Cardinal Financial (CFNL)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

For the quarterly period ended September 30, 2010

or

For the transition period from              to             

Commission File Number:  0-24557

(Exact name of registrant as specified in its charter)

(703) 584-3400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  o  No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  Yes  o  No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

28,761,939 shares of common stock, par value $1.00 per share,
outstanding as of November 3, 2010

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CARDINAL FINANCIAL CORPORATION

INDEX TO FORM 10-Q

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PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements

CONSOLIDATED STATEMENTS OF CONDITION

September 30, 2010 and December 31, 2009

(In thousands, except share data)

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF INCOME

Three and Nine months ended September 30, 2010 and 2009

(In thousands, except share data)

(Unaudited)

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three and nine months ended September 30, 2010 and 2009

(In thousands)

(Unaudited)

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Nine months ended September 30, 2010 and 2009

(In thousands)

(Unaudited)

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2010 and 2009

(In thousands)

(Unaudited)

See accompanying notes to consolidated financial statements.

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CARDINAL FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

Note 1

Cardinal Financial Corporation (the “Company”) is incorporated under the laws of the Commonwealth of Virginia as a financial holding company whose activities consist of investment in its wholly-owned subsidiaries. The principal operating subsidiary of the Company is Cardinal Bank (the “Bank”), a state-chartered institution and its subsidiary, George Mason Mortgage, LLC (“George Mason”), a mortgage banking company based in Fairfax, Virginia. In January 2009, the Bank organized a second mortgage subsidiary, Cardinal First Mortgage, LLC (“Cardinal First”) also based in Fairfax, Virginia.  The Bank has a trust division, Cardinal Trust and Investment Services.  In addition to the Bank, the Company has two nonbank subsidiaries; Wilson/Bennett Capital Management, Inc. (“Wilson/Bennett”), an asset management firm, and Cardinal Wealth Services, Inc. (“CWS”), an investment services subsidiary.

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 U.S. 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 and nine months ended September 30, 2010 are not necessarily indicative of the results to be expected for the full year ending December 31, 2010. The unaudited interim financial statements should be read in conjunction with the audited financial statements and notes to financial statements that are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Note 2

At September 30, 2010, the Company had two stock-based employee compensation plans, the 1999 Stock Option Plan (the “Option Plan”) and the 2002 Equity Compensation Plan (the “Equity Plan”).

In 1998, the Company adopted the Option Plan pursuant to which the Company may grant stock options for up to 625,000 shares of the Company’s common stock to employees and members of the Company’s and its subsidiaries’ boards of directors. As of November 23, 2008, the Option Plan expired, and therefore, there are no shares of common stock available to grant under this plan.

In 2002, the Company adopted the Equity Plan. The Equity Plan authorizes the granting of options, which may be incentive stock options or non-qualified stock options, stock appreciation rights, restricted stock awards, phantom stock awards and performance share awards to directors, eligible officers and key employees of the Company.  The Equity Plan currently authorizes grants and awards with respect to 2,420,000 shares of the Company’s common stock.  There were 404,868 shares of the Company’s common stock available for future grants and awards in the Equity Plan as of September 30, 2010.

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Stock options are granted with an exercise price equal to the common stock’s fair market value at the date of grant. Director stock options have ten year terms and vest and become fully exercisable at the grant date. Certain employee stock options have ten year terms and vest and become fully exercisable after three years.  Other employee stock options have ten year terms and vest and become fully exercisable in 20% increments beginning as of the grant date.  In addition, the Company has granted stock options to employees of the Company that have ten year terms and vest and become fully exercisable in 20% increments beginning after their first year of service.

The Company has only made awards of stock options under the Option Plan and the Equity Plan.

Total expense related to the Company’s share-based compensation plans for the three months ended September 30, 2010 and 2009 was $61,000 and $72,000, respectively. Total stock compensation expense for the nine months ended September 30, 2010 and 2009 was $452,000 and $300,000, respectively. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $20,000 and $24,000 for the three months ended September 30, 2010 and 2009, respectively.  For the nine months ended September 30, 2010 and 2009, the total income tax benefit recognized in the income statement for share-based compensation was $146,000 and $102,000, respectively.

Options granted during the three and nine months ended September 30, 2010 were 4,250 and 66,250, respectively. There were no options granted during the three months ended September 30, 2009. For the nine months ended September 30, 2009, options granted were 120,650.  The weighted average per share fair value of stock option grants during the three and nine months ended September 30, 2010 was $4.16 and $5.04 respectively. The weighted average per share fair value of stock option grants made for the nine months ended September 30, 2009 was $2.80.  The fair values of the options granted during all periods ended September 30, 2010 and 2009 were estimated as of the grant date using the Black-Scholes option-pricing model based on the following weighted average assumptions:

Expected volatility is based upon the average annual historical volatility of the Company’s common stock. The estimated option life is derived from the “simplified method” formula as described in Staff Accounting Bulletin No. 110. The risk free interest rate is based upon the seven-year U.S. Treasury note rate in effect at the time of grant.  The expected dividend yield is based upon implied and historical dividend declarations.

Stock option activity during the nine months ended September 30, 2010 is summarized as follows:

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The intrinsic value of options exercised during the three and nine months ended September 30, 2010 was $36,000 and $261,000, respectively. For the options exercised during the nine months ended September 30, 2009, the intrinsic value was $41,000. No options were exercised during the three months ended September 30, 2009.

A summary of the status of the Company’s non-vested stock options and changes during the nine months ended September 30, 2010 is as follows:

At September 30, 2010, there was $630,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. The cost is expected to be recognized over a weighted average period of 2.10 years. The total fair value of shares that vested during the three months ended September 30, 2010 and 2009 was $67,000 and $45,000, respectively. For the nine months ended September 30, 2010 and 2009, the total fair value of shares that vested was $573,000 and $290,000, respectively.

Note 3

The Company operates in three business segments: commercial banking, mortgage banking, and wealth management and trust services.

The commercial banking segment includes both commercial and consumer lending and provides customers with such products as commercial loans, real estate loans, business financing and consumer loans. In addition, this segment provides customers with several choices of deposit products including demand deposit accounts, savings accounts and certificates of deposit. The mortgage banking segment engages primarily in the origination and acquisition of residential mortgages for sale into the secondary market on a best efforts basis. The wealth management and trust services segment provides investment and financial advisory services to businesses and individuals, including financial planning, retirement/estate planning, trust, estates, custody, investment management, escrows, and retirement plans.

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Information about the reportable segments and reconciliation of this information to the consolidated financial statements at and for the three and nine months ended September 30, 2010 and 2009 is as follows:

At and for the Three Months Ended September 30, 2010 (in thousands):