Cardinal Announces Second Quarter Earnings; Asset Quality Remains Strong, Net Interest Margin Improves, Loans Grow 9%

Cardinal Financial Corporation (NASDAQ: CFNL) (the "Company”) today announced earnings of $5.9 million, or $0.20 per diluted share, for period ended June 30, 2011. This is a 25% increase over earnings of $4.7 million, or $0.16 per diluted share, for the second quarter of last year. On a year-to-date basis, earnings were $11.1 million, or $0.37 per diluted share, versus $8.5 million, or $0.29 per diluted share, in 2010. At quarter end, the Company’s assets were $2.165 billion.

Selected Highlights

• Asset quality continues to be strong. Nonperforming loans remained low at 0.42% of total assets, and annualized net loan charge offs were 0.49% of loans outstanding. Real estate owned decreased to $719,000 from $1.2 million at the previous quarter ended March 31, 2011, and the Company currently has no loans receivable past due 30 days or more.
• The Company’s tax equivalent net interest margin increased to 3.84% for the current quarter, up from 3.67% in the previous quarter and up from 3.74% in the year ago quarter.
• Total assets at period-end were $2.165 billion versus $2.073 billion one year earlier, an increase of 4%.
• Loans held for investment grew to $1.446 billion, an increase of $116 million, or 9%, compared to June 30, 2010.
• Total deposits grew to $1.448 billion, an increase of 7% compared to June 30, 2010.
• All capital ratios substantially exceed the requirements of banking regulators to be considered well-capitalized. Tangible common equity capital (TCE) as a percentage of total assets was 10.16%.

Income Statement Review

For the second quarter of 2011, net income was $5.9 million, or $0.20 per diluted share. Compared to the year ago quarter, net interest income increased 9% to $18.7 million from $17.1 million. For this same period, the tax equivalent net interest margin improved to 3.84% from 3.74%. The margin also improved from 3.67% for the first quarter of 2011. The growth in net interest income continues to be the result of the Bank’s success in growing its balance sheet while lowering deposit rates and funding costs. Compared to the year ago quarter, average earning assets grew $117 million. The average balance of the Company’s loan portfolio increased $108 million, or 8%, while the yield decreased 0.18%. For these same periods, the average yield on all earning assets decreased 0.18% while the average costs of interest bearing liabilities decreased 0.28%.

Noninterest income was $7.3 million for the current quarter compared to $6.8 million for the year ago quarter ended June 30. For the respective six month periods ended June 30, noninterest income was $12.3 million versus $12.6 million Mortgage banking activities continued to be strong, producing noninterest income of $5.0 million versus $4.6 million in the year ago quarter and $8.4 million versus $8.0 million for the six month comparable periods. As expected, the previously disclosed repositioning of our wealth management operations resulted in decreased revenues of $304,000 and $765,000 for the three and six month periods compared to the same prior year periods. Going forward, we continue to expect this change to afford less risk, greater scalability and better net profitability for this business unit.

Noninterest expense increased to $16.3 million from $14.2 million for the three month periods ended June 30, 2011 and 2010, respectively. For the six month comparable periods, noninterest expense increased to $30.0 million from $27.2 million. The change primarily resulted from higher personnel cost and incentive compensation due to the addition and success of business development officers for wealth, mortgage, lending and deposit activities. For the quarter and year-to-date periods of 2011, professional fees increased $409,000 and $472,000, respectively, as we continue to explore the possibility of further growth through acquisition. Additionally during the quarter, the mortgage banking subsidiaries incurred a charge of $400,000 to resolve expected mortgage repurchase claims versus a recovery of $165,000 in the year ago quarter. Also, in execution of the Company’s business plan, the mortgage banking subsidiaries added 55 employees, primarily new production officers and assistants. As part of the plan, new loan underwriting systems are being implemented, requiring the accelerated depreciation of approximately $240,000 of the incumbent software in the current quarter. Also as a result of this planned expansion, other expenses in the mortgage subsidiaries increased approximately $495,000 and $934,000 for the second quarter and year-to-date, respectively, versus the comparable prior year periods.

Review of Balance Sheet and Credit Quality

At June 30, 2011, total assets of the Company were $2.165 billion, an increase of 4% from total assets of $2.073 billion at June 30, 2010. Loans held for investment grew 9% to $1.446 billion at June 30, 2011, from $1.330 billion at June 30, 2010. During this period, the Bank’s investment portfolio increased slightly to $357 million compared to $354 million a year ago. Loans held for sale were $249 million versus $269 million at June 30, 2010.

The Bank’s asset growth was primarily funded by a 7% increase in deposits, which grew $98 million and totaled $1.448 billion at June 30, 2011 versus $1.350 billion a year earlier. Demand deposit account balances increased by 18% year over year, reflecting the Bank’s continued focus on generating lower funding costs.

The quality of the Bank’s loan portfolio has remained strong. The provision for loan losses was $750,000 for the current quarter versus $2.7 million for the second quarter of last year. The total allowance for loan losses was 1.56% of loans outstanding from a comparable ratio of 1.58% at June 30, 2010. The Company’s nonperforming loans stood at 0.42% of total assets at June 30, 2011 compared to 0.45% at March 31, 2011 and 0.22% at June 30, 2010. Year-to date net loan charge-offs totaled $3.4 million, compared to $2.7 million for first six months of 2010. There were no loans past due 90 days or more and no early stage loan delinquencies at 30-89 days past due at June 30, 2011.

Other Information

The Company was informed by letter July 1, 2011 that the U.S. Department of Justice (the "DOJ”) might initiate the filing of a complaint against Cardinal Bank and George Mason Mortgage, LLC alleging certain violations of the Fair Housing Act and the Equal Credit Opportunity Act. The Company believes that its lending practices have complied with these laws. In addition, the Company has always received a satisfactory rating on all of its Community Reinvestment Act exams conducted by federal regulators since its inception. The Company intends to cooperate fully with the DOJ in this matter. It is too early to assess whether the resolution of this matter will have an effect on the Company.

MANAGEMENT COMMENTS

Bernard H. Clineburg, Chairman and Chief Executive Officer of the Company, said:

"I am pleased to announce another solid quarter for Cardinal as we continue to concentrate on improved profitability and balanced growth. During the quarter, the Company’s net interest margin increased, commercial lending activity and deposit growth was steady, and mortgage lending activity increased as expected. Meanwhile, we continued to adhere to our prudent underwriting standards as evidenced by our credit quality metrics that remain among the best in the industry.

We remain committed to our shareholders to build upon the core banking strengths of our Company, and we continue to believe that we are well positioned to maximize the value of the Cardinal franchise.”

CAUTION ABOUT FORWARD-LOOKING STATEMENTS

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 regard to such matters as financial and operational performance, credit quality and branch expansion. 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 actual results of the Company to differ materially from those matters expressed or implied in such forward-looking statements. For an explanation of the risks and uncertainties associated with forward-looking statements, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 and other reports filed with and furnished to the Securities and Exchange Commission.

About Cardinal Financial Corporation: Cardinal Financial Corporation, a financial holding company headquartered in Tysons Corner, Virginia with assets of $2.16 billion at June 30, 2011, serves the Washington Metropolitan region through its wholly-owned subsidiary, Cardinal Bank, with 27 conveniently located banking offices. Cardinal also operates several other subsidiaries: George Mason Mortgage, LLC, and Cardinal First Mortgage, LLC, residential mortgage lending companies based in Fairfax, with eight offices throughout the Washington Metropolitan region; Cardinal Trust and Investment Services, a trust division; Cardinal Wealth Services, Inc., a full-service brokerage company; and Wilson/Bennett Capital Management, Inc., an asset management company. The Company's stock is traded on NASDAQ (CFNL). For additional information please visit our Web site at www.cardinalbank.com or call (703) 584-3400.