Cardinal Announces Third Quarter 2016 Earnings

Mittwoch, 19.10.2016 18:15



TYSONS CORNER, Va. --(BUSINESS WIRE)--

Cardinal Financial Corporation (NASDAQ: CFNL) (the “Company”) today reported that earnings for the quarter ended September 30, 2016 were $12.5 million, compared to $11.2 million for the year ago quarter ended September 30, 2015. Diluted earnings per share were $0.37 and $0.34 for these same respective periods.

During the current quarter, the Company incurred $1.5 million after-tax expense, equal to $0.04 per share, related to the August 17th announcement of the merger with United Bankshares. Before these expenses, the Company had adjusted net income of $14.0 million, or $0.41 per share, for the most recent quarter.

For the year to date period ended September 30, 2016, net income was $39.7 million, compared to $38.3 million for the nine month period ended September 30, 2015. Diluted earnings per share were $1.18 and $1.15 for these same respective periods. Before merger expenses, the Company had adjusted net income of $41.2 million, or $1.22 per share, current year to date.

Selected Highlights

  • Return on average assets (“ROAA”) and average equity (“ROAE”) were 1.19% and 11.10% for the third quarter 2016 and 1.29% and 12.11% for the nine months ending September 30, 2016, respectively. Before merger expenses, ROAA was 1.32% and ROAE was 12.41% for the current quarter.
  • Net income before the provision for loan losses, taxes and merger expenses was $22.4 million for the quarter ended September 30, 2016, versus $15.9 million for the year ago same quarter, an increase of 40.9%.
  • Total assets of the Company grew above $4.20 billion, increasing 9% from September 30, 2015.
  • Loans held for investment were $3.22 billion, increasing 11% from a year ago.
  • Customer deposits, including customer repurchase agreements, were $2.90 billion, increasing 10% from a year ago. Non-interest bearing demand deposit accounts increased 22% over the past year and now total $757 million.
  • For the third consecutive quarter, the Company had no nonaccrual loans and no other real estate owned at quarter end.
  • Net interest margin was 3.35% for the third quarter of 2016, an increase from 3.33% for the prior quarter.
  • Total mortgage loan closings were $1.20 billion for the quarter, an increase of $313 million from $886 million in the third quarter 2015. Closed purchase money mortgages represented 65% of the quarter’s volume and 68% year to date.
  • Mortgage application volume was $1.58 billion, an increase of $426 million from the third quarter of 2015. Purchase money mortgage applications were approximately 63% of total volume.

Review of Balance Sheet

At September 30, 2016, total assets of the Company were $4.22 billion, an increase of 9% from total assets of $3.88 billion at September 30, 2015.Average interest earning assets for the third quarter increased to $4.05 billion from $3.58 billion a year ago, and average interest bearing liabilities for the third quarter increased to $2.99 billion from $2.65 billion.

Loans held for investment grew to $3.22 billion at September 30, 2016 versus $2.92 billion a year ago, an 11% increase. Balances increased $68 million, or 9% annualized, during the third quarter of the year. Loans held for sale were $432 million at September 30, 2016, compared to $456 million at June 30, 2016, and increased from the third quarter 2015 balance of $378 million. The Company’s investment securities portfolio decreased slightly to $398 million from $413 million at the end of the previous quarter, and from $430 million a year ago.

Over the past year, deposit balances increased $286 million to $3.22 billion from $2.94 billion, an increase of 10%. Non-interest bearing demand deposit accounts, which totaled $757 million and represented 23% of deposits, increased $137 million since September 30, 2015, or 22%. The increase in deposits is due primarily to continued growth in the number of accounts and balances in consumer and business non maturing accounts.

Net Interest Income

The Company’s net interest income increased 11%, to $33.0 million from $29.6 million, for the quarters ended September 30, 2016 and 2015, respectively. For the current quarter, the Company’s tax equivalent net interest margin was 3.35%, an increase from 3.33% for the prior sequential quarter and up from 3.31% for the first quarter 2016.

The yield on loans held for investment was 4.10% for the third quarter of 2016 versus 4.09% for the second quarter of 2016, while the yield on loans held for sale decreased to 3.65% for the third quarter of 2016 versus 3.71% for the second quarter, reflecting the lower interest rate environment for mortgage loans. The average balance of loans held for sale increased to $422 million in the most recent quarter, versus $366 million in the second quarter of 2016. The yield on total interest earning assets was 3.97% for the third quarter of 2016, compared to 3.99% for the previous quarter. For these same respective periods, the Company’s total cost of interest bearing liabilities decreased to 0.84% from 0.90%. Including DDAs, the Company’s total cost of funds decreased to 0.68% from 0.73%.

Commercial Banking Review

For the quarter ended September 30, 2016, net income for the commercial banking segment (the Bank) was $11.5 million, an increase of 4% from $11.0 million for the third quarter of last year. During the current quarter, the provision for loan losses was $990,000 versus a negative provision of $547,000 during the year ago quarter due to recoveries of charged-off loans. Before taxes and the provision for loan losses, the Bank’s income for the current quarter was a record $18.4 million.

For the current year to date period ended September 30, 2016, the Bank’s net income increased 10% to $32.5 million versus $29.6 million for the year to date period ended September 30, 2015. The year to date provision expense was $1.7 million versus $939,000 for the first nine months of 2015.

For the current quarter, there were net charge offs of 0.04% (annualized) of average loans outstanding. The allowance for loan losses was 1.04% of loans outstanding at September 30, 2016 versus 1.08% at September 30, 2015. This ratio decrease from a year ago is primarily the result of continued improvement of credit quality. The Company had no nonperforming loans at September 30, 2016 versus nonperforming loans of 0.02% of total assets at September 30, 2015.

Non-interest income was $1.4 million for the current quarter compared to $954,000 for the year ago quarter. Before gains on securities sales of $3.7 million, current year to date non-interest income was $3.6 million versus $3.2 million for the 2015 year to date period.

For the third quarter of 2016, non-interest expense was $15.9 million, compared to $15.8 million for the prior sequential quarter and $16.5 million for the first quarter of 2016. The efficiency ratio for the Bank was 46.4%, 48.7% and 52.2% for these respective quarters, which reflects the Company’s continued focus on expense controls. Comparing total non-interest expenses to $15.3 million for the third quarter of 2015, the increase is primarily the result of increases in personnel expense to support the Bank’s growth, including quarterly accruals for performance based compensation. At the end of September, the Bank closed its office in Tyson’s Corner, Virginia, and it expects to realize approximately $50,000 of expense savings per quarter.

Mortgage Banking Review

The Company’s mortgage banking subsidiary, George Mason Mortgage (GMM), was again extremely active as it accepted approximately $1.58 billion of loan applications during the quarter and $4.8 billion year to date. For the quarter ended September 30, 2016, GMM reported a net profit of $2.8 million and operating net income of $4.3 million. Operating net income (a non-GAAP measure) excludes the impact of the Staff Accounting Bulletin (“SAB”) 109 accounting requirement to record unrealized gains associated with the Company’s locked mortgage loan pipeline. Comparable recent quarterly results are shown below.

                               
      Q3 2016     Q2 2016     Q1 2016     Q4 2015     Q3 2015

Mortgage Banking: (in 000's)

                             
Reported Net Income     $2,816     $3,994     $3,553     $164     $631
Reverse Impact of SAB 109     1,446     (2,259)     (3,794)     765     1,760
Operating Net Income (Loss)     $4,262     $1,735     ($241)     $929     $2,391
                   

The net realized gain on sales and other fees, before the impact of SAB 109, was $17.9 million for the three months ended September 30, 2016 versus $10.8 million for the same quarter of 2015. The gain on sale margin was 2.78% for the quarter versus 2.71% last quarter and 2.61% for the year ago quarter. The increase from previous periods is primarily due to the success of selling a majority of its production on a mandatory delivery basis.

Operating expenses were $11.5 million for the most recent quarter compared to $9.4 million last quarter and $7.9 million for the year ago quarter. The sequential quarter increase in expenses reflects $1.3 million and $3.0 million, respectively, of salary expenses associated with loans held for sale that are deducted from expense and reported as contra-revenue under GAAP. The expense increase over the same quarter of 2015 reflects added personnel costs related to compliance with the new TILA/RESPA Integrated Disclosure (TRID) regulations. All other fixed expenses are consistent with the year ago period.

Loan applications totaled $1.58 billion during the third quarter of 2016, a slight decrease from $1.70 billion last quarter and up from $1.15 billion for the year ago quarter. Applications to refinance represented 37% for the current quarter, versus 25% of total applications last quarter and 26% for the year ago quarter. Although refi activity has been strong, GMM continues to focus on the more stable purchase money mortgage business.

 
Monthly Mortgage Loan Applications (in millions)
      JUL     AUG     SEP     Total
Third Quarter 2016     $575.50     $512.50     $487.20     $1,575.20
Purchase Money %     58%     67%     64%     63%
# of Units     1,622     1,500     1,410     4,532
      APR     MAY     JUN     Total
Second Quarter 2016     $571.80     $569.30     $562.40     $1,703.50
Purchase Money %     75%     79%     70%     75%
# of Units     1,626     1,585     1,546     4,757
      JAN     FEB     MAR     Total
First Quarter 2016     $333.80     $551.70     $617.80     $1,503.30
Purchase Money %     74%     56%     75%     68%
# of Units     975     1,590     1,837     4,402
      OCT     NOV     DEC     Total
Fourth Quarter 2015     $397.00     $335.40     $331.00     $1,063.40
Purchase Money %     71%     77%     74%     74%
# of Units     1,117     935     953     3,005
               

Parent Company Only Review

For the quarter ended September 30, 2016, Cardinal’s parent company reported a net loss of $1.8 million versus a net loss of $702,000 for the previous quarter and a net loss of $413,000 for the year ago quarter. The current quarter includes approximately $1.5 million of after-tax merger related expenses.

Capital Ratios

All capital ratios of the Company comfortably exceeded the requirements of banking regulators to be considered well-capitalized. Tangible common equity capital (TCE) as a percentage of total assets was 9.68% at September 30, 2016.

MANAGEMENT COMMENTS

Bernard H. Clineburg, Executive Chairman, said:

“We have always remained committed to maintaining and growing a strong financial services company for our employees, clients, the communities we serve, and especially our shareholders.

“In adhering to that mission, we recently announced our intention to merge with United Bankshares. Richard Adams, United’s CEO, and I have had a long standing relationship, and we believe that this merger represents a tremendous opportunity to create a dominant bank in the Washington DC metropolitan area which will benefit our customers and shareholders. The process to seek required approvals from shareholders and regulators has begun, and we have commenced to collaborate on integration plans.

"Our third quarter results are indicative of our commitment to continue our positive momentum as we begin to focus on combining our companies. The quarterly results show improving profitability metrics while maintaining pristine asset quality levels. Increased balances in the loan portfolio combined with an increasing net interest margin resulted in revenue growth over both the previous quarter and same quarter last year. George Mason continued to have strong activity as applications for loan originations were almost $1.6 billion, which is reflective of our ongoing commitment to building a quality team of mortgage bankers with deep ties to the realtor and builder communities."

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, cost savings, 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.

Risk and uncertainties related to the pending merger with United include, among others, that: the businesses of United and Cardinal may not be combined successfully, or such combination may take longer, be more difficult, time-consuming or costly to accomplish than expected; the expected growth opportunities or cost savings from the merger may not be fully realized or may take longer to realize than expected; deposit attrition, operating costs, customer losses and business disruption following the merger, including adverse effects on relationships with employees, may be greater than expected; the regulatory approvals required for the merger may not be obtained on the proposed terms or on the anticipated schedule; the stockholders of United and Cardinal may fail to approve the merger.

For an explanation of some of the additional 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, 2015 and other reports filed with and furnished to the Securities and Exchange Commission. The Company has no obligation and does not undertake to update, revise or correct any of the forward-looking statements after the date of this press release, or after the respective dates on which such statements otherwise are made.

About Cardinal Financial Corporation: Cardinal Financial Corporation, a financial holding company headquartered in Tysons Corner, Virginia with assets of $4.22 billion at September 30, 2016, serves the Washington Metropolitan region through its wholly-owned subsidiary, Cardinal Bank. Cardinal also operates several other subsidiaries: George Mason Mortgage, LLC, a residential mortgage lending company based in Fairfax, Virginia and Cardinal Wealth Services, Inc., a wealth management services 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.

Additional Information about the Merger and Where to Find It

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. Shareholders of Cardinal and other investors are urged to read the proxy statement/prospectus that will be included in the registration statement on Form S-4 that United will file with the Securities and Exchange Commission in connection with the proposed merger because it will contain important information about United, Cardinal, the merger, the persons soliciting proxies in the merger and their interests in the merger and related matters. Investors will be able to obtain all documents filed with the SEC by United free of charge at the SEC’s Internet site (http://www.sec.gov). In addition, documents filed with the SEC by United will be available free of charge from the Corporate Secretary of United Bankshares, Inc., 514 Market Street, Parkersburg, West Virginia 26101 telephone (304) 424-8800. The proxy statement/prospectus (when it is available) and the other documents may also be obtained for free by accessing United’s website at www.ubsi-inc.com under the tab “Investor Relations” and then under the heading “SEC Filings” or by accessing Cardinal’s website at www.cardinalbank.com under the tab “About Us” and then under the heading “Investor Relations”, and “SEC Filings”. You are urged to read the proxy statement/prospectus carefully before making a decision concerning the merger.

Participants in the Transaction

United, Cardinal and their respective directors, executive officers and certain other members of management and employees may be deemed “participants” in the solicitation of proxies from Cardinal’s shareholders in favor of the merger with United. Information regarding the persons who may, under the rules of the SEC, be considered participants in the solicitation of the Cardinal shareholders in connection with the proposed merger will be set forth in the proxy statement/prospectus when it is filed with the SEC.

You can find information about the executive officers and directors of United in its Annual Report on Form 10-K for the year ended December 31, 2015 and in its definitive proxy statement filed with the SEC on April 1, 2016. You can find information about Cardinal’s executive officers and directors in its Annual Report on Form 10-K for the year ended December 31, 2015 and in its definitive proxy statement filed with the SEC on March 24, 2016. You can obtain free copies of these documents from United or Cardinal using the contact information above.

 
Table 1.
Cardinal Financial Corporation and Subsidiaries
Summary Consolidated Statements of Condition
(Dollars in thousands)
(Unaudited)
 
 
  09/30/16   06/30/16   % Change
Current
Quarter
  03/31/16   12/31/15   09/30/15   % Change
From
Year Ago
 
Cash and due from banks $ 23,928 $ 24,081 -0.6 % $ 19,379 $ 24,760 $ 18,744 27.7 %
Federal funds sold 23,481 11,481 104.5 % 41,489 14,577 13,692 71.5 %
 
Investment securities available-for-sale 387,150 402,522 -3.8 % 407,980 414,077 421,214 -8.1 %
Investment securities held-to-maturity 3,780 3,796 -0.4 % 3,814 3,836 3,857 -2.0 %
Investment securities – trading   6,958     6,489   7.2 %   6,221     5,881     5,274   31.9 %
Total investment securities 397,888 412,807 -3.6 % 418,015 423,794 430,345 -7.5 %
 
Other investments 18,736 18,136 3.3 % 19,411 20,967 16,111 16.3 %
Loans held for sale 432,350 456,359 -5.3 % 365,489 383,768 377,878 14.4 %
 
Loans receivable, net of fees:
Commercial and industrial 336,444 350,206 -3.9 % 363,405 379,414 347,914 -3.3 %
Real estate - commercial 1,690,305 1,605,868 5.3 % 1,555,985 1,372,627 1,356,821 24.6 %
Real estate - construction 570,776 570,269 0.1 % 560,114 694,408 620,982 -8.1 %
Real estate - residential 460,400 463,394 -0.6 % 455,952 448,168 436,832 5.4 %
Home equity lines 161,515 161,658 -0.1 % 161,691 156,852 150,769 7.1 %
Consumer   5,383     5,476   -1.7 %   4,831     4,841     4,739   13.6 %
Total loans, net of fees 3,224,823 3,156,871 2.2 % 3,101,978 3,056,310 2,918,057 10.5 %
Allowance for loan losses   (33,641 )   (32,984 ) 2.0 %   (32,407 )   (31,723 )   (31,572 ) 6.6 %
Loans receivable, net 3,191,182 3,123,887 2.2 % 3,069,571 3,024,587 2,886,485 10.6 %
 
Premises and equipment, net 24,190 24,273 -0.3 % 24,845 25,163 25,398 -4.8 %
Goodwill and intangibles, net 36,115 36,262 -0.4 % 36,415 36,576 36,747 -1.7 %
Bank-owned life insurance 33,314 33,213 0.3 % 33,102 32,978 32,876 1.3 %
Other real estate owned - - 0.0 % - 253 - 0.0 %
Other assets 38,464 56,667 -32.1 % 46,829 42,498 43,460 -11.5 %
         
TOTAL ASSETS $ 4,219,648   $ 4,197,166   0.5 % $ 4,074,545   $ 4,029,921   $ 3,881,736   8.7 %
 
Non-interest bearing deposits $ 757,184 $ 710,318 6.6 % $ 687,493 $ 657,398 $ 620,630 22.0 %
Interest checking 437,358 437,724 -0.1 % 459,377 451,545 433,372 0.9 %
Money markets 492,547 445,639 10.5 % 447,565 448,888 447,536 10.1 %
Statement savings 333,272 319,116 4.4 % 310,055 291,484 278,871 19.5 %
Certificates of deposit 756,991 763,013 -0.8 % 788,756 776,413 738,878 2.5 %
Brokered certificates of deposit   447,148     568,996   -21.4 %   451,781     407,043     419,461   6.6 %
Total deposits 3,224,500 3,244,806 -0.6 % 3,145,027 3,032,771 2,938,748 9.7 %
 
Other borrowed funds 464,876 450,696 3.1 % 437,065 537,965 469,019 -0.9 %
Mortgage funding checks 36,740 23,921 53.6 % 28,765 12,554 20,418 79.9 %
Escrow liabilities 3,653 2,491 46.6 % 2,777 2,676 2,861 27.7 %
Other liabilities 38,042 37,320 1.9 % 34,366 30,808 45,467 -16.3 %
 
Shareholders' equity   451,837     437,932   3.2 %   426,545     413,147     405,223   11.5 %
 
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 4,219,648   $ 4,197,166   0.5 % $ 4,074,545   $ 4,029,921   $ 3,881,736   8.7 %
 
 
Table 2.
Cardinal Financial Corporation and Subsidiaries
Summary Consolidated Income Statements
(In thousands, except share data and per share data)
(Unaudited)
 
 
  For the Three Months Ended
09/30/16   06/30/16  

% Change
Current
Quarter

  03/31/16   12/31/15   09/30/15   % Change
From
Year Ago
 
Net interest income $ 32,965 $ 31,523 4.6 % $ 30,706 $ 30,471 $ 29,634 11.2 %
Provision for loan losses   990     430   130.2 %   250     449     (547 ) -281.0 %
Net interest income after provision for loan losses   31,975     31,093   2.8 %   30,456     30,022     30,181   5.9 %
 
Non-interest income:
Service charges on deposit accounts 612 581 5.3 % 551 590 584 4.8 %
Loan fees 596 359 66.0 % 309 307 344 73.3 %
Income from bank-owned life insurance 101 111 -9.0 % 124 102 118 -14.4 %
Net realized gains (losses) on investment securities 331 3,918 -91.6 % (84 ) (127 ) 960 -65.5 %
Other non-interest income   134     127   5.5 %   145     22     6   2133.3 %
Commercial banking & other segment non-interest income 1,774 5,096 -65.2 % 1,045 894 2,012 -11.8 %
 
Gains from mortgage banking activities 32,035 34,613 -7.4 % 27,041 19,939 22,915 39.8 %
Less: mortgage loan origination expenses   (16,412 )   (19,304 ) -15.0 %   (12,902 )   (11,874 )   (14,802 ) 10.9 %
Mortgage banking segment non-interest income 15,623 15,309 2.1 % 14,139 8,065 8,113 92.6 %
 
Wealth management segment non-interest income   94     84   11.9 %   85     133     142   -33.8 %
Total non-interest income   17,491     20,489   -14.6 %   15,269     9,092     10,267   70.4 %
 
Net interest income and non-interest income   49,466     51,582   -4.1 %   45,725     39,114     40,448   22.3 %
 
Salaries and benefits 17,331 16,037 8.1 % 15,497 14,391 13,409 29.2 %
Occupancy 2,577 2,448 5.3 % 2,592 2,501 2,492 3.4 %
Depreciation 764 833 -8.3 % 844 853 828 -7.7 %
Data processing & communications 1,542 1,517 1.6 % 1,346 1,273 1,373 12.3 %
Professional fees 727 549 32.4 % 1,135 1,034 852 -14.7 %
FDIC insurance assessment 516 516 0.0 % 516 516 516 0.0 %
Loss on extinguishment of debt - 3,638 100.0 % - - - 100.0 %
Mortgage loan repurchases and settlements - - 0.0 % 100 350 47 0.0 %
Merger and acquisition expense 2,284 - 0.0 % - - - 0.0 %
Other operating expense   4,594     4,579   0.3 %   4,262     4,364     4,478   2.6 %
Total non-interest expense   30,335     30,117   0.7 %   26,292     25,282     23,995   26.4 %
Income before income taxes 19,131 21,465 -10.9 % 19,433 13,832 16,453 16.3 %
Provision for income taxes   6,609       7,364   -10.3 %   6,366       4,817       5,244   26.0 %
NET INCOME $ 12,522     $ 14,101   -11.2 % $ 13,067     $ 9,015     $ 11,209   11.7 %
 
Earnings per common share - basic $ 0.38     $ 0.43   -11.6 % $ 0.40     $ 0.27     $ 0.34   10.3 %
Earnings per common share - diluted $ 0.37     $ 0.42   -11.7 % $ 0.39     $ 0.27     $ 0.34   10.2 %
Weighted-average common shares outstanding - basic   33,200,426       33,032,595   0.5 %   32,977,970       32,844,212       32,766,772   1.3 %
Weighted-average common shares outstanding - diluted   33,767,143       33,569,058   0.6 %   33,435,858       33,379,656       33,311,261   1.4 %
 
 
Table 3.
Cardinal Financial Corporation and Subsidiaries
Summary Consolidated Income Statements
(In thousands, except share data and per share data)
(Unaudited)
 
 
  For the Nine Months Ended
09/30/16   09/30/15  

% Change
From
Year Ago

 
Net interest income $ 95,195 $ 85,923 10.8 %
Provision for loan losses   1,670     939   77.8 %
Net interest income after provision for loan losses   93,525     84,984   10.1 %
 
Non-interest income:
Service charges on deposit accounts 1,744 1,705 2.3 %
Loan fees 1,264 1,289 -1.9 %
Income from bank-owned life insurance 336 330 1.8 %
Net realized gains on investment securities 4,164 1,518 174.3 %
Litigation recovery - 2,950 -100.0 %
Other non-interest income   406     17   2288.2 %
Commercial banking & other segment non-interest income 7,914 7,809 1.3 %
 
Gains from mortgage banking activities 93,688 75,754 23.7 %
Less: mortgage loan origination expenses   (48,618 )   (40,363 ) 20.5 %
Mortgage banking segment non-interest income 45,070 35,391 27.3 %
 
Wealth management segment non-interest income   263     400   -34.3 %
Total non-interest income   53,247     43,600   22.1 %
 
Net interest income and non-interest income   146,772     128,584   14.1 %
 
Salaries and benefits 48,864 37,453 30.5 %
Occupancy 7,617 7,323 4.0 %
Depreciation 2,441 2,550 -4.3 %
Data processing & communications 4,405 4,336 1.6 %
Professional fees 2,411 3,577 -32.6 %
FDIC insurance assessment 1,548 1,548 0.0 %
Loss on extinguishment of debt 3,638 - 100.0 %
Mortgage loan repurchases and settlements 100 47 112.8 %
Merger and acquisition expense 2,284 472 383.9 %
Other operating expense   13,435     13,710   -2.0 %
Total non-interest expense   86,743     71,016   22.1 %
Income before income taxes 60,029 57,568 4.3 %
Provision for income taxes   20,339       19,249   5.7 %
NET INCOME $ 39,690     $ 38,319   3.6 %
 
Earnings per common share - basic $ 1.20     $ 1.17   2.4 %
Earnings per common share - diluted $ 1.18     $ 1.15   2.4 %
Weighted-average common shares outstanding - basic   33,070,838       32,710,435   1.1 %
Weighted-average common shares outstanding - diluted   33,576,873       33,191,915   1.2 %
 
 
Table 4.
Cardinal Financial Corporation and Subsidiaries
Selected Financial Information
(In thousands, except per share data and ratios)
(Unaudited)
 
 
  09/30/16   06/30/16   03/31/16   12/31/15   09/30/15
Capital Ratios:

At Period End:

Common equity tier 1 capital 10.58 % 10.33 % 9.99 % 9.86 % 9.91 %
Tier 1 risk-based capital 11.23 % 10.99 % 10.64 % 10.52 % 10.59 %
Total risk-based capital 12.11 % 11.86 % 11.50 % 11.37 % 11.47 %
Leverage capital ratio 10.33 % 10.38 % 10.28 % 10.18 % 10.46 %
Book value per common share $ 13.77 $ 13.50 $ 13.16 $ 12.76 $ 12.58
Tangible book value per common share (1) $ 12.67 $ 12.38 $ 12.04 $ 11.63 $ 11.44
Common shares outstanding 32,803 32,441 32,415 32,373 32,209
 
Performance Ratios (annualized):

For the Three Months Ended:

Return on average assets 1.19 % 1.39 % 1.31 % 0.92 % 1.20 %
Return on average equity 11.10 % 12.92 % 12.34 % 8.72 % 11.02 %
Net interest margin (2) 3.35 % 3.33 % 3.31 % 3.25 % 3.37 %
Efficiency ratio (3) 55.59 % 54.71 % 57.19 % 63.90 % 60.14 %
 
Asset Quality Data:

For the Three Months Ended:

Net charge-offs (recoveries) to average loans receivable, net of fees (annualized) 0.04 % -0.02 % -0.06 % 0.04 % -0.27 %

At Period End:

Total nonaccrual loans $ - $ - $ - $ 520 $ 721
Other real estate owned $ - $ - $ - $ 253 $ -
Nonperforming loans to loans receivable, net of fees 0.00 % 0.00 % 0.00 % 0.02 % 0.02 %
Nonperforming loans to total assets 0.00 % 0.00 % 0.00 % 0.01 % 0.02 %
Nonperforming assets to total assets 0.00 % 0.00 % 0.00 % 0.02 % 0.02 %
Total loans receivable past due 30 to 89 days $ 394 $ 736 $ 163 $ 938 $ 56
Total loans receivable past due 90 days or more $ - $ 41 $ - $ - $ -
Allowance for loan losses to loans receivable, net of fees 1.04 % 1.04 % 1.04 % 1.04 % 1.08 %
 
Mortgage Banking Data:

For the Three Months Ended:

Applications $ 1,575,200 $ 1,703,500 $ 1,503,300 $ 1,063,400 $ 1,149,000
Loans closed 1,198,737 1,172,339 769,080 786,363 885,715
Loans sold 1,233,801 1,073,282 791,680 778,854 983,355
Purchase money % of loans closed - George Mason Mortgage 65 % 76 % 62 % 74 % 74 %
Realized gain on sales and fees as a % of loan sold(4) 2.78 % 2.71 % 2.67 % 2.71 % 2.61 %

At Period End:

Locked Pipeline $ 411,245 $ 458,555 $ 451,905 $ 247,448 $ 316,684
SAB 109 Total Unrealized Gains Recognized 23,713 25,955 22,453 16,571 17,757
Change in Unrealized Gains (2,242 ) 3,502 5,882 (1,186 ) (2,728 )
Change in After-tax Income (1,446 ) 2,259 3,794 (765 ) (1,760 )
 

(1)

 

Tangible book value is calculated as total shareholders' equity less goodwill and other intangible assets, divided by common shares outstanding.

(2)

The average yields for loans receivable and investment securities available-for-sale are reported on a fully taxable-equivalent basis at a rate of 36% for 2016 and 35% for 2015.

(3)

Efficiency ratio is calculated as total non-interest expense divided by the total of net interest income and non-interest income. For the three months ended September 30, 2016, non-interest expense excludes $2.3 million of merger and acquisition expense. For the three months ended June 30, 2016, non-interest expense excludes a $3.6 million loss on extinguishment of debt and non-interest income excludes $3.6 million in realized gains on investment securities.

(4)

Realized gains are those gains recognized on the date the loan is sold and do not include the unrealized gains recognized at the loan commitment date.

 
 
Table 5.
Cardinal Financial Corporation and Subsidiaries
Selected Financial Information
(In thousands, except ratios)
(Unaudited)
 
 
  09/30/16   09/30/15
Performance Ratios (annualized):

For the Nine Months Ended:

Return on average assets 1.29 % 1.43 %
Return on average equity 12.11 % 12.81 %
Net interest margin (1) 3.32 % 3.40 %
Efficiency ratio (2) 55.80 % 55.71 %
 
Mortgage Banking Data:

For the Nine Months Ended:

Applications $ 4,782,000 $ 4,147,000
Loans closed 3,140,156 2,815,713
Loans sold 3,098,763 2,755,321
Realized gain on sales and fees as a % of loan sold(3) 2.73 % 2.57 %
 

(1)

 

The average yields for loans receivable and investment securities available-for-sale are reported on a fully taxable-equivalent basis at a rate of 36% for 2016 and 35% for 2015.

(2)

Efficiency ratio is calculated as total non-interest expense divided by the total of net interest income and non-interest income. For the nine months ended September 30, 2016, non-interest expense excludes a $3.6 million loss on extinguishment of debt and $2.3 million of merger and acquisition expense. Non-interest income excludes $3.6 million in realized gains on investment securities. For the nine months ended September 30, 2015, non-interest income excludes a $2.9 million litigation settlement and non-interest expense excludes the associated legal expenses of $500,000 related to that same settlement.

(3)

Realized gains are those gains recognized on the date the loan is sold and do not include the unrealized gains recognized at the loan commitment date.

 
 
Table 6.
Cardinal Financial Corporation and Subsidiaries
Mortgage Revenue Recognition Impact of SAB 109 (Written Loan Commitments Recorded at Fair Value Through Earnings)
(Dollars in thousands, except per share data and ratios)
(Unaudited)
 
 
  For the Three Months Ended
09/30/16   06/30/16   % Change
Current
Quarter
  03/31/16   12/31/15   09/30/15   % Change
From
Year Ago

Net Gains from Mortgage Banking Activities **(see note below):

As Reported

Fair Value of LCs / Unrealized Gains Recognized @ LC date $ 32,035 $ 34,613 -7.4 % $ 27,041 $ 19,939 $ 22,915 39.8 %
Loan origination expenses recognized @ Loan Sale Date   16,412     19,304     -15.0 %   12,902     11,874     14,802     10.9 %
Reported Net Gains from Mortgage Banking Activities   15,623     15,309     2.1 %   14,139     8,065     8,113     92.6 %
 

As Adjusted

Realized Gains Recognized @ Loan Sale Date 34,277 31,111 10.2 % 21,159 21,125 25,643 33.7 %
Loan origination expenses recognized @ Loan Sale Date   16,412     19,304     -15.0 %   12,902     11,874     14,802     10.9 %
Adjusted Net Gains from Mortgage Banking Activities   17,865     11,807     51.3 %   8,257     9,251     10,841     64.8 %
 

Impact of SAB 109 on Net Gains from Mortgage Banking Activities:

Increase/(Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB 109 $ (2,242 ) $ 3,502     -164.0 % $ 5,882   $ (1,186 ) $ (2,728 )   -17.8 %
 
 

Net Income Reconciliation:

Reported Net Income $ 12,522 $ 14,101 -11.2 % $ 13,067 $ 9,015 $ 11,209 11.7 %
After-tax Merger and Acquisition Expense   1,473     -     0.0 %   -     -     -     0.0 %
Adjusted Net Income $ 13,995 $ 14,101 -0.8 % $ 13,067 $ 9,015 $ 11,209 24.9 %
After-tax Net Increase / (Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB 109   (1,446 )   2,259     -164.0 %   3,794     (765 )   (1,760 )   -17.8 %
Operating Net Income $ 15,441   $ 11,842     30.4 % $ 9,273   $ 9,780   $ 12,969     19.1 %
 
 

Diluted Earnings per Share (EPS) Reconciliation:

Reported Net Income $ 0.37 $ 0.42 -11.7 % $ 0.39 $ 0.27 $ 0.34 9.1 %
After-tax Merger and Acquisition Expense   0.04     -     0.0 %   -     -     -     0.0 %
Adjusted Net Income   0.41     0.42     -1.3 %   0.39     0.27     0.34     21.9 %
After-tax Net Increase / (Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB 109   (0.04 )   0.07     -163.6 %   0.11     (0.02 )   (0.05 )   -14.3 %
Operating Net Income $ 0.45   $ 0.35   26.8 % $ 0.28   $ 0.29   $ 0.39   14.7 %
 
 

Performance Ratios (adjusted for change in unrealized mortgage banking gains):

Return on average assets 1.46 % 1.17 % 0.93 % 1.00 % 1.39 %
Return on average equity 13.69 % 10.85 % 8.76 % 9.46 % 12.75 %
Efficiency ratio 57.56 % 62.08 % 65.58 % 62.04 % 56.29 %
Non-interest income to average assets 1.87 % 1.67 % 0.94 % 1.05 % 1.39 %
 
**
Per the accounting guidance set forth by SEC Staff Accounting Bulletin (SAB) 109 regarding mortgage lending activities, the fair value of a "locked" commitment, or an unrealized gain, is recognized in income on the day of the locked commitment (LC). As a result of this revenue recognition, the unrealized gains then become part of the basis of the ensuing loan held for sale (LHFS) when the loan is closed. When the loan is sold to investors, the “price" received is equal to the basis of the loan held for sale, and there is no gain or loss recognized. At any point in time (e.g. quarter end) the fair value of the LCs and the premium to the par value of LHFS represent unrealized gains that have been recognized in income, either in the current period or prior periods. This accounting creates a mismatch between the income recognition on loan production and expense recognition for those same loans, which is discussed below.
 
In accordance with accounting rules (ASC 310-20, formerly FAS 91), direct (e.g. commissions) and indirect loan expenses associated with originating, underwriting and closing loans are deferred and amortized over the life of the loan. In mortgage banking, this results in the mentioned expenses being recognized at the time of investor purchase of the loan (i.e. loan sale date) which often occurs in the quarter subsequent to the original LC and creates a mismatch in the timing of the revenue and expense. These expenses are “netted” from the gain on sale from mortgage banking activities, which is included in non-interest income.
 
 
Table 7.
Cardinal Financial Corporation and Subsidiaries
Mortgage Revenue Recognition Impact of SAB 109 (Written Loan Commitments Recorded at Fair Value Through Earnings)
(Dollars in thousands, except per share data and ratios)
(Unaudited)
 
 
  For the Nine Months Ended
09/30/16   09/30/15   % Change
From
Year Ago

Net Gains from Mortgage Banking Activities **(see note below):

As Reported

Fair Value of LCs / Unrealized Gains Recognized @ LC date $ 93,688 $ 75,754 23.7 %
Loan origination expenses recognized @ Loan Sale Date   48,618     40,363     20.5 %
Reported Net Gains from Mortgage Banking Activities   45,070     35,391     27.3 %
 

As Adjusted

Realized Gains Recognized @ Loan Sale Date 86,546 70,820 22.2 %
Loan origination expenses recognized @ Loan Sale Date   48,618     40,363     20.5 %
Adjusted Net Gains from Mortgage Banking Activities   37,928     30,457     24.5 %
 

Impact of SAB 109 on Net Gains from Mortgage Banking Activities:

Increase/(Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB 109 $ 7,142   $ 4,934     44.8 %
 
 

Net Income Reconciliation:

Reported Net Income $ 39,690 $ 38,319 3.6 %
After-tax litigation settlement (less associated legal expenses) - (1,592 ) -100.0 %
After-tax Merger and Acquisition Expense   1,473     313     370.7 %
Adjusted Net Income $ 41,163 $ 37,040 11.1 %
After-tax Net Increase / (Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB 109   4,607     3,182     44.8 %
Operating Net Income $ 36,556   $ 33,858     8.0 %
 
 

Diluted Earnings per Share (EPS) Reconciliation:

Reported Net Income $ 1.18 $ 1.15 2.4 %
After-tax litigation settlement (less associated legal expenses) - (0.04 ) -100.0 %
After-tax Merger and Acquisition Expense   0.04     0.01     365.3 %
Adjusted Net Income   1.22     1.13     8.0 %
After-tax Net Increase / (Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB 109   0.14     0.10     43.1 %
Operating Net Income $ 1.08   $ 1.03   4.7 %
 
 

Performance Ratios (adjusted for change in unrealized mortgage banking gains):

Return on average assets 1.19 % 1.26 %
Return on average equity 11.15 % 11.32 %
Efficiency ratio 61.39 % 57.00 %
Non-interest income to average assets 1.50 % 1.44 %
 
**
Per the accounting guidance set forth by SEC Staff Accounting Bulletin (SAB) 109 regarding mortgage lending activities, the fair value of a "locked" commitment, or an unrealized gain, is recognized in income on the day of the locked commitment (LC). As a result of this revenue recognition, the unrealized gains then become part of the basis of the ensuing loan held for sale (LHFS) when the loan is closed. When the loan is sold to investors, the “price" received is equal to the basis of the loan held for sale, and there is no gain or loss recognized. At any point in time (e.g. quarter end) the fair value of the LCs and the premium to the par value of LHFS represent unrealized gains that have been recognized in income, either in the current period or prior periods. This accounting creates a mismatch between the income recognition on loan production and expense recognition for those same loans, which is discussed below.
 
In accordance with accounting rules (ASC 310-20, formerly FAS 91), direct (e.g. commissions) and indirect loan expenses associated with originating, underwriting and closing loans are deferred and amortized over the life of the loan. In mortgage banking, this results in the mentioned expenses being recognized at the time of investor purchase of the loan (i.e. loan sale date) which often occurs in the quarter subsequent to the original LC and creates a mismatch in the timing of the revenue and expense. These expenses are “netted” from the gain on sale from mortgage banking activities, which is included in non-interest income.
 
 
Table 8.
Cardinal Financial Corporation and Subsidiaries
Average Statements of Condition and Yields on Earning Assets and Interest-Bearing Liabilities
(Dollars in thousands)
(Unaudited)
 
 
  For the Three Months Ended
9/30/2016   6/30/2016   3/31/2016   12/31/2015   9/30/2015

Average
Balance

 

Average
Yield

Average
Balance

 

Average
Yield

Average
Balance

 

Average
Yield

Average
Balance

 

Average
Yield

Average
Balance

 

Average
Yield

Interest-earning assets:          
Loans receivable, net of fees (1)
Commercial and industrial $ 243,678 3.75 % $ 258,678 3.74 % $ 266,353 3.74 % $ 255,255 3.66 % $ 255,011 3.68 %
Commercial and industrial - tax exempt(1) 101,749 2.90 % 103,221 2.82 % 105,386 2.80 % 103,456 2.50 % 82,656 2.64 %
Real estate - commercial(1) 1,659,767 4.27 % 1,563,089 4.37 % 1,532,293 4.28 % 1,361,134 4.27 % 1,311,664 4.38 %
Real estate - construction 572,704 4.60 % 556,939 4.37 % 549,907 4.62 % 661,665 4.59 % 592,669 4.69 %
Real estate - residential 445,848 3.53 % 448,453 3.57 % 441,134 3.67 % 423,533 3.65 % 410,605 3.69 %
Home equity lines 160,877 3.28 % 160,303 3.23 % 160,240 3.16 % 153,366 3.10 % 145,625 3.12 %
Consumer   5,246     5.01 %   5,239     4.91 %   5,284     4.72 %   4,739     5.44 %   4,602     5.52 %
Total loans 3,189,869 4.10 % 3,095,922 4.09 % 3,060,597 4.10 % 2,963,148 4.08 % 2,802,832 4.17 %
 
Loans held for sale 421,843 3.65 % 365,520 3.71 % 304,653 3.88 % 339,793 3.87 % 364,513 3.97 %
Investment securities (1) 400,936 3.67 % 400,085 3.82 % 419,678 3.76 % 426,776 3.52 % 372,188 3.78 %
Federal funds sold

41,050

   

0.50

%   33,435     0.45 %   55,018     0.47 %   45,307     0.25 %   41,108     0.22 %
Total interest-earning assets 4,053,698 3.97 % 3,894,962 3.99 % 3,839,946 3.99 % 3,775,024 3.95 % 3,580,641 4.06 %
 
Non-interest earning assets:
Cash and due from banks 21,764 21,899 21,169 22,226 19,964
Premises and equipment, net 24,399 24,642 25,185 25,498 25,043
Goodwill and intangibles, net 36,189 36,333 36,498 36,662 36,842
Accrued interest and other assets 124,196 119,723 105,663 102,977 110,463
Allowance for loan losses (33,461 ) (32,702 ) (32,113 ) (31,515 ) (31,564 )
           
TOTAL ASSETS $ 4,226,785   $ 4,064,857   $ 3,996,348   $ 3,930,872   $ 3,741,389  
 
Interest-bearing liabilities:
Interest checking $ 432,246 0.36 % $ 445,991 0.36 % $ 457,528 0.40 % $ 438,527 0.48 % $ 429,211 0.48 %
Money markets 479,455 0.39 % 438,863 0.36 % 451,303 0.37 % 466,452 0.36 % 431,958 0.36 %
Statement savings 327,653 0.43 % 315,804 0.42 % 301,734 0.42 % 285,257 0.40 % 280,467 0.37 %
Certificates of deposit 773,912 1.23 % 773,053 1.23 % 784,306 1.23 % 752,104 1.23 % 724,527 1.26 %
Brokered certificates of deposit   538,130     0.89 %   454,152     0.93 %   398,455     0.91 %   400,793     0.88 %   417,095     0.83 %
Total interest-bearing deposits 2,551,396 0.75 % 2,427,863 0.75 % 2,393,326 0.75 % 2,343,133 0.76 % 2,283,258 0.75 %
 
Other borrowed funds   441,576     1.39 %   456,044     1.69 %   487,087     1.87 %   470,416     1.82 %   369,481     2.02 %
Total interest-bearing liabilities 2,992,972 0.84 % 2,883,907 0.90 % 2,880,413 0.94 % 2,813,549 0.93 % 2,652,739 0.93 %
 
Noninterest-bearing liabilities:
Noninterest-bearing deposits 732,506 698,123 653,432 660,236 638,658
Other liabilities 50,098 46,193 38,986 43,357 43,058
 
Shareholders' equity 451,209 436,634 423,517 413,730 406,934
           
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 4,226,785   $ 4,064,857   $ 3,996,348   $ 3,930,872   $ 3,741,389  
 
NET INTEREST MARGIN (1) 3.35 % 3.33 % 3.31 % 3.25 % 3.37 %
 

(1)

 

The average yields for loans receivable and investment securities available-for-sale are reported on a fully taxable-equivalent basis at a rate of 36% for 2016 and 35% for 2015.

 
       
Table 9.
Cardinal Financial Corporation and Subsidiaries
Average Statements of Condition and Yields on Earning Assets and Interest-Bearing Liabilities
(Dollars in thousands)
(Unaudited)
 
For the Nine Months Ended
9/30/2016 9/30/2015
Average Average Average Average
Balance   Yield Balance   Yield
Interest-earning assets:
Loans receivable, net of fees (1)
Commercial and industrial $ 256,190 3.75 % $ 277,679 3.68 %
Commercial and industrial - tax exempt(1) 103,446 2.84 % 63,351 3.63 %
Real estate - commercial(1) 1,536,605 4.31 % 1,286,353 4.42 %
Real estate - construction 608,614 4.51 % 518,423 4.71 %
Real estate - residential 445,148 3.59 % 399,446 3.75 %
Home equity lines 160,475 3.22 % 139,747 3.19 %
Consumer   5,256     4.90 %   4,845     5.71 %
Total loans 3,115,734 4.09 % 2,689,844 4.21 %
 
Loans held for sale 364,217 3.73 % 346,088 3.78 %
Investment securities (1) 406,867 3.75 % 346,335 3.78 %
Federal funds sold   43,160     0.48 %   39,772     0.21 %
Total interest-earning assets 3,929,978 3.99 % 3,422,039 4.08 %
 
Non-interest earning assets:
Cash and due from banks 21,611 20,679
Premises and equipment, net 24,741 25,087
Goodwill and intangibles, net 36,339 37,037
Accrued interest and other assets 116,566 105,670
Allowance for loan losses (32,761 ) (29,951 )
   
TOTAL ASSETS $ 4,096,474   $ 3,580,561  
 
Interest-bearing liabilities:
Interest checking $ 445,208 0.37 % $ 427,496 0.49 %
Money markets 456,624 0.37 % 392,806 0.34 %
Statement savings 315,109 0.42 % 272,302 0.34 %
Certificates of deposit 777,079 1.23 % 670,442 1.22 %
Brokered certificates of deposit   463,851     0.91 %   405,473     0.78 %
Total interest-bearing deposits 2,457,871 0.75 % 2,168,519 0.72 %
 
Other borrowed funds   461,496     1.66 %   368,965     2.07 %
Total interest-bearing liabilities 2,919,367 0.89 % 2,537,484 0.92 %
 
Noninterest-bearing liabilities:
Noninterest-bearing deposits 694,825 605,088
Other liabilities 45,111 39,222
 
Shareholders' equity 437,171 398,767
   
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 4,096,474   $ 3,580,561  
 
NET INTEREST MARGIN (1) 3.32 % 3.40 %
 

(1)

 

The average yields for loans receivable and investment securities available-for-sale are reported on a fully taxable-equivalent basis at a rate of 36% for 2016 and 35% for 2015.

 
             
Table 10.
Cardinal Financial Corporation and Subsidiaries
Segment Reporting - as Reported and Non-GAAP Reconciliation
(Dollars in thousands)
(Unaudited)
 
For the Three Months Ended
% Change % Change
Current From
9/30/2016 6/30/2016 Quarter 3/31/2016 12/31/2015 9/30/2015 Year Ago

Commercial Banking:

Net interest income $ 32,980 $ 31,442 4.9 % $ 30,545 $ 30,042 $ 29,137 13.2 %
Non-interest income 1,391 1,056 31.7 % 1,104 963 954 45.8 %
Net realized gain on available-for-sale securities - 3,614 100.0 % 112 - 769 -100.0 %
Loss on extinguishment of debt - 3,638 100.0 % - - - 100.0 %
Non-interest expense   15,940     15,823     0.7 %   16,514     15,734     15,339     3.9 %
Net income before provision for loan losses and taxes 18,431 16,651 10.7 % 15,247 15,271 15,521 18.7 %
Provision for loan losses 990 430 130.2 % 250 449 (547 ) -281.0 %
Provision for income taxes   5,978     5,464     9.4 %   4,757     5,238     5,089     17.5 %
Net income $ 11,463   $ 10,757   6.6 % $ 10,240   $ 9,584   $ 10,979   4.4 %
Average Assets $ 4,140,341 $ 3,998,824 $ 3,937,805 $ 3,866,407 $ 3,674,500
Commercial Banking Segment Contribution to earnings 92 % 76 % 78 % 106 % 98 %

Mortgage Banking:

Net interest income $ 196 $ 283 -30.7 % $ 358 $ 619 $ 682 -71.3 %
Non-interest income 15,669 15,344 2.1 % 14,158 8,115 8,217 90.7 %
Non-interest expense   11,464     9,382     22.2 %   8,963     8,589     7,905     45.0 %
Net income before provision for taxes 4,401 6,245 -29.5 % 5,553 145 994 342.8 %
Provision for income taxes   1,585     2,251     -29.6 %   2,000     (19 )   363     336.6 %
Net income $ 2,816   $ 3,994   -29.5 % $ 3,553   $ 164   $ 631   346.3 %
Add:decrease in unrealized gains (or (Less):increase in unrealized gains) on mortgage banking activities (SAB 109) 2,242 (3,502 ) -164.0 % (5,882 ) 1,186 2,728 -17.8 %
Add / (Less): provision for income taxes associated with SAB 109   (796 )   1,243     -164.0 %   2,088     (421 )   (968 )   -17.8 %
Operating net income (loss) $ 4,262   $ 1,735   145.6 % $ (241 ) $ 929   $ 2,391   78.3 %
Average Assets $ 455,608 $ 382,899 19.0 % $ 317,034 $ 351,129 $ 380,504 19.7 %
Mortgage Banking Segment Contribution to earnings 22 % 28 % 27 % 2 % 6 %

Wealth Management/Other:

Net interest income $ (211 ) $ (201 ) 5.0 % $ (197 ) $ (190 ) $ (185 ) 14.1 %
Non-interest income 431 473 -8.9 % (105 ) 14 327 31.8 %
Non-interest expense   2,931     1,273     130.2 %   815     959     751     290.3 %
Net income (loss) before provision for taxes (2,711 ) (1,001 ) 170.8 % (1,117 ) (1,135 ) (609 ) 345.2 %
Provision for income taxes   (954 )   (351 )   171.8 %   (391 )   (402 )   (208 )   358.7 %
Net income (loss) $ (1,757 ) $ (650 ) 170.3 % $ (726 ) $ (733 ) $ (401 ) 338.2 %
Add: merger & acquisition (M&A) expense 2,284 - 0.0 % - - - 0.0 %
Subtract: provision for income taxes associated with M&A expense   (811 )     -100.0 %         0.0 %
Operating net income (loss) $ (284 ) $ (650 ) -56.3 % $ (726 ) $ (733 ) $ (401 ) -29.2 %
Average Assets / Intersegment Eliminations $ (369,164 ) $ (316,866 ) 16.5 % $ (258,491 ) $ (286,664 ) $ (313,615 ) 17.7 %
Wealth Management/Other Segments Contribution to earnings -14 % -5 % 206.7 % -5 % -8 % -4 % 286.6 %

Consolidated:

Net interest income $ 32,965 $ 31,524 4.6 % $ 30,706 $ 30,471 $ 29,634 11.2 %
Non-interest income 17,491 16,873 3.7 % 15,157 9,092 9,498 84.2 %
Net realized gain on available-for-sale securities - 3,614 100.0 % 112 - 769 -100.0 %
Loss on extinguishment of debt - 3,638 100.0 % - - - 100.0 %
Non-interest expense   30,335     26,478     14.6 %   26,292     25,282     23,995     26.4 %
Net income before provision for loan losses and taxes 20,121 21,895 -8.1 % 19,683 14,281 15,906 26.5 %
Provision for loan losses 990 430 130.2 % 250 449 (547 ) -281.0 %
Provision for income taxes   6,609     7,364     -10.3 %   6,366     4,817     5,244     26.0 %
Net income $ 12,522   $ 14,101   -11.2 % $ 13,067   $ 9,015   $ 11,209   11.7 %
Add: merger & acquisition (M&A) expense 2,284 - 0.0 % - - - 100.0 %
Add:decrease in unrealized gains (or (Less): increase in unrealized gains) on mortgage banking activities (SAB 109) 2,242 (3,502 ) -164.0 % (5,882 ) 1,186 2,728 -17.8 %
Add/(Less): provision for income taxes associated with M&A expenses & SAB 109   (1,607 )   1,243     -229.2 %   2,088     (421 )   (969 )   65.8 %
Operating net income $ 15,441   $ 11,842   30.4 % $ 9,273   $ 9,780   $ 12,968   19.1 %
Average Assets $ 4,226,785 $ 4,064,857 4.0 % $ 3,996,348 $ 3,930,872 $ 3,741,389 13.0 %
 
     
Table 11.
Cardinal Financial Corporation and Subsidiaries
Segment Reporting - as Reported and Non-GAAP Reconciliation
(Dollars in thousands)
(Unaudited)
 
For the Nine Months Ended
% Change
From
9/30/2016 9/30/2015 Year Ago

Commercial Banking:

Net interest income $ 94,968 $ 84,632 12.2 %
Non-interest income 3,552 3,178 11.8 %
Net realized gain on available-for-sale securities 3,726 1,151 223.7 %
Loss on extinguishment of debt 3,638 - 100.0 %
Non-interest expense   48,276     44,223     9.2 %
Net income before provision for loan losses and taxes 50,332 44,738 12.5 %
Provision for loan losses 1,670 939 77.8 %
Provision for income taxes   16,200     14,209     14.0 %
Net income $ 32,462   $ 29,590   9.7 %
Add: merger & acquisition (M&A) expense - 471 -100.0 %
Less: provision for income taxes associated with M&A expense   -     (158 ) -100.0 %
Operating net income $ 32,462   $ 29,903  
Average Assets $ 4,015,870 $ 3,516,829
Commercial Banking Segment Contribution to earnings 82 % 77 %

Mortgage Banking:

Net interest income $ 836 $ 1,834 -54.4 %
Non-interest income 45,170 35,583 26.9 %
Non-interest expense   29,809     23,213     28.4 %
Net income before provision for taxes 16,197 14,204 14.0 %
Provision for income taxes   5,835     5,187     12.5 %
Net income $ 10,362   $ 9,017   14.9 %
Add:decrease in unrealized gains (or (Less):increase in unrealized gains) on mortgage banking activities (SAB 109) (7,142 ) (4,934 ) 44.8 %
Add / (Less): provision for income taxes associated with SAB 109   2,535     1,752     44.8 %
Operating net income $ 5,755   $ 5,835   -1.4 %
Average Assets $ 395,642 $ 359,173 10.2 %
Mortgage Banking Segment Contribution to earnings 26 % 24 %

Wealth Management/Other:

Net interest income $ (609 ) $ (543 ) 12.2 %
Non-interest income 799 3,688 -78.3 %
Non-interest expense   5,020     3,580     40.2 %
Net income (loss) before provision for taxes (4,830 ) (435 ) 1010.3 %
Provision for income taxes   (1,696 )   (147 )   1053.7 %
Net income (loss) $ (3,134 ) $ (288 ) 988.2 %
Add: merger & acquisition (M&A) expense 2,284 - 100.0 %
Add: legal expense associated with litigation settlement - 500 -100.0 %
Less: litigation settlement - (2,950 ) -100.0 %
Less: provision for income taxes associated with litigation settlement and M&A expense   (811 )   858     -194.5 %
Operating net income (loss) $ (1,661 ) $ (1,880 ) -11.7 %
Average Assets / Intersegment Eliminations $ (315,038 ) $ (295,441 ) 6.6 %
Wealth Management/Other Segments Contribution to earnings -8 % -1 % 950.6 %

Consolidated:

Net interest income $ 95,195 $ 85,923 10.8 %
Non-interest income 49,521 42,449 16.7 %
Net realized gain on available-for-sale securities 3,726 1,151 223.7 %
Loss on extinguishment of debt 3,638 - 100.0 %
Non-interest expense   83,105     71,016     17.0 %
Net income before provision for loan losses and taxes 61,699 58,507 5.5 %
Provision for loan losses 1,670 939 77.8 %
Provision for income taxes   20,339     19,249     5.7 %
Net income $ 39,690   $ 38,319   3.6 %
Add: merger & acquisition (M&A) expense 2,284 471 384.9 %
Add: legal expense associated with litigation settlement - 500 -100.0 %
Less: litigation settlement - (2,950 ) -100.0 %
Add:decrease in unrealized gains (or Less: increase in unrealized gains) on mortgage banking activities (SAB 109) (7,142 ) (4,934 ) 44.8 %
Less: provision for income taxes associated with M&A expense, litigation settlement & SAB 109   1,725     2,452     -29.7 %
Operating net income $ 36,557   $ 33,858   8.0 %
Average Assets $ 4,096,474 $ 3,580,561 14.4 %
 
       
Table 12.
Cardinal Financial Corporation and Subsidiaries
Historical Segment Performance
(Dollars in thousands, except per share data)
(Unaudited)
 
Wealth
Commercial Mortgage Management/
Banking Banking Other Consolidated
For the Three Months Ended September 30, 2016:
Net income (loss) $ 11,463 $ 2,816 $ (1,757 ) $ 12,522
Earnings per common share - diluted $ 0.34 $ 0.08 $ (0.05 ) $ 0.37
Segment Contribution to Earnings 91.9 % 21.6 % -13.5 % 100 %
 
For the Three Months Ended September 30, 2015:
Net income $ 10,979 $ 631 $ (401 ) $ 11,209
Earnings per common share - diluted $ 0.33 $ 0.02 $ (0.01 ) $ 0.34
Segment Contribution to Earnings     97.9 %     5.6 %     -3.6 %     100 %
                 
For the Nine Months Ended September 30, 2016:
Net income (loss) $ 32,462 $ 10,362 $ (3,134 ) $ 39,690
Earnings per common share - diluted $ 0.97 $ 0.31 $ (0.10 ) $ 1.18
Segment Contribution to Earnings 82.2 % 25.4 % -7.6 % 100 %
 
For the Nine Months Ended September 30, 2015:
Net income (loss) $ 29,590 $ 9,017 $ (288 ) $ 38,319
Earnings per common share - diluted $ 0.89 $ 0.27 $ (0.01 ) $ 1.15
Segment Contribution to Earnings     77.3 %     23.4 %     -0.7 %     100 %
                 
For the Year Ended December 31, 2015:
Net income (loss) $ 39,175 $ 9,180 $ (1,021 ) $ 47,334
Earnings per common share - diluted $ 1.18 $ 0.28 $ (0.03 ) $ 1.43
Segment Contribution to Earnings 82.8 % 19.4 % -2.2 % 100.0 %
 
For the Year Ended December 31, 2014:
Net income (loss) $ 34,351 $ 2,658 $ (4,326 ) $ 32,683
Earnings per common share - diluted $ 1.05 $ 0.08 $ (0.13 ) $ 1.00
Segment Contribution to Earnings 105.1 % 8.1 % -13.2 % 100 %
 
For the Year Ended December 31, 2013:
Net income (loss) $ 33,881 $ (5,215 ) $ (3,156 ) $ 25,510
Earnings per common share - diluted $ 1.09 $ (0.17 ) $ (0.10 ) $ 0.82
Segment Contribution to Earnings 132.8 % -20.4 % -12.4 % 100.0 %
 
For the Year Ended December 31, 2012:
Net income (loss) $ 30,544 $ 17,608 $ (2,855 ) $ 45,297
Earnings per common share - diluted $ 1.02 $ 0.59 $ (0.10 ) $ 1.51
Segment Contribution to Earnings 67.4 % 38.9 % -6.3 % 100.0 %
 
For the Year Ended December 31, 2011:
Net income (loss) $ 23,063 $ 7,791 $ (2,856 ) $ 27,998
Earnings per common share - diluted $ 0.77 $ 0.26 $ (0.09 ) $ 0.94
Segment Contribution to Earnings 82.4 % 27.8 % -10.2 % 100.0 %
 
         
Table 13.
Cardinal Financial Corporation and Subsidiaries
Loan Fundings and Payoffs
(Dollars in thousands)
(Unaudited)
 
 
Net Draws/Pay Downs Ending Balance
Ending Balance 12/31/2015   New Loans   Loan Payoffs   and Transfers   9/30/2016
 
 
Commercial and industrial $ 379,414 $ 44,105 $ (24,255 ) $ (62,820 ) $ 336,444
Real estate - commercial 1,372,627 415,924 (79,911 ) (18,335 ) $ 1,690,305
Real estate - construction 694,408 46,462 (233,307 ) 63,213 $ 570,776
Real estate - residential 448,168 69,369 (47,242 ) (9,895 ) $ 460,400
Home equity lines 156,852 24,136 (22,392 ) 2,919 $ 161,515
Consumer   4,841     6,779     (2,163 )     (4,074 )   $ 5,383
Total loans, net of fees $ 3,056,310 $ 606,775 $ (409,270 ) $ (28,992 ) $ 3,224,823
 
         
Table 14.
Cardinal Financial Corporation and Subsidiaries
Commercial Real Estate ("CRE") Concentrations
(Dollars in thousands)
(Unaudited)
 
 
09/30/16 06/30/16 03/31/16 12/31/15 09/30/15
Construction, land development, and other land loans $ 470,914 $ 443,879 $ 497,691 $ 459,261 $ 453,263
Owner-occupied construction, land development loans   (105,709 )   (89,225 )   (76,351 )   (83,237 )   (68,592 )
Construction loans concentration less owner-occupied $ 365,205   $ 354,654   $ 421,340   $ 376,024   $ 384,671  
 

As a percentage of risk-based capital (consolidated):

Construction loans concentration 100.8 % 98.3 % 113.2 % 107.2 % 108.0 %
Construction loans concentration less owner-occupied 78.2 % 78.6 % 95.8 % 87.7 % 91.7 %
 
 
 
Loans secured by commercial real estate properties $ 2,228,820 $ 2,146,775 $ 2,105,479 $ 2,079,265 $ 1,996,623
Owner-occupied commercial real estate properties (426,048 ) (409,772 ) (392,514 ) (421,278 ) (365,010 )
Owner-occupied construction, land development loans   (105,709 )   (89,225 )   (76,351 )   (83,237 )   (68,592 )
Commercial real estate concentration less owner-occupied construction $ 1,697,063   $ 1,647,778   $ 1,636,614   $ 1,574,750   $ 1,563,021  
 

As a percentage of risk-based capital (consolidated):

Commercial real estate concentration 386.0 % 384.7 % 389.5 % 386.9 % 388.9 %
Commercial real estate concentration less owner-occupied construction 363.4 % 365.0 % 372.1 % 367.5 % 372.6 %
 

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