- The Washington Times - Monday, July 24, 2006

Cardinal Financial Corp. has its sights set on the future.

The McLean parent company of Cardinal Bank posted a mere 4 percent growth in second-quarter profits last week but says the short-term lag is because of heavy investments in branch expansion and new business segments, which it expects to pay off in the long term.

Cardinal, with 23 branches in the Washington area, announced plans to open its first Maryland location in Bethesda during the third quarter. The company also added several employees to its newly acquired trust and investments division, which it purchased from Arlington investment banking firm Friedman, Billings, Ramsey Group Inc. in February.

“While these investments will have a short-term impact on earnings, I have never been more enthusiastic about our company’s prospects for the future,” Cardinal Chief Executive Officer Bernard H. Clineburg said.

The company’s focus on long-term growth has won the confidence of analysts: Four of the six who follow the company maintain a positive “buy” or “outperform” rating on the stock. Of the remaining two, one rates it “neutral” and the other has a “hold” rating.

For the second quarter ended June 30, Cardinal reported net income of $2.4 million, or 10 cents per diluted share, compared with $2.3 million, or 11 cents per share, a year ago.

During the quarter, the company’s consolidated assets grew to a record $1.6 billion, up from $1.5 billion in the second quarter of 2005.

Two of the bank’s three operating units, the commercial banking and investment services segments, reported substantial gains. Cardinal’s commercial banking profits climbed by 140 percent to $2.4 million from $1 million last year. The nascent investment services segment posted $9,000 profit compared with a loss of $16,000 a year ago.

P. Carter Bundy, an analyst for Stifel, Nicolaus & Co. Inc. in Richmond, which has a business relationship with Cardinal, said the company’s operating expenses were mainly a result of efforts to grow the trust franchise, which he called “encouraging given that this area should only gain momentum and help to fuel profitability” in the future.

However, profits from Cardinal’s third business segment, its mortgage banking subsidiary, George Mason Mortgage, fell more than 66 percent to $600,000 from $1.8 million amid a deflating regional housing market.

“The concern I have at this point is the fact that the housing market is slowing,” said Megan Malanga, an analyst with Ryan Beck & Co. in Boca Raton, Fla. “I’d like to see [the trust business] ramp up quickly so it could give them a cushion should the housing market really start to slow down.”

Still, Ms. Malanga, whose firm has an investment banking relationship with Cardinal, described the housing market concern as a “short-term pain.”

“I think it’s obviously going to pay off in the long run,” she said of the company’s efforts to diversify its business.

In addition to the Bethesda branch, the company plans to open another Arlington location in the third quarter, bringing its total branches to 25.

Shares of Cardinal Bank closed at10.77yesterday, up from $10.32 on Friday.

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