SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
Commission File No. 0-24557
CARDINAL FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
| Virginia (State or other jurisdiction of incorporation or organization) |
54-1874630 (I.R.S. Employer Identification No.) |
10555 Main Street, Suite 500, Fairfax, Virginia, 22030
(Address of principal executive offices)
Issuer's telephone number including area code: (703) 934-9200
Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months Yes ý No
On November 12, 2002, there were 10,044,345 shares of Cardinal Financial Corporation Common Stock, par value $1.00 per share, outstanding.
Transitional Small Business Disclosure Format: Yes No ý
CARDINAL FINANCIAL CORPORATION
| PART I—FINANCIAL INFORMATION | ||||
Item 1. Financial Statements (Unaudited): |
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Consolidated Statements of Condition September 30, 2002 and December 31, 2001 |
1 |
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Consolidated Statements of Operations For the three and nine months ended September 30, 2002 and 2001 |
2 |
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Consolidated Statements of Comprehensive Income (Loss) For the three and nine months ended September 30, 2002 and 2001 |
3 |
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Consolidated Statements of Changes In Shareholders' Equity For the nine months ended September 30, 2002 and 2001 |
4 |
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Consolidated Statements of Cash Flows For the nine months ended September 30, 2002 and 2001 |
5 |
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Notes to Consolidated Financial Statements |
6 |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
11 |
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Item 3. |
Controls and Procedures |
26 |
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PART II—OTHER INFORMATION |
27 |
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Item 1. |
Legal Proceedings |
27 |
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Item 2. |
Changes in Securities |
27 |
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Item 3. |
Defaults Upon Senior Securities |
27 |
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Item 4. |
Submission of Matters to a Vote of Security Holders |
27 |
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Item 5. |
Other Information |
28 |
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Item 6. |
Exhibits and Reports on Form 8-K |
28 |
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SIGNATURES AND CERTIFICATIONS |
29 |
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i
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
September 30, 2002 and December 31, 2001
(Dollars in thousands, except share data)
| |
(Unaudited) September 30, 2002 |
December 31, 2001 |
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|---|---|---|---|---|---|---|---|---|
| Assets | ||||||||
| Cash and due from banks | $ | 25,729 | $ | 11,446 | ||||
| Federal funds sold | 61,186 | 23,013 | ||||||
| Total cash and cash equivalents | 86,915 | 34,459 | ||||||
| Investment securities available-for-sale | 137,945 | 34,147 | ||||||
| Other investments | 1,263 | 1,268 | ||||||
| Loans held for sale | — | 4,732 | ||||||
| Loans receivable, net of fees | 216,355 | 200,911 | ||||||
| Allowance for loan losses | (3,073 | ) | (3,104 | ) | ||||
| 213,282 | 197,807 | |||||||
| Premises and equipment, net | 4,610 | 5,077 | ||||||
| Goodwill and other intangibles | 646 | 668 | ||||||
| Accrued interest and other assets | 2,141 | 1,426 | ||||||
| Total assets | $ | 446,802 | $ | 279,584 | ||||
| Liabilities and Shareholders' Equity | ||||||||
| Deposits | $ | 403,668 | $ | 246,024 | ||||
| Other borrowed funds | 1,000 | 9,824 | ||||||
| Accrued interest and other liabilities | 1,404 | 3,112 | ||||||
| Total liabilities | 406,072 | 258,960 | ||||||
| Preferred stock, $1 par value, 10,000,000 shares authorized Series A preferred stock, cumulative convertible, 1,364,686 and 1,364,714 shares outstanding in 2002 and 2001, respectively | 1,365 | 1,365 | ||||||
| Common stock, $1 par value, 50,000,000 shares authorized, 10,044,345 and 4,294,323 shares outstanding in 2002 and 2001, respectively | 10,044 | 4,294 | ||||||
| Additional paid-in capital | 51,231 | 38,488 | ||||||
| Accumulated deficit | (24,358 | ) | (23,249 | ) | ||||
| Accumulated other comprehensive income (loss) | 2,448 | (274 | ) | |||||
| Total shareholders' equity | 40,730 | 20,624 | ||||||
| Total liabilities and shareholders' equity | $ | 446,802 | $ | 279,584 | ||||
See accompanying notes to consolidated financial statements.
1
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended September 30, 2002 and 2001
(Dollars in thousands, except per share data)
(Unaudited)
| |
Three Months Ended September 30, |
Nine Months Ended September 30, |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2002 |
2001 |
2002 |
2001 |
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| Interest income: | |||||||||||||||
| Loans receivable | $ | 3,737 | $ | 3,879 | $ | 10,967 | $ | 11,074 | |||||||
| Federal funds sold | 260 | 218 | 613 | 926 | |||||||||||
| Investment securities available-for-sale | 1,471 | 95 | 3,284 | 285 | |||||||||||
| Other investments | 17 | 22 | 53 | 66 | |||||||||||
| Total interest income | 5,485 | 4,214 | 14,917 | 12,351 | |||||||||||
| Interest expense: | |||||||||||||||
| Deposits | 2,603 | 1,703 | 6,834 | 5,335 | |||||||||||
| Other borrowed funds | 40 | 122 | 208 | 368 | |||||||||||
| Total interest expense | 2,643 | 1,825 | 7,042 | 5,703 | |||||||||||
| Net interest income | 2,842 | 2,389 | 7,875 | 6,648 | |||||||||||
| Provision for loan losses | 95 | 190 | 134 | 375 | |||||||||||
| Net interest income after provision for loan losses | 2,747 | 2,199 | 7,741 | 6,273 | |||||||||||
| Non-interest income: | |||||||||||||||
| Service charges on deposit accounts | 133 | 102 | 363 | 271 | |||||||||||
| Loan service charges | 91 | 144 | 286 | 349 | |||||||||||
| Investment fee income | 188 | 472 | 754 | 1,560 | |||||||||||
| Net gain on sales of loans | 3 | 2 | 50 | 14 | |||||||||||
| Net gain on investment securities available-for-sale | 121 | — | 121 | — | |||||||||||
| Net gain on sales of other assets | — | 1 | 39 | 5 | |||||||||||
| Other income | 192 | 133 | 553 | 277 | |||||||||||
| Total non-interest income | 728 | 854 | 2,166 | 2,476 | |||||||||||
| Non-interest expense: | |||||||||||||||
| Salary and benefits | 1,368 | 1,963 | 4,176 | 5,801 | |||||||||||
| Occupancy | 367 | 344 | 1,002 | 1,027 | |||||||||||
| Professional fees | 235 | 192 | 727 | 450 | |||||||||||
| Depreciation | 176 | 210 | 555 | 596 | |||||||||||
| Writedown on WorldCom bond | — | — | 1,660 | — | |||||||||||
| Amortization of intangibles | — | 173 | 22 | 523 | |||||||||||
| Other operating expenses | 900 | 877 | 2,503 | 2,626 | |||||||||||
| Total non-interest expense | 3,046 | 3,759 | 10,645 | 11,023 | |||||||||||
| Net income (loss) before income taxes | 429 | (706 | ) | (738 | ) | (2,274 | ) | ||||||||
| Provision for income taxes | — | — | — | — | |||||||||||
| Net income (loss) | $ | 429 | $ | (706 | ) | $ | (738 | ) | $ | (2,274 | ) | ||||
| Dividends to preferred shareholders | 124 | 128 | 371 | 384 | |||||||||||
| Net income (loss) to common shareholders | $ | 305 | $ | (834 | ) | $ | (1,109 | ) | $ | (2,658 | ) | ||||
| Basic and diluted earnings (loss) per common share | $ | 0.03 | $ | (0.20 | ) | $ | (0.15 | ) | $ | (0.62 | ) | ||||
| Weighted-average common shares outstanding — basic | 10,044,345 | 4,256,797 | 7,243,053 | 4,255,432 | |||||||||||
| Weighted-average common shares outstanding — diluted | 10,142,930 | 4,256,797 | 7,243,053 | 4,255,432 | |||||||||||
See accompanying notes to consolidated financial statements.
2
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the three and nine months ended September 30, 2002 and 2001
(Dollars in thousands)
(Unaudited)
| |
Three Months Ended September 30, |
Nine Months Ended September 30, |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2002 |
2001 |
2002 |
2001 |
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| Net income (loss) | $ | 429 | $ | (706 | ) | $ | (738 | ) | $ | (2,274 | ) | |||
| Other comprehensive income: | ||||||||||||||
| Unrealized gain on available-for-sale investment securities | 1,581 | 62 | 2,722 | — | ||||||||||
| Comprehensive income (loss) | $ | 2,010 | $ | (644 | ) | $ | 1,984 | $ | (2,274 | ) | ||||
See accompanying notes to consolidated financial statements.
3
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the nine months ended September 30, 2002 and 2001
(Dollars in thousands)
(Unaudited)
| |
Preferred Shares |
Preferred Stock |
Common Shares |
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Income (Loss) |
Total |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance, December 31, 2000 | 1,411 | $ | 1,411 | 4,253 | $ | 4,253 | $ | 38,466 | $ | (10,022 | ) | $ | 4 | $ | 34,112 | ||||||||
| Issuance of stock awards | — | — | 3 | 3 | 3 | — | — | 6 | |||||||||||||||
| Stock options exercised | — | — | 1 | 1 | 3 | — | — | 4 | |||||||||||||||
| Dividends on preferred stock | — | — | — | — | — | (384 | ) | — | (384 | ) | |||||||||||||
| Net loss | — | — | — | — | — | (2,274 | ) | — | (2,274 | ) | |||||||||||||
| Balance, September 30, 2001 | 1,411 | $ | 1,411 | 4,257 | $ | 4,257 | $ | 38,472 | $ | (12,680 | ) | $ | 4 | $ | 31,464 | ||||||||
| Balance, December 31, 2001 | 1,365 | $ | 1,365 | 4,294 | $ | 4,294 | $ | 38,488 | $ | (23,249 | ) | $ | (274 | ) | $ | 20,624 | |||||||
| Dividends on preferred stock | — | — | — | — | — | (371 | ) | — | (371 | ) | |||||||||||||
| Rights offering shares issued | — | — | 2,437 | 2,437 | 5,462 | — | — | 7,899 | |||||||||||||||
| Public offering shares issued | — | — | 3,313 | 3,313 | 7,281 | — | — | 10,594 | |||||||||||||||
| Change in unrealized gain on investment securities available-for-sale | — | — | — | — | — | — | 2,722 | 2,722 | |||||||||||||||
| Net loss | — | — | — | — | — | (738 | ) | — | (738 | ) | |||||||||||||
| Balance, September 30, 2002 | 1,365 | $ | 1,365 | 10,044 | $ | 10,044 | $ | 51,231 | $ | (24,358 | ) | $ | 2,448 | $ | 40,730 | ||||||||
See accompanying notes to consolidated financial statements.
4
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2002 and 2001
(Dollars in thousands)
(Unaudited)
| |
2002 |
2001 |
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|---|---|---|---|---|---|---|---|---|---|---|
| Cash flows from operating activities: | ||||||||||
| Net loss | $ | (738 | ) | $ | (2,274 | ) | ||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||
| Depreciation | 555 | 596 | ||||||||
| Amortization of intangibles, premiums and discounts | 626 | 548 | ||||||||
| Provision for loan losses | 134 | 375 | ||||||||
| Originations of loans held for sale | (4,369 | ) | — | |||||||
| Proceeds from the sale of loans held for sale | 9,038 | — | ||||||||
| Writedown on WorldCom bond | 1,660 | — | ||||||||
| Gain on sale of loans held for sale | (50 | ) | (14 | ) | ||||||
| Gain on sale of investment securities available-for-sale | (121 | ) | — | |||||||
| Gain on sale of other assets | (39 | ) | (5 | ) | ||||||
| Increase in accrued interest and other assets | (715 | ) | (125 | ) | ||||||
| Increase (decrease) in accrued interest and other liabilities | (1,708 | ) | 889 | |||||||
| Compensation related to stock awards | — | 6 | ||||||||
| Net cash provided by (used in) operating activities | 4,273 | (4 | ) | |||||||
| Cash flows from investing activities: | ||||||||||
| Purchase of premises and equipment | (88 | ) | (412 | ) | ||||||
| Proceeds from sale of premises and equipment | — | 12 | ||||||||
| Proceeds from sale, maturity and call of investment securities available-for-sale | 16,053 | 4,500 | ||||||||
| Proceeds from sale of other investments | 188 | 349 | ||||||||
| Purchase of investment securities available-for-sale | (131,129 | ) | (3,601 | ) | ||||||
| Purchase of other investments | (184 | ) | (114 | ) | ||||||
| Redemptions of investment securities available-for-sale | 11,736 | 1,043 | ||||||||
| Net increase in loans receivable | (15,335 | ) | (42,448 | ) | ||||||
| Net cash used in investing activities | (118,759 | ) | (40,671 | ) | ||||||
| Cash flows from financing activities: | ||||||||||
| Net increase in deposits | 157,644 | 49,279 | ||||||||
| Net increase (decrease) in other borrowed funds | (8,824 | ) | 4,069 | |||||||
| Proceeds from rights offering | 7,899 | — | ||||||||
| Proceeds from public offering | 10,594 | — | ||||||||
| Dividends on preferred stock | (371 | ) | (384 | ) | ||||||
| Stock options exercised | — | 4 | ||||||||
| Net cash provided by financing activities | 166,942 | 52,968 | ||||||||
| Net increase in cash and cash equivalents | 52,456 | 12,293 | ||||||||
| Cash and cash equivalents at beginning of period | 34,459 | 29,488 | ||||||||
| Cash and cash equivalents at end of period | $ | 86,915 | $ | 41,781 | ||||||
| Supplemental disclosure of cash flow information: | ||||||||||
| Cash paid during period for interest | $ | 6,947 | $ | 5,693 | ||||||
See accompanying notes to consolidated financial statements.
5
CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(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. 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). On September 1, 2000, the Company completed its acquisition of Heritage Bancorp, Inc. and its banking subsidiary, The Heritage Bank, headquartered in McLean, Virginia. The Heritage Bank was renamed and became the Company's fourth banking subsidiary, Cardinal Bank—Potomac. On November 1, 2001, the Company consolidated two of its banking subsidiaries, Cardinal Bank—Dulles, N.A. and Cardinal Bank—Potomac, into Cardinal Bank, N.A. On March 1, 2002, the Company consolidated Cardinal Bank—Manassas/ Prince William, N.A. into Cardinal Bank, N.A., now the Company's only remaining banking subsidiary.
Basis of Presentation
In the opinion of management, the accompanying consolidated financial statements have been prepared in accordance with the requirements of Regulation S-X, Article 10. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America 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 and nine months ended September 30, 2002 are not necessarily indicative of the results to be expected for the full year ending December 31, 2002. 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, 2001.
Note 2
Segment Disclosures
The Company operates and reports in two business segments, banking and investment advisory services. The banking segment includes both commercial and consumer lending and provides customers products such 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.
6
Information about reportable segments, and reconciliation of such information to the consolidated financial statements as of and for the three and nine months ended September 30, 2002 and 2001, follows:
For the Three Months Ended September 30, 2002:
| |
Banking |
Investment Advisory |
Intersegment Elimination |
Other |
Consolidated |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
(Dollars in thousands) |
||||||||||||||
| Net interest income | $ | 2,810 | $ | — | $ | — | $ | 32 | $ | 2,842 | |||||
| Provision for loan losses | 95 | — | — | — | 95 | ||||||||||
| Non-interest income | 505 | 188 | — | 35 | 728 | ||||||||||
| Non-interest expense | 2,725 | 223 | — | 98 | 3,046 | ||||||||||
| Net income (loss) | $ | 495 | $ | (35 | ) | $ | — | $ | (31 | ||||||