1
<PAGE>

annual  dividend rates per share set forth in the Articles of  Incorporation  or
the respective Articles of Amendment) shall have been declared and paid upon, or
declared and a sufficient  sum set apart for the payment of such dividend  upon,
all shares of Series A Preferred Stock outstanding.

                  (c)      Unless Dividends Accrued on all outstanding shares of
Series A Preferred Stock and any outstanding  shares of Parity Stock due for all
past  dividend  periods shall have been declared and paid, or declared and a sum
sufficient for the payment thereof set apart,  and full dividends (to the extent
that the amount  thereof  shall have  become  determinable)  on all  outstanding
shares of such stock due on the respective  next  following  payment dates shall
have been declare and a sum  sufficient  for the payment  thereof set apart then
(i) no dividend (other than a dividend  payable solely in Common Stock) shall be
declared or paid upon,  or any sum set apart for the payment of dividends on any
shares of Junior Stock; (ii) no other distribution shall be made upon any shares
of Junior Stock; (iii) no shares of Junior Stock shall be purchased, redeemed or
otherwise  acquired for value by the Corporation or by any Subsidiary;  and (iv)
no monies  shall be paid into or set apart or made  available  for a sinking  or
other like fund for the purchase,  redemption or other  acquisition for value of
any shares of Junior Stock by the Corporation or any Subsidiary.

         2.       Voting Rights.

                  The  holders of the  outstanding  shares of Series A Preferred
Stock shall not be entitled to receive  notice of, or to  participate  in, or to
vote on any matter at any meeting of the stockholders of the Corporation, except
to the  extent  that  such  holders  are  afforded  a vote  by the  laws  of the
Commonwealth of Virginia in existence at the time any matter requiring such vote
shall arise.

         3.       Liquidation.

                  In the event of liquidation,  dissolution or winding up of the
affairs of the  Corporation,  the holders of shares of Series A Preferred  Stock
then  outstanding  shall be entitled to be paid in cash out of the net assets of
the Corporation,  including its capital, a liquidation price of $5.00 per share,
plus  Dividends  Accrued  to the  date  of  payment,  and no  more,  before  any
distribution  or payment  shall be made to the holders of shares of Junior Stock
and after payment to the holders of the outstanding shares of Series A Preferred
Stock and to the holders of shares of other  classes and series of Parity  Stock
of the  amounts to which they are  respectively  entitled,  the  balance of such
assets,  if any,  shall be paid to the holders of the Junior Stock  according to
their respective rights. For the purposes of the preceding sentence, neither the
consolidation of the Corporation with nor the merger of the Corporation into any
other   corporation  nor  the  sale,  lease  or  other  disposition  of  all  or
substantially  all of the  Corporation's  properties  and assets shall,  without
further corporate action, be deemed a liquidation,  dissolution or winding up of
the affairs of the  Corporation.  In case the net assets of the  Corporation are
insufficient to pay the holders of the outstanding  shares of Series A Preferred
Stock and other  series of Parity Stock the full  preferential  amounts to which
they are respectively  entitled,  the entire net assets of the Corporation shall
be  distributed  ratably to the  holders of the  outstanding  shares of Series A
Preferred  Stock and other  series of  Parity  Stock in  proportion  to the full
preferential amounts to which they are respectively entitled.



                                      B-2
<PAGE>

         4.       Conversion.

                  (a)      Each  holder  of any  outstanding  shares of Series A
Preferred Stock shall have the right, at any time, to convert any of such shares
into Common Stock of the Corporation.  Furthermore, as to any shares of Series A
Preferred Stock called for redemption,  each such holder shall have the right at
any time prior to the close of business on the fifth full business day preceding
the date fixed for redemption  (unless  default shall be made by the Corporation
in the payment of the  redemption  price in which case such right of  conversion
shall continue without interruption),  to convert any of such shares into shares
of Common  Stock of the  Corporation.  The number of shares of Common Stock into
which each share of Series A Preferred Stock shall be convertible shall be equal
to the number  arrived at by dividing  $5.00,  without any payment or adjustment
for Dividends  Accrued,  by the  conversion  price per share of the Common Stock
fixed or  determined  as  hereinafter  provided.  Such  conversion  price  shall
initially be $____ per share,  subject to the adjustments  hereinafter  provided
(such  price as adjusted at any time being  hereinafter  called the  "Conversion
Price").

                  (b)      The  holder  of any  outstanding  shares  of Series A
Preferred  Stock may exercise the  conversion  right  provided in Paragraph  (a)
above as to all or any portion of the shares that he holds by  delivering to the
Corporation  during  regular  business  hours,  at the  principal  office of the
Corporation's transfer agent or such other place as may be designated in writing
by the  Corporation,  the  certificate  or  certificates  for the  shares  to be
converted,  duly  endorsed  or  assigned in blank or endorsed or assigned to the
Corporation (if required by it),  accompanied by written notice stating that the
holder elects to convert such shares and stating the name or names (with address
and applicable  social  security number or other tax  identification  number) in
which the  certificate  or  certificates  or  shares  of Common  Stock are to be
issued.  Conversion  shall be  deemed  to have  been  effected  on the date (the
Conversion  Date)  when  such  delivery  is made.  As  promptly  as  practicable
thereafter the Corporation  shall issue and deliver to or upon the written order
of such holder,  at such office or other place designated by the Corporation,  a
certificate  or  certificates  for the number of full shares of Common  Stock to
which he is entitled and a payment in cash of any dividends  declared and unpaid
with respect to the shares of Series A Preferred  Stock so surrendered up to the
dividend date that immediately precedes the Conversion Date. The person in whose
name the certificate or certificates for shares of Common Stock are to be issued
shall be deemed to have become a stockholder of record on the  Conversion  Date,
unless the transfer books of the  Corporation  are closed on that date, in which
event he shall be  deemed  to have  become a  stockholder  of record on the next
succeeding  date on which the transfer books are open; but the Conversion  Price
shall be that in effect on the Conversion Date, unless the Conversion Date falls
after the date that the Corporation  mails a notice of redemption  under Section
5(c) and  before  the date fixed for  redemption,  in which case the  Conversion
Price  shall be that in effect on the date that  such  notice of  redemption  is
mailed.

                  (c)      If,  for  twenty  (20)   consecutive   trading   days
beginning  on or  after  the  end of the  forty  second  (42nd)  calendar  month
following  the  effective  date of the merger of the  Corporation  and  Heritage
Bancorp,  Inc., the last sale price of the Common Stock exceeds 1.30  multiplied
by the Conversion  Price,  then,  effective at 5:00 p.m. on the last day in such
twenty



                                      B-3
<PAGE>

(20) day period,  (y) all  outstanding  shares of Series A Preferred Stock shall
automatically  convert into and become shares of Common Stock, as if each holder
of Series A Preferred Stock  exercised the conversion  right provided in Section
4(a)  and (z) all  shares  of  Series  A  Preferred  Stock,  whether  or not the
certificates  therefore shall have been surrendered for  cancellation,  shall be
deemed no longer to be  outstanding  for any purpose and all rights with respect
to such shares shall thereupon cease and determine,  except the right to receive
certificates  for shares of the  Corporation's  Common  Stock upon  surrender of
certificates for shares of Series A Preferred Stock the same manner described in
Section  4(b).  Promptly  following a conversion of shares of Series A Preferred
Stock pursuant to this Section 4(c) the Corporation shall give written notice of
such conversion by first class mail,  postage prepaid to the holders of Series A
Preferred Stock at the last addresses shown by the Corporation's  stock transfer
records.  No delay or  imperfection  in such notice  will  affect the  automatic
conversion of Series A Preferred  Stock into shares of Common Stock  pursuant to
this Section 4(c).  For purposes of this Section 4(c) and Section 4(f), the last
sale price of the Corporation's Common Stock shall be deemed to be the last sale
price reported by NASDAQ or its successor,  but if the Common Stock is listed on
a national stock exchange, the last sale price on any date shall be deemed to be
the last  sale  price on the  exchange  on which it  generally  has the  highest
trading volume.

                  (d)      The  Corporation  shall not issue any  fraction  of a
share upon  conversion of shares of the Series A Preferred  Stock.  If more than
one share of the Series A Preferred Stock shall be surrendered for conversion at
any time by the same holder,  the number of full shares of Common Stock issuable
upon  conversion  thereof  shall be computed on the basis of the total number of
the  shares  of  Series A  Preferred  Stock so  surrendered.  If any  fractional
interest in a share of Common Stock would be deliverable  upon  conversion,  the
number of shares of Common Stock  deliverable shall be rounded up to the nearest
full share.

                  (e)      The  issuance  of  Common  Stock  on   conversion  of
outstanding  shares of Series A Preferred Stock shall be made by the Corporation
without  charge for  expenses or for any tax in respect of the  issuance of such
Common  Stock,  but the  Corporation  shall  not be  required  to pay any tax or
expense which may be payable in respect of any transfer involved in the issuance
and delivery of shares of Common Stock in any name other than that of the holder
of record on the books of the Corporation of the outstanding  shares of Series A
Preferred Stock converted, and the Corporation shall not be required to issue or
deliver any  certificate  for shares of Common Stock unless and until the person
requesting  the issuance shall have paid to the  Corporation  the amount of such
tax or shall have  established to the  satisfaction of the Corporation that such
tax has been paid.

                  (f)      The   Conversion   Price  shall  be  subject  to  the
following adjustments:

                           (i)      Whenever  the  Corporation  shall  (A) pay a
dividend on its outstanding shares of Common Stock in shares of its Common Stock
or subdivide or otherwise split its  outstanding  shares of Common Stock, or (B)
combine its outstanding  shares of Common Stock into a smaller number of shares,
the  Conversion  Price in effect at the effective  date of the happening of such
event shall be  adjusted  so that the  holders of the Series A Preferred  Stock,
upon  conversion  of all thereof  immediately  following  such  event,  would be
entitled to



                                      B-4
<PAGE>

receive the same  aggregate  number of shares of Common Stock as they would have
been  entitled  to receive  immediately  following  such event if such shares of
Series A Preferred Stock had been converted  immediately prior to such event, or
if there is a record  date in respect of such event,  immediately  prior to such
record date.

                           (ii)     In case the  Corporation,  after the date of
this  resolution,  shall issue  rights,  warrants or options to subscribe for or
purchase shares of Common Stock, or securities  convertible into or exchangeable
for  shares of Common  Stock,  at a price per share  less than the lesser of the
Conversion  Price or Current Market Value (as hereinafter  defined) per share of
Common  Stock  and  if  such  rights,   warrants,   options  or  securities  are
exercisable,  convertible or exchangeable  for a period of more than thirty (30)
days after the date of their issuance, the Conversion Price shall be adjusted so
that the same shall equal the price  determined by  multiplying  the  Conversion
Price in effect  immediately  prior to the  issuance of such  rights,  warrants,
options or securities by a fraction,  the numerator of which shall be the number
of shares of Common  Stock  outstanding  at the close of business on the date of
issuance of such  rights,  warrants,  options or  securities  plus the number of
shares which the aggregate  exercise  price of the shares of Common Stock called
for  by  all  such  rights,  warrants,  options  or  securities  (excluding  any
theretofore  exercised,  converted or exchanged)  would purchase at such Current
Market  Value  and the  denominator  of which  shall be the  number of shares of
Common  Stock  outstanding  at the close of  business on the date of issuance of
such  rights,  warrants,  options or  securities  plus the number of  additional
shares of Common  Stock  called  for by all such  rights,  warrants,  options or
securities (excluding any theretofore exercised,  converted or exchanged).  Such
adjustment  shall be made on the date that such rights,  warrants or options are
issued.  For the purposes of this Section 4(f),  the "Current  Market Value" per
share of Common  Stock on any date shall be deemed to be the average of the last
sale price on each of the twenty (20) consecutive  trading days commencing forty
(40)  trading  days before  such date.  A trading  day,  for the purpose of this
resolution,  is a day on which  securities are traded on the Nasdaq Stock Market
or, if the Common Stock is then listed on any national stock  exchange,  on such
exchange.

                           (iii)    Whenever  the   Corporation   shall  make  a
distribution  to holders of Common  Stock of evidences  of its  indebtedness  or
assets  (excluding  dividends  and  distributions  paid  in  cash  out of  funds
available for dividends in accordance with applicable law), the Conversion Price
immediately  prior to such  distribution  shall be adjusted by multiplying  such
Conversion  Price  by a  fraction,  (y) the  numerator  of  which  shall  be the
denominator,  hereinbelow  described,  less  the  fair  value  (as  conclusively
determined  in good faith by the Board of Directors of the  Corporation)  at the
time of such  distribution  of that portion of the evidences of  indebtedness or
assets distributed which is applicable to one share of Common Stock, and (z) the
denominator of which shall be the Current Market Value per share of Common Stock
on the next full business day after the record date fixed for the  determination
of the  holders  of  the  Common  Stock  entitled  to  such  distribution.  Such
adjustment shall be retroactively  effective as of immediately after such record
date.

                  (g)      Notwithstanding  any of the  foregoing  provisions of
this  Section 4, no  adjustment  of the  Conversion  Price  shall be made if the
Corporation shall issue rights, warrants or options to purchase Common Stock, or
issue Common Stock,  pursuant to one or more stock purchase plans,  stock option
plans,  stock  purchase  contracts,   incentive  compensation  plans,  or



                                      B-5
<PAGE>

other remuneration plans for employees  (including  officers) or any shareholder
rights plan of the  Corporation or its  Subsidiaries  adopted or approved by the
Board of  Directors  of the  Corporation  before or after the  adoption  of this
resolution.

                  (h)      In any case in which this Section 4 provides  that an
adjustment  of  the  Conversion  Price  shall  become  effective   retroactively
immediately  after a record  date for an event,  the Company may defer until the
occurrence  of such  event  issuing  to the  holder  of any  shares  of Series A
Preferred  Stock  converted  after such record date and before the occurrence of
such event that number of shares of Common Stock  issuable upon such  conversion
that shall be in  addition  to the number of shares of Common  Stock  which were
issuable  upon  such  conversion   immediately  before  the  adjustment  in  the
conversion price required in respect of such event.

                  (i)      Anything   in  this   Section   4  to  the   contrary
notwithstanding,  no adjustment in the Conversion Price shall be required unless
such  adjustment  would require an increase or decrease of at least $.25 in such
price; provided, however, that any adjustments which by reason of this paragraph
(h) are not required to be made shall be carried  forward and taken into account
in making subsequent adjustments. All calculations under this Section 4 shall be
made to the nearest cent.

                  (j)      Whenever the Conversion Price and subsequent  changes
to be made  therein are  adjusted  pursuant to this  Section 4, the  Corporation
shall (i) promptly  place on file at its  principal  office and at the office of
each  transfer  agent for the Series A  Preferred  Stock,  if any, a  statement,
signed by the  Chairman or President of the  Corporation  and by its  Treasurer,
showing in detail the facts  requiring such  adjustment and a computation of the
adjusted   Conversion  Price,  and  shall  make  such  statement  available  for
inspection by  shareholders  of the  Corporation,  and (ii) cause a notice to be
mailed to each holder of record of the outstanding  shares of Series A Preferred
Stock stating that such  adjustment has been made and setting forth the adjusted
Conversion  Price.  Unless  the  change in the  Conversion  Price is caused as a
result of action  described in subparagraph (i) of paragraph (e) of this Section
4, it shall be accompanied by a letter from the Corporation's independent public
accountants  stating  that the  change  has  been  made in  accordance  with the
provisions of this resolution.

                  (k)      In the event of any merger, share exchange or similar
transaction to which the  Corporation  is a party,  except (i) a merger in which
the  Corporation is the surviving  corporation or (ii) a share exchange in which
the Corporation's shares are issued to shareholders of another corporation,  the
plan of merger, plan of share exchange or comparable document shall provide that
each share of Series A Preferred Stock then outstanding  shall be converted into
or exchanged  for the kind and amount of stock,  other  securities  and property
receivable upon such merger,  share exchange or similar  transaction by a holder
of the number of shares of Common Stock of the Corporation into which such share
of Series A Preferred Stock might have been converted immediately prior thereto.

                  (l)      Shares of Common Stock issued on conversion of shares
of Series A  Preferred  Stock  shall be issued as fully paid shares and shall be
nonassessable by the Corporation.  The Corporation shall, at all times,  reserve
and  keep  available  for  the  purpose  of  effecting  the  conversion  of  the
outstanding  shares  of  Series  A  Preferred  Stock  such  number  of its



                                      B-6
<PAGE>

duly  authorized  shares of Common  Stock as shall be  sufficient  to effect the
conversion of all outstanding shares of Series A Preferred Stock.

                  (m)      Shares  of  Series A  Preferred  Stock  converted  as
provided herein shall not thereafter be reissued as shares of Series A Preferred
Stock, but, upon issuance by the State Corporation Commission of Virginia or any
successor  thereof of a certificate of reduction or document of similar  effect,
such shares shall become authorized and unissued shares of Preferred Stock which
may be  designated  as shares  of any  other  series.  No  additional  shares of
Preferred Stock, however, may be classified as Series A Preferred Stock.

         5.       Redemption.

                  (a)      The Corporation  may, at its option at any time after
December 31, 2020 and from time to time thereafter, redeem all or any portion of
the  outstanding  shares of Series A Preferred  Stock at a  redemption  price of
$5.00 per  share,  plus in each case  Dividends  Accrued  to the date  fixed for
redemption.  Additionally and at the same redemption  price, the Corporation may
redeem all or any portion of the Series A Preferred Stock after a merger,  share
exchange or similar  transaction to which the Corporation is a party is approved
by the holders of the Common  Stock and not  approved by holders of the Series A
Preferred  Stock;  provided such  transaction is submitted to the holders of the
Series A Preferred Stock on terms that are in accordance with Section 4(k); and,
provided  further,  that no redemption may occur and no redemption notice may be
sent before the end of the forty second  (42nd) month  following  the  effective
date of the merger of the  Corporation  and Heritage  Bancorp,  Inc. unless such
notice states that the redemption price will be $5.00 per share,  plus Dividends
Accrued to the date fixed for redemption,  plus an amount equal to all dividends
that would accrue if the Series A Preferred Stock remained outstanding until the
end of the forty second (42nd) month  following the effective date of the merger
of the Corporation and Heritage Bancorp, Inc. and no later.


                  (b)      In case  less than all of the  outstanding  shares of
Series A Preferred Stock are to be redeemed,  not more than 60 days prior to the
date fixed for redemption the Corporation shall select the shares to be redeemed
by  prorating  the total  number of shares to be so  redeemed  among all holders
thereof in proportion,  as nearly as may be, to the number of shares  registered
in their respective names, by lot or in such other equitable manner as the Board
of Directors may determine.  The Corporation in its discretion may determine the
particular  certificates  (if  there  are more  than  one)  representing  shares
registered in the name of a holder which are to be redeemed.

                  (c)      Not less than  thirty  (30) nor more than  sixty (60)
days prior to the date fixed for any  redemption  pursuant to  paragraph  (a) of
this Section 5, notice of redemption shall be given by first class mail, postage
prepaid,  to the  holders  of  record  of the  outstanding  shares  of  Series A
Preferred  Stock  to be  redeemed  at  their  last  addresses  as  shown  by the
Corporation's  stock transfer records.  The notice of redemption shall set forth
the  number  of shares  to be  redeemed,  the date  fixed  for  redemption,  the
applicable  redemption price  (including the amount of Dividends  Accrued to the
date  fixed  for  redemption),  and  the  place  or  places  where  certificates
representing  shares to be redeemed  may be  surrendered.  In case less than all



                                      B-7
<PAGE>

outstanding  shares are to be redeemed,  the notice of redemption shall also set
forth the numbers of the certificates representing shares to be redeemed and, in
case  less  than  all  shares  represented  by any  such  certificate  are to be
redeemed, the number of shares represented by such certificate to be redeemed.

                  (d)      When a notice of redemption of any outstanding shares
of Series A Preferred Stock shall have been duly mailed as hereinabove provided,
on or before the date fixed for redemption the Corporation shall deposit in cash
funds sufficient to pay the redemption price (including Dividends Accrued to the
date  fixed for  redemption)  of such  shares in trust  for the  benefit  of the
holders of the shares to be redeemed  with any bank or trust company in the City
of Richmond, State of Virginia,  having capital and surplus aggregating at least
$50,000,000 as of the date of its most recent report of financial  condition and
named in such notice,  to be applied to the  redemption  of the shares so called
for redemption  against  surrender of the  certificates  representing  shares so
redeemed for  cancellation.  Except as set forth in Section 4(a), from and after
the time of such deposit all shares for the  redemption  of which such  deposits
shall have been so made shall,  whether or not the  certificates  therefor shall
have been  surrendered for  cancellation,  be deemed no longer to be outstanding
for any purpose and all rights with respect to such shares shall thereupon cease
and  determine  except the right to  receive  payment  of the  redemption  price
(including  Dividends  Accrued to the date fixed for  redemption),  but  without
interest.  Any interest  accrued on such funds shall be paid to the  Corporation
from time to time.

                  (e)      The Corporation  shall also have the right to acquire
outstanding  shares of Series A Preferred  Stock  otherwise  than by redemption,
pursuant to this Section 5, from time to time, for such  consideration as may be
acceptable  to the holders  thereof;  provided,  however,  that if all Dividends
Accrued on all  outstanding  shares of Series A  Preferred  Stock shall not have
been declared and paid or declared and a sum sufficient for the payment  thereof
set apart neither the Corporation nor any Subsidiary shall so acquire any shares
of such series except in accordance with a purchase offer made on the same terms
to all the holders of the outstanding shares of Series A Preferred Stock.

                  (f)      Shares  of  Series  A  Preferred  Stock  redeemed  or
otherwise  acquired by the  Corporation  shall not  thereafter be disposed of as
shares of Series A Preferred Stock,  but, upon issuance by the State Corporation
Commission  of Virginia or successor  thereof of a  Certificate  of Reduction or
document of similar  effect,  such shares shall become  authorized  and unissued
shares of Preferred Stock which may be designated as shares of any other series.
No additional shares of preferred stock,  however, may be classified as Series A
Preferred Stock.

         6.       Definitions

                  For the purposes of this resolution, the following terms shall
have the following meanings:

                  "Capital Stock" means the Capital Stock of any class or series
(however designated) of the Corporation.



                                      B-8
<PAGE>

                  "Common  Stock"  means  the  Common  Stock of the  Corporation
($1.00 par value) as  constituted on the date of this  Resolution,  or shares of
any other class of Capital  Stock into which such Common  Stock is  reclassified
after such date.

                  "Dividends  Accrued"  means an amount  equal to the sum of all
dividends required to be paid on the shares of Series A Preferred Stock from the
date of issue of the shares of Series A Preferred Stock to the date to which the
determination  is to be made,  whether  or not such  amount or any part  thereof
shall have been  declared as dividends  and whether  there shall be or have been
any funds out of which such dividends  might legally be paid, less the amount of
dividends  declared and paid and, if any  dividends  have been  declared and set
apart for payment but not paid,  the amount so set apart for the payment of such
dividends.  Accrued  Dividends for any period less than a full calendar  quarter
shall be  calculated  on the basis of the actual  number of days  elapsed over a
360-day year.

                  "Junior Stock" means any Capital Stock ranking as to dividends
and as to rights in liquidation, dissolution or winding up of the affairs of the
Corporation junior to the Series A Preferred Stock.

                  "Parity Stock" means shares of any series of the Corporation's
Preferred  Stock and any shares of Capital Stock ranking as to dividends  and/or
as to the rights in liquidation, dissolution or winding up of the affairs of the
Corporation equally with the Series A Preferred Stock.

                  "Prior  Stock" means any Capital Stock ranking as to dividends
or as to rights in liquidation,  dissolution or winding up of the affairs of the
Corporation prior to the Series A Preferred Stock.

                  "Subsidiary"   means  any  corporation,   a  majority  of  the
outstanding  voting  stock of which is owned,  directly  or  indirectly,  by the
Corporation or by the Corporation and one or more Subsidiaries.

                                        CARDINAL FINANCIAL CORPORATION


                                        By:___________________________________
                                                       President


                                        By:___________________________________
                                                       Secretary






                                      B-9
<PAGE>






                      [This page intentionally left blank]



<PAGE>

                                                                       EXHIBIT C
                                                            to the Agreement and
                                                          Plan of Reorganization



         Section 2.3.  Election of Directors.  The Directors shall be elected at
the annual  meeting of  shareholders,  and shall hold their  offices until their
successors  are  elected  in  accordance  with the  Articles  of  Incorporation.
Nominations  for the election of Directors shall be given in the manner provided
in  Section  2.5.  At the  annual  meeting of  shareholders  in 2001,  Harold E.
Lieding, or an individual designated by Directors who formerly were directors of
Heritage Bancorp, Inc., shall be nominated for election to a three-year term. At
the annual meeting of  shareholders  in 2002,  Kevin B. Tighe,  or an individual
designed by Directors who formerly  were  directors of Heritage  Bancorp,  Inc.,
shall be nominated for election to a three-year  term. At the annual  meeting of
shareholders in 2003, George P. Shafran or an individual designated by Directors
who were formerly  directors of Heritage  Bancorp,  Inc.  shall be nominated for
election to a three-year term. If the seat held by any of Messrs. Lieding, Tighe
or Shafran  becomes  vacant,  the Board shall appoint a successor  chosen by the
Directors who formerly were  directors of Heritage  Bancorp,  Inc.  Prior to the
annual meeting of  shareholders in 2003, this Section 2.3 may be amended only by
the unanimous vote of the entire Board of Directors.








                                      C-1
<PAGE>

                                                                       EXHIBIT D
                                                            to the Agreement and
                                                          Plan of Reorganization

                                    AGREEMENT


         THIS  AGREEMENT  is made by and among  Cardinal  Financial  Corporation
("Cardinal"),  Heritage Bancorp, Inc.  ("Heritage"),  Heritage Bank (the "Bank")
and Terrie G. Spiro ("Spiro") this ___ day of April, 2000.

                                    RECITALS

         1.       Spiro is the President and Chief Executive Officer of Heritage
and its wholly-owned subsidiary, the Bank.

         2.       Spiro,   Bank  and  Heritage  are  parties  to  an  employment
agreement, dated October 1, 1999 (the "Employment Agreement").

         3.       Cardinal and Heritage  have entered into an Agreement and Plan
of Reorganization of even date herewith ("Merger Agreement"), which provides for
the merger of Heritage with and into Cardinal (the "Merger").

         4.       Cardinal,  Heritage,  the Bank and Spiro  desire to enter into
this  agreement  in order to clearly  define  Spiro's  rights and  Cardinal's  ,
Heritage's  and the Bank's  obligations  under the  Employment  Agreement if the
Merger is consummated.

         NOW, THEREFORE,  in consideration of the premises,  the mutual promises
contained  herein and other good and  valuable  consideration,  the  receipt and
sufficiency  of which are  hereby  acknowledged,  the  parties  hereby  agree as
follows:

                  1.       Effectiveness.  This  Agreement  shall  be  effective
immediately, provided that in the event that (i) the Merger Agreement terminates
prior to the vote of the  Heritage



                                       D-1
<PAGE>

stockholders  with  respect to the Merger or (ii) the  stockholders  of Heritage
fail to  approve  the  Merger,  then  this  Agreement  shall be null and void ab
initio.

                  2.       Payment.  Heritage agrees to pay Spiro $360,000, less
the amount  attributable to the acceleration of Spiro's  Anniversary Options (as
defined in Section 3.5 of the Employment Agreement) that constitutes a parachute
payment  under  Section  280G of the Internal  Revenue Code of 1986,  as amended
("Section 280G"),  less one dollar ($1.00), no later than two days following the
date on which the  stockholders  of Heritage  approve the Merger (the  "Approval
Date"). Cardinal  unconditionally  guarantees Heritage's full and prompt payment
of the  amounts  set forth in this  Section 2. Spiro will  forfeit all rights to
payment under this Agreement and Section 5.2 of the Employment  Agreement if she
terminates  her employment  voluntarily  and without "Just Cause" (as defined in
the Employment Agreement) before the Approval Date.

                  3.       Continuation  of  Employment.   From  and  after  the
Approval Date, Spiro will be an at will employee of Heritage and the Bank. Spiro
agrees that she will not resign until the earlier of (i)  September  30, 2000 or
(ii) the effective  date of the Merger.  Spiro's  employment  after the Approval
Date shall be governed by the terms of the  Employment  Agreement,  except that,
after the payment referred to in Section 2 above, Sections 4 and 5 thereof shall
no longer be applicable and have no further force or effect.

                  4.       Stock Options.  In accordance with Section 5.1 of the
Merger  Agreement,  all options to purchase Heritage common stock that have been
granted to Spiro  heretofore  will vest and become options to purchase  Cardinal
common stock and will be exercisable  in accordance  with the terms of the stock
option plan and stock option  agreements  under which such options were granted.
The number of  additional  options  that may be awarded to Spiro as a



                                      D-2
<PAGE>

"Long Term  Performance  Bonus" under  Section 3.3 of the  Employment  Agreement
shall be  calculated  as if the fair market  value of the  underlying  shares is
equal to the  "conversion  price,"  as  defined  in  Section  4(a) of Annex I to
Exhibit A of the Merger Agreement.

                  5.       No  Other   Parachute   Benefits.   Upon  payment  by
Heritage, the cash payment to be made to Spiro under Section 2 of this Agreement
and the stock options  described in Section 4 of this  Agreement will be in lieu
of all  other  rights  to  money,  benefits  or any  other  thing of value  from
Cardinal,  Heritage or Heritage Bank to which Spiro  otherwise might be entitled
and that would be considered a "parachute  payment"  under Section 280G,  all of
which Spiro waives.

                  6.       Nondisclosure   and   Nonsolicitation.   (a)   Spiro,
Heritage,  the Bank and  Cardinal  agree  that upon the  termination  of Spiro's
employment and thereafter,  Section 6.1 of the Employment  Agreement will remain
in full force and effect.  Upon the termination of Spiro's  employment,  Section
6.2 of the  Employment  Agreement  shall no  longer  be  applicable  and have no
further force or effect with respect to her employment.

                  (b)      From the date of this  Agreement  and for six  months
after the  termination  of Spiro's  employment  for any reason,  Spiro will not,
directly  or  indirectly,  on  behalf of Spiro or any  other  person or  entity,
solicit or induce,  or attempt to solicit or induce,  any person employed by the
Bank on the date of this Agreement or immediately prior to Spiro's  termination,
to  terminate  his or her  relationship  with the Bank  and/or to enter  into an
employment or agency  relationship with Spiro or with any other person or entity
with whom Spiro is affiliated.

                  (c)      From the date of this  Agreement  and for six  months
after the  termination  of Spiro's  employment  for any  reason,  Spiro will not
directly or indirectly  provide  Competitive  Services (as defined below) to any
Customer (as defined below),  directly or indirectly,  on behalf



                                      D-3
<PAGE>

of Spiro or any other  person or entity,  solicit  or divert  away or attempt to
solicit or divert  away any  Customer  of the Bank for the purpose of selling or
providing Competitive  Services,  provided the Bank is then still engaged in the
sale or provision of Competitive Services to such Customer.

                  For purposes of this Agreement,  the term "Customer" means any
individual or entity to whom or to which the Bank provided  Competitive Services
between March 31, 1999 and the termination of Spiro's employment with the Bank.

                  For purposes of this Agreement,  "Competitive  Services" means
the banking  services of the type that the Bank  provides as of the date of this
Agreement.

                  (d)      Spiro agrees that the covenants in this Section 6 are
reasonably  necessary  to protect  the  legitimate  interests  of the Bank,  are
reasonable  in scope and time and are  necessary  to protect the Bank and do not
interfere  with the  interests  of the  public.  Spiro  further  agrees that the
descriptions  of the  covenants  contained  in this  Section 6 are  sufficiently
accurate and definite to inform  Spiro of the scope of the  covenants.  Finally,
Spiro agrees that the  consideration  set forth in the Merger  Agreement  and in
this  Agreement  is full,  fair and  adequate  to  support  Spiro's  obligations
hereunder and the Bank's rights  hereunder  before and after the  termination of
Spiro's  employment.  Spiro acknowledges that in the event Spiro's employment is
terminated  for any  reason,  Spiro  will be able to earn a  livelihood  without
violating such  covenants.  The parties  intend that the covenants  contained in
this Section 6 to be completely severable and independent, and any invalidity or
unenforceability  of any one or more such  covenants  will not render invalid or
unenforceable any one or more of the other covenants.  The parties further agree
that, if the scope or enforceability  of a covenant  contained in this Section 6
is in any way  disputed  at any time,  a court or other trier of fact may modify
and reform such  provision to substitute  such other terms as are  reasonable to
protect the Corporation's legitimate business interests.



                                      D-4
<PAGE>

                  The  parties  hereto  agree that in the event of any breach by
Spiro of any of the provisions of Section 6 that monetary damages alone will not
adequately  compensate the Bank for its losses and, therefore,  that it shall be
entitled to any and all legal or equitable relief available to it,  specifically
including, but not limited to, injunctive relief.

                  7.       Benefit of Counsel.  Spiro  acknowledges  that she is
entering into this  agreement  freely and  voluntarily  and on the advice of her
counsel.

                  8.       Fees  of  Spiro's  counsel.  Upon  execution  of this
Agreement,  Cardinal  agrees  to  reimburse  Spiro  $7,500.00  for the  fees and
expenses of her counsel in connection with the negotiation and execution of this
Agreement.

                  9.       Assumption. This Agreement satisfies the requirements
of Section 7.1 of the Employment Agreement.



                                             _____________________________(SEAL)
                                             Terrie G. Spiro


                                             CARDINAL FINANCIAL CORPORATION


                                             By:__________________________(SEAL)
                                             Its:       President


                                             HERITAGE BANCORP, INC.


                                             By:__________________________(SEAL)
                                             Its:       Chairman


                                             HERITAGE BANK


                                             By:__________________________(SEAL)
                                             Its:       Chairman





                                      D-5
<PAGE>

                                                                      Appendix B

                         CARDINAL FINANCIAL CORPORATION
                                AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
<S>                                                                                                      <C>
Independent Auditors' Report                                                                                     B-2

Consolidated Financial Statements

     Statements of Condition as of December 31, 1999 and 1998                                                    B-3

     Statements of Operations for the years ended December 31, 1999 and 1998                                     B-4

     Statements of Comprehensive Income (Loss) for the years ended December 31,
          1999 and 1998                                                                                          B-5

     Statements of Changes in Shareholders' Equity for the years ended December 31,
          1999 and 1998                                                                                          B-6

     Statements of Cash Flows for the years ended December 31, 1999 and 1998                                     B-7

Notes to Consolidated Financial Statements                                                                B-8 - B-22


Consolidated Interim Financial Statements

     Statements of Condition as of March 31, 2000 and December 31, 1999                                         B-24

     Statements of Operations for the three months ended March 30, 2000 and 1999                                B-25

     Statements of Comprehensive Income (Loss) for the three months ended March 31,
          2000 and 1999                                                                                         B-26

     Statements of Changes in Shareholders' Equity for the three months ended March
          31, 2000                                                                                              B-27

     Statements of Cash Flows for the three months ended March 31, 2000 and 1999                                B-28

Notes to Consolidated Interim Financial Statements                                                       B-29 - B-31

</TABLE>


<PAGE>




                          Independent Auditors' Report


The Board of Directors and Shareholders
Cardinal Financial Corporation and subsidiaries:


We have  audited  the  accompanying  consolidated  statements  of  condition  of
Cardinal Financial Corporation and subsidiaries (the Company) as of December 31,
1999  and  1998,  and  the  related   consolidated   statements  of  operations,
comprehensive income (loss), changes in shareholders' equity, and cash flows for
the  years  then  ended.  These  consolidated   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Cardinal Financial
Corporation  and  subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.


/s/ KPMG LLP


McLean, Virginia
January 20, 2000



                                      B-2
<PAGE>

                 CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
                      Consolidated Statements of Condition
                           December 31, 1999 and 1998
                                 (In thousands)
<TABLE>
<CAPTION>
                                    Assets                                              1999                1998
                                                                                  -----------------   -----------------
<S>                                                                             <C>                 <C>
Cash & due from banks                                                           $         6,018     $         1,073
Federal funds sold                                                                       13,025              24,277
                                                                                  -----------------   -----------------
                   Total cash and cash equivalents                                       19,043              25,350

Investment securities available-for-sale (Note 3)                                         4,807              13,477
Other investments (Note 3)                                                                1,015                 220
Loans receivable, net of fees (Note 4)                                                   68,167              16,327
Allowance for loan losses (Note 4)                                                         (726)               (212)
                                                                                  -----------------   -----------------
                                                                                         67,441              16,115
Premises and equipment, net (Note 5)                                                      4,203               1,829
Accrued interest and other assets                                                           524                 304
                                                                                  -----------------   -----------------
                   Total assets                                                 $        97,033     $        57,295
                                                                                  =================   =================
                     Liabilities and Shareholders' Equity
Deposits (Note 6)                                                               $        59,873     $        21,867
Borrowings (Note 7)                                                                       6,000                 --
Accrued interest and other liabilities                                                      415                 700
                                                                                  -----------------   -----------------
                   Total liabilities                                                     66,288              22,567
Common stock, $1 par value, 50,000,000 shares authorized,
    shares outstanding 4,242,634 in 1999 and 4,239,509 in 1998                            4,243               4,240
Additional paid in capital                                                               32,496              32,327
Accumulated deficit                                                                      (5,881)             (1,842)
Accumulated other comprehensive income (loss)                                              (113)                  3
                                                                                  -----------------   -----------------
                   Total shareholders' equity                                            30,745              34,728
                                                                                  -----------------   -----------------
                   Total liabilities and shareholders' equity                   $        97,033     $        57,295
                                                                                  =================   =================
See accompanying notes to consolidated financial statements.
</TABLE>



                                       B-3
<PAGE>

                 CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
                      Consolidated Statements of Operations
                     Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
                                                                                        1999                1998
                                                                                  -----------------   -----------------
<S>                                                                              <C>                 <C>
Interest income:
    Loans receivable                                                             $    2,660,851      $      178,697
    Federal funds sold                                                                1,234,273           1,061,815
    Investment securities                                                               405,604             308,131
    Other investments                                                                    28,902               7,928
                                                                                  -----------------   -----------------
                   Total interest income                                              4,329,630           1,556,571
Interest expense:
    Deposits (Note 6)                                                                 1,206,882             338,608
    Borrowings                                                                           98,036               1,616
                                                                                  -----------------   -----------------
                   Total interest expense                                             1,304,918             340,224
                                                                                  -----------------   -----------------
                   Net interest income                                                3,024,712           1,216,347
Provision for loan losses (Note 4)                                                      513,847             212,460
                                                                                  -----------------   -----------------
                   Net interest income after provision for loan losses                2,510,865           1,003,887
Non-interest income:
    Service charges on deposit accounts                                                  41,612               3,388
    Loan service charges                                                                226,211              16,145
    Investment fee income                                                             1,017,924                 --
    Gains from sale of securities                                                         4,207               8,760
    Other income                                                                         30,531               5,744
                                                                                  -----------------   -----------------
                   Total non-interest income                                          1,320,485              34,037
Non-interest expense:
    Salary and benefits                                                               4,277,231           1,401,117
    Occupancy                                                                           811,578             151,583
    Professional fees                                                                   494,472             463,497
    Depreciation                                                                        356,435             106,653
    Other operating expenses (Note 17)                                                1,930,353             611,419
                                                                                  -----------------   -----------------
                   Total non-interest expense                                         7,870,069           2,734,269
                                                                                  -----------------   -----------------
                   Net loss before income taxes                                      (4,038,719)         (1,696,345)
Provision for income taxes (Note 8)                                                          --                  --
                                                                                  -----------------   -----------------
                   Net loss                                                      $   (4,038,719)     $   (1,696,345)
                                                                                  =================   =================
Basic and diluted loss per share                                                 $        (0.95)     $        (0.64)
                                                                                  =================   =================
Weighted-average shares outstanding                                                   4,240,819           2,646,036
                                                                                  =================   =================
See accompanying notes to consolidated financial statements.
</TABLE>



                                       B-4
<PAGE>

                 CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
             Consolidated Statements of Comprehensive Income (Loss)
                     Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
                                                                                        1999                1998
                                                                                  -----------------   -----------------
<S>                                                                              <C>                 <C>
Net loss                                                                         $      (4,038,719)  $      (1,696,345)
Other comprehensive income (loss):
    Unrealized holding gain (loss) on available-for-sale
       investment securities, net of tax                                                  (115,491)              2,605
                                                                                  -----------------   -----------------
                   Comprehensive loss                                            $      (4,154,210)  $      (1,693,740)
                                                                                  =================   =================
</TABLE>

See accompanying notes to consolidated financial statements.





                                       B-5
<PAGE>
                 CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
           Consolidated Statements of Changes in Shareholders' Equity
                     Years ended December 31, 1999 and 1998
                      (In thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                               Accumulated
                                                                      Additional                  Other      Uncollected
                                                            Common      Paid-in   Accumulated Comprehensive  Subscription
                                                  Shares    Stock       Capital     Deficit   Income (Loss)   Receivable    Total
                                                --------- ---------- ------------ ----------- -------------- ------------ ---------
<S>                                                <C>    <C>          <C>         <C>          <C>           <C>         <C>
Balance, December 31, 1997                         1,175  $    1,175   $    7,621  $    (145)   $      --     $    (100)  $  8,551
Issuance of 235 shares of common stock
    at $7.50 per share, net of costs                 235         235        1,525        --            --           --       1,760
Issuance of 2,830 shares of common stock
    at $10.00 per share, net of costs              2,830       2,830       23,181        --            --           --      26,011
Payment of subscription receivable                   --          --           --         --            --           100        100
Change in unrealized holding gain (loss) on
    investment securities available-for-sale         --          --           --         --              3          --           3
Net loss                                             --          --           --      (1,697)          --           --      (1,697)
                                                --------- ---------- ------------ ----------- -------------- ------------ ---------
Balance, December 31, 1998                         4,240       4,240       32,327     (1,842)            3          --      34,728

Issuance of stock awards                               3           3           19        --            --           --          22
Reversal of accrued cost related to public
    offering                                         --          --           138        --            --           --         138
Accrual of stock award                               --          --            12        --            --           --          12
Change in unrealized holding gain (loss) on
    investment securities available-for-sale,
    net of tax                                       --          --           --         --           (116)         --        (116)
Net loss                                             --          --           --      (4,039)          --           --      (4,039)
                                                --------- ---------- ------------ ----------- -------------- ------------ ---------
Balance, December 31, 1999                         4,243  $    4,243   $   32,496  $  (5,881)   $     (113)   $     --    $ 30,745
                                                ========= ========== ============ =========== ============== ============ =========
</TABLE>


See accompanying notes to consolidated financial statements.




                                       B-6
<PAGE>

                 CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                     Years ended December 31, 1999 and 1998
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                         1999                1998
                                                                                   -----------------   -----------------
Cash flows from operating activities:
<S>                                                                               <C>                 <C>
    Net loss                                                                      $          (4,039)  $          (1,697)
    Adjustments to reconcile net loss to net cash used in operating
       activities:
          Depreciation                                                                          356                 107
          Amortization of premium                                                                13                  --
          Provision for loan losses                                                             514                 212
          Gain on sale of securities                                                             (4)                 (9)
          Increase in accrued interest and other assets                                        (220)               (301)
          Increase (decrease) in accrued interest and other liabilities                        (227)                640
          Non-cash charges for issuance of stock award                                           22                  --
          Compensation related to stock awards                                                   12                  --
                                                                                   -----------------   -----------------
                   Net cash used in operating activities                                     (3,573)             (1,048)
                                                                                   -----------------   -----------------
Cash flows from investing activities:
    Purchase of premises and equipment                                                       (2,730)             (1,936)
    Proceeds from sale of securities                                                          7,722               3,460
    Purchase of securities                                                                     (850)            (17,379)
    Redemptions of available-for-sale                                                           820                 234
    Net increase in loan portfolio                                                          (51,840)            (16,327)
                                                                                   -----------------   -----------------
                   Net cash used in investing activities                                    (46,878)            (31,948)
                                                                                   -----------------   -----------------
Cash flows from financing activities:
    Net increase in deposits                                                                 38,006              21,867
    Proceeds from stock issuance, net                                                            --              27,871
    Decrease in subscription receivables                                                         --               4,510
    Proceeds (repayment)  of short-term borrowings                                            6,000                (185)
    Reversal of accrued costs related to public offering                                        138                  --
                                                                                   -----------------   -----------------
               Net cash provided by financing activities                                     44,144              54,063
                                                                                   -----------------   -----------------
Net increase (decrease) in cash and cash equivalents                                         (6,307)             21,067
Cash and cash equivalents at beginning of period                                             25,350               4,283
                                                                                   -----------------   -----------------
Cash and cash equivalents at end of period                                        $          19,043   $          25,350
                                                                                   =================   =================
Supplemental disclosure of cash flow information
    Cash paid during period for interest:                                         $           1,259   $             341
                                                                                   =================   =================
</TABLE>

See accompanying notes to consolidated financial statements.



                                       B-7

<PAGE>

                CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


(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.  In addition to Cardinal Bank, N.A. which began  operations
       in 1998, the Company  opened the following  three  subsidiaries  in 1999,
       Cardinal Wealth Services,  Inc. an investment  subsidiary (as of February
       1, 1999),  Cardinal Bank - Manassas/Prince  William, N.A. (as of July 26,
       1999), and Cardinal Bank - Dulles, N.A. (as of August 2, 1999).


(2)    Summary of Significant Accounting Policies

       (a)    Use of Estimates

              The  preparation  of  financial   statements  in  conformity  with
              generally accepted  accounting  principles  requires management to
              make estimates and assumptions that affect the reported amounts of
              assets and liabilities  and  disclosures of contingent  assets and
              contingent  liabilities at the date of the consolidated  financial
              statements  and the  reported  amounts of  revenues  and  expenses
              during the  reporting  period.  Actual  results  could differ from
              those estimates.

       (b)    Principles of Consolidation

              The consolidated  financial statements include the accounts of the
              Company  and  its  subsidiaries.   All  significant   intercompany
              transactions and balances have been eliminated in consolidation.

       (c)    Cash and Cash Equivalents

              For the purpose of presentation in the consolidated  statements of
              cash flows,  the Company has defined cash and cash  equivalents as
              those amounts  included in cash, due from banks, and Federal funds
              sold.

       (d)    Investment Securities

              The Company  classifies its debt and marketable  equity securities
              in one of two categories:  available-for-sale or held-to-maturity.
              Held-to-maturity  securities  are those  securities  for which the
              Company  has the ability  and intent to hold until  maturity.  All
              other securities not classified as trading or held-to-maturity are
              classified as available-for-sale.

              Available-for-sale   securities   are   recorded  at  fair  value.
              Unrealized   holding   gains   and   losses,   net  of   tax,   on
              available-for-sale  securities are reported in other comprehensive
              income (loss).

              Gains and losses on the sale of securities  are  determined  using
              the specific  identification method. Declines in the fair value of
              individual  held-to-maturity  and  available-for-sale   securities
              below their cost that are deemed other than  temporary are charged
              to earnings as realized losses,  resulting in the establishment of
              a new cost basis for the security.


                                      B-8
<PAGE>

                CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998

              Premiums and discounts are recognized in interest income using the
              effective interest method over the period to maturity.  Prepayment
              of the mortgages securing the collateralized  mortgage obligations
              may affect the maturity  date and yield to  maturity.  The Company
              uses actual  principal  prepayment  experience  and  estimates  of
              future principal prepayments in calculating the yield necessary to
              apply the effective interest method.

       (e)    Loans Receivable

              Loans  receivable  that  management  has the intent and ability to
              hold for the  foreseeable  future or until maturity or pay-off are
              reported at their  outstanding  principal balance adjusted for any
              charge-offs,  and net of the  allowance  for loan  losses  and any
              deferred fees or costs on originated loans.

              Loan  origination  fees and certain direct  origination  costs are
              capitalized  and  recognized  as an adjustment of the yield of the
              related loan.

              Loans are placed in  nonaccrual  status when they are  past-due 90
              days as to either principal or interest or when, in the opinion of
              management,  the collection of principal and interest is in doubt.
              A loan remains in  nonaccrual  status until the loan is current as
              to payment of both principal and interest or past-due less than 90
              days, and the borrower  demonstrates the ability to pay and remain
              current. Loans are charged-off when a loan or a portion thereof is
              considered uncollectible.

              The Company determines and recognizes  impairment of certain loans
              when based on current  information and events, it is probable that
              the Company will be unable to collect all amounts due according to
              the  contractual  terms  of the  loan  agreement.  A  loan  is not
              considered  impaired  during a period of delay in  payment  if the
              Company  expects to collect all amounts  due,  including  past-due
              interest. An impaired loan is measured at the present value of its
              expected  future  cash flows  discounted  at the loan's  effective
              interest  rate, or at the loan's  observable  market price or fair
              value of the collateral if the loan is collateral dependent. As of
              December 31, 1999 and 1998, the Company had no impaired loans.

              The allowance for loan losses is increased by provisions  for loan
              losses  and  decreased  by   charge-offs   (net  of   recoveries).
              Management's  periodic evaluation of the adequacy of the allowance
              is based on the  Bank's  past  loan  loss  experience,  known  and
              inherent  risks  in the  portfolio,  adverse  situations  that may
              affect the borrower's ability to repay, the estimated value of any
              underlying  collateral,   and  current  economic  conditions.   In
              addition,  various  regulatory  agencies,  as an integral  part of
              their  examination  process,  periodically  review  the  Company's
              allowance  for loan losses.  Such agencies may require the Company
              to recognize  additions to the allowance  based on their judgments
              about  information   available  to  them  at  the  time  of  their
              examination.  Management  believes that the current  allowance for
              loan losses is adequate to absorb  losses that are inherent in the
              current loan portfolio.

       (f)    Premises and Equipment

              Land is  carried  at cost.  Premises,  furniture,  equipment,  and
              leasehold  improvements  are  carried  at cost,  less  accumulated
              depreciation and amortization. Depreciation of premises, furniture
              and  equipment  is computed  using the  straight-line  method over
              their estimated



                                      B-9
<PAGE>

                CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998

              useful  lives  from  3 to  10  years.  Amortization  of  leasehold
              improvements is computed using the  straight-line  method over the
              useful lives of the  improvements or the lease term,  whichever is
              shorter.

       (g)    Investment Fee Income

              Investment fee income represents  commissions paid by customers of
              Cardinal Wealth Services, Inc. for investment  transactions.  Fees
              are recognized into income when received.

       (h)    Income Taxes

              Deferred  tax assets and  liabilities  are  reflected at currently
              enacted  income  tax rates  applicable  to the period in which the
              deferred tax assets or liabilities  are expected to be realized or
              settled. As changes in tax laws or rates are enacted, deferred tax
              assets and  liabilities  are adjusted  through the  provision  for
              income taxes.

       (i)    Net Income Per Share

              Basic and  diluted  loss per common  share is computed by dividing
              net loss by the weighted  average number of shares of common stock
              outstanding   during  the  periods.   Common   stock   equivalents
              outstanding  at December 31, 1999 and 1998 were  antidilutive  and
              consequently not included in the EPS calculation.

       (j)    Stock Option Plan

              The Company applies the intrinsic value-based method of accounting
              prescribed by Accounting  Principles Board ("APB") Opinion No. 25,
              Accounting   for  Stock   Issued   to   Employees,   and   related
              interpretations,  in accounting  for its fixed plan stock options.
              As such,  compensation  expense is  recorded  only if the  current
              market price of the  underlying  stock exceeded the exercise price
              on the date of grant.

       (k)    New Accounting Standards

              In June 1998,  the  Financial  Accounting  Standards  Board (FASB)
              issued  Statement No. 133,  Accounting for Derivative  Instruments
              and Hedging Activities, effective for fiscal years beginning after
              June 15,  1999.  Statement  No.  133  established  accounting  and
              reporting   standards  for  derivative   instruments  and  hedging
              activities and requires that the Company recognize all derivatives
              as assets  or  liabilities  on the  balance  sheet at fair  market
              value.  In June 1999,  the FASB issued  Statement  No. 137,  which
              deferred the  implementation  of Statement No. 133 to fiscal years
              beginning  after June 15, 2000.  As of December 31, 1999 and 1998,
              the Company had no derivative  instruments  or hedging  activities
              and  therefore  does  not  expect  Statement  No.  133 to have any
              material impact on the Company's  financial position or results of
              operations.

       (l)    Reclassifications

              Certain amounts for 1998 have been  reclassified to conform to the
              presentation for 1999.


                                      B-10
<PAGE>

                CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


(3)    Investment Securities and Other Investments

       The fair value and amortized cost of available-for-sale  securities as of
       December 31, 1999 and 1998 are shown below.

<TABLE>
<CAPTION>
                                                                           1999
                                                           -------------------------------------
                                                                 Fair             Amortized
       (In thousands)                                            value               cost
                                                           -----------------   -----------------
<S>                                                       <C>                 <C>
       Obligations of U.S. government-sponsored
           agencies and enterprises                       $        3,373      $        3,499
       Mortgage - backed securities                                1,434               1,479
                                                           -----------------   -----------------
                          Total                           $        4,807      $        4,978
                                                           =================   =================

                                                                           1998
                                                           -------------------------------------
                                                                 Fair             Amortized
       (In thousands)                                            value               cost
                                                           -----------------   -----------------
       Obligations of U.S. government-sponsored
           agencies and enterprises                       $       10,306      $       10,302
       Mortgage - backed securities                                3,171               3,172
                                                           -----------------   -----------------
                          Total                           $       13,477      $       13,474
                                                           =================   =================
</TABLE>

       The fair value and  amortized  cost of  available-for-sale  securities by
       contractual  maturity  at  December  31,  1999 is shown  below.  Expected
       maturities may differ from  contractual  maturities  because many issuers
       have the  right to call or prepay  obligations  with or  without  call or
       prepayment penalties.

<TABLE>
<CAPTION>
                                                                           1999
                                                           -------------------------------------
                                                                 Fair             Amortized
       (In thousands)                                           value                cost
                                                           -----------------   -----------------
<S>                                                       <C>                 <C>
       Maturing within 1 year                             $        2,252      $        2,305
       After 1 year but within 5 years                             1,347               1,368
       After 5 years but within 10 years                             763                 806
       After 10 years                                                445                 499
       Marketable equity securities
                                                           -----------------   -----------------
                          Total                           $        4,807      $        4,978
                                                           =================   =================
</TABLE>

       Gross   realized   gains   and   gross   realized   losses  on  sales  of
       available-for-sale  securities were $13,532 and $9,325, respectively,  in
       1999 and $12,996  and $4,236,  respectively,  in 1998.  Gross  unrealized
       holding losses in the available-for-sale  securities at December 31, 1999
       and 1998 were $171,348 and $13,348, respectively,  while gross unrealized
       holding gains were $309 and $15,953, respectively.

       Other  investments  include $585 thousand of Federal  Reserve Bank stock,
       $346 thousand of Federal Home Loan Bank stock,  $63 thousand of Community
       Bankers' Bank stock and $21 thousand in



                                      B-11
<PAGE>

                CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


       other investments. As members of the Federal Reserve Bank of Richmond and
       Federal Home Loan Bank of Atlanta, the Company's banking subsidiaries are
       required to hold stock in these entities.  Stock  membership in Community
       Bankers'  Bank allows the Company to  participate  in loan  purchases  or
       sales including participations. These stocks are carried at cost since no
       active trading markets exist.

       Securities  available-for-sale  that were  pledged  to secure  short-term
       borrowings had fair values of $2,834,867 at December 31, 1999. There were
       no pledged investment securities as of December 31, 1998.


(4)    Loans Receivable

       The  loan  portfolio  at  December  31,  1999 and  1998  consists  of the
       following:

<TABLE>
<CAPTION>
       (In thousands)                                                                   1999                1998
                                                                                 -----------------  ------------------
<S>                                                                              <C>                <C>
       Commercial                                                                $       22,558     $         5,138
       Real estate - commercial                                                          19,780               3,507
       Real estate - construction                                                           870                 760
       Real estate - residential                                                         11,851               5,529
       Home equity lines                                                                  3,777               1,040
       Consumer                                                                           9,311                 369
                                                                                  -----------------  ------------------
                                                                                         68,147              16,343
       Net deferred loan fees, premiums and discounts                                        20                 (16)
                                                                                  -----------------  ------------------
                          Loans receivable, net of fees                                  68,167              16,327
       Allowance for loan losses                                                           (726)               (212)
                                                                                  -----------------  ------------------
                          Loans receivable, net of fees and allowance            $       67,441      $       16,115
                                                                                  =================  ==================
</TABLE>

       Most of the Company's  loans,  commitments  and standby letters of credit
       have  been  granted  to  customers   located  in  the  Washington,   D.C.
       metropolitan  area. The  concentrations of credit by type of loan are set
       forth above. Cardinal Bank, N.A., Cardinal  Bank-Manassas/Prince William,
       N.A.  and  Cardinal   Bank-Dulles,   N.A.,  as  a  matter  of  regulatory
       restriction,  do not extend credit, net of participated  amounts,  to any
       single  borrower  or group of related  borrowers  in excess of  $855,000,
       $1,004,000, and $975,000, respectively.

       An analysis of the change in the allowance for loan losses follows:
<TABLE>
<CAPTION>
       (In thousands)                                                             1999               1998
                                                                            ----------------   ----------------
<S>                                                                        <C>                <C>
       Balance, beginning of year                                          $          212     $          --
       Provision for loan losses                                                      514                212
       Loans charged off                                                              --                 --
       Recoveries                                                                     --                 --
                                                                            ----------------   ----------------
       Balance, end of year                                                $          726     $          212
                                                                            ================   ================
</TABLE>



                                       B-12
<PAGE>

                CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998

       There were no impaired or nonaccrual loans at December 31, 1999 and 1998,
       or during the years then ended.

(5)    Premises and Equipment

       Components  of  premises  and  equipment  included  in  the  consolidated
       statements of condition at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
                                                                                       1999               1998

                                                                                 -----------------  ------------------
<S>                                                                             <C>                <C>
       Land                                                                     $          197     $            20
       Building                                                                            789                 --
       Furniture and equipment                                                           2,413               1,334
       Leasehold improvements                                                            1,267                 582
                                                                                 -----------------  ------------------
                          Total cost                                                     4,666               1,936
       Less accumulated depreciation and amortization                                      463                 107
                                                                                 -----------------  ------------------
                          Premises and equipment, net                           $        4,203     $         1,829
                                                                                 =================  ==================
</TABLE>

       The Company has entered into leases for office  space over various  terms
       beginning  January  1998.  The leases are subject to annual  increases as
       well as allocations of real estate taxes and certain operating expenses.

       Minimum future rental payments under the noncancelable  operating leases,
       as of  December  31,  1999  for each of the next  five  years  and in the
       aggregate, are as follows:

       Year ending December 31,                                    Amount
                                                              -----------------
       2000                                                  $      720,177
       2001                                                         741,075
       2002                                                         762,288
       2003                                                         784,139
       2004                                                         489,774
       Thereafter                                                 2,997,433
                                                              -----------------
                                                             $    6,494,886
                                                              =================

       The  total  rent  expense  was  $742,179  and  $71,687  in 1999 and 1998,
       respectively.

(6)    Deposits

       Deposits consist of the following at December 31, 1999 and 1998:



                                      B-13
<PAGE>

                CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998

<TABLE>
<CAPTION>
       (In thousands)                                                                    1999                1998
                                                                                   -----------------   -----------------
<S>                                                                               <C>                 <C>
       Demand deposits                                                            $          12,330   $        5,044
       Interest checking                                                                      3,891            1,746
       Money market and statement savings                                                    11,499            3,471
       Certificates of deposit                                                               32,153           11,606
                                                                                   -----------------   -----------------
                                                                                  $          59,873   $       21,867
                                                                                   =================   =================
</TABLE>

       Interest expense by deposit categories is as follows:
<TABLE>
<CAPTION>
                                                              1999                1998
                                                        -----------------   -----------------
<S>                                                    <C>                 <C>
       Interest checking                               $          48,527   $          11,088
       Money market and statement savings                        271,140              87,832
       Certificates of deposit                                   887,215             239,688
                                                        -----------------   -----------------
                                                       $       1,206,882   $         338,608
                                                        =================   =================
</TABLE>

       The aggregate amount of time deposits,  each with a minimum  denomination
       of  $100,000  was   $22,290,439   and   $1,056,580   in  1999  and  1998,
       respectively.

       At December 31, 1999, the scheduled maturities of CDs are as follows:

       (In thousands)
       2000                                            $       11,906
       2001                                                    17,195
       2002                                                     1,851
       2003                                                       299
       2004 and thereafter                                        902
                                                        -----------------
                                                       $       32,153
                                                        =================

(7)    Borrowings

       The  Company has  obtained  advances  from the Federal  Home Loan Bank of
       Atlanta  in the  amount  of $6.0  million  in 1999.  The  Company  had no
       advances in 1998. As of December 31, 1999,  the Company had the following
       advances outstanding:
<TABLE>
<CAPTION>

                                                                                                           Amount
            Advance Date           Interest Rate            Term of Advance            Date Due         Outstanding
       -----------------------  ---------------------   -------------------------   ---------------   -----------------
<S>                                            <C>             <C>                     <C>           <C>
             12/09/99                          6.15%            6 months               06/09/00      $       3,000,000
             12/21/99                          6.35%            6 months               06/21/00              1,000,000
             12/23/99                          6.53%           12 months               12/26/00              2,000,000
                                                                                                      -----------------
                                                                                                     $       6,000,000
                                                                                                      =================
</TABLE>


                                      B-14
<PAGE>

                CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998

       Total interest expense for the year ended December 31, 1999 was $97,775.

(8)    Income Taxes

       The  Company  and its  subsidiaries  file  consolidated  tax returns on a
       calendar-year  basis.  The  Company  had no  provision  for  current  and
       deferred  income  taxes for the years ended  December  31, 1999 and 1998,
       respectively.

       The provision  for income taxes is  reconciled to the amount  computed by
       applying the federal  corporate tax rate to income before taxes and is as
       follows:
<TABLE>
<CAPTION>
                                                                                         1999                1998
                                                                                   -----------------   -----------------
<S>                                                                               <C>                 <C>
       Income tax (benefit) at federal corporate rate                             $   (1,373,165)     $     (576,757)
       Nondeductible expenses                                                             18,363               1,870
       Change in valuation allowance                                                   1,354,802             574,887
                                                                                   -----------------   -----------------
                                                                                  $           --      $            --
                                                                                   =================   =================
</TABLE>

       The tax benefits of temporary differences between the financial reporting
       basis  and  income  tax  basis of assets  and  liabilities  relate to the
       following:
<TABLE>
<CAPTION>
                                                                                         1999                1998
                                                                                   -----------------   -----------------
<S>                                                                               <C>                 <C>
       Deferred tax assets:
           Bad debts                                                              $      223,126      $       64,465
           Organization and other costs                                                   71,438              18,730
           Net operating loss carryforwards                                            1,765,588             538,901
           Unrealized (gains) losses on investments available-for-sale                    58,153                (886)
           Other                                                                           6,890                 567
                                                                                   -----------------   -----------------
                          Total gross deferred assets                                  2,125,195             621,777
       Less valuation allowance                                                       (2,026,756)           (612,915)
                                                                                   -----------------   -----------------
                          Net deferred tax assets                                         98,439               8,862
                                                                                   -----------------   -----------------
       Deferred tax liabilities:
           Prepaid expenses                                                               (6,960)             (8,862)
           Depreciation                                                                  (91,479)                --
                                                                                   -----------------   -----------------
                          Total gross deferred tax liabilities                    $          --       $          --
                                                                                   =================   =================

</TABLE>

       Deferred income taxes reflect temporary differences in the recognition of
       revenue and expenses for tax reporting and financial  statement purposes,
       principally  because certain items, such as depreciation and amortization
       are  recognized  in different  periods for  financial  reporting  and tax
       return  purposes.  A valuation  allowance in the amount of  $2,026,756 at
       December 31, 1999 and $612,915 at December 31, 1998 has been  established
       for  deferred tax assets as  realization  is  dependent  upon  generating
       future taxable income.


                                      B-15
<PAGE>


                CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


       The  Company  has  net  operating  loss  carryforwards  of  approximately
       $5,192,906  at December  31, 1999 which are  available  to offset  future
       taxable income. There are no annual limitations on utilization of the net
       operating loss carryforwards.


(9)    Regulatory Matters

       The Company's banking  subsidiaries ("the Banks"), as national banks, are
       subject to the dividend  restrictions set forth by the Comptroller of the
       Currency.  Under such restrictions,  the Banks may not, without the prior
       approval of the Comptroller of the Currency,  declare dividends in excess
       of the sum of the current year's  earnings (as defined) plus the retained
       earnings  (as  defined)  from the prior two years.  At December 31, 1999,
       there were no earnings against which dividends could be paid.

       The Banks are required to maintain a minimum average reserve balance with
       the Federal Reserve Bank. The average amount of the required  reserve was
       $150,000 for 1999.  As members of the Federal  Reserve  Bank system,  the
       Banks are  required  to  subscribe  to  shares of $100 par value  Federal
       Reserve Bank stock equal to 6 percent of the Bank's  capital and surplus.
       The Banks are  required  to pay for  one-half  of the  subscription.  The
       remaining amount is subject to call when deemed necessary by the Board of
       Governors of the Federal Reserve.

       The  Federal  Deposit  Insurance  Corporation  Improvement  Act  of  1991
       ("FDICIA")  requires the  regulators to stratify  institutions  into five
       quality tiers based upon their relative capital strengths and to increase
       progressively  the degree of  regulation  over the  weaker  institutions,
       limits the pass through deposit  insurance  treatment of certain types of
       accounts,  adopts a "truth in savings" program, calls for the adoption of
       risk-based  premiums  on  deposit  insurance  and  requires  the Banks to
       observe  insider credit  underwriting  products no less strict than those
       applied to comparable noninsider transactions.

       At  December  31,  1999,  the Company  and its  subsidiary  banks met all
       regulatory  capital  requirements.  The key  measures of capital are: (1)
       total  capital  (Tier I capital plus the  allowance for loan losses up to
       certain limitations) as a percent of total risk-weighted assets, (2) Tier
       I capital  (as  defined) as a percent of total  risk-weighted  assets (as
       defined),  and (3) Tier I capital  (as  defined)  as a  percent  of total
       assets (as defined).



                                      B-16
<PAGE>

                CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998

<TABLE>
<CAPTION>
       As of December 31, 1999                                                                            To Be Well
       (in thousands)                                                                                  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    $  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%
       Tier I capital to average assets            30,858     32.55%         3,881  >=   4.00%        4,852  >=    5.00%

       As of December 31, 1998                                                                            To Be Well
       (in thousands)                                                                                  Capitalized Under
                                                                              For Capital              Prompt Corrective
                                                        Actual             Adequacy Purposes           Action Provisions
                                                 ----------------------  -----------------------   -----------------------
                                                  Amount      Ratio        Amount       Ratio       Amount       Ratio
                                                 ---------- -----------  -----------  ----------   ----------  -----------
       Total capital to risk weighted assets    $  34,938      147.80%   $   1,892  >=   8.00%    $   2,365  >=   10.00%
       Tier I capital to risk weighted assets      34,725      146.90%         946  >=   4.00%        1,419  >=    6.00%
       Tier I capital to average assets            34,725       60.20%       2,292  >=   4.00%        2,865  >=    5.00%

</TABLE>

(10)   Related-Party Transactions

       Officers,  directors,  employees and their related business interests are
       loan  customers  in the  ordinary  course of  business.  In  management's
       opinion,  these loans are made on substantially the same terms, including
       interest  rates  and  collateral,  as  those  prevailing  at the time for
       comparable  loans with other  persons and do not involve more than normal
       risk of collectibility or present other unfavorable features.

       Analysis of activity for loans to related parties is as follows:
<TABLE>
<CAPTION>
       (In thousands)                                                                   1999                1998
                                                                                  -----------------   -----------------
<S>                                                                             <C>                  <C>
       Balance, beginning of year                                               $           996      $          --
       New loans                                                                          2,336                 999
       Loans paid off or paid down                                                         (456)                 (3)
                                                                                  -----------------   -----------------
       Balance, end of year                                                     $         2,876      $          996
                                                                                  =================   =================
</TABLE>

(11)   Earnings Per Share

       The following discloses the calculation of basic and diluted earnings per
       share.  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.



                                      B-17
<PAGE>

                CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                        1999                1998
                                                                                  -----------------   -----------------
<S>                                                                              <C>                 <C>
       Net loss                                                                  $      (4,038,719)  $      (1,696,345)
       Weighted average shares for basic and diluted                                     4,240,819           2,646,036
       Basic earnings (loss) per share                                           $           (0.95)  $           (0.64)
       Diluted earnings (loss) per share                                         $           (0.95)  $           (0.64)

</TABLE>

(12)   Employee Benefit Plan

       The Company  established  a 401(k) plan in January  1998 for all eligible
       employees. The Company began to match a portion of employee contributions
       beginning January 1, 1999. The Company's match was $60,513 in 1999.

(13)   Director and Employee Stock Compensation Plan

       In 1998, the Company adopted a stock option plan (the "Plan") pursuant to
       which the  Company  may grant  stock  options to  members of its  holding
       company and  subsidiaries'  Board of  Directors.  The Company has granted
       options to purchase up to 178,151  shares of common  stock as of December
       31, 1999.

       The Company  also granted  stock awards to an employee.  The stock awards
       vest ratably over a three year period and are  contingent  upon continued
       employment  of the  individual  and  other  factors  as set  forth in the
       agreement.  As of December 31, 1999,  the Company  recognized  $12,000 in
       compensation expense related to the stock awards.

       Stock  options  are granted  with an exercise  price equal to the stock's
       fair  market  value at the date of grant.  Director  stock  options  have
       10-year terms and vest and become fully exercisable immediately. Employee
       stock  options have 10-year  terms and vest and become fully  exercisable
       after three years.





                                      B-18
<PAGE>

                CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


       Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
                                                                               Weighted
                                                                                Average
                                                          Number of            Exercise
                                                            Shares               Price
                                                       -----------------    ----------------
<S>                                                             <C>                 <C>
       Balance at December 31, 1997                                 --         $        --
       Granted                                                   13,750                6.75
       Exercised                                                    --                  --
       Forfeited                                                    --                  --
       Expired                                                      --                  --
                                                       -----------------    ----------------
       Balance at December 31, 1998                              13,750                6.75
       Granted                                                  164,841                6.84
       Exercised                                                    --                  --
       Forfeited                                                    440                 --
       Expired                                                      --                  --
                                                       -----------------    ----------------
       Balance at December 31, 1999                             178,151        $      6.84
                                                       =================    ================
</TABLE>

       At December 31, 1999, the range of exercise  prices and  weighted-average
       remaining  contractual life of outstanding  options was $6.38 - $7.50 and
       9.2 years, respectively. All outstanding director options are exercisable
       at December 31, 1999.

       At December 31, 1999, there were 221,849  additional shares available for
       grant under the Plan. The per share  weighted-average fair value of stock
       options  granted  during  1999 was  $2.74 on the date of grant  using the
       Black Scholes option-pricing model (using an expected volatility over the
       expected  life  of the  options  of  37.5  percent)  with  the  following
       weighted-average  assumptions:  expected  dividend  yield  0.00  percent,
       risk-free  interest  rate of 4.94  percent,  and an  expected  life of 10
       years.

       The Company  applies APB Opinion No. 25 in  accounting  for its Plan and,
       accordingly,  no  compensation  cost has been  recognized  for its  stock
       options.  Had the Company determined  compensation cost based on the fair
       value at the grant date for its stock  options  under SFAS No.  123,  the
       Company's  net loss would have been  increased  to the pro forma  amounts
       indicated below:
<TABLE>
<CAPTION>
                                                               1999                1998
                                                         -----------------   -----------------
<S>                                                     <C>                 <C>
       Net loss:
           As reported                                  $      (4,038,719)  $      (1,696,345)
           Pro forma                                           (4,490,383)         (1,751,758)
       Loss per share:
           As reported                                  $           (0.95)  $           (0.64)
           Pro forma                                                (1.06)              (0.66)
</TABLE>

                                      B-19
<PAGE>

                CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


(14)   Segment Reporting

       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 commercial loans, real estate loans, other business financing
       and consumer  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
       year ended December 31, 1999 follows:
<TABLE>
<CAPTION>
                                        Commercial        Investment                   Intersegment
                                         Banking           Advisory       Other        Elimination      Consolidated
                                    ------------------  ------------  -------------  ----------------  ---------------
<S>                                  <C>                <C>           <C>              <C>              <C>
       Net interest income           $      2,136,974   $    --       $    887,738     $      --        $   3,024,712
       Provision for loan losses              513,847        --             --                --              513,847
       Non-interest income                    310,441     1,017,924         --                (7,880)       1,320,485
       Non-interest expense                 4,240,540     1,612,411      2,017,118            --            7,870,069
       Net income (loss)                   (2,306,972)     (594,487)    (1,129,380)           (7,880)      (4,038,719)
       Total assets                  $     91,628,884   $   792,792   $ 31,056,219     $ (26,444,928)   $  97,032,967
                                     -----------------  ------------  -------------  ----------------  ---------------
</TABLE>

       The Company does not have operating  segments other than those  reported.
       Parent  Company  financial  information is included in the Other category
       and represents the overhead  function  rather than an operating  segment.
       Comparable  information for December 31, 1998 is not shown as the Company
       had one operating  segment and one  subsidiary,  Cardinal Bank,  N.A. The
       investment advisory segment began operations in February 1999.


(15)   Financial Instruments with Off Balance Sheet Risk

       The Company is a party to financial  instruments  with  off-balance-sheet
       risk in the normal course of business to meet the financing  needs of its
       customers.  These  financial  instruments  include  commitments to extend
       credit  and  standby   letters  of  credit  and   financial   guarantees.
       Commitments to extend credit are agreements to lend to a customer so long
       as there is no violation of any  condition  established  in the contract.
       Commitments  usually have fixed  expiration dates up to one year or other
       termination  clauses and may require  payment of a fee. Since many of the
       commitments  are expected to expire  without being drawn upon,  the total
       commitment amounts do not necessarily represent future cash requirements.

       Standby  letters  of credit  are  conditional  commitments  issued by the
       Company to guarantee the performance of the contractual  obligations by a
       customer to a third party. The majority of these guarantees  extend until
       satisfactory  completion of the customer's contractual  obligations.  All
       standby   letters  of  credit   outstanding  at  December  31,  1999  are
       collateralized.



                                      B-20
<PAGE>

                CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998

       Those instruments  represent  obligations of the Company to extend credit
       or  guarantee  borrowings,  therefore,  they  are  not  recorded  on  the
       consolidated  statements of financial  condition.  The rates and terms of
       these  instruments are competitive with others in the market in which the
       Company operates. Almost all of these instruments as of December 31, 1999
       have floating rates, therefore significantly mitigating the market risk.

       Those instruments may involve, to varying degrees, elements of credit and
       interest rate risk in excess of the amount recognized in the consolidated
       statements  of  financial  condition.  Credit  risk  is  defined  as  the
       possibility of sustaining a loss because the other parties to a financial
       instrument  fail to perform in accordance with the terms of the contract.
       The Company's  maximum  exposure to credit loss under standby  letters of
       credit and commitments to extend credit is represented by the contractual
       amounts of those instruments.
<TABLE>
<CAPTION>
<S>                                                                            <C>
       (In thousands)
       Financial instruments whose contract amounts represent potential
          credit risk:
              Commitments to extend credit                                     $       19,411
              Standby letters of credit                                                   916
                                                                                ==============
</TABLE>

       The Company  uses the same  credit  policies  in making  commitments  and
       conditional obligations as it does for on-balance-sheet  instruments. The
       Company  evaluates  each  customer's  creditworthiness  on a case-by-case
       basis and  requires  collateral  to support  financial  instruments  when
       deemed  necessary.  The amount of collateral  obtained upon  extension of
       credit  is  based  on  management's   evaluation  of  the   counterparty.
       Collateral  held varies but may  include  deposits  held by the  Company,
       marketable securities,  accounts receivable,  inventory,  property, plant
       and equipment, and income-producing commercial properties.


(16)   Disclosures of Fair Value of Financial Instruments

       The assumptions used and the estimates disclosed  represent  management's
       best judgment of appropriate valuation methods. These estimates are based
       on pertinent information available to management as of December 31, 1999.
       In certain cases,  fair values are not subject to precise  quantification
       or  verification  and may  change as  economic  and market  factors,  and
       management's evaluation of those factors change.

       Although  management  uses its best judgment in estimating the fair value
       of these  financial  instruments,  there are inherent  limitations in any
       estimation  technique.  Therefore,  these  fair value  estimates  are not
       necessarily indicative of the amounts that the Company would realize in a
       market transaction. Because of the wide range of valuation techniques and
       the numerous  estimates  which must be made,  it may be difficult to make
       reasonable comparisons of the Company's fair value information to that of
       other financial institutions. It is important that the many uncertainties
       discussed  above be  considered  when  using  the  estimated  fair  value
       disclosures  and to  realize  that  because of these  uncertainties,  the
       aggregate   fair  value   amount   should  in  no  way  be  construed  as
       representative of the underlying value of the Company.



                                      B-21
<PAGE>


                CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


       Fair Value of Financial Instruments

       The following  summarizes the significant  methodologies  and assumptions
       used in estimating the fair values presented in the accompanying table.

       Cash and Cash Equivalents

       The carrying amount of cash and cash  equivalents is used as a reasonable
       estimate of fair value.

       Investment Securities and Other Investments

       Fair values for  investment  securities are based on quoted market prices
       or prices quoted for similar financial instruments.  Fair value for other
       investments  is estimated as their cost since no active  trading  markets
       exist.

       Loans Receivable

       In order to determine the fair market value for loans, the loan portfolio
       was segmented  based on loan type,  credit  quality and  maturities.  For
       certain  variable  rate loans with no  significant  credit  concerns  and
       frequent repricings,  estimated fair values are based on current carrying
       amounts.  The fair values of other loans are estimated  using  discounted
       cash flow  analyses,  using interest  rates  currently  being offered for
       loans with similar terms to borrowers of similar credit quality.

       Deposits

       The fair values  disclosed for demand deposits are, by definition,  equal
       to the amount  payable on demand at the  reporting  date (that is,  their
       carrying  amounts.)  The carrying  amounts of variable  rate,  fixed-term
       money market accounts and certificates of deposit (CDs) approximate their
       fair value at the  reporting  date.  Fair values for  fixed-rate  CDs are
       estimated using a discounted cash flow  calculation that applies interest
       rates currently being offered on certificates to a schedule of aggregated
       expected monthly maturities on time deposits.

       Commitments

       The fair  value of these  financial  instruments  is based on the  credit
       quality and relationship,  fees, interest rates,  probability of funding,
       compensating   balance  and  other  convenants  or  requirements.   These
       commitments  generally have fixed  expiration  dates expiring  within one
       year. Many  commitments are expected to, and typically do, expire without
       being  drawn  upon.  The  rates  and  terms  of  these   instruments  are
       competitive with others in the market in which the Company operates.  The
       carrying  amounts  are  reasonable  estimates  of the fair value of these
       financial instruments. The carrying amounts of these instruments are zero
       at December 31, 1999.

       Accrued Interest

       The carrying amounts of accrued interest approximate their fair values.


                                      B-22
<PAGE>

                CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


       Fair Value of Financial Instruments as of December 31, 1999
<TABLE>
<CAPTION>
                                                                                           December 31, 1999
                                                                                  -------------------------------------
                                                                                      Carrying           Estimated
       (In thousands)                                                                  Amount            Fair Value
                                                                                  -----------------   -----------------
<S>                                                                              <C>                 <C>
       Financial assets:
           Cash and cash equivalents                                             $       19,043      $       19,043
           Investment securities and other investments                                    5,822               5,822
           Loans receivable                                                              68,147              67,622
           Accrued interest receivable                                                      351                 351
       Financial liabilities:
           Demand deposits                                                       $       12,330      $       12,330
           Interest checking                                                              3,891               3,891
           Money market and statement savings                                            11,499              11,499
           Certificates of deposit                                                       32,153              32,124
           Accrued interest payable                                                          48                  48
</TABLE>




(17)   Other Operating Expenses

       Other  operating  expenses  for  December  31, 1999 and 1998  include the
       following:
<TABLE>
<CAPTION>
                                                                                        1999                1998
                                                                                  -----------------   -----------------
<S>                                                                             <C>                  <C>
       Data processing                                                          $          353,498   $         104,067
       Stationary and supplies                                                             322,586             133,821
       Brokerage clearing                                                                  197,822                   -
       Advertising and marketing                                                           175,100              82,069
       Telecommunications                                                                  163,481              36,591
       Bank operations                                                                     125,541              38,216
       Premises and equipment                                                              103,739               6,047
       Other taxes                                                                          94,670              11,225
       Insurance                                                                            85,182              36,719
       Travel and entertainment                                                             79,128              54,031
       Dues and membership                                                                  57,959              42,708
       Miscellaneous                                                                       171,647              65,925
                                                                                  -----------------   -----------------
                                                                                $        1,930,353   $         611,419
                                                                                  =================   =================
</TABLE>
                                       B-23

<PAGE>

                 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.


                                      B-24
<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.


                                      B-25
<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.



                                      B-26
<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.



                                      B-27
<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



                                       B-28
<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:




                                      B-29
<PAGE>

                 CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES

              Notes to Condensed Consolidated Financial Statements

                                 March 31, 2000
                                   (Unaudited)


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.


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.



                                      B-30
<PAGE>


                 CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES

              Notes to Condensed Consolidated Financial Statements

                                 March 31, 2000
                                   (Unaudited)

                                                     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.



                                      B-31

<PAGE>

                                                                      Appendix C

                   [LETTERHEAD OF SCOTT & STRINGFELLOW, INC.]


                                  May __, 2000



Board of Directors
Cardinal Bankshares Corporation
10555 Main Street
Fairfax, VA 22030

Dear Madams and Gentlemen:

You have  asked us to  render  our  opinion  relating  to the  fairness,  from a
financial point of view, to the shareholders of Cardinal  Financial  Corporation
("Cardinal")  of the terms of an Agreement  and Plan of  Reorganization  between
Cardinal  and  Heritage  Bancorp,   Inc.  dated  April  17,  2000  (the  "Merger
Agreement")  pursuant to which  Heritage  will be merged with and into  Cardinal
(the "Merger") and further  provides that each share of common stock,  par value
$1.00 per share, of Heritage  issued and outstanding  shall be converted into or
exchanged  either for $6.00 in cash or 1.2 shares of Cardinal  7.25%  Cumulative
Convertible   Preferred  Stock,   Series  A  (the   "Consideration").   Scott  &
Stringfellow  further  understands  that in no event  shall cash be more or less
than 50% of the total Consideration.

         Scott &  Stringfellow,  as a customary part of its  investment  banking
business,  is engaged  in the  valuation  of  financial  institutions  and their
securities   in   connection   with   mergers   and   acquisitions,   negotiated
underwritings,  private  placements,  and valuations  for estate,  corporate and
other purposes.  We have acted as financial advisor to the Board of Directors of
Cardinal in connection  with the  transaction  described  above. We are familiar
with  Cardinal,  having  acted  as its  financial  advisor  in the past and have
provided certain investment banking services from time to time.

          In developing our opinion,  we have, among other things,  reviewed and
analyzed:  (1)  the  Merger  Agreement;  (2)  the  joint  Proxy  Statement;  (3)
Cardinal's  audited financial  statements for the three years ended December 31,
1999; (4) Cardinal's  unaudited financial  statements for the three months ended
March 31, 2000 and 1999,  and other  internal  information  relating to Cardinal
prepared by Cardinal's management;  (5) information regarding the trading market
for the common stocks of Cardinal and Heritage and the price ranges within which
the  respective  stocks  have  traded;  (6) the  relationship  of prices paid to
relevant  financial  data such as net worth,  earnings,  assets and  deposits in
certain bank and bank holding company mergers and  acquisitions in recent years;
(7) Heritage's  annual reports to shareholders and its financial  statements for
the three years ended  December 31, 1999;  (8)  Heritage's  unaudited  financial
statements for the three months ended March 31, 2000 and 1999, and certain other
internal information relating to Heritage prepared by Heritage's management.  We
have  discussed  with  members  of  management  of  Cardinal  and  Heritage  the
background of the Merger,  the reasons and basis for the Merger and the business
and future  prospects of Cardinal and  Heritage  individually  and as a combined
entity.   Finally,   we  have  conducted   such  other  studies,   analyses  and
investigations,  particularly of the banking industry, and considered such other
information as we have deemed appropriate.

<PAGE>

         In  conducting  our review and arriving at our opinion,  we have relied
upon and assumed the accuracy and  completeness of the information  furnished to
us by or on behalf of Cardinal and Heritage. We have not attempted independently
to verify such  information,  nor have we made any independent  appraisal of the
assets of Cardinal or Heritage.  With respect to the information relating to the
prospects  of Cardinal  and  Heritage,  we have  assumed  that such  information
reflects the best currently available judgments and estimates of the managements
of Cardinal and Heritage as to the likely future financial performances of their
respective  companies and of the combined entity. We have taken into account our
assessment of general economic, financial market and industry conditions as they
exist and can be evaluated as of the date hereof,  as well as our  experience in
business  valuation  in general.  We have also  assumed  that,  in the course of
obtaining   regulatory   and  third  party  consents  for  the  Merger  and  the
transactions  contemplated  by the  Merger  Agreement,  no  restriction  will be
imposed  that will have a  material  adverse  effect on the  future  results  of
operations or financial condition of Cardinal or Heritage.

         Our advisory  services and opinion  expressed  herein were prepared for
the  use of the  Board  of  Directors  of  Cardinal  and  do  not  constitute  a
recommendation  to the Cardinal  shareholders  as to how they should vote at the
shareholders' meeting in connection with the Merger. We hereby consent, however,
to  the  inclusion  of  this  opinion  as an  exhibit  to  the  proxy  statement
distributed in connection with the Merger.

         On the basis of our analyses and review and in reliance on the accuracy
and  completeness  of  the  information  furnished  to us  and  subject  to  the
conditions and  assumptions  noted above, it is our opinion that, as of the date
hereof,  the terms of the Merger  Agreement  are fair from a financial  point of
view to the shareholders of Cardinal Common Stock.

                                                Very truly yours,

                                                SCOTT & STRINGFELLOW, INC.


                                                By:
                                                    ----------------------------
                                                    Gary S. Penrose
                                                    Managing Director
                                                    Financial Institutions Group

<PAGE>

                                                                      Appendix D

                             HERITAGE BANCORP, INC.
                                 AND SUBSIDIARY

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
<S>                                                                                                      <C>
Independent Auditor's Report                                                                                     D-2

Consolidated Financial Statements

     Statements of Condition as of December 31, 1999 and 1998                                                    D-3

     Statements of Operations for the years ended December 31, 1999, 1998 and 1997                               D-4

     Statements of Changes in Stockholders' Equity for the years ended December 31,
          1999, 1998 and 1997                                                                                    D-5

     Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997                               D-6

Notes to Consolidated Financial Statements                                                                D-8 - D-28


Consolidated Interim Financial Statements

     Balance Sheets as of March 31, 2000 and December 31, 1999                                                  D-29

     Statements of Income for the three months ended March 30, 2000 and 1999                                    D-30

     Statements of Stockholders' Equity for the three months ended March 31, 2000                               D-31

     Statements of Cash Flows for the three months ended March 31, 2000 and 1999                                D-32

Notes to Consolidated Interim Financial Statements                                                       D-33 - D-35

</TABLE>




<PAGE>



                          INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Heritage Bancorp, Inc. and Subsidiary
McLean, Virginia

     We have audited the  accompanying  consolidated  statements of condition of
Heritage Bancorp,  Inc. and Subsidiary as of December 31, 1999 and 1998, and the
related consolidated  statements of operations,  changes in stockholders' equity
and cash flows for the three years then ended.  These  financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly,  in all material  respects,  the financial  position of Heritage
Bancorp,  Inc. and  Subsidiary as of December 31, 1999 and 1998, and the results
of their  operations  and their cash flows for the three  years then  ended,  in
conformity with generally accepted accounting principles.

                                                 /s/ Yount, Hyde & Barbour, P.C.


Winchester, Virginia
February 4, 2000


                                      D-2

<PAGE>

                             HERITAGE BANCORP, INC.
                                 AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CONDITION
                           December 31, 1999 and 1998


<TABLE>
<CAPTION>
         ASSETS                                                                         1999                     1998
                                                                                     ------------            ------------
<S>                                                                                  <C>                     <C>
 Cash and due from banks                                                             $  2,667,443            $  5,824,649
 Federal funds sold                                                                            --               8,550,000
                                                                                     ------------            ------------
      Total cash and cash equivalents                                                $  2,667,443            $ 14,374,649

 Securities available for sale, at approximate market value                            24,054,515              19,823,754
 Loans, net of allowance for loan losses of $420,940 in 1999
   and $429,059 in 1998                                                                31,268,232              29,181,039
 Premises and equipment, net                                                              848,995                 376,453
 Accrued interest receivable                                                              535,571                 459,340
 Other real estate owned                                                                       --                 263,199
 Other assets                                                                             564,657                 297,160
                                                                                     ------------            ------------

      Total assets                                                                   $ 59,939,413            $ 64,775,594
                                                                                     ============            ============

     LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
 Deposits:
   Noninterest-bearing deposits                                                      $ 13,707,792            $ 17,385,307
   Interest-bearing deposits                                                           34,284,891              36,056,672
                                                                                     ------------            ------------
      Total deposits                                                                 $ 47,992,683            $ 53,441,979
   Accrued interest and other liabilities                                                 347,527                 119,170
   Securities sold under agreement to repurchase                                        3,001,225               2,286,781
   Commitments and contingent liabilities                                                      --                      --
                                                                                     ------------            ------------
      Total liabilities                                                              $ 51,341,435            $ 55,847,930
                                                                                     ============            ============

STOCKHOLDERS' EQUITY

 Common stock, $1 par value; authorized 10,000,000
   shares; issued and outstanding 2,294,617 shares                                   $  2,294,617            $  2,294,617
 Capital surplus                                                                        6,529,539               6,529,539
 Retained earnings                                                                        210,534                  28,549
 Accumulated other comprehensive income (loss)                                           (436,712)                 74,959
                                                                                     ------------            ------------
      Total stockholders' equity                                                     $  8,597,978            $  8,927,664
                                                                                     ------------            ------------
      Total liabilities and stockholders' equity                                     $ 59,939,413            $ 64,775,594
                                                                                     ============            ============
</TABLE>


See Accompanying Notes to Consolidated Financial Statements.

                                       D-3

<PAGE>

                             HERITAGE BANCORP, INC.
                                 AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                  Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                      1999                 1998                   1997
                                                                   -----------          -----------           -----------
<S>                                                                <C>                  <C>                   <C>
 INTEREST INCOME
   Loans, including fees                                           $ 2,689,853          $ 2,386,091           $ 2,285,986
   Securities                                                        1,413,942            1,117,858               816,256
   Federal funds sold                                                  277,106              262,053               154,066
                                                                   -----------          -----------           -----------
           Total interest income                                   $ 4,380,901          $ 3,766,002           $ 3,256,308
                                                                   -----------          -----------           -----------

 INTEREST EXPENSE
   Deposits                                                        $ 1,342,470          $ 1,233,550           $ 1,103,974
   Securities sold under agreement to repurchase                        96,794               38,859                 6,797
                                                                   -----------          -----------           -----------
           Total interest expense                                  $ 1,439,264          $ 1,272,409           $ 1,110,771
                                                                   -----------          -----------           -----------

           Net interest income                                     $ 2,941,637          $ 2,493,593           $ 2,145,537

 Provision for loan losses                                                  --              117,000                 3,825
                                                                   -----------          -----------           -----------

           Net interest income after
             provision for loan losses                             $ 2,941,637          $ 2,376,593           $ 2,141,712
                                                                   -----------          -----------           -----------

 OTHER INCOME
   Service charges on deposit accounts                             $   116,343          $   122,684           $   112,039
   Other operating income, net                                          47,835               15,477                21,233
   Gain (loss) on sale of securities                                     1,468                 (781)               47,261
   Gain on sale of other real estate                                    56,611                   --                    --
                                                                   -----------          -----------           -----------
           Total other income                                      $   222,257          $   137,380           $   180,533
                                                                   -----------          -----------           -----------

 OTHER EXPENSES
   Salaries and employee benefits                                  $ 1,472,136          $ 1,074,228           $   953,246
   Occupancy expense                                                   328,105              204,669               215,204
   Equipment expense                                                   146,172               73,667                88,275
   Other operating expenses                                            942,821            1,068,643               579,961
                                                                   -----------          -----------           -----------
           Total other expenses                                    $ 2,889,234          $ 2,421,207           $ 1,836,686
                                                                   -----------          -----------           -----------

           Income before income taxes                              $   274,660          $    92,766           $   485,559

   Income tax expense (benefit)                                         92,675              (40,639)              (85,297)
                                                                   -----------          -----------           -----------

           Net income                                              $   181,985          $   133,405           $   570,856
                                                                   ===========          ===========           ===========

 EARNINGS PER SHARE, BASIC                                         $      0.08          $      0.07           $      0.45
                                                                   ===========          ===========           ===========

 EARNINGS PER SHARE, ASSUMING DILUTION                             $      0.08          $      0.07           $      0.44
                                                                   ===========          ===========           ===========
</TABLE>


See Accompanying Notes to Consolidated Financial Statements.

                                       D-4

<PAGE>

                             HERITAGE BANCORP, INC.
                                 AND SUBSIDIARY

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                  Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                                          ACCUMULATED
                                                                                            OTHER
                                                COMMON        CAPITAL        RETAINED    COMPREHENSIVE  COMPREHENSIVE
                                                STOCK         SURPLUS        EARNINGS    INCOME (LOSS)  INCOME (LOSS)      TOTAL
                                             -----------    -----------    -----------    -----------    -----------    -----------
<S>                                          <C>            <C>            <C>            <C>            <C>            <C>
 BALANCE, DECEMBER 31, 1996                  $ 1,249,634    $ 2,967,448    $  (675,712)   $     1,464                   $ 3,542,834
   Net income                                         --             --        570,856             --    $   570,856        570,856
   Other comprehensive income,
     net of tax:
       Unrealized holding gains on
         securities available for sale
         arising during period,
         net of tax of $25,401                        --             --             --             --    $    47,845             --
       Less reclassification adjustment,
         net of tax of $16,068                        --             --             --             --        (31,192)            --
                                                                                                         -----------
       Other comprehensive income                     --             --             --         16,653    $    16,653         16,653
                                                                                                         -----------
       Comprehensive income                           --             --             --             --    $   587,509             --
                                                                                                         -----------
   Warrants exercised                            240,002        360,003             --             --                       600,005
                                             -----------    -----------    -----------    -----------                   -----------
 BALANCE, DECEMBER 31, 1997                  $ 1,489,636    $ 3,327,451    $  (104,856)   $    18,117                   $ 4,730,348
   Net income                                         --             --        133,405             --    $   133,405        133,405
                                                                                                         -----------
   Other comprehensive income,
     net of tax:
       Unrealized holding gains on
         securities available for sale
         arising during period,
         net of tax of $29,016                        --             --             --             --    $    56,327             --
       Add reclassification adjustment,
         net of tax of $266                           --             --             --             --            515             --
                                                                                                         -----------
       Other comprehensive income                     --             --             --         56,842    $    56,842         56,842
                                                                                                         -----------
       Comprehensive income                           --             --             --             --    $   190,247             --
                                                                                                         -----------
   Stock options exercised                         2,700          7,120             --             --                         9,820
   Repurchase of stock in odd lot tender          (2,719)       (12,236)            --             --                       (14,955)
   Issuance of common stock                      805,000      3,207,204             --             --                     4,012,204
                                             -----------    -----------    -----------    -----------                   -----------
 BALANCE, DECEMBER 31, 1998                  $ 2,294,617    $ 6,529,539    $    28,549    $    74,959                   $ 8,927,664

 Net income                                           --             --        181,985             --    $   181,985        181,985
                                                                                                         -----------
   Other comprehensive income,
     net of tax:
       Unrealized holding losses on
         securities available for sale
         arising during period,
         net of tax of $263,089                       --             --             --             --    $  (510,702)            --
       Less reclassification adjustment,
         net of tax of $499                           --             --             --             --           (969)            --
                                                                                                         -----------
       Other comprehensive income (loss)              --             --             --       (511,671)   $  (511,671)      (511,671)
                                                                                                         -----------
       Comprehensive income (loss)                    --             --             --             --    $  (329,686)            --
                                             -----------    -----------    -----------    -----------    -----------    -----------
 BALANCE, DECEMBER 31, 1999                  $ 2,294,617    $ 6,529,539    $   210,534    $  (436,712)                  $ 8,597,978
                                             -----------    -----------    -----------    -----------                   -----------
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

                                      D-5

<PAGE>

                             HERITAGE BANCORP, INC.
                                 AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                                     1999               1998               1997
                                                                                 ------------       ------------       ------------
<S>                                                                              <C>                <C>                <C>
 CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                                     $    181,985       $    133,405       $    570,856
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
  Provision for loan losses                                                                --            117,000              3,825
  (Gain) loss on sale of securities                                                    (1,486)               781            (47,261)
  (Gain) on sale of fixed assets                                                         (200)                --                 --
  (Gain) on sale of other real estate                                                 (56,611)                --                 --
  Depreciation and amortization                                                        81,460             50,958             67,733
  Deferred tax (benefit) expense                                                       72,362            (45,239)           (85,297)
  Amortization of investment security premiums,
    net of discounts                                                                   22,442             37,438             13,845
  (Increase) decrease in accrued interest and other assets                           (152,502)          (319,486)            64,677
  Increase (decrease) in accrued interest and other liabilities                       228,357              5,412            (30,169)
                                                                                 ------------       ------------       ------------
      Net cash provided by (used in) operating activities                        $    375,807       $    (19,731)      $    558,209
                                                                                 ------------       ------------       ------------

 CASH FLOWS FROM INVESTING ACTIVITIES
  Maturities and calls of securities available for sale                          $  9,250,000       $  9,195,000       $  1,800,000
  Purchase of securities available for sale                                       (14,923,462)       (17,676,403)        (9,236,816)
  Maturities of securities held to maturity                                                --            250,000            250,000
  Proceeds from sale of securities available for sale                                 646,486            499,219          8,984,402
  Net (increase) decrease in loans                                                 (2,087,193)        (6,543,481)         1,825,409
  Purchase of premises and equipment                                                 (554,002)           (48,472)           (90,920)
  Proceeds from sale of equipment                                                         200                 --                 --
  Proceeds from sale of other real estate owned                                       319,810                 --                 --
                                                                                 ------------       ------------       ------------
      Net cash provided by (used in) investing activities                        $ (7,348,161)      $(14,324,137)      $  3,532,075
                                                                                 ------------       ------------       ------------

 CASH FLOWS FROM FINANCING ACTIVITIES
  Increase  (decrease) in demand deposits, NOW accounts
   and savings deposits                                                          $ (3,677,515)      $  8,639,394       $    550,791
  Increase (decrease) in certificates of deposit                                   (1,771,781)         4,198,750         (2,333,488)
  Proceeds from stock warrants exercised                                                   --                 --            600,005
  Proceeds from sale of common stock                                                       --          4,022,024                 --
  Repurchase of common stock                                                               --            (14,955)                --
  Increase in securities sold under agreement to repurchase                           714,444          2,286,781                 --
                                                                                 ------------       ------------       ------------
       Net cash provided by (used in) financing activities                       $ (4,734,852)      $ 19,131,994       $ (1,182,692)
                                                                                 ------------       ------------       ------------

       Net change in cash and cash equivalents                                   $(11,707,206)      $  4,788,126       $  2,907,592

 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                      14,374,649          9,586,523          6,678,931
                                                                                 ------------       ------------       ------------
 CASH AND CASH EQUIVALENTS, END OF YEAR                                          $  2,667,443       $ 14,374,649       $  9,586,523
                                                                                 ============       ============       ============
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

                                       D-6

<PAGE>

                             HERITAGE BANCORP, INC.
                                 AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Continued)
                  Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                                 1999                 1998                  1997
                                                                             -----------         ------------        -----------
<S>                                                                          <C>                 <C>                 <C>
 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
   Cash payments for:
      Interest                                                               $ 1,437,740         $  1,269,516        $ 1,113,620
                                                                             ===========         ============        ===========

      Income taxes                                                           $    40,500         $         --        $     9,187
                                                                             ===========         ============        ===========

 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES,
   unrealized gain (loss) on securities available for sale                   $  (775,258)        $     86,124        $    25,986
                                                                             ===========         ============        ===========
</TABLE>


See Accompanying Notes to Consolidated Financial Statements.



                                       D-7

<PAGE>

                             HERITAGE BANCORP, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


NOTE 1. NATURE OF BANKING ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES

        GENERAL

          Heritage Bancorp,  Inc.  (Company) is a bank holding company organized
          under Virginia law in July,  1998.  During 1998, the Company  acquired
          The Heritage Bank through a share  exchange in which the  stockholders
          of The Heritage  Bank received one share of the Company for each share
          of The Heritage  Bank.  The exchange  was a tax-free  transaction  for
          federal income tax purposes.  The merger was accounted for on the same
          basis as a  pooling-of-interests.  Financial  statements for the prior
          years,  have been  retroactively  adjusted  for the  exchange as if it
          occurred on January 1, 1997.

          The Company's  wholly-owned  subsidiary,  The Heritage Bank (Bank) was
          incorporated under Virginia law in 1987. It operated as a wholly-owned
          subsidiary of Heritage Bankshares,  Inc. until September 1, 1992, when
          it became  independent.  The Bank is a state  chartered  member of the
          Federal  Reserve System with deposits  insured by the Federal  Deposit
          Insurance Corporation (FDIC) and is headquartered in McLean, Virginia.
          During  1999,  the Bank opened its first  branch  office in  Sterling,
          Virginia.

        BUSINESS

          Heritage  Bancorp,  Inc. is a bank  holding  company  that  provides a
          variety of banking services to individuals and businesses. Its primary
          deposit  products are demand and savings  deposits and certificates of
          deposit. Its primary lending products are commercial business and real
          estate mortgage  loans.  The loans are expected to be repaid from cash
          flow or proceeds from the sale of selected assets of the borrowers.

        PRINCIPLES OF CONSOLIDATION

          The accounting and reporting  policies of Heritage  Bancorp,  Inc. and
          subsidiary  conform to generally  accepted  accounting  principles and
          general  practices  within the banking  industry.  The  following is a
          description of the more significant of those policies:

             SECURITIES

               Debt  securities  that  management  has the  positive  intent and
               ability to hold to maturity are  classified as "held to maturity"
               and recorded at amortized cost. Securities not classified as held
               to   maturity,   including   equity   securities   with   readily
               determinable fair values,  are classified as "available for sale"
               and  recorded at fair  value,  with  unrealized  gains and losses
               excluded  from  earnings  and  reported  in  other  comprehensive
               income.

               Purchased  premiums  and  discounts  are  recognized  in interest
               income  using  the   interest   method  over  the  terms  of  the
               securities.  Declines in the fair value of held to  maturity  and
               available for sale securities below their cost that are deemed to
               be other than  temporary  are  reflected  in earnings as realized
               losses.  Gains and losses on the sale of securities  are recorded
               on  the  trade  date  and  are  determined   using  the  specific
               identification method.


                                       D-8

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


             LOANS

               The Company  grants  mortgage,  commercial  and consumer loans to
               customers.  A  substantial  portion  of  the  loan  portfolio  is
               represented by residential and commercial real estate loans.  The
               ability of the  Company's  debtors to honor  their  contracts  is
               dependent upon the real estate and general economic conditions of
               the Company's market area.

               Loans that  management has the intent and ability to hold for the
               foreseeable  future or until  maturity or pay-off  generally  are
               reported at their outstanding  unpaid principal balances adjusted
               for the  allowance for loan losses and any deferred fees or costs
               on  originated  loans.  Interest  income is accrued on the unpaid
               principal   balance.   Loan  origination  fees,  net  of  certain
               origination  costs,  are deferred and recognized as an adjustment
               of the related loan yield using the interest method.

               The  accrual of  interest on  mortgage  and  commercial  loans is
               discontinued  at the time the loan is 90 days  delinquent  unless
               the  credit  is  well-secured   and  in  process  of  collection.
               Installment  loans are  typically  charged  off no later than 180
               days past due. In all cases,  loans are placed on  nonaccrual  or
               charged-off  at an earlier  date if  collection  of  principal or
               interest is considered doubtful.

               All interest  accrued but not collected for loans that are placed
               on nonaccrual or charged-off is reversed against interest income.
               The interest on these loans is accounted for on the cash-basis or
               cost-recovery  method,  until  qualifying  for return to accrual.
               Loans are  returned  to accrual  status  when all  principal  and
               interest  amounts  contracturally  due are  brought  current  and
               future payments are reasonably assured.

             ALLOWANCE FOR LOAN LOSSES

               The  allowance  for loan  losses is  established  as  losses  are
               estimated to have  occurred  through a provision  for loan losses
               charged  to  earnings.   Loan  losses  are  charged  against  the
               allowance when management believes the uncollectibility of a loan
               balance is confirmed. Subsequent recoveries, if any, are credited
               to the allowance.

               The  allowance for loan losses is evaluated on a regular basis by
               management and is based upon management's  periodic review of the
               collectibility  of the loans in light of  historical  experience,
               the nature and volume of the loan portfolio,  adverse  situations
               that may affect the borrower's ability to repay,  estimated value
               of any underlying  collateral and prevailing economic conditions.
               This evaluation is inherently subjective as it requires estimates
               that are susceptible to significant  revision as more information
               becomes available.

               A loan is considered  impaired when, based on current information
               and  events,  it is probable  that the Company  will be unable to
               collect the scheduled  payments of principal or interest when due
               according  to  the  contractural  terms  of the  loan  agreement.
               Factors  considered  by  management  in  determining   impairment
               include payment status,  collateral value, and the probability of
               collecting  scheduled  principal and interest  payments when due.
               Loans that  experience  insignificant  payment delays and payment
               shortfalls  generally are not classified as impaired.  Management
               determines  the   significance  of  payment  delays  and  payment
               shortfalls


                                       D-9

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


               on a case-by-case  basis,  taking into  consideration  all of the
               circumstances  surrounding  the loan and the borrower,  including
               the  length  of  the  delay,  the  reasons  for  the  delay,  the
               borrower's prior payment record,  and the amount of the shortfall
               in relation to the  principal  and interest  owed.  Impairment is
               measured on a loan by loan basis for commercial and  construction
               loans by either the present  value of expected  future cash flows
               discounted  at the loan's  effective  interest  rate,  the loan's
               obtainable  market price,  or the fair value of the collateral if
               the loan is collateral dependent.

               Large   groups  of   smaller   balance   homogeneous   loans  are
               collectively evaluated for impairment.  Accordingly,  the Company
               does not separately  identify individual consumer and residential
               loans for impairment disclosures.

             BANK PREMISES AND EQUIPMENT

               Land is carried at cost.  Buildings  and equipment are carried at
               cost, less accumulated depreciation computed on the straight-line
               method over the estimated useful lives of the assets.

             INCOME TAXES

               Deferred income tax assets and  liabilities are determined  using
               the balance sheet method. Under this method, the net deferred tax
               asset or liability is determined  based on the tax effects of the
               temporary  differences  between  the  book  and tax  bases of the
               various  balance sheet assets and  liabilities  and gives current
               recognition to changes in tax rates and laws.

             EARNINGS PER SHARE

               Basic earnings per share  represents  income  available to common
               stockholders  divided  by the  weighted-average  number of common
               shares outstanding during the period.  Diluted earnings per share
               reflects   additional   common   shares   that  would  have  been
               outstanding if dilutive  potential common shares had been issued,
               as well as any  adjustment  to income that would  result from the
               assumed  issuance.  Potential common shares that may be issued by
               the Company relate solely to outstanding  stock options,  and are
               determined using the treasury method.

             CASH AND CASH EQUIVALENTS

               For purposes of reporting cash flows,  cash and cash  equivalents
               include cash and balances due from banks and federal funds sold.

             OTHER REAL ESTATE

               Assets acquired through, or in lieu of, loan foreclosure are held
               for sale and are initially  recorded at fair value at the date of
               foreclosure,   establishing  a  new  cost  basis.  Subsequent  to
               foreclosure,  valuations are periodically performed by management
               and the assets are  carried  at the lower of  carrying  amount or
               fair  value  less  cost  to  sell.   Revenue  and  expenses  from
               operations and changes in the valuation allowance are included in
               net expenses from foreclosed assets.


                                      D-10

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


             USE OF ESTIMATES

               In preparing consolidated financial statements in conformity with
               generally accepted accounting principles,  management is required
               to make  estimates  and  assumptions  that  affect  the  reported
               amounts of assets and  liabilities  as of the date of the balance
               sheet and the reported  amounts of revenues  and expenses  during
               the  reported  period.  Actual  results  could  differ from those
               estimates.  Material estimates that are particularly  susceptible
               to   significant   change  in  the  near   term   relate  to  the
               determination of the allowance for loan losses, and the valuation
               of foreclosed real estate and deferred tax assets.

             ADVERTISING

               The  Company   follows  the  policy  of  charging  the  costs  of
               advertising  to expense as  incurred.  The amount of  advertising
               included  in expense for  December  31,  1999,  1998 and 1997 was
               $37,231, $31,482 and $20,394, respectively.

             RECENT ACCOUNTING PRONOUNCEMENTS

               In June 1998, the FASB issued Statement No. 133,  "Accounting for
               Derivative Instruments and Hedging Activities", which is required
               to be  adopted  in  years  beginning  after  June 15,  2000.  The
               statement  permits  early  adoption  as of the  beginning  of any
               fiscal  quarter after its issuance.  This  Statement  establishes
               accounting and reporting standards for derivative instruments and
               hedging  activities,  including  certain  derivative  instruments
               embedded  in  other  contracts,   and  requires  that  an  entity
               recognize all derivatives as assets or liabilities in the balance
               sheet and measure  them at fair value.  Because the Company  does
               not use these derivative  instruments and strategies,  management
               does not expect the adoption of this Statement to have any effect
               on earnings or financial position.

NOTE 2.   CASH AND DUE FROM BANKS

          The Bank is  required to maintain  reserve  balances  with the Federal
          Reserve Bank. For the final weekly reporting period in the years ended
          December 31, 1999 and 1998,  the  aggregate  amounts of daily  average
          required   balances   were   approximately   $469,000  and   $391,000,
          respectively.


                                      D-11

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


NOTE 3.   SECURITIES

          The amortized cost, with gross unrealized gains and losses, follows:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31, 1999
                                        -------------------------------------------------------------------------
                                                              GROSS              GROSS
                                         AMORTIZED         UNREALIZED          UNREALIZED               FAIR
                                           COST               GAINS             (LOSSES)                VALUE
                                        -----------        ----------          ----------            -----------
<S>                                     <C>                   <C>             <C>                    <C>
Securities Available for Sale
  U.S. Government agencies              $22,916,301           $  --           $  (643,120)           $22,273,181
  Obligations of states and
    political subdivisions                1,009,856              --                (3,378)             1,006,478
  Corporate                                 525,343              --               (15,187)               510,156
  Other                                     264,700              --                    --                264,700
                                        -----------           -----           -----------            -----------
      Total                             $24,716,200           $  --           $  (661,685)           $24,054,515
                                        ===========           =====           ===========            ===========

<CAPTION>

                                                                     DECEMBER 31, 1998
                                        -------------------------------------------------------------------------
                                                                GROSS              GROSS
                                          AMORTIZED          UNREALIZED          UNREALIZED            FAIR
                                            COST                GAINS             (LOSSES)             VALUE
                                        -----------         -----------         -----------         -----------
<S>                                     <C>                 <C>                 <C>                 <C>
 Securities Available for Sale
   U.S. Treasury securities             $ 3,021,530         $    29,721         $        --         $ 3,051,251
   U.S. Government agencies              14,769,231              57,082              (2,344)         14,823,969
   Obligations of states and
     political subdivisions               1,654,720              29,114                  --           1,683,834
   Corporate
   Other                                    264,700                  --                  --             264,700
                                        -----------         -----------         -----------         -----------
      Total                             $19,710,181         $   115,917         $    (2,344)        $19,823,754
                                        ===========         ===========         ===========         ===========
</TABLE>


          The  amortized  cost and  fair  value of  securities  by  contractural
          maturity follows:

<TABLE>
<CAPTION>
                                                                                              1999
                                                                                  AMORTIZED             FAIR
                                                                                    COST               VALUE
                                                                                -----------         -----------
<S>                                                                             <C>                 <C>
 Due in one year or less                                                        $   510,000         $   508,477
 Due from one year to five years                                                 22,565,980          21,961,130
 Due from five years to ten years                                                 1,000,000             944,688
 Due after ten years                                                                375,520             375,520
 Federal Reserve stock                                                              264,700             264,700
                                                                                -----------         -----------
       Total                                                                    $24,716,200         $24,054,515
                                                                                ===========         ===========
</TABLE>


                                      D-12

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


          Proceeds from sale of securities  available for sale during 1999, 1998
          and 1997 were $646,486  $449,219 and $8,984,402.  Gross gains on those
          sales during 1999,  1998 and 1997 were $1,468,  $0 and $47,261.  Gross
          losses on those sales were $0, $781 and $0 during 1999, 1998 and 1997,
          respectively.

          Securities  having  a  book  value  of  approximately  $5,496,544  and
          $3,792,558  at  December  31,  1999 and 1998,  were  pledged to secure
          public   deposits,   letters  of  credit,   and  customer   repurchase
          agreements.

NOTE 4.   LOANS

          A summary of the balances of loans follows:

<TABLE>
<CAPTION>
                                                                  1999                        1998
                                                                --------                    --------
                                                                            (in thousands)
<S>                                                             <C>                         <C>
Real estate:
  Residential                                                   $ 10,475                    $ 11,168
  Commercial                                                      13,088                      11,791
  Farmland                                                           972                         992
  Construction                                                     1,157                         441
Commercial                                                         3,665                       3,279
Consumer                                                           1,507                       1,306
All other loans                                                      825                         633
                                                                --------                    --------
                                                                $ 31,689                    $ 29,610
Less:  allowance for loan losses                                    (421)                       (429)
                                                                --------                    --------
     Loans, net                                                 $ 31,268                    $ 29,181
                                                                ========                    ========
</TABLE>


           Analysis of the allowance for loan losses follows:

<TABLE>
<CAPTION>
                                              1999                 1998                1997
                                              -----                -----               -----
                                                               (in thousands)
<S>                                           <C>                  <C>                 <C>
 Balance, beginning of year                   $ 429                $ 634               $ 617
 Provision for loan losses                       --                  117                   4
 Loans charged-off                              (20)                (339)                (61)
 Recoveries                                      12                   17                  74
                                              -----                -----               -----
 Balance at end of year                       $ 421                $ 429               $ 634
                                              =====                =====               =====
</TABLE>



                                      D-13

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


          Information about impaired loans is as follows:

<TABLE>
<CAPTION>
                                                                 1999                1998
                                                                -------            --------
<S>                                                             <C>                <C>
 Impaired loans for which an allowance
   has been provided                                            $    --            $ 29,370
 Impaired loans for which no allowance
    has been provided                                                --                  --
                                                                -------            --------
         Total impaired loans                                   $    --            $ 29,370
                                                                -------            --------

 Allowance provided for impaired loans,
   included in the allowance for loan
   losses                                                       $    --            $ 11,405
                                                                -------            --------

<CAPTION>

                                                                 1999                1998              1997
                                                                -------           ---------         ---------
<S>                                                             <C>               <C>               <C>
 Average balance in impaired loans                              $ 2,719           $ 176,334         $ 378,901
                                                                -------           ---------         ---------
 Interest income recognized                                     $   524           $  23,605         $  26,858
                                                                -------           ---------         ---------
</TABLE>


          There were no nonaccrual  loans excluded from impaired loan disclosure
          at December 31, 1999.  Nonaccrual  loans  excluded  from impaired loan
          disclosure  under FASB 114  amounted to $365,670 at December 31, 1998.
          If interest on these loans had been  accrued,  such income  would have
          approximated $26,836.

NOTE 5.   RELATED PARTY TRANSACTIONS

          In the ordinary  course of business,  the Company has granted loans to
          principal  officers and  directors and their  affiliates  amounting to
          $306,496 at  December  31, 1999 and  $279,384  at December  31,  1998.
          During the year ended  December 31, 1999,  total  principal  additions
          were $150,500 and total principal payments were $123,388.


                                      D-14

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


NOTE 6.    PREMISES AND EQUIPMENT

          A summary of the cost and  accumulated  depreciation  of premises  and
          equipment follows:

<TABLE>
<CAPTION>
                                                                  1999                 1998
                                                               ---------            ---------
<S>                                                            <C>                  <C>
    Land                                                       $ 245,000            $ 245,000
    Land improvements                                             41,964               31,885
    Leasehold improvements                                       242,997              147,647
    Equipment, furniture and fixtures                            459,268              354,200
                                                               ---------            ---------
                                                               $ 989,229            $ 778,732
      Less accumulated depreciation
          and amortization                                      (140,234)            (402,279)
                                                               ---------            ---------
                                                               $ 848,995            $ 376,453
                                                               =========            =========
</TABLE>


          Depreciation and amortization  charged to operations  totaled $81,460,
          $50,958 and $67,733 in 1999, 1998 and 1997, respectively.

NOTE 7.   SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

          Securities sold under  agreements to repurchase,  which are classified
          as secured  borrowings,  generally mature within one to four days from
          the transaction  date.  Securities sold under agreements to repurchase
          are reflected at the amount of cash  received in  connection  with the
          transaction.  The  Company  may  be  required  to  provide  additional
          collateral based on the fair value of the underlying securities.


                                      D-15

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


NOTE 8.    INCOME TAXES

           The  components  of the net  deferred  tax assets,  included in other
assets, are as follows:

<TABLE>
<CAPTION>
                                                                              1999              1998
                                                                            --------          --------
<S>                                                                         <C>               <C>
DEFERRED TAX ASSETS:
    Net operating loss carryforwards                                        $     --          $ 47,105
    Alternative minimum tax credits                                               --             6,652
    Unrealized loss on securities available for sale                         224,973                --
    Accumulated depreciation                                                  24,794            28,160
    Allowance for loan losses                                                 32,448            32,448
    Organization costs                                                        15,286            19,362
    Other                                                                         --            11,163
                                                                            --------          --------
           Gross deferred tax asset                                         $297,501          $144,890
                                                                            ========          ========
DEFERRED TAX LIABILITIES, unrealized gain
    on securities available for sale                                        $     --          $ 38,615
                                                                            --------          --------

           Net deferred tax assets                                          $297,501          $106,275
                                                                            --------          --------
</TABLE>


           Allocation  of federal  income  taxes  between  current and  deferred
portions is as follows:

<TABLE>
<CAPTION>
                                                                    YEARS ENDED DECEMBER 31,
                                                         ------------------------------------------------
                                                           1999                1998               1997
                                                         --------            ---------          ---------
<S>                                                      <C>                 <C>                <C>
Current                                                  $ 165,498           $   4,600          $      --
Deferred                                                   (72,823)             40,058            161,717
Change in valuation allowance                                   --             (85,297)          (247,014)
                                                         ---------           ---------          ---------
                                                         $  92,675           $ (40,639)         $ (85,297)
                                                         =========           =========          =========
</TABLE>

          The reasons for the  difference  between the statutory  federal income
          tax rate and the effective tax rates are summarized as follows:

<TABLE>
<CAPTION>
                                                                    YEARS ENDED DECEMBER 31,
                                                         ------------------------------------------------
                                                            1999               1998               1997
                                                         ---------           ---------          ---------
<S>                                                      <C>                 <C>                <C>
Tax expense at statutory rate                            $  93,384           $  31,540          $ 165,090
Change in valuation allowance                                   --             (85,297)          (247,014)
Other, net                                                    (709)             13,118             (3,373)
                                                         ---------           ---------          ---------
                                                         $  92,675           $ (40,639)         $ (85,297)
                                                         =========           =========          =========
</TABLE>


                                      D-16

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


NOTE 9.   DEPOSITS

          The aggregate amount of time deposits, in denominations of $100,000 or
          more at December  31,  1999 and 1998 was  $4,738,768  and  $6,339,277,
          respectively.

          At December 31, 1999, the scheduled maturities of time deposits are as
          follows:

               2000                             $  9,095,970
               2001                                4,932,561
               2002                                1,368,049
                                                ------------
                                                $ 15,396,580
                                                ============


NOTE 10.  OTHER OPERATING EXPENSES

          The components of other operating  expenses consisted of the following
          for the years ended December 31:

<TABLE>
<CAPTION>
                                                      1999                   1998                    1997
                                                   ----------             ----------             ----------
<S>                                                <C>                    <C>                    <C>
Data processing                                    $  126,762             $   99,589             $   78,702
Professional fees                                     175,555                374,229                115,024
Stationary and supplies                                85,693                 70,172                 61,957
Postage                                                38,461                 33,235                 36,899
Stockholder expense                                    49,329                 77,524                 18,116
Bank franchise tax                                     59,556                 27,597                 27,366
Business development                                   84,533                 31,482                 20,794
Other (includes no items in excess of
     1% of total revenue)                             322,932                354,815                221,103
                                                   ----------             ----------             ----------
                                                   $  942,821             $1,068,643             $  579,961
                                                   ==========             ==========             ==========
</TABLE>


                                      D-17

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


NOTE 11.  EARNINGS PER SHARE

          The  following  shows the  weighted  average  number of shares used in
          computing earnings per share and the effect on weighted average number
          of shares of diluted potential common stock. Potential dilutive common
          stock had no effect on income available to common stockholders.

<TABLE>
<CAPTION>
                                    1999                           1998                             1997
                        ----------------------------    ----------------------------    -----------------------------
                                         PER SHARE                       PER SHARE                       PER SHARE
                          SHARES           AMOUNT         SHARES           AMOUNT         SHARES           AMOUNT
                        ---------       ------------    ---------       ------------    ---------       -------------
<S>                     <C>             <C>             <C>             <C>             <C>             <C>
Basic earnings
  per share             2,294,617       $       0.08    1,890,666       $       0.07    1,271,176       $        0.45
                                        ============                    ============                    =============
Effect of dilutive
  securities:
    Stock options           6,931                           5,585                           1,307
    Warrants                   --                              --                          22,726

Diluted earnings
  per share             2,301,548       $       0.08    1,896,251       $       0.07    1,295,209       $        0.44
                                        ============                    ============                    =============
</TABLE>


NOTE 12.  COMMITMENTS AND CONTINGENCIES

          The Company leases its main office and operations center in McLean and
          its branch office in Sterling.  The McLean lease contains three,  five
          year renewal  periods and expires in 2008.  The  Sterling  lease has a
          term of ten years  with one five year  renewal  option.  The  Sterling
          lease expires in 2009.  Total rent expense was $310,910,  $191,272 and
          $194,945 for 1999,  1998 and 1997,  respectively,  and was included in
          occupancy expense.

          The following is a schedule, by year, of future minimum lease payments
          required under the long-term noncancelable lease agreements.

              2000                             $  336,892
              2001                                350,194
              2002                                364,325
              2003                                374,705
              2004                                385,959
              Due thereafter                    1,355,997
                                               ----------
                                               $3,168,072
                                               ==========

          The Company  entered into a long-term  lease for its Tyson's branch on
          March 16, 2000,  which is subject to  regulatory  approval.  The lease
          expires  March 31, 2006 and has annual  base rent of $111,078  with 3%
          yearly increases.


                                      D-18

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


          In the  normal  course  of  business  there  are  outstanding  various
          commitments and contingent liabilities, which are not reflected in the
          accompanying  consolidated  financial statements.  Management does not
          anticipate any material losses as a result of these transactions.

          See   Note   15   with   respect   to   financial   instruments   with
          off-balance-sheet risk.

NOTE 13.  STOCK-BASED COMPENSATION

          In 1998, the stockholders  approved an employee incentive stock option
          plan.  The option  price for shares  granted  under this plan shall be
          determined by a Committee of the Company's Board of Directors,  but in
          no event shall the option  price be less than the fair market value of
          the  Company's  stock at the time of  grant.  The term of each  option
          granted  under the plan is ten  years,  unless the  optionee  has been
          discharged  from his or her  employment  by the  Company  for cause in
          which  case the  option  must be  exercised  no later  than six months
          following  the date of  discharge.  The  maximum  aggregate  number of
          shares which may be optioned and sold under the plan is 75,000 shares.
          As of December 31, 1999,  29,480 options were  outstanding  under this
          plan.

          In 1992, the Company  adopted a  nonqualified  stock option plan which
          full-time  employees and part-time employees working at least 25 hours
          per week were  eligible to receive  options to acquire  Common  Stock.
          Options  expire  ten years  after the date of grant.  There are 18,125
          options outstanding under this plan as of December 31, 1999.

          Grants under the above plans are  accounted  for following APB Opinion
          No. 25 and related interpretations.  Accordingly, no compensation cost
          has been  recognized  for  grants  under the stock  option  plans.  No
          employee  stock  options  were  granted  during  1997  and  1996.  Had
          compensation cost for the employee stock-based  compensation plan been
          determined  based on the grant date fair  values of awards (the method
          described in FASB Statement No. 123), reported net income and earnings
          per  common  share  would have been  reduced to the pro forma  amounts
          shown below for 1999:

<TABLE>
<S>                                                                          <C>
                     Net income:
                       As reported                                           $     181,985
                       Pro forma                                             $     139,600

                     Basic earnings per share:
                       As reported                                           $         .08
                       Pro forma                                             $         .06

                     Diluted earnings per share:
                       As reported                                           $         .08
                       Pro forma                                             $         .06
</TABLE>

          The fair value of each grant is  estimated at the grant date using the
          Black-Scholes  option-pricing  model.  The following  weighted average
          assumptions for grants in 1999 were used:  price  volatility of 20.9%;
          risk-free  interest rate of 6.5%;  dividend rate of 0.00% and expected
          life of 10 years.

                                      D-19

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


          The  status  of the  Option  Plans  during  1999,  1998 and 1997 is as
          follows:

<TABLE>
<CAPTION>
                                      1999                             1998                             1997
                         --------------------------        -------------------------      -------------------------
                                           WEIGHTED                         WEIGHTED                       WEIGHTED
                                           AVERAGE                           AVERAGE                        AVERAGE
                           NUMBER          EXERCISE          NUMBER         EXERCISE        NUMBER         EXERCISE
                         OF SHARES          PRICE          OF SHARES         PRICE        OF SHARES         PRICE
                         ---------         --------        ---------        --------      ---------        --------
<S>                        <C>             <C>              <C>             <C>              <C>           <C>
Outstanding at
  January 1                29,550          $   3.45         27,375          $   3.43         30,675        $   3.51
    Granted                24,500              3.97          8,925              3.875            --              --
    Exercised                  --                --         (2,700)             3.64             --              --
    Canceled               (6,445)             3.96         (4,050)             4.13         (3,300)           4.20
                           ------                           ------                           ------
Outstanding at
  December 31              47,605          $   3.65         29,550          $   3.45         27,375        $   3.43
                           ------                           ------                           ------

Exercisable at
  end of year              47,605                           29,550                          27,375
                           ======                           ======                          ======

Weighted-average
  fair value per
  option of options
  granted during
  the year                 $    2                           $    2                          $  --
                           ======                           ======                          =====
</TABLE>


          The Status of the  options  outstanding  at  December  31,  1999 is as
          follows:

<TABLE>
<CAPTION>
                            NUMBER                          WEIGHTED
          RANGE OF       OUTSTANDING       REMAINING        AVERAGE
          EXERCISE           AND          CONTRACTUAL       EXERCISE
           PRICE         EXERCISABLE         LIFE            PRICE
        -------------    -----------      -----------       --------
<S>                        <C>             <C>                <C>
        $3.10 - $3.15      18,125          0.75 years         3.14
          $3.875           12,480          9.35               3.875
           $4.00           16,000          9.75               4.00
           $4.25            1,000          9.75               4.25
                           ------
                           47,605          6.22               3.65
                           ======
</TABLE>


                                      D-20

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


NOTE 14.  DIRECTOR COMPENSATION PLAN

          In 1998,  the  stockholders  approved a stock  option plan for outside
          directors  of the  Company.  The option  price for shares to be issued
          upon  exercise  of  any  option  granted  under  this  plan  shall  be
          determined by a Committee of the Company's Board of Directors,  but in
          no event shall the option  price be less than the fair market value of
          the  Company's  stock at the time of  grant.  The term of each  option
          granted under this plan shall be ten years from the date of grant.  If
          a director resigns or is removed from the Board, all of the Director's
          stock  options  must  be  exercised  within  sixty  days of his or her
          departure from the Board. The maximum aggregate number of shares which
          may be  optioned  and sold  under  the plan is  75,000  shares.  As of
          December 31, 1999, 28,500 options were outstanding under this plan.

          On March 26, 1997,  the Board of Directors  granted  stock  options to
          those members  serving on the Bank's Board of Directors,  who were not
          employees  or  officers  of the Bank,  to acquire  common  stock at an
          exercise price of $2.86.  The options expire ten years after the grant
          date, unless the Director ceases to be a member of the Bank's Board of
          Directors,  in which case the options expire sixty days following such
          date. As of December 31, 1999, there were 10,000 options outstanding.

          The status of the Option Plan during 1999 and 1998 is as follows:

<TABLE>
<CAPTION>
                                                  1999                         1998                         1997
                                       --------------------------    ------------------------     -------------------------
                                                        WEIGHTED                     WEIGHTED                     WEIGHTED
                                                        AVERAGE                      AVERAGE                       AVERAGE
                                         NUMBER         EXERCISE       NUMBER        EXERCISE       NUMBER        EXERCISE
                                       OF SHARES         PRICE       OF SHARES        PRICE       OF SHARES        PRICE
                                       ---------        --------     ---------       --------     ---------       --------
<S>                                     <C>            <C>            <C>           <C>            <C>           <C>
 Outstanding at January 1               26,000         $    3.48      10,000        $    2.86          --        $     --
     Granted                            14,000              4.00      16,000             3.875     10,000            2.86
     Forfeited                          (1,500)             3.875         --               --          --              --
                                        ------                        ------                       ------
 Outstanding at December 31             38,500         $    3.66      26,000        $    3.48      10,000        $   2.86
                                        ======                        ======                       ======
</TABLE>

          The status of the options  outstanding  as of December  31, 1999 is as
          follows:

<TABLE>
<CAPTION>
                       WEIGHTED          NUMBER
                       AVERAGE        OUTSTANDING       REMAINING
                       EXERCISE           AND          CONTRACTUAL
                        PRICE         EXERCISABLE         LIFE
                       -------        -----------       ---------
                       <S>              <C>             <C>
                       $ 2.860          10,000          7.25 years
                         3.875          14,500          8.75
                         4.000          14,000          10
                                        ------
                       $ 3.660          38,500          8.81
                                        ======
</TABLE>


                                      D-21

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


NOTE 15.  FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

          The  Company is party to credit  related  financial  instruments  with
          off-balance-sheet  risk in the normal  course of  business to meet the
          financing needs of its customers.  These financial instruments include
          commitments  to extend  credit and  standby  letters  of credit.  Such
          commitments  involve,  to  varying  degrees,  elements  of credit  and
          interest  rate  risk  in  excess  of  the  amount  recognized  in  the
          consolidated balance sheets.

          The  Company's   exposure  to  credit  loss  is   represented  by  the
          contractural  amount of these  commitments.  The Company uses the same
          credit policies in making commitments as it does for  on-balance-sheet
          instruments.

          At December 31, 1999 and 1998,  the  following  financial  instruments
          were outstanding whose contract amounts represent credit risk:

<TABLE>
<CAPTION>
                                                                                  1999               1998
                                                                            ----------------    --------------
<S>                                                                         <C>                 <C>
                    Financial   instruments  whose  contract
                    amounts  represent credit risk:
                      Commitments to extend credit                          $     10,594,692    $  8,708,866
                      Standby letters of credit                             $         92,333    $    181,900
</TABLE>

          Commitments  to extend credit are  agreements to lend to a customer as
          long as there is no  violation  of any  condition  established  in the
          contract.  Commitments  generally have fixed expiration dates or other
          termination  clauses and may require  payment of a fee.  Since many of
          the  commitments  are expected to expire without being drawn upon, the
          total  commitment  amounts do not  necessarily  represent  future cash
          requirements.  The Company evaluates each customer's credit worthiness
          on a case-by-case basis. The amount of collateral obtained,  if deemed
          necessary  by the  Company  upon  extension  of  credit,  is  based on
          management's  credit evaluation of the  counterparty.  Collateral held
          varies but may include accounts  receivable,  inventory,  property and
          equipment, and income-producing commercial properties.

          Unfunded  commitments  under  commercial  lines of  credit,  revolving
          credit lines and overdraft  protection  agreements are commitments for
          possible  future  extensions  of credit to existing  customers.  These
          lines of credit may be  uncollateralized  and usually do not contain a
          specified  maturity date and may not be drawn upon to the total extent
          to which the Company is committed.

          Standby  letters of credit are conditional  commitments  issued by the
          Company to guarantee the  performance  of a customer to a third party.
          Those  guarantees  are primarily  issued to support public and private
          borrowing  arrangements,  including  commercial paper, bond financing,
          and similar transactions.  The credit risk involved in issuing letters
          of credit is  essentially  the same as that involved in extending loan
          facilities  to  customers.  The  Company  holds  cash  and  marketable
          securities supporting those commitments for which collateral is deemed
          necessary.

          The Company maintains several cash accounts in other commercial banks.
          The amount on deposit with correspondent  institutions at December 31,
          1999,  exceeded the insurance limits of the Federal Deposit  Insurance
          Corporation by $490,963.

                                      D-22

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


NOTE 16.  RESTRICTIONS ON TRANSFERS TO PARENT

          Federal and state banking  regulations  place certain  restrictions on
          dividends  paid and loans or advances made by the Bank to the Company.
          The  total  amount  of  dividends,  which  may be paid at any  date is
          generally  limited to the retained  earnings of the Bank, and loans or
          advances  are  limited to 10 percent of the Bank's  capital  stock and
          surplus on a secured  basis.  As of December 31, 1999,  the  aggregate
          amount of  unrestricted  funds,  which could be  transferred  from the
          banking  subsidiary to the Parent  Company  without  prior  regulatory
          approval totaled $1,025,519 or 11.93% of the consolidated net assets.

NOTE 17.  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

          The  following  methods  and  assumptions  were used by the Company in
          estimating fair value disclosures for financial instruments:

             CASH AND CASH EQUIVALENTS

               For  those  short-term  instruments,  the  carrying  amount  is a
               reasonable estimate of fair value.

             SECURITIES

               For  securities  held for  investment  purposes,  fair values are
               based on quoted market prices or dealer quotes.

             LOAN RECEIVABLES

               For  variable-rate  loans  that  reprice  frequently  and with no
               significant  change  in credit  risk,  fair  values  are based on
               carrying  values.  Fair values for certain  mortgage loans (e.g.,
               one-to-four  family  residential),  and other  consumer loans are
               based  on  quoted   market   prices  of  similar  loans  sold  in
               conjunction  with  securitization   transactions,   adjusted  for
               differences in loan characteristics.  Fair values for other loans
               (e.g.,  commercial real estate and investment  property  mortgage
               loans,  commercial  and  industrial  loans) are  estimated  using
               discounted  cash flow analyses,  using  interest rates  currently
               being  offered  for loans  with  similar  terms to  borrowers  of
               similar credit quality.  Fair values for non-performing loans are
               estimated  using  discounted  cash flow  analyses  or  underlying
               collateral values, where applicable.

             DEPOSITS

               The fair values disclosed for demand deposits (e.g., interest and
               non-interest  checking,  statement savings,  and certain types of
               money market  accounts) are, by  definition,  equal to the amount
               payable on demand at the  reporting  date (i.e.,  their  carrying
               amounts). The carrying amounts of variable-rate, fixed-term money
               market  accounts and  certificates of deposit  approximate  their
               fair values at the  reporting  date.  Fair values for  fixed-rate
               certificates  of deposit are  estimated  using a discounted  cash
               flow  calculation  that applies  interest rates  currently  being
               offered on  certificates  to a schedule  of  aggregated  expected
               monthly maturities on time deposits.

                                      D-23

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


             ACCRUED INTEREST

               The carrying amounts of accrued interest approximate fair value.

             OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS

               Commitments  to extend  credit were  evaluated and fair value was
               estimated using the fees currently  charged to enter into similar
               agreements,  taking  into  account  the  remaining  terms  of the
               agreements    and   the   present    creditworthiness    of   the
               counterparties.  The fair value of  standby  letters of credit is
               based on fees currently charged for similar  agreements or on the
               estimated  cost  to  terminate  them  or  otherwise   settle  the
               obligations  with the  counterparties  at the reporting date. The
               carrying amount of treasury,  tax and loan deposits  approximates
               the fair value.

               The carrying amounts and fair values of financial  instruments as
               of December 31, 1999 are presented below:

<TABLE>
<CAPTION>
                                                               1999                             1998
                                                    ------------------------         ------------------------
                                                    CARRYING           FAIR          CARRYING           FAIR
                                                     AMOUNT            VALUE          AMOUNT            VALUE
                                                    --------           -----         --------           -----
                                                            (in thousands)                   (in thousands)
<S>                                                 <C>               <C>            <C>               <C>
Financial assets:
  Cash and due from banks                           $ 2,667           $ 2,667        $ 5,825           $ 5,825
  Federal funds sold and securities
   purchased under agreement to resell                   --                --          8,550             8,550
  Securities                                         24,055            24,055         19,824            19,824
  Loans, net                                         31,268            31,113         29,181            29,539
  Accrued interest receivable                           536               536            459               459

Financial liabilities:
  Deposits                                          $47,993           $47,918        $53,442           $53,684
  Securities sold under agreement
   to repurchase                                      3,001             3,001          2,287             2,287
  Accrued interest payable                               53                53             55                55

</TABLE>


                                      D-24

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


NOTE 18.  CAPITAL REQUIREMENTS

          The  Company  (on a  consolidated  basis) and the Bank are  subject to
          various  regulatory capital  requirements  administered by the Federal
          banking  agencies.  Failure to meet minimum capital  requirements  can
          initiate  certain  mandatory  and  possibly  additional  discretionary
          actions  by  regulators  that,  if  undertaken,  could  have a  direct
          material  effect on the  Company's  and Bank's  financial  statements.
          Under capital  adequacy  guidelines and the  regulatory  framework for
          prompt corrective  action, the Company and the Bank must meet specific
          capital guidelines that involve quantitative measures of their assets,
          liabilities,  and certain  off-balance-sheet items as calculated under
          regulatory   accounting    practices.    The   capital   amounts   and
          classification  are  also  subject  to  qualitative  judgments  by the
          regulators  about  components,  risk  weightings,  and other  factors.
          Prompt corrective action provisions are not applicable to bank holding
          companies.

          Quantitative  measures  established  by regulation  to ensure  capital
          adequacy  require the Company and the Bank to maintain minimum amounts
          and ratios (set forth in the table  below) of total and Tier 1 capital
          (as defined in the regulations) to  risk-weighted  assets (as defined)
          and of Tier 1 capital  (as  defined) to average  assets (as  defined).
          Management  believes,  as of  December  31,  1999 and  1998,  that the
          Company and the Bank met all capital  adequacy  requirements  to which
          they are subject.

          As of December 31, 1999, the most recent notification from the Federal
          Reserve  Bank  categorized  the  Bank as well  capitalized  under  the
          regulatory  framework for prompt corrective  action. To be categorized
          as well  capitalized,  an  institution  must  maintain  minimum  total
          risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth
          in  the  table.   There  are  no   conditions  or  events  since  that
          notification  that management  believes have changed the institution's
          category.


                                      D-25

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


          The Company and  Subsidiary's  actual  capital  amounts and ratios are
          also  presented in the table.  No amount was deducted from capital for
          interest-rate risk.

<TABLE>
<CAPTION>
                                                                                                           MINIMUM
                                                                                                          TO BE WELL
                                                                                                      CAPITALIZED UNDER
                                                        MINIMUM CAPITAL                               PROMPT CORRECTIVE
                                ACTUAL                    REQUIREMENT                                 ACTION PROVISIONS
                                ------                    -----------                                 -----------------
                            AMOUNT  RATIO         AMOUNT                RATIO                   AMOUNT                  RATIO
                            ------  -----         ------                -----                   ------                  -----

                                                              (Amount in Thousands)
<S>                        <C>      <C>     <C>                     <C>                  <C>                     <C>
 As of December 31, 1999:
  Total Capital (to Risk
    Weighted Assets)
      Consolidated         $ 9,456  24.5%   greater than            greater than                             N/A
                                             or equal to  $ 3,088    or equal to  8.0%
      The Heritage Bank    $ 9,456  24.5%   greater than            greater than         greater than            greater than
                                             or equal to  $ 3,088    or equal to  8.0%    or equal to  $ 3,860    or equal to  10.0%
  Tier 1 Capital (to Risk
    Weighted Assets)
      Consolidated         $ 9,035  23.4%   greater than            greater than                              N/A
                                             or equal to  $ 1,544    or equal to  4.0%
      The Heritage Bank    $ 9,035  23.4%   greater than            greater than         greater than            greater than
                                             or equal to  $ 1,544    or equal to  4.0%    or equal to  $ 2,316    or equal to   6.0%
    Tier 1 Capital (to
     Average Assets)
      Consolidated         $ 9,035  14.7%   greater than            greater than                              N/A
                                             or equal to  $ 2,453    or equal to  4.0%
      The Heritage Bank    $ 9,035  14.7%   greater than            greater than         greater than            greater than
                                             or equal to  $ 2,453    or equal to  4.0%    or equal to  $ 3,066    or equal to   5.0%
As of December 31, 1998:
  Total Capital (to Risk
    Weighted Assets)
      Consolidated         $ 9,282  25.7%   greater than            greater than                              N/A
                                             or equal to  $ 2,886    or equal to  8.0%
      The Heritage Bank    $ 9,282  25.7%   greater than            greater than         greater than            greater than
                                             or equal to  $ 2,886    or equal to  8.0%    or equal to  $ 3,607    or equal to  10.0%
 Tier 1 Capital (to Risk
    Weighted Assets)
      Consolidated         $ 8,853  24.5%   greater than            greater than                              N/A
                                             or equal to  $ 1,443    or equal to  4.0%
      The Heritage Bank    $ 8,853  24.5%   greater than            greater than         greater than            greater than
                                             or equal to  $ 1,443    or equal to  4.0%    or equal to  $ 2,164    or equal to   6.0%
  Tier 1 Capital (to
    Average Assets)
      Consolidated         $ 8,853  17.2%   greater than            greater than                              N/A
                                             or equal to  $ 2,060    or equal to  4.0%
      The Heritage Bank    $ 8,853  17.2%   greater than            greater than         greater than            greater than
                                             or equal to  $ 2,060    or equal to  4.0%    or equal to  $ 2,575    or equal to   5.0%
</TABLE>

NOTE 19.  COMMON STOCK

          On May 18, 1998, the Company  completed a secondary  stock offering in
          which it sold  805,000  shares of common stock at a price of $5.50 per
          share.  Net proceeds for the Company were  $4,012,204  after deducting
          underwriting  commissions  of $309,925  and direct  offering  costs of
          $105,371. On June 8, 1998, the Company used part of the new capital to
          complete an odd-lot tender offer, purchasing 2,719 shares at $5.50 per
          share for a total cost of $14,955.

                                      D-26

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


NOTE 20.  PARENT COMPANY ONLY FINANCIAL STATEMENTS

                             HERITAGE BANCORP, INC.
                              (Parent Company Only)

                                 BALANCE SHEETS
                           December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                    1999                       1998
                                                                                -----------                -----------
       ASSETS
<S>                                                                             <C>                        <C>
Investment in subsidiary, at cost, plus
  equity in undistributed net income                                            $ 8,737,251                $ 9,017,608
                                                                                -----------                -----------
       LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES, due to subsidiary                                                  $   139,273                $    89,944
                                                                                -----------                -----------

STOCKHOLDERS' EQUITY
  Common stock                                                                  $ 2,294,617                $ 2,294,617
  Surplus                                                                         6,529,539                  6,529,539
  Retained earnings                                                                 210,534                     28,549
  Accumulated other comprehensive income                                           (436,712)                    74,959
                                                                                -----------                -----------
       Total stockholders' equity                                               $ 8,597,978                $ 8,927,664
                                                                                -----------                -----------
       Total liabilities and stockholders' equity                               $ 8,737,251                $ 9,017,608
                                                                                ===========                ===========
</TABLE>


                                      D-27

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997


                             HERITAGE BANCORP, INC.
                              (Parent Company Only)

                              STATEMENTS OF INCOME
                 For the Years Ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                  1999                    1998
                                                                                --------                --------
<S>                                                                             <C>                     <C>
INCOME
  Equity in undistributed net income of subsidiary                              $231,314                $223,349
                                                                                --------                --------
EXPENSES
  Organization costs                                                            $     --                $ 89,944
  Stockholder expense                                                             49,329                      --
                                                                                --------                --------
       Total expenses                                                           $ 49,329                $ 89,944
                                                                                --------                --------
       Net income                                                               $181,985                $133,405
                                                                                ========                ========
</TABLE>


                            STATEMENTS OF CASH FLOWS
                 For the Years Ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                   1999                      1998
                                                                                ---------                 ---------
<S>                                                                             <C>                       <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                                                     $ 181,985                 $ 133,405
 Adjustments to reconcile net income to
  net cash provided by operating activities,
  increase in due to subsidiary                                                    49,329                    89,944
 Undistributed earnings of subsidiary                                            (181,985)                 (223,349)
                                                                                ---------                 ---------

      Net cash provided by operating activities                                 $  49,329                 $      --

CASH AND CASH EQUIVALENTS, beginning of year                                           --                        --
                                                                                ---------                 ---------

CASH AND CASH EQUIVALENTS, end of year                                          $  49,329                 $      --
                                                                                =========                 =========
</TABLE>
                                      D-28

<PAGE>

                      HERITAGE BANCORP, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                            (in thousands of dollars)

<TABLE>
<CAPTION>

                                                        (Unaudited)         (Audited)
                                                          March 31,        December 31,
    ASSETS:                                                 2000               1999
                                                        -----------        ------------
    <S>                                                    <C>               <C>

    Cash and due from banks                                $ 2,990           $ 2,667
    Securities available for sale (at market value)         23,764            24,054
    Federal funds sold                                           0                 0
    Loans, net                                              35,649            31,268
    Premises and equipment                                     872               849
    Other assets                                             1,146             1,101
                                                           -------           -------
          Total assets                                     $64,421           $59,939
                                                           =======           =======

LIABILITIES:
Deposits
    Non-interest bearing                                   $11,152           $13,708
    Interest-bearing                                        36,881            34,285
                                                           -------           -------
       Total deposits                                       48,033            47,993
Short-term debt                                              7,603             3,001
Other liabilities                                              217               347
                                                           -------           -------
          Total liabilities                                 55,853            51,341
                                                           -------           -------

STOCKHOLDERS' EQUITY:
    Common stock; $1 par value per share;
     authorized 10,000,000 shares; issued and
     outstanding 2,294,617 shares                            2,295             2,295
    Surplus                                                  6,530             6,530
    Undivided profits                                          235               210
    Accumulated other comprehensive
     income (loss), net                                       (492)             (437)
                                                           -------           -------
          Total stockholders' equity                         8,568             8,598
                                                           -------           -------
          Total liabilities and
            stockholders' equity                           $64,421           $59,939
                                                           =======           =======

</TABLE>


Notes to financial statements are an integral part of these statements.

                                      D-29

<PAGE>

                      HERITAGE BANCORP, INC. AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
                            (in thousands of dollars)
                                   (unaudited)

                                                           Three Months Ended
                                                           ------------------
                                                                March 31,
                                                                ---------
                                                           2000           1999
                                                         -------         -------
INTEREST INCOME:
Loans and fees                                           $   725         $   699
Federal funds sold                                             7              81
Investment securities                                        386             319
                                                         -------         -------
   Total interest income                                   1,118           1,099

INTEREST EXPENSE:
Interest on deposits                                         330             348
Interest on federal funds purchased
 and other borrowings                                         44              12
                                                         -------         -------
   Total interest expense                                    374             360
                                                         -------         -------
   Net interest income                                       744             739

PROVISION FOR LOAN
AND LEASE LOSSES                                             (28)              7
                                                         -------         -------
   Net interest income after
   provision for loan losses                                 772             732

OTHER INCOME:
Service charges & fees                                        46              34
Securities gains (losses)                                    (13)             --
                                                         -------         -------
   Total other income                                         33              34

OTHER EXPENSES:
Salaries & employee benefits                                 319             295
Occupancy expenses                                           105              52
Furniture & equipment expenses                                64              39
Other operating expenses                                     280             184
                                                         -------         -------
   Total other expenses                                      768             570
                                                         -------         -------
Income before income taxes                                    37             196
Applicable income taxes                                       12              19
                                                         -------         -------
   Net income                                            $    25         $   177
                                                         =======         =======
    EARNINGS PER SHARE, BASIC                            $   .01         $   .08
                                                         =======         =======
    EARNINGS PER SHARE, ASSUMING
    DILUTION                                             $   .01         $   .08
                                                         =======         =======

Notes to financial statements are an integral part of these statements.

                                      D-30

<PAGE>



                      HERITAGE BANCORP, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                    For the three months ended March 31, 2000
                            (in thousands of dollars)
                                   (unaudited)

<TABLE>
<CAPTION>

                                                                                  Accumulated
                                                                                    Other
                                                  Common              Retained   Comprehensive     Comprehensive
                                                   Stock     Surplus  Earnings       Income               Income       Total
                                                   -----     -------  --------       ------               ------       -----
<S>                                              <C>         <C>        <C>          <C>                <C>           <C>
Balance, January 1, 1999                         $ 2,295     $ 6,530    $  28        $   75                           $8,928
Comprehensive income:
   Net income                                         --          --      177            --             $   177          177
   Other comprehensive income:
     Unrealized holding gains (losses) on
     securities available for sale arising
     during the period net of tax of $(39)            --          --       --           (74)                (74)         (74)
                                                                                                             --
   Other comprehensive income, net of tax             --          --       --            --                  --
   Total comprehensive income                         --          --       --            --             $   103
                                                  ======     =======    =====        ======             =======       ======
Balance, March 31, 1999                           $2,295     $ 6,530    $ 205        $    1                           $9,031
                                                  ======     =======    =====        ======                           ======


Balance, January 1, 2000                         $ 2,295     $ 6,530    $ 210        $ (437)                          $8,598
Comprehensive income:
   Net income                                         --          --       25            --             $    25           25
   Other comprehensive income:
     Unrealized holding gains (losses) on
     securities available for sale arising
     during the period net of tax of $(28-            --          --       --           (55)                (55)         (55)
   Other comprehensive income, net of tax             --          --       --            --                  --
   Total comprehensive income                         --          --       --            --             $   (30)
                                                  ======     =======   ======        =======            =======       ======
Balance, March 31, 2000                           $2,295     $ 6,530   $  235        $ (492)                          $8,568
                                                  ======     =======   ======        =======                          ======

</TABLE>

Notes to financial statements are an integral part of these statements.

                                      D-31
<PAGE>

                      HERITAGE BANCORP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (in thousands of dollars)
                                   (unaudited)

<TABLE>
<CAPTION>

                                                                                      Three Months Ended
                                                                                      ------------------
                                                                                           March 31,
                                                                                      ------------------
                                                                                    2000                1999
                                                                                    ----                ----
<S>                                                                               <C>                 <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                                     $     25            $    177
Adjustments to reconcile net income to net cash
   provided by operating activities:
     Depreciation and amortization                                                      24                  12
     Provision for loan losses                                                         (28)                  7
     Amortization of premiums, net                                                       2                   9
     Loss on sale of securities available for sale                                      13                  --
     Changes in assets and liabilities:
       (Increase) in other assets                                                      (17)               (259)
       (Decrease) in other liabilities                                                (130)                 --
                                                                                  --------            --------
          Net cash provided by operating activities                                   (111)                (54)
                                                                                  --------            --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Net (increase) decrease in loans                                                 (4,353)                523
   Purchase of securities available for sale                                          (813)             (7,055)
   Proceeds from sales of securities available for sale                                987                  --
   Proceeds from calls and maturities of securities available for sale                  18               4,000
   Purchase of premises and equipment                                                  (47)                (90)
                                                                                  --------            --------
          Net cash (used in) investing activities                                   (4,208)             (2,622)
                                                                                  --------            --------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Increase (decrease) in deposits                                                      40              (2,820)
   Net increase (decrease) in short-term borrowings                                  4,602              (1,009)
                                                                                  --------            --------
          Net Cash provided by financing activities                                  4,642              (3,829)
                                                                                  --------            --------
            Net increase (decrease) in cash and cash equivalents                       323              (6,505)

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                                      2,667              14,375
                                                                                  --------            --------
CASH AND CASH EQUIVALENTS - END OF PERIOD                                         $  2,990            $  7,870
                                                                                  ========            ========

Supplemental disclosures of cash flow information
    Cash payments for:
     Interest on deposits                                                         $    369            $    344
     Income taxes                                                                 $     --            $     --

Supplemental schedule of non-cash investing activities
   Unrealized gain (loss) on securities available for sale                        $    (83)           $    (74)


</TABLE>


Notes to financial statements are an integral part of these statements.

                                      D-32

<PAGE>

                      HERITAGE BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

1.    GENERAL

         The consolidated  statements  include the accounts of Heritage Bancorp,
      Inc. (the "Company") and its  subsidiary,  The Heritage Bank (the "Bank").
      All  significant   intercompany   balances  and  transactions   have  been
      eliminated.  In the  opinion of  management,  the  accompanying  unaudited
      consolidated  financial statements contain all adjustments  (consisting of
      only normal recurring  accruals) necessary to present fairly the financial
      positions as of March 31, 2000 and  December 31, 1999,  and the results of
      operations  and cash flows for the three  months  ended March 31, 2000 and
      1999.

         The results of operations for the three months ended March 31, 2000 and
      1999 are not necessarily  indicative of the results to be expected for the
      full year.

2.    INVESTMENT SECURITIES

         Amortized cost and carrying amount (estimated fair value) of securities
      available for sale are summarized as follows:

<TABLE>
<CAPTION>
                                                                           March 31, 2000
                                                       ---------------------------------------------------
                                                                           Gross          Gross  Estimated
                                                        Amortized     Unrealized     Unrealized     Market
           (In thousands of dollars)                      Cost        Gains          Losses         Value
                                                       ---------------------------------------------------
    <S>                                                  <C>          <C>            <C>          <C>
     US government agencies & corporations               $ 23,110     $     --       $   723      $ 22,387
     Obligations of states & political subdivisions           510           --             2           508
     Corporate debt obligations                               523           --            19           504
     Other securities                                         100           --            --           100
     Federal reserve stock                                    265           --            --           265
                                                         --------     --------       -------      --------
                                                         $ 24,508     $     --       $   744      $ 23,764
                                                         ========     ========       =======      ========

    Securities available for sale at December 31, 1999 consist of the following:

<CAPTION>
                                                                         December 31, 1999
                                                       ---------------------------------------------------
                                                                           Gross          Gross  Estimated
                                                        Amortized     Unrealized     Unrealized     Market
           (In thousands of dollars)                      Cost        Gains          Losses         Value
                                                       ---------------------------------------------------
    <S>                                                  <C>          <C>            <C>          <C>
    US government & federal agencies                     $ 22,916     $     --       $  (643)     $ 22,273
    Obligations of states & political subdivisions          1,010           --            (4)        1,006
    Corporate debt obligations                                525           --           (15)          510
    Federal reserve stock                                     265           --            --           265
                                                         --------     --------       -------      --------
                                                         $ 24,716     $     --       $  (662)     $ 24,054
                                                         ========     ========       =======      ========
<CAPTION>

                                                                          Three Months Ended
    (in thousands of dollars)                                                  March 31,
                                                                               ---------
                                                                            2000       1999
                                                                            ----       ----
    <S>                                                                    <C>         <C>
    Gross proceeds from sales of securities                                   987         --
                                                                           ======      =====
    Gross gains on sale of securities                                          --         --
    Gross losses on sale of securities                                         13         --
                                                                           ------      -----
      Net securities gains (losses)                                            13         --
                                                                           ======      ======
</TABLE>

                                      D-33

<PAGE>
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                   (unaudited)

3.  LOANS

    Major classifications of loans are as follows:

 (in thousands of dollars)                 March 31,       December 31,
                                             2000              1999
                                           ---------       ------------
Commercial                                 $  4,475         $  3,665
Real estate:
   Construction                               1,696            1,157
   Residential (1-4 family)                  10,541           10,475
   Commercial                                16,680           13,088
   Agricultural                                 966              972
Consumer                                      1,331            1,507
All other Loans                                 356              825
                                           --------         --------
                                             36,045           31,689
Less allowance for loan losses                 (396)            (421)
                                           --------         --------
                                           $ 35,649         $ 31,268
                                           ========         ========

The  following  schedule  summarizes  the changes in the  allowance for loan and
lease losses:

                                     Three Months    Three Months
                                       Ending          Ending       December 31,
(in thousands of dollars)           March 31, 2000  March 31, 1999     1999
                                    --------------  --------------     ----

Balance, beginning                       $ 421          $ 429           $ 429
Provision charged against income           (28)             7             --
Recoveries                                   3              2             12
Loans charged off                           --             20             20
                                         -----          -----          -----
Balance, ending                          $ 396          $ 418          $ 421
                                         =====          =====          =====

There were no nonperforming assets on March 31, 2000 or on December 31, 1999.

There  were no loans  past due 90 days or more and still  accruing  on March 31,
2000 or on December 31, 1999.

4.       EARNINGS PER SHARE

    The following shows the weighted  average number of shares used in computing
earnings  per  share  and the  effect on  weighted  average  number of shares of
diluted potential common stock income available to common shareholders.

<TABLE>
<CAPTION>

                                                       March 31, 2000                    March 31, 1999
                                                       --------------                    --------------
                                                                  Per Share                          Per Share
                                                    Shares          Amount             Shares          Amount
                                                    ------          ------             ------          ------
<S>                                              <C>               <C>                <C>             <C>
Basic Earnings Per Share                         2,294,617         $   .01            2,294,617       $   .08

Effect of dilutive securities:
  Nonemployee directors' stock options               1,200                               24,500
  Employee incentive stock options                     588                               31,050
                                                 ---------                            ---------

Diluted Earnings Per Share                       2,296,405         $   .01            2,350,167       $   .08
                                                 =========         =======            =========       =======

</TABLE>

                                      D-34

<PAGE>

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                   (unaudited)

5.  CAPITAL REQUIREMENTS

A  comparison  of the  Company's  capital as of March 31,  2000 with the minimum
requirements is presented below:

                                                                 Minimum
                                                  Actual       Requirements
                                                  ------       ------------
Tier I risk-based capital                         18.34%           4.00%
Total risk-based capital                          19.14%           8.00%
Leverage ratio                                    14.84%           4.00%






                                      D-35
<PAGE>

                                                                      Appendix E

               [LETTERHEAD OF FERRIS, BAKER WATTS, INCORPORATED]



                                    __, 2000

The Board of Directors
Heritage Bancorp, Inc.
1313 Dolly Madison Blvd.
McLean, VA  22101

Members of the Board:

         Heritage  Bancorp,  Inc.  ("Heritage" or the "Company") has requested a
review of the proposed transaction (the "Transaction") involving the acquisition
of  Heritage  by  Cardinal  Financial  Corporation  ("Cardinal")  in a cash  and
preferred stock for stock merger.  Specifically,  you have requested a review of
the  financial  consideration  to be offered to the  Company's  stockholders  as
consideration for their shares in the Transaction.

         Pursuant  to the  Transaction,  all  outstanding  shares of the Company
shall  be  exchanged  for  either  preferred  shares  in  Cardinal;  cash;  or a
combination of preferred  shares and cash. The resulting  value of the Company's
stock is $6.00 per share.

         In connection with the opinion,  we have reviewed,  among other things,
(i) the proposed  Transaction,  (ii) the original  letter of intent,  as well as
subsequent revisions to the above mentioned letter, (iii) the Agreement and Plan
of Merger,  as amended  (iv)  historical  operating  results  of  Heritage,  (v)
internally  prepared  projections for fiscal year 2000. We have held discussions
with the members of the management of the Company regarding the past and current
business  operations  as well as the future  prospects of the  Company.  We have
reviewed  industry  specific data  regarding  the  valuation of publicly  traded
companies  in the  banking  industry  as well as other  such  information  as we
considered appropriate.

         Ferris,  Baker Watts,  Incorporated  as part of its investment  banking
business,  is  regularly  involved  in the  valuation  of  businesses  and their
securities   in   connection   with   mergers   and   acquisitions,   negotiated
underwritings,  competitive  biddings,  secondary  distributions  of listed  and
unlisted  securities,  private placements and valuations for corporate and other
purposes. Ferris, Baker Watts, Incorporated is a full service brokerage firm and
periodically  prepares  research reports on the banking  industry.  In addition,
through  its  normal  course of  business,  its  clients,  its  officers  or its
employees,  may have a position in the common stock of the Company and Cardinal.
We have  acted as  financial  advisor  to the  Company  in  connection  with the
proposed Transaction and will receive a fee for our services which is contingent
upon the


<PAGE>

consummation of the Proposed Transaction. In addition, the Company has agreed to
indemnify  us for  certain  liabilities  arising  out of the  rendering  of this
opinion.

         In rendering our opinion,  we have assumed and relied upon the accuracy
and  completeness  of all  financial  and other  information  reviewed by us for
purposes of this  opinion  whether  publicly  available or provided to us by the
Company  or  representatives  of  the  Company  and  we  have  not  assumed  any
responsibility for independent  verification of such information.  We express no
opinion  as to the  consideration  to be  received  by holders of shares who may
perfect dissenters' statutory fair appraisal remedies, if available.  Based upon
the foregoing and based upon other such matters that we considered relevant,  it
is our opinion that the  consideration to be received by the stockholders of the
Company as a result of the Transaction is fair from a financial point of view as
of the date hereof.

         Our  opinion  is  necessarily  based  upon  economic,  market and other
conditions as in effect on, and the information  made available to us, as of the
date  hereof.  Our opinion is directed to the Board of  Directors of the Company
and does not constitute a recommendation to any stockholder of the Company as to
how the stockholder should vote at the stockholders'  meeting held in connection
with the Transaction.  It is understood that subsequent  developments may affect
the  conclusions  reached in this opinion and that we do not have any obligation
to update, revise or reaffirm this opinion.


                                               Very truly yours,



                                               Ferris, Baker Watts, Incorporated

<PAGE>

                                                                      Appendix F

                       Code of Virginia (1950), as amended
                                   Title 13.1
                                    Chapter 9
                                   Article 15.
                               Dissenters' Rights.


ss. 13.1-729.     Definitions.

         In this article:

                  "Corporation"  means  the  issuer  of  the  shares  held  by a
         dissenter before the corporate action,  except that (i) with respect to
         a  merger,  "corporation"  means  the  surviving  domestic  or  foreign
         corporation or limited liability company by merger of that issuer,  and
         (ii)  with  respect  to  a  share  exchange,  "corporation"  means  the
         acquiring corporation by share exchange, rather than the issuer, if the
         plan of share exchange places the responsibility for dissenters' rights
         on the acquiring corporation.

                  "Dissenter"  means a  shareholder  who is  entitled to dissent
         from corporate  action under ss.  13.1-730 and who exercises that right
         when and in the manner required by ss.ss. 13.1-732 through 13.1-739.

                  "Fair value," with respect to a dissenter's shares,  means the
         value  of  the  shares  immediately  before  the  effectuation  of  the
         corporate  action  to  which  the  dissenter  objects,   excluding  any
         appreciation or  depreciation  in anticipation of the corporate  action
         unless exclusion would be inequitable.

                  "Interest"  means  interest  from  the  effective  date of the
         corporate  action  until  the  date of  payment,  at the  average  rate
         currently  paid by the  corporation  on its principal bank loans or, if
         none, at a rate that is fair and equitable under all the circumstances.

                  "Record shareholder" means the person in whose name shares are
         registered in the records of a corporation or the  beneficial  owner of
         shares to the extent of the rights granted by a nominee  certificate on
         file with a corporation.

                  "Beneficial  shareholder" means the person who is a beneficial
         owner of shares held by a nominee as the record shareholder.

                  "Shareholder"  means the record  shareholder or the beneficial
         shareholder.

ss. 13.1-730      Right to dissent.

         A.       A shareholder  is entitled to dissent from, and obtain payment
of the fair value of his shares in the event of, any of the following  corporate
actions:



                                      F-1
<PAGE>

                  1.       Consummation  of  a  plan  of  merger  to  which  the
         corporation is a party (i) if shareholder  approval is required for the
         merger  by ss.  13.1-718  or the  articles  of  incorporation  and  the
         shareholder  is  entitled  to  vote  on  the  merger  or  (ii)  if  the
         corporation  is a  subsidiary  that is merged with its parent under ss.
         13.1-719;

                  2.       Consummation of a plan of share exchange to which the
         corporation  is a  party  as  the  corporation  whose  shares  will  be
         acquired, if the shareholder is entitled to vote on the plan;

                  3.       Consummation  of  a  sale  or  exchange  of  all,  or
         substantially   all,  of  the  property  of  the   corporation  if  the
         shareholder was entitled to vote on the sale or exchange or if the sale
         or  exchange  was  in   furtherance  of  a  dissolution  on  which  the
         shareholder was entitled to vote, provided that such dissenter's rights
         shall not apply in the case of (i) a sale or exchange pursuant to court
         order,  or (ii) a sale for  cash  pursuant  to a plan by  which  all or
         substantially  all of the net proceeds of the sale will be  distributed
         to the shareholders within one year after the date of sale;

                  4.       Any corporate  action taken pursuant to a shareholder
         vote  to  the  extent  the  articles  of  incorporation,  bylaws,  or a
         resolution of the board of directors  provides that voting or nonvoting
         shareholders  are  entitled  to dissent  and obtain  payment  for their
         shares.

         B.       A shareholder  entitled to dissent and obtain  payment for his
shares under this article may not challenge the  corporate  action  creating his
entitlement  unless the action is unlawful  or  fraudulent  with  respect to the
shareholder or the corporation.

         C.       Notwithstanding  any other  provision  of this  article,  with
respect to a plan of merger or share  exchange or a sale or exchange of property
there shall be no right of dissent in favor of holders of shares of any class or
series which, at the record date fixed to determine the shareholders entitled to
receive  notice  of and to vote at the  meeting  at which  the plan of merger or
share  exchange  or the sale or exchange of property is to be acted on, were (i)
listed on a national  securities  exchange  or on the  National  Association  of
Securities Dealers Automated  Quotation System (NASDAQ) or (ii) held by at least
2,000 record shareholders, unless in either case:

                  1.       The  articles  of  incorporation  of the  corporation
         issuing such shares provide otherwise;

                  2.       In the case of a plan of  merger  or share  exchange,
         the  holders  of the class or  series  are  required  under the plan of
         merger or share exchange to accept for such shares anything except:

                           a.       Cash;

                           b.       Shares or membership interests, or shares or
                  membership interests and cash in lieu of fractional shares (i)
                  of the surviving or acquiring corporation or limited liability
                  company or (ii) of any other  corporation or limited liability
                  company  which,  at the  record  date fixed to  determine  the
                  shareholders  entitled to receive notice of and to vote at the
                  meeting at which the plan of merger or share exchange is to be
                  acted on, were either listed  subject to notice of issuance on
                  a national  securities  exchange or held of record by at least
                  2,000 record shareholders or members; or



                                      F-2
<PAGE>

                           c.       A   combination   of  cash  and   shares  or
                  membership  interests as set forth in subdivisions 2 a and 2 b
                  of this subsection; or

                  3.       The  transaction  to be  voted  on is an  "affiliated
         transaction"  and is  not  approved  by a  majority  of  "disinterested
         directors" as such terms are defined inss.13.1-725.

         D.       The right of a dissenting shareholder to obtain payment of the
fair value of his shares shall  terminate  upon the occurrence of any one of the
following events:

                  1.       The  proposed   corporate   action  is  abandoned  or
         rescinded;

                  2.       A court having  jurisdiction  permanently  enjoins or
         sets aside the corporate action; or

                  3.       His demand for payment is withdrawn  with the written
         consent of the corporation.

         E.       Notwithstanding  any  other  provision  of  this  article,  no
shareholder of a corporation located in a county having a county manager form of
government and which is exempt from income taxation under ss. 501 (c) or ss. 528
of the Internal  Revenue Code and no part of whose income inures or may inure to
the  benefit of any  private  share  holder or  individual  shall be entitled to
dissent and obtain payment for his shares under this article.


ss. 13.1-731.     Dissent by nominees and beneficial owners.

         A.       A record shareholder may assert dissenters' rights as to fewer
than all the shares  registered  in his name only if he dissents with respect to
all shares  beneficially owned by any one person and notifies the corporation in
writing  of the name and  address  of each  person on whose  behalf  he  asserts
dissenters'  rights. The rights of a partial dissenter under this subsection are
determined  as if the shares as to which he dissents  and his other  shares were
registered in the names of different shareholders.

         B.       A beneficial  shareholder may assert  dissenters' rights as to
shares held on his behalf only if:

                  1.       He   submits   to   the    corporation   the   record
         shareholder's  written  consent to the  dissent not later than the time
         the beneficial shareholder asserts dissenters' rights; and

                  2.       He does so with  respect to all shares of which he is
         the  beneficial  shareholder  or over  which he has power to direct the
         vote.


ss. 13.1-732.     Notice of dissenters' rights.

         A.       If proposed corporate action creating dissenters' rights under
ss.  13.1-730 is submitted  to a vote at a  shareholders'  meeting,  the meeting
notice  shall  state  that  shareholders  are  or  may  be  entitled  to  assert
dissenters'  rights  under this  article  and be  accompanied  by a copy of this
article.

         B.       If  corporate  action  creating  dissenters'  rights under ss.
13.1-730 is taken without a vote of shareholders,  the  corporation,  during the
ten-day period after the effectuation of such corporate action,



                                      F-3
<PAGE>

shall notify in writing all record  shareholders  entitled to assert dissenters'
rights that the action was taken and send them the dissenters'  notice described
in ss. 13.1-734.


ss. 13.1-733.       Notice of intent to demand payment.

         A.       If proposed corporate action creating dissenters' rights under
ss.  13.1-730 is submitted to a vote at a shareholders'  meeting,  a shareholder
who wishes to assert  dissenters'  rights (i) shall  deliver to the  corporation
before the vote is taken written  notice of his intent to demand payment for his
shares if the proposed action is effectuated and (ii) shall not vote such shares
in favor of the proposed action.

         B.       A  shareholder  who  does  not  satisfy  the  requirements  of
subsection  A of this  section is not  entitled to payment for his shares  under
this article.


ss. 13.1-734.     Dissenters' notice.

         A.       If proposed corporate action creating dissenters' rights under
ss. 13.1-730 is authorized at a shareholders'  meeting, the corporation,  during
the ten-day  period  after the  effectuation  of such  corporate  action,  shall
deliver a dissenters'  notice in writing to all  shareholders  who satisfied the
requirements of ss. 13.1-733.

         B.       The dissenters' notice shall:

                  1.       State  where  the  payment  demand  shall be sent and
         where and when certificates for certificated shares shall be deposited;

                  2.       Inform  holders  of  uncertificated  shares  to  what
         extent  transfer  of the shares  will be  restricted  after the payment
         demand is received;

                  3.       Supply a form for demanding payment that includes the
         date of the first  announcement to news media or to shareholders of the
         terms of the proposed  corporate  action and  requires  that the person
         asserting  dissenters'  rights  certify  whether  or  not  he  acquired
         beneficial ownership of the shares before or after that date;

                  4.       Set a date by which the corporation  must receive the
         payment  demand,  which date may not be fewer than thirty nor more than
         sixty days after the date of delivery of the dissenters' notice; and

                  5.       Be accompanied by a copy of this article.


ss. 13.1-735.     Duty to demand payment.

         A.       A  shareholder  sent a  dissenters'  notice  described  in ss.
13.1-734 shall demand payment,  certify that he acquired beneficial ownership of
the shares before or after the date required to be set forth in the  dissenters'
notice  pursuant to subdivision 3 of subsection B of ss.  13.1-734,  and, in the
case of  certificated  shares,  deposit his  certificates in accordance with the
terms of the notice.



                                      F-4
<PAGE>

         B.       The shareholder who deposits his shares pursuant to subsection
A of this section retains all other rights of a shareholder except to the extent
that these  rights  are  canceled  or  modified  by the  taking of the  proposed
corporate action.

         C.       A  shareholder  who does not demand  payment and  deposits his
share  certificates  where  required,  each by the date  set in the  dissenters'
notice, is not entitled to payment for his shares under this article.


ss. 13.1-736.     Share restrictions.

         A.       The  corporation  may restrict the transfer of  uncertificated
shares from the date the demand for their payment is received.

         B.       The person for whom  dissenters'  rights  are  asserted  as to
uncertificated  shares  retains all other rights of a shareholder  except to the
extent that these  rights are canceled or modified by the taking of the proposed
corporate action.


ss. 13.1-737.     Payment.

         A.       Except as provided in ss.  13.1-738,  within thirty days after
receipt of a payment demand made pursuant to ss. 13.1-735, the corporation shall
pay the dissenter the amount the  corporation  estimates to be the fair value of
his shares, plus accrued interest.  The obligation of the corporation under this
paragraph  may be enforced (i) by the circuit  court in the city or county where
the corporation's principal office is located, or, if none in this Commonwealth,
where its registered  office is located or (ii) at the election of any dissenter
residing  or having its  principal  office in the  Commonwealth,  by the circuit
court in the city or county  where the  dissenter  resides or has its  principal
office. The court shall dispose of the complaint on an expedited basis.

         B.       The payment shall be accompanied by:

                  1.       The  corporation's  balance  sheet as of the end of a
         fiscal year ending not more than sixteen  months  before the  effective
         date of the corporate  action creating  dissenters'  rights,  an income
         statement for that year, a statement of changes in shareholders' equity
         for that year, and the latest available interim  financial  statements,
         if any;

                  2.       An explanation of how the  corporation  estimated the
         fair value of the shares and of how the interest was calculated;

                  3.       A  statement  of  the  dissenters'  right  to  demand
         payment under ss. 13.1-739; and

                  4.       A copy of this article.


ss. 13.1-738.     After-acquired shares.

         A. A corporation may elect to withhold payment required by ss. 13.1-737
from a dissenter unless he was the beneficial owner of the shares on the date of
the first  publication by news media or the



                                      F-5
<PAGE>

first announcement to shareholders generally, whichever is earlier, of the terms
of the proposed corporate action, as set forth in the dissenters' notice.

         B.       To the extent the corporation elects to withhold payment under
subsection A of this section,  after taking the proposed  corporate  action,  it
shall estimate the fair value of the shares,  plus accrued  interest,  and shall
offer to pay this  amount  to each  dissenter  who  agrees  to accept it in full
satisfaction  of his  demand.  The  corporation  shall  send  with its  offer an
explanation  of how it  estimated  the fair  value of the  shares and of how the
interest  was  calculated,  and a statement of the  dissenter's  right to demand
payment under ss. 13.1-739.


ss.13.1-739.      Procedure if shareholder dissatisfied with payment or offer.

         A.       A dissenter may notify the  corporation  in writing of his own
estimate of the fair value of his shares and amount of interest  due, and demand
payment of his estimate  (less any payment  under ss.  13.1-737),  or reject the
corporation's  offer under ss.  13.1-738 and demand payment of the fair value of
his shares and  interest  due, if the  dissenter  believes  that the amount paid
under ss.  13.1-737 or offered under ss. 13.1-738 is less than the fair value of
his shares or that the interest due is incorrectly calculated.

         B.       A  dissenter  waives  his right to demand  payment  under this
section  unless he  notifies  the  corporation  of his demand in  writing  under
subsection A of this section  within thirty days after the  corporation  made or
offered payment for his shares.


ss. 13.1-740.     Court action.

         A.       If a demand for payment under ss. 13.1-739 remains  unsettled,
the  corporation  shall commence a proceeding  within sixty days after receiving
the  payment  demand  and  petition  the  circuit  court in the  city or  county
described in  subsection  B of this  section to determine  the fair value of the
shares and accrued interest. If the corporation does not commence the proceeding
within the sixty-day  period,  it shall pay each dissenter  whose demand remains
unsettled the amount demanded.

         B.       The  corporation  shall commence the proceeding in the city or
county where its principal office is located,  or, if none in this Commonwealth,
where  its  registered  office  is  located.  If the  corporation  is a  foreign
corporation without a registered office in this Commonwealth,  it shall commence
the proceeding in the city or county in this  Commonwealth  where the registered
office of the domestic  corporation merged with or whose shares were acquired by
the foreign corporation was located.

         C.       The  corporation  shall  make all  dissenters,  whether or not
residents of this  Commonwealth,  whose demands remain unsettled  parties to the
proceeding as in an action  against their shares and all parties shall be served
with a copy  of the  petition.  Nonresidents  may be  served  by  registered  or
certified mail or by publication as provided by law.

         D.       The  corporation  may  join as a party to the  proceeding  any
shareholder  who claims to be a dissenter but who has not, in the opinion of the
corporation,  complied  with  the  provisions  of  this  article.  If the  court
determines  that such  shareholder  has not complied with the provisions of this
article, he shall be dismissed as a party.



                                      F-6
<PAGE>

         E.       The  jurisdiction  of the  court in which  the  proceeding  is
commenced under subsection B of this section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive  evidence and recommend
a  decision  on the  question  of fair  value.  The  appraisers  have the powers
described  in the  order  appointing  them,  or in  any  amendment  to  it.  The
dissenters are entitled to the same  discovery  rights as parties in other civil
proceedings.

         F.       Each  dissenter  made a party to the proceeding is entitled to
judgment (i) for the amount,  if any, by which the court finds the fair value of
his shares,  plus interest,  exceeds the amount paid by the  corporation or (ii)
for the fair value,  plus accrued  interest,  of his  after-acquired  shares for
which the corporation elected to withhold payment under ss. 13.1-738.


ss.13.1-741.      Court costs and counsel fees.

         A.       The  court in an  appraisal  proceeding  commenced  under  ss.
13.1-740 shall determine all costs of the  proceeding,  including the reasonable
compensation and expenses of appraisers  appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters,  in amounts the court finds equitable, to
the extent the court finds the dissenters did not act in good faith in demanding
payment under ss. 13.1-739.

         B.       The court may also assess the reasonable  fees and expenses of
experts,  excluding those of counsel, for the respective parties, in amounts the
court finds equitable:

                  1.       Against  the  corporation  and in favor of any or all
         dissenters  if the court finds the  corporation  did not  substantially
         comply with the requirements ofss.ss.13.1-732 through 13.1-739; or

                  2.       Against  either the  corporation  or a dissenter,  in
         favor of any other  party,  if the court  finds that the party  against
         whom the fees and  expenses are assessed did not act in good faith with
         respect to the rights provided by this article.

         C.       If the  court  finds  that the  services  of  counsel  for any
dissenter were of substantial  benefit to other dissenters  similarly  situated,
the  court  may  award to these  counsel  reasonable  fees to be paid out of the
amounts awarded the dissenters who were benefited.

         D.       In a proceeding  commenced under  subsection A of ss. 13.1-737
the court shall assess the costs against the corporation,  except that the court
may assess costs  against all or some of the  dissenters  who are parties to the
proceeding,  in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.






                                      F-7
<PAGE>

                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20.          Indemnification of Directors and Officers.

         Article 10 of Chapter 9 of Title 13.1 of the Code of Virginia permits a
Virginia  corporation  to  indemnify  any  director  or officer  for  reasonable
expenses incurred in any legal proceeding in advance of final disposition of the
proceeding,  if the  director or officer  furnishes  the  corporation  a written
statement  of his good  faith  belief  that he has met the  standard  of conduct
prescribed by the Code,  and a  determination  is made by the board of directors
that such  standard  has been  met.  In a  proceeding  by or in the right of the
corporation,  no  indemnification  shall be made in  respect of any matter as to
which an officer or director is adjudged to be liable to the corporation, unless
the court in which the  proceeding  took place  determines  that,  despite  such
liability,  such person is reasonably entitled to indemnification in view of all
the relevant circumstances. In any other proceeding, no indemnification shall be
made if the  director or officer is adjudged  liable to the  corporation  on the
basis that personal  benefit was improperly  received by him.  Corporations  are
given the power to make any other or further indemnity, including advancement of
expenses,  to any director or officer that may be  authorized by the articles of
incorporation or any bylaw made by the shareholders,  or any resolution adopted,
before or after the event,  by the  shareholders,  except an  indemnity  against
willful misconduct or a knowing violation of the criminal law. Unless limited by
its  articles  of  incorporation,  indemnification  of a director  or officer is
mandatory when he entirely prevails in the defense of any proceeding to which he
is a party because he is or was a director or officer.

         The Articles of Incorporation of the undersigned Registrant contain
provisions indemnifying the directors and officers of the Registrant to the full
extent permitted by Virginia law. In addition, the Articles of Incorporation
eliminate the personal liability of the Registrant's directors and officers to
the Registrant or its shareholders for monetary damages to the full extent
permitted by Virginia law.

Item 21.          Exhibits and Financial Statement Schedules.

(a)      Exhibits:

         The following exhibits are filed on behalf of the Registrant as part of
this Registration Statement:

         Exhibit No.                            Document
         -----------                            --------

         2.1            Amended   and   Restated    Agreement    and   Plan   of
                        Reorganization   between  Heritage  Bancorp,   Inc.  and
                        Cardinal  Financial   Corporation  and  Cardinal  Merger
                        Corp., dated as of June __, 2000, filed as Appendix A to
                        the Joint  Proxy  Statement/Prospectus  included in this
                        Registration Statement.*

         3.1            Articles  of   Incorporation   of   Cardinal   Financial
                        Corporation, attached as Exhibit 3.1 to the Registration
                        Statement  on Form  SB-2,  Registration  No.  333-52279,
                        filed  with the  Commission  on May 8, 1998  (the  "Form
                        SB-2"), incorporated herein by reference.

         3.2            Bylaws of Cardinal  Financial  Corporation,  attached as
                        Exhibit  3.2 to the Form  SB-2,  incorporated  herein by
                        reference.



                                      II-1
<PAGE>

         4              Form of Stock Certificate,  attached as Exhibit 4 to the
                        Form SB-2, incorporated herein by reference.

         5              Legal opinion of Williams, Mullen, Clark & Dobbins.*

         8              Form  of  tax  opinion  of  Williams,  Mullen,  Clark  &
                        Dobbins.*

         10.1           Employment  Agreement,  dated as of September  30, 1997,
                        between  Commercial   Fidelity   Financial   Partnership
                        (predecessor to Cardinal  Financial  Corporation) and L.
                        Burwell  Gunn,  Jr.,  attached as Exhibit 10 to the Form
                        SB-2, incorporated herein by reference.

         10.2           Employment  Agreement,  dated as of  October  13,  1998,
                        between  Cardinal  Financial  Corporation  and Thomas C.
                        Kane,  attached as Exhibit 10.2 to the Company's  Annual
                        Report on Form  10-KSB for the year ended  December  31,
                        1998 (the "1998 Form  10-KSB"),  incorporated  herein by
                        reference.

         10.3           Employment  Agreement,  dated as of December  17,  1998,
                        between  Cardinal  Financial  Corporation  and  Edgar M.
                        Andrews,  III, attached as Exhibit 10.3 to the 1998 Form
                        10-KSB, incorporated herein by reference.

         10.4           Employment  Agreement,  dated as of December  17,  1998,
                        between Cardinal  Financial  Corporation and Christopher
                        W. Bergstrom,  attached as Exhibit 10.4 to the 1998 Form
                        10-KSB, incorporated herein by reference.

         10.5           Employment  Agreement,  dated as of February  17,  1999,
                        between  Cardinal  Financial  Corporation  and Joseph L.
                        Borrelli,  attached  as  Exhibit  10.5 to the 1998  Form
                        10-KSB, incorporated herein by reference.

         10.6           Employment  Agreement,  dated as of February  12,  1999,
                        between  Cardinal  Financial  Corporation  and F.  Kevin
                        Reynolds,  attached  as  Exhibit  10.6 to the 1998  Form
                        10-KSB, incorporated herein by reference.

         10.7           Employment  Agreement,  dated  as of  August  31,  1998,
                        between  Cardinal  Financial  Corporation  and  Greg  D.
                        Wheeless,  attached  as  Exhibit  10.7 to the 1998  Form
                        10-KSB, incorporated herein by reference.

         21             Subsidiaries of the Registrant.*

         23.1           Consent of Williams,  Mullen,  Clark & Dobbins (included
                        in Exhibit 5).

         23.2           Consent of KPMG LLP.*

         23.3           Consent of Yount, Hyde & Barbour, P.C.*

         23.4           Consent of Scott & Stringfellow, Inc.*

         24             Powers of attorney (included on signature page).


                                      II-2
<PAGE>

         99.1           Form of Proxy of Cardinal Financial Corporation.*

         99.2           Form of Proxy of Heritage Bancorp, Inc.*

         ______________
         *     Filed herewith.


(b)      Financial Statement Schedules

         Not applicable.

(c)      Reports, Opinions or Appraisals.

         Not applicable.


Item 22.          Undertakings

(a)      Undertakings Required by Item 512 of Regulation S-B.

         The small business issuer will:

         (1)      File,   during   any  period  in  which  it  offers  or  sells
securities, a post-effective amendment to this registration statement to:

                  (i)      Include any prospectus  required by Section  10(a)(3)
                           of the Securities Act;

                  (ii)     Reflect in the  prospectus any facts or events which,
                           individually  or  together,  represent a  fundamental
                           change  in  the   information  in  the   registration
                           statement; and

                  (iii)    Include   any   additional   or   changed    material
                           information on the plan of distribution;

         (2)      For determining liability under the Securities Act, treat each
post-effective  amendment  as a new  registration  statement  of the  securities
offered,  and the offering of the securities at that time to be the initial bona
fide offering;

         (3)      File a  post-effective  amendment to remove from  registration
any of the securities that remain unsold at the end of the offering.

         Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.

(b)      The undersigned registrant hereby undertakes to respond to requests for
information  that is incorporated  by reference into the prospectus  pursuant to
Item 4, 10(b),  11, or 13 of this form,  within one  business  day of receipt of
such  request,  and to send the  incorporated  documents  by first class mail or



                                      II-3
<PAGE>

other equally  prompt means.  This includes  information  contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.

(c)      The undersigned  registrant  hereby  undertakes to supply by means of a
post-effective  amendment  all  information  concerning a  transaction,  and the
company  being  acquired  involved  therein,  that  was not the  subject  of and
included in the registration statement when it became effective.










                                      II-4

<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this  Registration  Statement to be signed on its
behalf by the undersigned,  thereunto duly authorized, in the County of Fairfax,
Commonwealth of Virginia, on June 1, 2000.

                                       CARDINAL FINANCIAL CORPORATION



Date:  June 1, 2000                    By: /s/ L. Burwell Gunn, Jr.
                                           ------------------------------------
                                           L. Burwell Gunn, Jr.
                                           President and Chief Executive Officer


                                POWER OF ATTORNEY

         Each of the  undersigned  hereby appoints L. Burwell Gunn, Jr. and John
H. Rust, Jr., each of whom may act individually, as attorneys-in-fact and agents
for the undersigned, with full power of substitution, for and in the name, place
and stead of the undersigned,  to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933, as amended,  any and all amendments
(including  post-effective  amendments) to this Registration Statement, with any
schedules or exhibits thereto, and any and all supplements or other documents to
be  filed  with  the  Securities  and  Exchange  Commission  pertaining  to  the
registration of securities  covered hereby,  with full power and authority to do
and  perform any and all acts and things as may be  necessary  or  desirable  in
furtherance of such registration.

         Pursuant to the requirements of the Securities Act of 1933, as amended,
this  Registration  Statement has been  signed by  the following  persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
                  Signature                                       Title                              Date
                  ---------                                       -----                              ----
<S>                                                  <C>                                         <C>

           /s/ L. Burwell Gunn, Jr.                   President and Chief Executive              June 1, 2000
-------------------------------------------               Officer and Director
             L. Burwell Gunn, Jr.                    (Principal Executive Officer)


           /s/ Joseph L. Borrelli                        Chief Financial Officer                 June 1, 2000
-------------------------------------------             (Principal Financial and
             Joseph L. Borrelli                            Accounting Officer)


            /s/ Robert M. Barlow                                Director                         May 31, 2000
-------------------------------------------
              Robert M. Barlow


           /s/ Wayne W. Broadwater                              Director                         June 1, 2000
-------------------------------------------
             Wayne W. Broadwater



<PAGE>

                  Signature                                       Title                              Date
                  ---------                                       -----                              ----


                                                                Director                         ______ __, 2000
-------------------------------------------
               Nancy K. Falck


             /s/ Anne B. Hazel                                  Director                         June 1, 2000
-------------------------------------------
               Anne B. Hazel


          /s/ Harvey W. Huntzinger                              Director                         May 31, 2000
-------------------------------------------
            Harvey W. Huntzinger


             /s/ Jones V. Isaac                                 Director                         May 31, 2000
-------------------------------------------
               Jones V. Isaac


            /s/ J. Hamilton Lambert                             Director                         June 1, 2000
-------------------------------------------
             J. Hamilton Lambert


             /s/  Dale B. Peck                                  Director                         May 31, 2000
-------------------------------------------
                Dale B. Peck


             /s/ James D. Russo                                 Director                         June 1, 2000
-------------------------------------------
               James D. Russo


                                                                Director                       ________ __, 2000
-------------------------------------------
              John H. Rust, Jr.
</TABLE>



<PAGE>

                                  EXHIBIT INDEX
                                  -------------


Exhibit No.                          Document
-----------                          --------

    2.1         Amended  and  Restated  Agreement  and  Plan  of  Reorganization
                between   Heritage   Bancorp,   Inc.  and   Cardinal   Financial
                Corporation  and  Cardinal  Merger  Corp.,  dated as of June __,
                2000,    filed   as    Appendix    A   to   the   Joint    Proxy
                Statement/Prospectus included in this Registration Statement.*

    3.1         Articles of  Incorporation  of Cardinal  Financial  Corporation,
                attached as Exhibit 3.1 to the  Registration  Statement  on Form
                SB-2,  Registration No. 333-52279,  filed with the Commission on
                May 8, 1998 (the "Form SB-2"), incorporated herein by reference.

    3.2         Bylaws of Cardinal  Financial  Corporation,  attached as Exhibit
                3.2 to the Form SB-2, incorporated herein by reference.

    4           Form of Stock  Certificate,  attached  as  Exhibit 4 to the Form
                SB-2, incorporated herein by reference.

    5           Legal opinion of Williams, Mullen, Clark & Dobbins.*

    8           Form of tax opinion of Williams, Mullen, Clark & Dobbins.*

    10.1        Employment  Agreement,  dated as of September 30, 1997,  between
                Commercial  Fidelity  Financial   Partnership   (predecessor  to
                Cardinal  Financial  Corporation)  and  L.  Burwell  Gunn,  Jr.,
                attached as Exhibit 10 to the Form SB-2,  incorporated herein by
                reference.

    10.2        Employment  Agreement,  dated as of October  13,  1998,  between
                Cardinal Financial  Corporation and Thomas C. Kane,  attached as
                Exhibit 10.2 to the  Company's  Annual Report on Form 10-KSB for
                the year ended  December  31,  1998 (the  "1998  Form  10-KSB"),
                incorporated herein by reference.

    10.3        Employment  Agreement,  dated as of December 17,  1998,  between
                Cardinal  Financial  Corporation  and  Edgar  M.  Andrews,  III,
                attached as Exhibit 10.3 to the 1998 Form  10-KSB,  incorporated
                herein by reference.

    10.4        Employment  Agreement,  dated as of December 17,  1998,  between
                Cardinal  Financial  Corporation  and  Christopher W. Bergstrom,
                attached as Exhibit 10.4 to the 1998 Form  10-KSB,  incorporated
                herein by reference.

    10.5        Employment  Agreement,  dated as of February 17,  1999,  between
                Cardinal Financial Corporation and Joseph L. Borrelli,  attached
                as Exhibit 10.5 to the 1998 Form 10-KSB,  incorporated herein by
                reference.

    10.6        Employment  Agreement,  dated as of February 12,  1999,  between
                Cardinal Financial  Corporation and F. Kevin Reynolds,  attached
                as Exhibit 10.6 to the 1998 Form 10-KSB,  incorporated herein by
                reference.

<PAGE>

    10.7        Employment  Agreement,  dated as of  August  31,  1998,  between
                Cardinal Financial Corporation and Greg D. Wheeless, attached as
                Exhibit  10.7 to the 1998 Form  10-KSB,  incorporated  herein by
                reference.

    21          Subsidiaries of the Registrant.*

    23.1        Consent  of  Williams,  Mullen,  Clark &  Dobbins  (included  in
                Exhibit 5).

    23.2        Consent of KPMG LLP.*

    23.3        Consent of Yount, Hyde & Barbour, P.C.*

    23.4        Consent of Scott & Stringfellow, Inc.*

    24          Powers of attorney (included on signature page).

    99.1        Form of Proxy of Cardinal Financial Corporation.*

    99.2        Form of Proxy of Heritage Bancorp, Inc.*

_______________
*   Filed herewith.




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