Cardinal Financial Corporation Reports Quarterly and Annual Results; Q

    Business Editors

    TYSONS CORNER, Va.--(BUSINESS WIRE)--Jan. 31, 2005--Cardinal Financial Corporation (NASDAQ:CFNL) (the "Company"), parent company of Cardinal Bank, headquartered in Tysons Corner, Virginia, today announced fourth quarter 2004 net income of $1.7 million, or $0.09 per diluted common share, compared to net income of $4.1 million, or $0.35 per diluted common share, for the fourth quarter of 2003. The prior year's quarterly net income included an income tax benefit of $3.5 million attributable to the recognition of deferred tax assets related primarily to the Company's net operating loss carryforwards. The Company recorded pretax income of $2.6 million for the fourth quarter of 2004, an increase of $1.9 million, or 261%, compared to pretax income of $718,000 in the fourth quarter of 2003.
    For the year ended December 31, 2004, the Company recorded net income of $3.5 million, or $0.19 per diluted common share, compared to net income of $5.7 million, or $0.54 per diluted common share for the year ended December 31, 2003. The net income for the year ended December 31, 2003 reflected the previously mentioned income tax benefit of $3.5 million. The Company recorded pretax income of $5.2 million in 2004, compared to pretax income of $2.6 million in 2003, a 100% increase.
    At December 31, 2004, total assets increased by $575.3 million, or 90%, to $1.21 billion, compared to $636.2 million at December 31, 2003. Loans receivable, net of fees, were $489.9 million at December 31, 2004, compared to $336.0 million at December 31, 2003, an increase of $153.9 million, or 46%. Total deposits increased by $350.1 million, or 74%, to $824.2 million at December 31, 2004, compared to $474.1 million at December 31, 2003.
    Shareholders' equity improved to $95.1 million at December 31, 2004, compared to $85.4 million at December 31, 2003. The increase of $9.7 million from the prior year was primarily attributable to $6.3 million of additional equity raised as a result of the underwriters exercising their overallotment option from our 2003 stock offering in January 2004 and net income of $3.5 million. Book value per common share at December 31, 2004 was $5.15 compared to $4.80 at December 31, 2003. Tangible book value per common share at December 31, 2004 was $4.36 compared to $4.80 at December 31, 2003. Tangible book value per share decreased from the prior year as a result of a $14.7 million increase in goodwill and other intangible assets recorded in the George Mason Mortgage acquisition. Regulatory capital ratios for the Company and Cardinal Bank at December 31, 2004 remain significantly above requirements and each entity is considered "well capitalized" under regulatory guidelines.
    Net interest income increased to $7.5 million for the fourth quarter of 2004 compared to $4.4 million for the fourth quarter of 2003. For the year ended December 31, 2004, net interest income increased to $24.6 million compared to $15.2 million for the year ended December 31, 2003. The increase was primarily attributable to increases in the average volume of loans held for sale, loans receivable and investment securities in 2004 compared to the prior year. The increases in the volume of average loans held for sale, loans receivable and investment securities were funded through increases in total deposits, other borrowed funds, including the issuance of $20.0 million of trust preferred securities, and shareholders' equity. For the three months ended December 31, 2004, the Company's net interest margin was 2.68%, compared to 3.11% during the fourth quarter of 2003. For the year ended December 31, 2004, the Company's net interest margin was 2.72%, compared to 3.00% for 2003.
    The provision for loan loss expense increased to $709,000 for the three months ended December 31, 2004 compared to $399,000 for the same period of 2003. For the year ended December 31, 2004, the provision for loan loss expense was $1.6 million compared to $1.0 million for the year ended December 31, 2003. The increase in the provision for loan losses was attributable to the growth in the loan portfolio experienced during 2004. For the year ended December 31, 2004, the Company continued to experience strong loan quality and a change in its portfolio mix with an increase in its residential and home equity loan portfolios, which require lower reserve coverage than the remainder of the loan portfolio. As a result, the Company's allowance to total loans ratio was 1.20% at December 31, 2004 compared to 1.29% at December 31, 2003. Non-performing loans at December 31, 2004 were 0.05% of assets compared to 0.06% of assets at December 31, 2003.
    Non-interest income increased significantly to $5.1 million for the fourth quarter of 2004 from $833,000 for the same quarter of 2003, due primarily to increased gains on the sale of loans held for sale of $3.3 million as a result of our acquisition of George Mason Mortgage LLC in July 2004. In addition, in the fourth quarter George Mason Mortgage contributed $947,000 of management fee income, which is the fee it earns for managing and providing operational support to other entities, to non-interest income. The Company had no similar income in the comparable quarter of the prior year. Excluding the realized gains of $164,000 in the available-for-sale investment portfolio during the fourth quarter of 2003, non-interest income increased by $4.4 million from the fourth quarter of 2003. For the year ended December 31, 2004, non-interest income increased to $9.4 million from $3.8 million for 2003, an increase of $5.6 million. The increase in non-interest income from 2003 was also primarily attributable to increases in gains on sales of loans held for sale of $4.7 million and an increase in management fee income of $1.7 million as a result of the George Mason Mortgage acquisition. Offsetting these increases was a $1.1 million decrease in net realized gains on investment securities available-for-sale from 2003 to 2004. Excluding net gains from the sale of investment securities available-for-sale from both years, non-interest income rose $6.7 million from 2003 to 2004.
    Non-interest expense increased to $9.3 million for the fourth quarter of 2004 from $4.1 million for the same three months period in 2003. For the year ended December 31, 2004, non-interest expense increased $11.8 million to $27.2 million, compared to $15.4 million for 2003. The increases in non-interest expense were the result of the Company's continued expansion that included the acquisition of George Mason Mortgage in July and the opening of seven new branch banking locations. Increases in salaries and benefits expense, occupancy, advertising and marketing and professional fees were associated with this expansion and the strong asset growth that has occurred in 2004, particularly during the last six months of the year.
    Bernard Clineburg, Chairman and CEO, said, "Cardinal achieved significant growth during 2004, increasing assets by over 90% to $1.21 billion. The 2004 expansion is in addition to the 30% growth we had in 2003. We expanded our branch network from eleven to eighteen sites and are proceeding with additional branch banking locations. Our focus during 2005 will be on increasing core deposits, loans, and fee income while maintaining our strong credit quality. We anticipate that the full benefit associated with the George Mason Mortgage acquisition will begin to be realized in 2005. Our 2004 pretax income was adversely impacted due to increased overhead and operating costs of George Mason that we were unable to offset with gains on the sale of the acquired GMM portfolio of mortgage loans held for sale due to purchase accounting fair value adjustments on that portfolio. We will continue to execute our plan of expanding our footprint in one of the best markets in the country thereby adding further value to our franchise. We have added several key personnel to insure that sales and service at our financial offices remain the first priority for Cardinal clients. We are now one of the largest publicly traded banks headquartered in Northern Virginia and believe "personal service banking" continues to be our major advantage as the large regional institutions continue to reduce our competitors through acquisition. Our shareholders are always at the forefront of our thoughts and we were pleased to deliver an increase in our stock price in excess of 33% in 2004."
    As previously announced, the Company is restating its earnings for the quarter ended September 30, 2004. The accounting corrections which necessitated the restatement are of a non-recurring and non-cash nature. As a result of the restatement, net income for the three months ended September 30, 2004 decreased from $1.3 million, as previously reported, to $384,000, as restated. Both basic and diluted earnings per share decreased from $0.07, as previously reported, to $0.02, as restated. In addition, net income for the nine month period ended September 30, 2004 decreased from the $2.6 million, as previously reported, to $1.7 million, as restated. Both basic and diluted earnings per share for the nine month period decreased from $0.14, as previously reported, to basic and diluted per share earnings of $0.10 and $0.09, respectively, as restated.

    This press release contains "forward-looking statements" within the meaning of the federal securities laws. These forward-looking statements contain information related to matters such as the Company's intent, belief or expectation with respect to matters such as financial performance. Such statements are necessarily based on management's assumptions and estimates and are inherently subject to a variety of risks and uncertainties concerning the Company's operations and business environment, which are difficult to predict and beyond the control of the Company. Such risks and uncertainties could cause the actual results of the Company to differ materially from those matters expressed or implied in such forward-looking statements. For an explanation of certain risks and uncertainties associated with forward-looking statements, please refer to the Company's 2003 Annual Report on Form 10-KSB and other filings with the Securities and Exchange Commission.
    To learn more about Cardinal Financial Corporation and its subsidiaries, please log on to www.cardinalbank.com, or call 703/ 584-3400.

Cardinal Financial Corporation and Subsidiaries Summary Consolidated Statements of Condition At December 31, 2004 and December 31, 2003 (Dollars in thousands)

2004 2003 % Change ----------- --------- --------- Cash and due from banks $15,205 $9,555 59.1% Federal funds sold 8,203 3,528 132.5%

Investment securities - available-for- sale 151,554 130,762 15.9% Investment securities - held-to- maturity 137,953 142,852 -3.4% ----------- --------- --------- Total investment securities 289,507 273,614 5.8%

Other investments 8,110 3,517 130.6% Loans held for sale, net 365,454 - *

Loans receivable, net of fees 489,896 336,002 45.8% Allowance for loan losses (5,878) (4,344) 35.3% ----------- --------- --------- Loans receivable, net 484,018 331,658 45.9%

Premises and equipment, net 15,531 6,707 131.6% Goodwill and intangibles, net 14,694 22 66690.9% Other assets 10,854 7,647 41.9%

----------- --------- --------- TOTAL ASSETS $1,211,576 $636,248 90.4% =========== ========= =========

Non-interest bearing deposits $105,424 $70,998 48.5% Interest bearing deposits 718,786 403,131 78.3% ----------- --------- --------- Total deposits 824,210 474,129 73.8%

Other borrowed funds 201,085 74,457 170.1% Warehouse financing 30,245 - * Mortgage funding checks 46,392 - * Escrow liabilities 3,020 - * Other liabilities 11,519 2,250 412.0%

Shareholders' equity 95,105 85,412 11.3% ----------- --------- ---------

TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $1,211,576 $636,248 90.4% =========== ========= =========

* Not meaningful.

Cardinal Financial Corporation and Subsidiaries Summary Consolidated Statements of Operations For the Three Months and Years Ended December 31, 2004 and 2003 (Dollars in thousands, except share and per share data)

For the Three Months Ended December 31, 2004 2003 % Change -------------------------------- Net interest income $7,528 $4,432 69.9% Provision for loan losses (709) (399) 77.7% -------------------------------- Net interest income after provision for loan losses 6,819 4,033 69.1%

Service charges on deposit accounts 291 234 24.4% Loan service charges 406 38 968.4% Investment fee income 158 312 -49.4% Net gain on sales of loans 3,289 23 14200.0% Net realized gain on investment securities available-for-sale - 164 -100.0% Management fee income 947 - * Other non-interest income 6 62 -90.3% -------------------------------- Total non-interest income 5,097 833 511.9%

Net interest income & non-interest income 11,916 4,866 144.9%

Salaries & benefits 4,365 1,929 126.3% Occupancy 1,004 464 116.4% Professional fees 688 241 185.5% Depreciation 623 299 108.4% Data processing 322 164 96.3% Telecommunications 207 102 102.9% Other operating expense 2,112 949 122.6% -------------------------------- Total non-interest expense 9,321 4,148 124.7%

Net income before income taxes 2,595 718 261.4% -------------------------------- Provision (benefit) for income taxes 863 (3,508) * -------------------------------- NET INCOME $1,732 $4,226 -59.0% ================================

Dividends to preferred shareholders $- $123 *

NET INCOME TO COMMON SHAREHOLDERS $1,732 $4,103 -57.8% ================================

Earnings per common share, basic $0.09 $0.38 16.7% ================================ Earnings per common share, diluted $0.09 $0.35 16.7% ================================ Weighted-average common shares outstanding - basic 18,450,064 10,693,498 72.5% ================================ Weighted-average common shares outstanding - diluted 18,754,866 12,028,551 55.9% ================================

* Not meaningful.

For the Years Ended December 31, 2004 2003 % Change ------------------------------- Net interest income $24,553 $15,173 61.8% Provision for loan losses (1,626) (1,001) 62.4% ------------------------------- Net interest income after provision for loan losses 22,927 14,172 61.8%

Service charges on deposit accounts 1,089 918 18.6% Loan service charges 958 382 150.8% Investment fee income 657 785 -16.3% Net gain on sales of loans 4,696 282 1565.2% Net realized gain on investment securities available-for-sale 245 1,364 -82.0% Management fee income 1,749 - * Other non-interest income 15 98 -84.7% ------------------------------- Total non-interest income 9,409 3,829 145.7%

Net interest income & non-interest income 32,336 18,001 79.6%

Salaries & benefits 13,354 6,797 96.5% Occupancy 2,897 1,559 85.8% Professional fees 1,610 1,113 44.7% Depreciation 1,838 1,030 78.4% Data processing 969 835 16.0% Telecommunications 611 396 54.3% Other operating expense 5,875 3,625 62.1% ------------------------------- Total non-interest expense 27,154 15,355 76.8%

Net income before income taxes 5,182 2,646 95.8% ------------------------------- Provision (benefit) for income taxes 1,713 (3,508) * ------------------------------- NET INCOME $3,469 $6,154 -43.6% ===============================

Dividends to preferred shareholders $- $495 *

NET INCOME TO COMMON SHAREHOLDERS $3,469 $5,659 -38.7% ===============================

Earnings per common share, basic $0.19 $0.55 -6.7% =============================== Earnings per common share, diluted $0.19 $0.54 -6.7% =============================== Weighted-average common shares outstanding - basic 18,448,007 10,218,293 80.5% =============================== Weighted-average common shares outstanding - diluted 18,704,687 11,468,419 63.1% ===============================

* Not meaningful.

Cardinal Financial Corporation and Subsidiaries Average Statements of Condition and Yields on Earning Assets and Interest-Bearing Liabilities For the Three Months and Years Ended December 31, 2004 and 2003 (Dollars in thousands)

For the Three Months Ended December 31, 2004 December 31, 2003 Average Average Average Average Balance Yield Balance Yield -------------------------------------- Interest-earning assets: Loans receivable, net of fees $454,117 5.68% $308,708 5.90% Loans held for sale 353,224 4.02% - 0.00% Investment securities - available-for-sale 157,968 3.72% 105,968 3.70% Investment securities - held-to- maturity 143,128 3.81% 147,190 3.47% Other investments 8,148 4.38% 3,672 4.30% Federal funds sold 6,833 1.99% 4,267 0.91% ----------- ------- --------- -------- Total interest-earning assets 1,123,418 4.61% 569,805 4.81%

Non-interest-earning assets: Cash and due from banks 7,933 10,040 Premises and equipment, net 15,209 5,718 Goodwill and intangibles, net 14,722 639 Accrued interest and other assets 10,449 1,985 Allowance for loan losses (5,339) (4,070)

----------- --------- TOTAL ASSETS $1,166,392 $584,117 =========== =========

Interest-bearing liabilities: Interest-bearing deposits $704,788 2.39% $389,232 2.17% Other borrowed funds 182,222 2.12% 76,008 1.59% Warehouse fundings 37,821 0.17% - 0.00% ----------- ------- --------- -------- Total interest-bearing liabilities 924,831 2.33% 465,240 2.07%

Non-interest-bearing liabilities: Non-interest-bearing deposits 107,801 72,826 Other liabilities 37,153 2,665 Shareholders' equity 96,607 43,386

----------- --------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $1,166,392 $584,117 =========== =========

NET INTEREST MARGIN 2.68% 3.11%

For the Years Ended December 31, 2004 December 31, 2003 Average Average Average Average Balance Yield Balance Yield ------------------------------------ Interest-earning assets: Loans receivable, net of fees $391,425 5.59% $272,765 6.18% Loans held for sale 181,700 3.75% - 0.00% Investment securities - available- for-sale 161,741 3.60% 152,915 3.29% Investment securities - held-to- maturity 151,286 3.72% 67,685 3.67% Other investments 6,139 4.10% 2,906 4.65% Federal funds sold 10,473 1.24% 9,753 1.10% --------- ------- --------- -------- Total interest-earning assets 902,764 4.49% 506,024 4.86%

Non-interest-earning assets: Cash and due from banks 11,015 10,291 Premises and equipment, net 11,229 5,249 Goodwill and intangibles, net 7,515 646 Accrued interest and other assets 8,533 3,265 Allowance for loan losses (4,759) (3,652)

--------- --------- TOTAL ASSETS $936,297 $521,823 ========= =========

Interest-bearing liabilities: Interest-bearing deposits $563,607 2.25% $362,779 2.39% Other borrowed funds 139,637 2.18% 46,069 1.68% Warehouse fundings 31,981 0.71% - 0.00% --------- ------- --------- -------- Total interest-bearing liabilities 735,225 2.17% 408,848 2.31%

Non-interest-bearing liabilities: Non-interest-bearing deposits 89,114 70,030 Other liabilities 17,847 2,043 Shareholders' equity 94,111 40,902

--------- --------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $936,297 $521,823 ========= =========

NET INTEREST MARGIN 2.72% 3.00%

Cardinal Financial Corporation and Subsidiaries Selected Consolidated Financial Information (In thousands, except per share data and ratios)

For the Three For the Years Months Ended Ended December 31, December 31, 2004 2003 2004 2003 --------------- -------------------- Results of Operations Interest income $12,952 $6,864 $40,522 $24,602 Interest expense 5,424 2,432 15,969 9,429 ----------------------------------------------- -------------------- Net interest income 7,528 4,432 24,553 15,173 Provision for loan losses (709) (399) (1,626) (1,001) ----------------------------------------------- -------------------- Net interest income after provision for loan losses 6,819 4,033 22,927 14,172 Non-interest income 5,097 833 9,409 3,829 Non-interest expense 9,321 4,148 27,154 15,355 ----------------------------------------------- -------------------- Net income before income taxes 2,595 718 5,182 2,646 Provision (benefit) for income taxes 863 (3,508) 1,713 (3,508) ----------------------------------------------- -------------------- Net income 1,732 4,226 3,469 6,154 Dividends to preferred shareholders - 123 - 495 ----------------------------------------------- -------------------- Net income to common shareholders $1,732 $4,103 $3,469 $5,659 =============================================== ====================

Balance Sheet Data: December December 31, 2004 31, 2003 Total assets $1,211,576 $636,248 Loans receivable, net of fees 489,896 336,002 Allowance for loan losses (5,878) (4,344) Loans held for sale 365,454 - Total investment securities 289,507 273,614 Total deposits 824,210 474,129 Other borrowed funds 201,085 74,457 Total shareholders' equity 95,105 85,412

Preferred shares outstanding - 1,364 Common shares outstanding 18,463 16,377

----------------------------------------------------------------------

For the Three Months For the Years Ended December 31, Ended December 31, Selected Average Balances 2004 2003 2004 2003 Total assets $1,166,392 $584,117 $936,297 $521,823 Loans receivable, net of fees 454,117 308,708 391,425 272,765 Allowance for loan losses (5,339) (4,070) (4,759) (3,652) Loans held for sale 353,224 - 181,700 - Total investment securities 301,096 253,158 313,027 220,600 Earning assets 1,123,418 569,805 902,764 506,024 Total deposits 812,589 462,058 652,721 432,809 Other borrowed funds 182,222 76,008 139,637 46,069 Total shareholders' equity 96,607 43,386 94,111 40,902 Weighted Average: ----------------- Common shares outstanding - basic 18,450 10,693 18,448 10,218 Common shares outstanding - diluted 18,755 11,006 18,705 10,445

Per Common Share Data: Basic net income $0.09 $0.38 $0.19 $0.55 Fully diluted net income 0.09 0.35 0.19 0.54 Book value 5.15 4.80 Tangible book value 4.36 4.80

Performance Ratios: Return on average assets 0.59% 2.81% 0.37% 1.18% Return on average equity 7.17% 37.83% 3.69% 15.05% Net interest margin 2.68% 3.11% 2.72% 3.00% Efficiency ratio 78.22% 85.24% 83.97% 85.30% Non-interest income to average assets 1.75% 0.57% 1.00% 0.73% Non-interest expense to average assets 3.20% 2.84% 2.90% 2.94%

Asset Quality Data: Annualized net charge-offs to average loans receivable, net of fees 0.02% 0.01% Non-performing loans to loans receivable, net of fees 0.11% 0.12% Non-performing loans to total assets 0.05% 0.06% Allowance for loan losses to loans receivable, net of fees 1.20% 1.29% Allowance for loan losses to nonperforming loans 1074.6% 1102.54%

Capital Ratios: Tier 1 risk-based capital 12.65% 19.66% Total risk-based capital 13.40% 20.66% Leverage capital ratio 8.83% 15.45%

--30--SF/ph*

CONTACT: Cardinal Financial Corporation Bernard H. Clineburg, 703-584-3400 or Robert A. Cern, 703-584-3400

KEYWORD: VIRGINIA INDUSTRY KEYWORD: BANKING EARNINGS SOURCE: Cardinal Financial Corporation

Copyright Business Wire 2005