Cardinal Financial Corporation (NASDAQ: CFNL) (the "Company") today reported that earnings for the quarter ended June 30, 2016 were $14.1 million, compared to $13.4 million for the year ago quarter ended June 30, 2015. Diluted earnings per share were $0.42 and $0.40 for these same respective periods. During the prior year period, the Company realized $1.6 million after-tax net income, or an additional $0.04 per share, related to a litigation settlement.

For the year to date period ended June 30, 2016, net income was $27.2 million, compared to $27.1 million for the six month period ended June 30, 2015. Diluted earnings per share were $0.81 and $0.82 for these same respective periods. Before the litigation settlement, prior year to date net income was $25.5 million, or $0.77 per share.

Selected Highlights
  • Return on assets and equity were 1.39% and 12.92% for the second quarter 2016 and 1.35% and 12.63% for the six months ending June 30, 2016, respectively.
  • Total assets of the Company grew to $4.20 billion, increasing 11% from June 30, 2015.
  • Loans held for investment were $3.16 billion, increasing 13% from a year ago.
  • Customer deposits, including customer repurchase agreements, were $2.80 billion, increasing 11% from a year ago.
  • For the second consecutive quarter, the Company had $0 nonaccrual loans at quarter end.
  • Net interest margin increased 2 basis points to 3.33% for the second quarter of 2016 from 3.31% for the first quarter 2016 and 8 basis points from 3.25% for the fourth quarter 2015.
  • Total mortgage loans closings were $1.2 billion for the quarter, an increase of $403 million from $769 million in first quarter 2016. Closed purchase money mortgages represented 76% of the quarter's volume and 71% year to date.
  • Mortgage application volume was $1.70 billion, an increase of $200 million from $1.50 billion in the first quarter of 2016. Purchase money mortgage applications were approximately 76% of total volume.

Review of Balance Sheet

At June 30, 2016, total assets of the Company were $4.20 billion, an increase of 11% from total assets of $3.77 billion at June 30, 2015. Average interest earning assets increased to $3.89 billion from $3.45 billion a year ago, and average interest bearing liabilities increased to $2.88 billion from $2.58 billion.

Loans held for investment grew to $3.16 billion at June 30, 2016 versus $2.80 billion a year ago, a 13% increase. Balances increased $55 million, or 7% annualized, during the second quarter of the year. Loan payoffs during the six-month period were approximately 20% higher than 2015, primarily a result of completion of construction projects. However in the first half of 2016, the Company originated $107 million in new construction loan commitments of which 23% are currently funded. Loans held for sale increased to $456 million at June 30, 2016, compared to $365 million at March 31, 2016, and equaling the second quarter 2015 balance of $456 million. The Company's investment securities portfolio decreased slightly to $413 million from $418 million at the end of the previous quarter, and increased from $342 million a year ago.

Over the past year, deposit balances increased $309 million to $3.24 billion from $2.94 billion, an increase of 11%. Non-interest bearing demand deposit accounts, which total $710 million and represent 22% of deposits, increased $99 million since June 30, 2015, or 16%. 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 9%, to $31.5 million from $28.9 million, for the quarters ended June 30, 2016 and 2015, respectively. For the current quarter, the Company's tax equivalent net interest margin increased to 3.33% versus 3.31% for the prior sequential quarter and from 3.25% for the fourth quarter 2015.

During the second quarter of 2016, the Company executed a balance sheet restructuring which is expected to positively impact the net interest margin by 0.06%, annualized beginning in the third quarter. As a result of the restructuring the Company incurred non-interest expense of $3.6 million from the prepayment of $95 million of FHLB advances and had realized gains of $3.6 million from the sale of approximately $50 million of securities. This transaction had minimal impact on interest rate risk and no impact on regulatory capital ratios.

The yield on loans held for investment was 4.09% for the second quarter of 2016 versus 4.10% for the first quarter of 2016. The yield on interest earning assets remained at 3.99% for the second quarter of 2016, equal to last quarter. For these same respective periods, the Company's total cost of interest bearing liabilities decreased to 0.90% from 0.94%. Including DDAs, the Company's total cost of funds decreased to 0.73% from 0.77%. The total cost of customer deposits decreased to 0.51% from 0.52%, which is primarily the result of management's decision to lower rates on promotional products during the first quarter. Brokered CD costs increased 0.02% as balances were increased to support loan growth and maturing balances were replaced at slightly higher rates.

Commercial Banking Review

For the quarter ended June 30, 2016, net income for the commercial banking segment (the Bank) was $10.8 million, an increase of 11% from $9.7 million for the second quarter of last year. For the current year to date period ended June 30, 2016, the Bank's net income increased 13% to $21.0 million versus $18.6 million for the year to date period ended June 30, 2015. Before taxes and the provision for loan losses, the Bank's income for the current quarter was a record $16.7 million. Over the past four quarters, the Bank's net income has contributed 88% to the Company's consolidated earnings.

For the second quarter of 2016, the provision for loan losses was $430,000 versus a provision of $1.4 million for the year ago quarter. The year to date provision expense was $680,000 versus $1.5 million for the first six months of 2015. For the current quarter, there were recoveries from previously charged off loans in excess of current charge offs of 0.02% (annualized) of average loans outstanding. The allowance for loan losses was 1.04% of loans outstanding at June 30, 2016 versus 1.08% at June 30, 2015. This ratio decrease from a year ago is primarily the result of continued improvement of credit quality. The Company had $0 in nonaccrual loans at June 30, 2016 versus nonperforming loans of 0.03% of total assets at June 30, 2015.

Non-interest income was $4.7 million for the current quarter compared to $1.3 million for the year ago quarter. Current year to date non-interest income was $5.9 million versus $2.6 million for the 2015 year to date period. The current periods include a $3.6 million gain on securities sales associated with the balance sheet restructuring.

For the second quarter of 2016, non-interest expense was $19.5 million including the FHLB prepayment fee of $3.6 million. Excluding the FHLB prepayment fee, non interest expenses were $15.8 million, a decrease of $691,000 compared to $16.5 million for the first quarter of 2016. This reflects the Company's continued efforts on expense controls. Comparing total non-interest expenses to the second quarter of 2015, the increase is primarily the result of increases in salary expense to support the Bank's growth and quarterly accruals for performance based compensation. The efficiency ratio for the Bank, excluding gains from bond sales and the prepayment fee, was 48.7%, 52.0% and 46.2% for these respective quarters. Last quarter, the Bank announced the July closing of an office in Alexandria, Virginia, and it expects to realize expense savings of approximately $110,000 per quarter starting in the second half of 2016. Recently, the Bank also announced the consolidation of an office in Tyson's Corner, Virginia, and it expects to realize another $50,000 of expense savings per quarter starting in the fourth quarter of 2016.

Mortgage Banking Review

The Company's mortgage banking subsidiary, George Mason Mortgage (GMM), was again extremely active as it accepted over $1.70 billion of loan applications during the quarter and $3.2 billion year to date. For the quarter ended June 30, 2016, GMM reported a net profit of $4.0 million and operating net income of $1.7 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.
                     
    Q2 2016   Q1 2016   Q4 2015   Q3 2015   Q2 2015

Mortgage Banking: (in 000's)
                   
Reported Net Income   $3,994   $3,553   $164   $631   $2,412
Reverse Impact of SAB 109   (2,259)   (3,794)   765   1,760   (629)
Operating Net Income   $1,735   ($241)   $929   $2,391   $1,783
         

The net realized gain on sales and other fees, before the impact of SAB, was $11.8 million for the three months ended June 30, 2016 versus $10.1 million for the same quarter of 2015. The gain on sale margin was 2.71% for the quarter versus 2.67% last quarter and 2.52% for the year ago quarter. The increase from previous periods is primarily due to the Company's mid-2015 decision to sell a majority of its production on a mandatory delivery basis with the expectation to increase margin.

Operating expenses were $9.4 million for the most recent quarter compared to $9.0 million last quarter and $8.0 million for the year ago quarter. The sequential quarter increase in expenses reflects higher loan volumes that affected overtime, application processing and closing expenses by $185,000, $147,000, and $72,000, respectively. Total mortgage loan closings were $1.2 billion for the quarter versus $769 million last quarter. In addition to volume, 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 $1.70 billion during the second quarter of 2016, an increase from $1.50 billion last quarter and up also from $1.40 billion for the year ago quarter. However, refinance volume currently represented only 24% for the current quarter, versus 38% of total applications last quarter and 29% for the year ago second quarter, demonstrating GMM's continued commitment to focus on the more stable purchase money mortgage business.
 
Monthly Mortgage Loan Applications (in millions)
    APR   MAY   JUN   Total
Second Quarter 2016   $571.80   $569.30   $562.40   $1,703.50
Purchase Money %   75%   79%   70%   76%
# 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 June 30, 2016, Cardinal's parent company reported a net loss of $703,000 versus a net loss of $736,000 for the previous quarter and net income of $1.2 million for the year ago quarter, which included a $2.9 million pre-tax recovery related to a litigation settlement and approximately $500,000 of related legal 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 9.38% at June 30, 2016.

MANAGEMENT COMMENTS

Bernard H. Clineburg, Executive Chairman, said:

"I am again very pleased with how our Company performed during the second quarter of 2016. Cardinal Bank reported record earnings while our balance sheet grew by a double digit percentage from a year ago. Our strategic decisions to restructure the balance sheet improved our net interest margin further from last quarter and contributed to the 13% increase in bank earnings year over year. Credit metrics continued to be pristine, as we had two consecutive quarters of $0 nonaccrual loans and near $0 past due loans 90 days or more. Our business development teams continue to execute upon all strategies to bring new client relationships to Cardinal which has resulted in consistent loan growth and a 10.5% increase to core customer deposit balances.

"George Mason continues to have strong activity as applications for loan originations exceeded $1.70 billion, with 76% of volume from purchase money mortgages. Their results are reflective of the ongoing commitment to building a quality team of mortgage bankers with deep ties to the realtor and builder communities that provide a stable flow of business and have a back office that scales well with volume seasonality.

"Looking forward, we will continue to concentrate on gaining profitable market share, either through de novo expansion or acquisition, while delivering consistent top quartile financial performance and top decile asset quality. We remain committed to maintaining and growing a strong financial services company for our employees, clients, the communities we serve, and especially our shareholders."

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 some 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, 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 $4.20 billion at June 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.
 
Table 1.
Cardinal Financial Corporation and Subsidiaries
Summary Consolidated Statements of Condition
(Dollars in thousands)
(Unaudited)
 
  06/30/16   03/31/16   % Change Current Quarter   12/31/15   09/30/15   06/30/15   % Change From Year Ago
 
Cash and due from banks $ 24,081 $ 19,379 24.3 % $ 24,760 $ 18,744 $ 24,186 -0.4 %
Federal funds sold 11,481 41,489 -72.3 % 14,577 13,692 14,597 -21.3 %
 
Investment securities available-for-sale 402,522 407,980 -1.3 % 414,077 421,214 332,551 21.0 %
Investment securities held-to-maturity 3,796 3,814 -0.5 % 3,836 3,857 3,879 -2.1 %
Investment securities - trading   6,489     6,221   4.3 %   5,881     5,274     5,271   23.1 %
Total investment securities 412,807 418,015 -1.2 % 423,794 430,345 341,701 20.8 %
 
Other investments 18,136 19,411 -6.6 % 20,967 16,111 15,049 20.5 %
Loans held for sale 456,359 365,489 24.9 % 383,768 377,878 455,557 0.2 %
 
Loans receivable, net of fees:
Commercial and industrial 350,206 363,405 -3.6 % 379,414 347,914 342,079 2.4 %
Real estate - commercial 1,605,868 1,555,985 3.2 % 1,372,627 1,356,821 1,299,450 23.6 %
Real estate - construction 570,269 560,114 1.8 % 694,408 620,982 571,561 -0.2 %
Real estate - residential 463,394 455,952 1.6 % 448,168 436,832 432,956 7.0 %
Home equity lines 161,658 161,691 0.0 % 156,852 150,769 144,896 11.6 %
Consumer   5,476     4,831   13.4 %   4,841     4,739     4,822   13.6 %
Total loans, net of fees 3,156,871 3,101,978 1.8 % 3,056,310 2,918,057 2,795,764 12.9 %
Allowance for loan losses   (32,984 )   (32,407 ) 1.8 %   (31,723 )   (31,572 )   (30,198 ) 9.2 %
Loans receivable, net 3,123,887 3,069,571 1.8 % 3,024,587 2,886,485 2,765,566 13.0 %
 
Premises and equipment, net 24,273 24,845 -2.3 % 25,163 25,398 24,600 -1.3 %
Goodwill and intangibles, net 36,262 36,415 -0.4 % 36,576 36,747 36,927 -1.8 %
Bank-owned life insurance 33,213 33,102 0.3 % 32,978 32,876 32,759 1.4 %
Other real estate owned - - 0.0 % 253 - - 0.0 %
Other assets 56,667 46,829 21.0 % 42,498 43,460 54,332 4.3 %
         
TOTAL ASSETS $ 4,197,166   $ 4,074,545   3.0 % $ 4,029,921   $ 3,881,736   $ 3,765,274   11.5 %
 
Non-interest bearing deposits $ 710,318 $ 687,493 3.3 % $ 657,398 $ 620,630 $ 611,004 16.3 %
Interest checking 437,724 459,377 -4.7 % 451,545 433,372 440,319 -0.6 %
Money markets 445,639 447,565 -0.4 % 448,888 447,536 388,842 14.6 %
Statement savings 319,116 310,055 2.9 % 291,484 278,871 278,873 14.4 %
Certificates of deposit 763,013 788,756 -3.3 % 776,413 738,878 711,226 7.3 %
Brokered certificates of deposit   568,996     451,781   25.9 %   407,043     419,461     505,133   12.6 %
Total deposits 3,244,806 3,145,027 3.2 % 3,032,771 2,938,748 2,935,397 10.5 %
 
Other borrowed funds 450,696 437,065 3.1 % 537,965 469,019 378,756 19.0 %
Mortgage funding checks 23,921 28,765 -16.8 % 12,554 20,418 17,247 38.7 %
Escrow liabilities 2,491 2,777 -10.3 % 2,676 2,861 3,160 -21.2 %
Other liabilities 37,320 34,366 8.6 % 30,808 45,467 33,919 10.0 %
 
Shareholders' equity   437,932     426,545   2.7 %   413,147     405,223     396,795   10.4 %
 
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 4,197,166   $ 4,074,545   3.0 % $ 4,029,921   $ 3,881,736   $ 3,765,274   11.5 %
 
 
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
06/30/16   03/31/16   % Change Current Quarter   12/31/15   09/30/15   06/30/15   % Change From Year Ago
 
Net interest income $ 31,523 $ 30,706 2.7 % $ 30,471 $ 29,634 $ 28,850 9.3 %
Provision for loan losses   430     250   72.0 %   449     (547 )   1,356   -68.3 %
Net interest income after provision for loan losses   31,093     30,456   2.1 %   30,022     30,181     27,494   13.1 %
 
Non-interest income:
Service charges on deposit accounts 581 551 5.4 % 590 584 576 0.9 %
Loan fees 359 309 16.2 % 307 344 491 -26.9 %
Income from bank-owned life insurance 111 124 -10.5 % 102 118 95 16.8 %
Net realized gains (losses) on investment securities 3,918 (84 ) 4564.3 % (127 ) 960 356 1000.6 %
Litigation recovery - - 0.0 % - - 2,950 -100.0 %
Other non-interest income   127     145   -12.4 %   22     6     6   2016.7 %
Commercial banking & other segment non-interest income 5,096 1,045 387.7 % 894 2,012 4,474 13.9 %
 
Gains from mortgage banking activities 34,613 27,041 28.0 % 19,939 22,915 24,290 42.5 %
Less: mortgage loan origination expenses   (19,304 )   (12,902 ) 49.6 %   (11,874 )   (14,802 )   (13,178 ) 46.5 %
Mortgage banking segment non-interest income 15,309 14,139 8.3 % 8,065 8,113 11,112 37.8 %
 
Wealth management segment non-interest income   84     85   -1.2 %   133     142     143   -41.3 %
Total non-interest income   20,489     15,269   34.2 %   9,092     10,267     15,729   30.3 %
 
Net interest income and non-interest income   51,582     45,725   12.8 %   39,114     40,448     43,223   19.3 %
 
Salaries and benefits 16,037 15,497 3.5 % 14,391 13,409 11,963 34.1 %
Occupancy 2,448 2,592 -5.6 % 2,501 2,492 2,347 4.3 %
Depreciation 833 844 -1.3 % 853 828 845 -1.4 %
Data processing & communications 1,517 1,346 12.7 % 1,273 1,373 1,459 4.0 %
Professional fees 549 1,135 -51.6 % 1,034 852 1,137 -51.7 %
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 - 100 -100.0 % 350 47 - 0.0 %
Merger and acquisition expense - - 0.0 % - - 3 -100.0 %
Other operating expense   4,579     4,262   7.4 %   4,364     4,478     4,608   -0.6 %
Total non-interest expense   30,117     26,292   14.5 %   25,282     23,995     22,878   31.6 %
Income before income taxes 21,465 19,433 10.5 % 13,832 16,453 20,345 5.5 %
Provision for income taxes   7,364       6,366   15.7 %   4,817       5,244       6,966   5.7 %
NET INCOME $ 14,101     $ 13,067   7.9 % $ 9,015     $ 11,209     $ 13,379   5.4 %
 
Earnings per common share - basic $ 0.43     $ 0.40   7.7 % $ 0.27     $ 0.34     $ 0.41   4.4 %
Earnings per common share - diluted $ 0.42     $ 0.39   7.5 % $ 0.27     $ 0.34     $ 0.40   4.3 %
Weighted-average common shares outstanding - basic   33,032,595       32,977,970   0.2 %   32,844,212       32,766,772       32,723,903   0.9 %
Weighted-average common shares outstanding - diluted   33,569,058       33,435,858   0.4 %   33,379,656       33,311,261       33,207,329   1.1 %
 
 
Table 3.
Cardinal Financial Corporation and Subsidiaries
Summary Consolidated Income Statements
(In thousands, except share data and per share data)
(Unaudited)
 
  For the Six Months Ended
06/30/16   06/30/15   % Change From Year Ago
 
Net interest income $ 62,229 $ 56,289 10.6 %
Provision for loan losses   680     1,486   -54.2 %
Net interest income after provision for loan losses   61,549     54,803   12.3 %
 
Non-interest income:
Service charges on deposit accounts 1,132 1,121 1.0 %
Loan fees 668 945 -29.3 %
Income from bank-owned life insurance 235 213 10.3 %
Net realized gains on investment securities 3,834 558 587.1 %
Litigation recovery - 2,950 -100.0 %
Other non-interest income   272     11   2372.7 %
Commercial banking & other segment non-interest income 6,141 5,798 5.9 %
 
Gains from mortgage banking activities 61,654 52,839 16.7 %
Less: mortgage loan origination expenses   (32,206 )   (25,561 ) 26.0 %
Mortgage banking segment non-interest income 29,448 27,278 8.0 %
 
Wealth management segment non-interest income   169     258   -34.5 %
Total non-interest income   35,758     33,334   7.3 %
 
Net interest income and non-interest income   97,307     88,137   10.4 %
 
Salaries and benefits 31,534 24,044 31.2 %
Occupancy 5,040 4,831 4.3 %
Depreciation 1,677 1,721 -2.6 %
Data processing & communications 2,863 2,963 -3.4 %
Professional fees 1,684 2,726 -38.2 %
FDIC insurance assessment 1,032 1,032 0.0 %
Loss on extinguishment of debt 3,638 - 100.0 %
Mortgage loan repurchases and settlements 100 - 100.0 %
Merger and acquisition expense - 471 -100.0 %
Other operating expense   8,841     9,234   -4.3 %
Total non-interest expense   56,409     47,022   20.0 %
Income before income taxes 40,898 41,115 -0.5 %
Provision for income taxes   13,730       14,005   -2.0 %
NET INCOME $ 27,168     $ 27,110   0.2 %
 
Earnings per common share - basic $ 0.82     $ 0.83   -0.8 %
Earnings per common share - diluted $ 0.81     $ 0.82   -0.9 %
Weighted-average common shares outstanding - basic   33,005,282       32,681,800   1.0 %
Weighted-average common shares outstanding - diluted   33,499,462       33,132,076   1.1 %
 
         
Table 4.
Cardinal Financial Corporation and Subsidiaries
Selected Financial Information
(In thousands, except per share data and ratios)
(Unaudited)
 
06/30/16 03/31/16 12/31/15 09/30/15 06/30/15
Capital Ratios:

At Period End:
Common equity tier 1 capital 10.33 % 9.99 % 9.86 % 9.91 % 9.76 %
Tier 1 risk-based capital 10.99 % 10.64 % 10.52 % 10.59 % 10.45 %
Total risk-based capital 11.86 % 11.50 % 11.37 % 11.47 % 11.30 %
Leverage capital ratio 10.38 % 10.28 % 10.18 % 10.46 % 10.60 %
Book value per common share $ 13.50 $ 13.16 $ 12.76 $ 12.58 $ 12.32
Tangible book value per common share (1) $ 12.38 $ 12.04 $ 11.63 $ 11.44 $ 11.17
Common shares outstanding 32,441 32,415 32,373 32,209 32,209
 
Performance Ratios (annualized):

For the Three Months Ended:
Return on average assets 1.39 % 1.31 % 0.92 % 1.20 % 1.48 %
Return on average equity 12.92 % 12.34 % 8.72 % 11.02 % 13.36 %
Net interest margin (2) 3.33 % 3.31 % 3.25 % 3.37 % 3.40 %
Efficiency ratio (3) 54.71 % 57.19 % 63.90 % 60.14 % 53.76 %
 
Asset Quality Data:

For the Three Months Ended:
Net charge-offs (recoveries) to average loans receivable, net of fees (annualized) -0.02 % -0.06 % 0.04 % -0.27 % 0.01 %

At Period End:
Total nonaccrual loans $ - $ - $ 520 $ 721 $ 904
Other real estate owned $ - $ - $ 253 $ - $ -
Nonperforming loans to loans receivable, net of fees 0.00 % 0.00 % 0.02 % 0.02 % 0.03 %
Nonperforming loans to total assets 0.00 % 0.00 % 0.01 % 0.02 % 0.02 %
Nonperforming assets to total assets 0.00 % 0.00 % 0.02 % 0.02 % 0.02 %
Total loans receivable past due 30 to 89 days $ 736 $ 163 $ 938 $ 56 $ 120
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 % 1.08 % 1.08 %
 
Mortgage Banking Data:

For the Three Months Ended:
Applications $ 1,703,500 $ 1,503,300 $ 1,063,400 $ 1,149,000 $ 1,402,600
Loans closed 1,172,339 769,080 786,363 885,715 1,086,264
Loans sold 1,073,282 791,680 778,854 983,355 923,406
Purchase money % of loans closed - George Mason Mortgage 76 % 62 % 74 % 74 % 71 %
Realized gain on sales and fees as a % of loan sold (4) 2.71 % 2.67 % 2.71 % 2.61 % 2.52 %

At Period End:
Locked Pipeline $ 458,555 $ 451,905 $ 247,448 $ 316,684 $ 363,613
SAB 109 Total Unrealized Gains Recognized 25,955 22,453 16,571 17,757 20,485
Change in Unrealized Gains 3,502 5,882 (1,186 ) (2,728 ) 975
Change in After-tax Income 2,259 3,794 (765 ) (1,760 ) 629
 

(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 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. For the three months ended June 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.

(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)
 
  06/30/16   06/30/15
Performance Ratios (annualized):

For the Six Months Ended:
Return on average assets 1.35 % 1.55 %
Return on average equity 12.63 % 13.74 %
Net interest margin (1) 3.31 % 3.42 %
Efficiency ratio (2) 55.92 % 53.68 %
 
Mortgage Banking Data:

For the Six Months Ended:
Applications $ 3,206,800 $ 2,998,000
Loans closed 1,941,419 1,929,998
Loans sold 1,864,962 1,771,966
Realized gain on sales and fees as a % of loan sold (3) 2.69 % 2.55 %
 

(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 six 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. For the six months ended June 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
06/30/16   03/31/16   % Change Current Quarter   12/31/15   09/30/15   06/30/15   % Change From Year Ago

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

As Reported
Fair Value of LCs / Unrealized Gains Recognized @ LC date $ 34,613 $ 27,041 28.0 % $ 19,939 $ 22,915 $ 24,290 42.5 %
Loan origination expenses recognized @ Loan Sale Date   19,304     12,902     49.6 %   11,874     14,802     13,178     46.5 %
Reported Net Gains from Mortgage Banking Activities   15,309     14,139     8.3 %   8,065     8,113     11,112     37.8 %
 

As Adjusted
Realized Gains Recognized @ Loan Sale Date 31,111 21,159 47.0 % 21,125 25,643 23,315 33.4 %
Loan origination expenses recognized @ Loan Sale Date   19,304     12,902     49.6 %   11,874     14,802     13,178     46.5 %
Adjusted Net Gains from Mortgage Banking Activities   11,807     8,257     43.0 %   9,251     10,841     10,137     16.5 %
 

Impact of SAB 109 on Net Gains from Mortgage Banking Activities:
Increase/(Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB 109 $ 3,502   $ 5,882     -40.5 % $ (1,186 ) $ (2,728 ) $ 975     259.2 %
 
 

Net Income Reconciliation:
Reported Net Income $ 14,101 $ 13,067 7.9 % $ 9,015 $ 11,209 $ 13,379 5.4 %
After-tax litigation settlement (less associated legal expenses) - - 0.0 % - - (1,592 ) -100.0 %
After-tax Merger and Acquisition Expense   -     -     0.0 %   -     -     2     -100.0 %
Adjusted Net Income $ 14,101 $ 13,067 7.9 % $ 9,015 $ 11,209 $ 11,789 19.6 %
After-tax Net Increase / (Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB 109   2,259     3,794     -40.5 %   (765 )   (1,760 )   629     259.2 %
Operating Net Income $ 11,842   $ 9,273     27.7 % $ 9,780   $ 12,969   $ 11,160     6.1 %
 
 

Diluted Earnings per Share (EPS) Reconciliation:
Reported Net Income $ 0.42 $ 0.39 7.5 % $ 0.27 $ 0.34 $ 0.40 5.0 %
After-tax litigation settlement (less associated legal expenses) - - 0.0 % - - (0.04 ) -100.0 %
After-tax Merger and Acquisition Expense   -     -     0.0 %   -     -     -     0.0 %
Adjusted Net Income   0.42     0.39     7.5 %   0.27     0.34     0.36     16.7 %
After-tax Net Increase / (Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB 109   0.07     0.11     -40.7 %   (0.02 )   (0.05 )   0.02     236.4 %
Operating Net Income $ 0.35   $ 0.28   27.2 % $ 0.29   $ 0.39   $ 0.34   3.8 %
 
 

Performance Ratios (adjusted for change in unrealized mortgage banking gains):
Return on average assets 1.17 % 0.93 % 1.00 % 1.39 % 1.23 %
Return on average equity 10.85 % 8.76 % 9.46 % 12.75 % 11.15 %
Efficiency ratio 62.08 % 65.58 % 62.04 % 56.29 % 52.47 %
Non-interest income to average assets 1.67 % 0.94 % 1.05 % 1.39 % 1.63 %
 
**
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 Six Months Ended
06/30/16   06/30/15   % Change From Year Ago

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

As Reported
Fair Value of LCs / Unrealized Gains Recognized @ LC date $ 61,654 $ 52,839 16.7 %
Loan origination expenses recognized @ Loan Sale Date   32,206     25,561     26.0 %
Reported Net Gains from Mortgage Banking Activities   29,448     27,278     8.0 %
 

As Adjusted
Realized Gains Recognized @ Loan Sale Date 52,269 45,177 15.7 %
Loan origination expenses recognized @ Loan Sale Date   32,206     25,561     26.0 %
Adjusted Net Gains from Mortgage Banking Activities   20,063     19,616     2.3 %
 

Impact of SAB 109 on Net Gains from Mortgage Banking Activities:
Increase/(Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB 109 $ 9,385   $ 7,662     22.5 %
 
 

Net Income Reconciliation:
Reported Net Income $ 27,168 $ 27,110 0.2 %
After-tax litigation settlement (less associated legal expenses) - (1,592 ) 0.0 %
After-tax Merger and Acquisition Expense   -     313     -100.0 %
Adjusted Net Income $ 27,168 $ 25,831 5.2 %
After-tax Net Increase / (Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB 109   6,053     4,942     22.5 %
Operating Net Income $ 21,115   $ 20,889     1.1 %
 
 

Diluted Earnings per Share (EPS) Reconciliation:
Reported Net Income $ 0.81 $ 0.82 -0.9 %
After-tax litigation settlement (less associated legal expenses) - (0.04 ) -100.0 %
After-tax Merger and Acquisition Expense   -     0.01     -100.0 %
Adjusted Net Income   0.81     0.79     2.7 %
After-tax Net Increase / (Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB 109   0.18     0.15     21.1 %
Operating Net Income $ 0.63   $ 0.64   -1.6 %
 
 

Performance Ratios (adjusted for change in unrealized mortgage banking gains):
Return on average assets 1.05 % 1.19 %
Return on average equity 9.82 % 10.59 %
Efficiency ratio 63.67 % 57.37 %
Non-interest income to average assets 1.31 % 1.47 %
 
**
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
6/30/2016   3/31/2016   12/31/2015   9/30/2015   6/30/2015

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 $ 258,678 3.74 % $ 266,353 3.74 % $ 255,255 3.66 % $ 255,011 3.68 % $ 281,357 3.62 %
Commercial and industrial - tax exempt (1) 103,221 2.82 % 105,386 2.80 % 103,456 2.50 % 82,656 2.64 % 72,567 2.50 %
Real estate - commercial (1) 1,563,089 4.37 % 1,532,293 4.28 % 1,361,134 4.27 % 1,311,664 4.38 % 1,269,520 4.42 %
Real estate - construction 556,939 4.37 % 549,907 4.62 % 661,665 4.59 % 592,669 4.69 % 515,073 4.75 %
Real estate - residential 448,453 3.57 % 441,134 3.67 % 423,533 3.65 % 410,605 3.69 % 396,447 3.77 %
Home equity lines 160,303 3.23 % 160,240 3.16 % 153,366 3.10 % 145,625 3.12 % 139,748 3.16 %
Consumer   5,239     4.91 %   5,284     4.72 %   4,739     5.44 %   4,602     5.52 %   5,128     5.94 %
Total loans 3,095,922 4.09 % 3,060,597 4.10 % 2,963,148 4.08 % 2,802,832 4.17 % 2,679,841 4.20 %
 
Loans held for sale 365,520 3.71 % 304,653 3.88 % 339,793 3.87 % 364,513 3.97 % 412,083 3.77 %
Investment securities (1) 400,085 3.82 % 419,678 3.76 % 426,776 3.52 % 372,188 3.78 % 333,583 3.71 %
Federal funds sold   33,435     0.45 %   55,018     0.47 %   45,307     0.25 %   41,108     0.22 %   26,305     0.19 %
Total interest-earning assets 3,894,962 3.99 % 3,839,946 3.99 % 3,775,024 3.95 % 3,580,641 4.06 % 3,451,812 4.07 %
 
Non-interest earning assets:
Cash and due from banks 21,899 21,169 22,226 19,964 21,845
Premises and equipment, net 24,642 25,185 25,498 25,043 25,013
Goodwill and intangibles, net 36,333 36,498 36,662 36,842 37,039
Accrued interest and other assets 119,723 105,663 102,977 110,463 108,404
Allowance for loan losses (32,702 ) (32,113 ) (31,515 ) (31,564 ) (29,432 )
         
TOTAL ASSETS $ 4,064,857   $ 3,996,348   $ 3,930,872   $ 3,741,389   $ 3,614,681  
 
Interest-bearing liabilities:
Interest checking $ 445,991 0.36 % $ 457,528 0.40 % $ 438,527 0.48 % $ 429,211 0.48 % $ 428,937 0.49 %
Money markets 438,863 0.36 % 451,303 0.37 % 466,452 0.36 % 431,958 0.36 % 378,268 0.33 %
Statement savings 315,804 0.42 % 301,734 0.42 % 285,257 0.40 % 280,467 0.37 % 272,319 0.34 %
Certificates of deposit 773,053 1.23 % 784,306 1.23 % 752,104 1.23 % 724,527 1.26 % 668,822 1.22 %
Brokered certificates of deposit   454,152     0.93 %   398,455     0.91 %   400,793     0.88 %   417,095     0.83 %   440,569     0.73 %
Total interest-bearing deposits 2,427,863 0.75 % 2,393,326 0.75 % 2,343,133 0.76 % 2,283,258 0.75 % 2,188,915 0.72 %
 
Other borrowed funds   456,044     1.69 %   487,087     1.87 %   470,416     1.82 %   369,481     2.02 %   386,872     1.94 %
Total interest-bearing liabilities 2,883,907 0.90 % 2,880,413 0.94 % 2,813,549 0.93 % 2,652,739 0.93 % 2,575,787 0.90 %
 
Noninterest-bearing liabilities:
Noninterest-bearing deposits 698,123 653,432 660,236 638,658 596,892
Other liabilities 46,193 38,986 43,357 43,058 41,572
 
Shareholders' equity 436,634 423,517 413,730 406,934 400,430
         
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 4,064,857   $ 3,996,348   $ 3,930,872   $ 3,741,389   $ 3,614,681  
 
NET INTEREST MARGIN (1) 3.33 % 3.31 % 3.25 % 3.37 % 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 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 Six Months Ended
6/30/2016   6/30/2015

Average Balance
 

Average Yield

Average Balance
 

Average Yield
Interest-earning assets:    
Loans receivable, net of fees (1)
Commercial and industrial $ 262,516 3.74 % $ 298,405 3.56 %
Commercial and industrial - tax exempt (1) 104,303 2.81 % 53,539 3.45 %
Real estate - commercial (1) 1,474,348 4.33 % 1,264,283 4.48 %
Real estate - construction 626,766 4.47 % 480,684 4.73 %
Real estate - residential 444,794 3.62 % 393,773 3.78 %
Home equity lines 160,272 3.19 % 136,759 3.24 %
Consumer   5,261     4.78 %   4,969     5.76 %
Total loans 3,078,260 4.09 % 2,632,412 4.23 %
 
Loans held for sale 335,087 3.79 % 336,722 3.78 %
Investment securities (1) 409,865 3.79 % 333,194 3.80 %
Federal funds sold   44,226     0.46 %   39,093     0.21 %
Total interest-earning assets 3,867,438 3.99 % 3,341,421 4.10 %
 
Non-interest earning assets:
Cash and due from banks 21,534 21,043
Premises and equipment, net 24,914 25,110
Goodwill and intangibles, net 36,416 37,136
Accrued interest and other assets 112,708 103,236
Allowance for loan losses (32,407 ) (29,132 )
   
TOTAL ASSETS $ 4,030,603   $ 3,498,814  
 
Interest-bearing liabilities:
Interest checking $ 451,760 0.38 % $ 426,624 0.49 %
Money markets 445,083 0.37 % 372,906 0.32 %
Statement savings 308,769 0.42 % 268,152 0.32 %
Certificates of deposit 778,680 1.23 % 642,953 1.21 %
Brokered certificates of deposit   426,304     0.92 %   399,564     0.74 %
Total interest-bearing deposits 2,410,596 0.75 % 2,110,199 0.71 %
 
Other borrowed funds   471,565     1.78 %   368,702     2.10 %
Total interest-bearing liabilities 2,882,161 0.92 % 2,478,901 0.91 %
 
Noninterest-bearing liabilities:
Noninterest-bearing deposits 675,778 588,025
Other liabilities 42,589 37,273
 
Shareholders' equity 430,075 394,615
   
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 4,030,603   $ 3,498,814  
 
NET INTEREST MARGIN (1) 3.31 % 3.42 %
 

(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
6/30/2016   3/31/2016  

% Change Current Quarter
  12/31/2015   9/30/2015   6/30/2015  

% Change From Year Ago

Commercial Banking:
Net interest income $ 31,442 $ 30,545 2.9 % $ 30,042 $ 29,137 $ 28,389 10.8 %
Non-interest income 1,056 1,104 -4.3 % 963 954 1,149 -8.1 %
Net realized gain on available-for-sale securities 3,614 112 100.0 % - 769 180 1907.8 %
Loss on extinguishment of debt 3,638 - 100.0 % - - - 100.0 %
Non-interest expense   15,823     16,514     -4.2 %   15,734     15,339     13,736     15.2 %
Net income before provision for loan losses and taxes 16,651 15,247 9.2 % 15,271 15,521 15,982 4.2 %
Provision for loan losses 430 250 72.0 % 449 (547 ) 1,356 -68.3 %
Provision for income taxes   5,464     4,757     14.9 %   5,238     5,089     4,905     11.4 %
Net income $ 10,757   $ 10,240   5.0 % $ 9,584   $ 10,979   $ 9,721   10.7 %
Average Assets $ 3,998,824 $ 3,937,805 $ 3,866,407 $ 3,674,500 $ 3,549,647
Commercial Banking Segment Contribution to earnings 76 % 78 % 106 % 98 % 73 %

Mortgage Banking:
Net interest income $ 283 $ 358 -20.9 % $ 619 $ 682 $ 642 -55.9 %
Non-interest income 15,344 14,158 8.4 % 8,115 8,217 11,150 37.6 %
Non-interest expense   9,382     8,963     4.7 %   8,589     7,905     7,990     17.4 %
Net income before provision for taxes 6,245 5,553 12.5 % 145 994 3,802 64.3 %
Provision for income taxes   2,251     2,000     12.6 %   (19 )   363     1,390     61.9 %
Net income $ 3,994   $ 3,553   12.4 % $ 164   $ 631   $ 2,412   65.6 %
Less: increase/(decrease) in unrealized mortgage banking gains (3,502 ) (5,882 ) -40.5 % 1,186 2,728 (975 ) 259.2 %
Less: provision for income taxes associated with SAB 109   1,243     2,088     -40.5 %   (421 )   (968 )   346     259.3 %
Operating net income (loss) $ 1,735   $ (241 ) -820.0 % $ 929   $ 2,391   $ 1,783   -2.7 %
Average Assets $ 382,899 $ 317,034 20.8 % $ 351,129 $ 380,504 $ 428,458 -10.6 %
Mortgage Banking Segment Contribution to earnings 28 % 27 % 2 % 6 % 18 %

Wealth Management/Other:
Net interest income $ (201 ) $ (197 ) 2.0 % $ (190 ) $ (185 ) $ (181 ) 11.0 %
Non-interest income 473 (105 ) -550.5 % 14 327 3,250 -85.4 %
Non-interest expense   1,273     815     56.2 %   959     751     1,152     10.5 %
Net income (loss) before provision for taxes (1,001 ) (1,117 ) -10.4 % (1,135 ) (609 ) 1,917 -152.2 %
Provision for income taxes   (351 )   (391 )   -10.2 %   (402 )   (208 )   671     -152.3 %
Net income (loss) $ (650 ) $ (726 ) -10.5 % $ (733 ) $ (401 ) $ 1,246   -152.2 %
Add: legal expense associated with litigation settlement - - 0.0 % - - 500 0.0 %
Less: litigation settlement - - 0.0 % - - (2,950 ) 0.0 %
Less: provision for income taxes associated with litigation settlement   -     -     0.0 %   -     -     858     0.0 %
Operating net income (loss) $ (650 ) $ (726 ) -10.5 % $ (733 ) $ (401 ) $ (346 ) 87.9 %
Average Assets / Intersegment Eliminations $ (316,866 ) $ (258,491 ) 22.6 % $ (286,664 ) $ (313,615 ) $ (363,424 ) -12.8 %
Wealth Management/Other Segments Contribution to earnings -4 % -5 % -19.2 % -8 % -4 % 9 % -147.3 %

Consolidated:
Net interest income $ 31,524 $ 30,706 2.7 % $ 30,471 $ 29,634 $ 28,850 9.3 %
Non-interest income 16,873 15,157 11.3 % 9,092 9,498 15,549 8.5 %
Net realized gain on available-for-sale securities 3,614 112 100.0 % - 769 180 1907.8 %
Loss on extinguishment of debt 3,638 - 100.0 % - - - 100.0 %
Non-interest expense   26,478     26,292     0.7 %   25,282     23,995     22,878     15.7 %
Net income before provision for loan losses and taxes 21,895 19,683 11.2 % 14,281 15,906 21,701 0.9 %
Provision for loan losses 430 250 72.0 % 449 (547 ) 1,356 -68.3 %
Provision for income taxes   7,364     6,366     15.7 %   4,817     5,244     6,966     5.7 %
Net income $ 14,101   $ 13,067   7.9 % $ 9,015   $ 11,209   $ 13,379   5.4 %
Add: legal expense associated with litigation settlement - - 0.0 % - - 500 -100.0 %
Less: litigation settlement - - 0.0 % - - (2,950 ) -100.0 %
Less: increase/(decrease) in unrealized gains on mortgage banking activities (SAB 109) (3,502 ) (5,882 ) -40.5 % 1,186 2,728 (975 ) 259.2 %
Less: provision for income taxes associated with litigation settlement & SAB 109   1,243     2,088     -40.5 %   (421 )   (968 )   1,203     3.3 %
Operating net income $ 11,842   $ 9,273   27.7 % $ 9,780   $ 12,969   $ 11,157   6.1 %
Average Assets $ 4,064,857 $ 3,996,348 1.7 % $ 3,930,872 $ 3,741,389 $ 3,614,681 12.5 %
 
     
Table 11.
Cardinal Financial Corporation and Subsidiaries
Segment Reporting - as Reported and Non-GAAP Reconciliation
(Dollars in thousands)
(Unaudited)
 
For the Six Months Ended

% Change
From
6/30/2016 6/30/2015 Year Ago

Commercial Banking:
Net interest income $ 61,988 $ 55,495 11.7 %
Non-interest income 2,273 2,226 2.1 %
Net realized gain on available-for-sale securities 3,614 382 846.1 %
Loss on extinguishment of debt 3,638 - 100.0 %
Non-interest expense   32,337     28,884     12.0 %
Net income before provision for loan losses and taxes 31,900 29,219 9.2 %
Provision for loan losses 680 1,486 -54.2 %
Provision for income taxes   10,222     9,121     12.1 %
Net income $ 20,998   $ 18,612   12.8 %
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 (loss) $ 20,998   $ 18,925  
Average Assets $ 3,968,314 $ 3,436,687
Commercial Banking Segment Contribution to earnings 77 % 69 %

Mortgage Banking:
Net interest income $ 640 $ 1,153 -44.5 %
Non-interest income 29,502 27,366 7.8 %
Non-interest expense   18,345     15,309     19.8 %
Net income before provision for taxes 11,797 13,210 -10.7 %
Provision for income taxes   4,250     4,824     -11.9 %
Net income $ 7,547   $ 8,386   -10.0 %
Less: increase/(decrease) in unrealized mortgage banking gains (9,385 ) (7,662 ) 22.5 %
Less: provision for income taxes associated with SAB 109   3,332     2,720     22.5 %
Operating net income (loss) $ 1,494   $ 3,444   -56.6 %
Average Assets $ 349,966 $ 348,331 0.5 %
Mortgage Banking Segment Contribution to earnings 28 % 31 %

Wealth Management/Other:
Net interest income $ (399 ) $ (359 ) 11.1 %
Non-interest income 369 3,360 -89.0 %
Non-interest expense   2,089     2,829     -26.2 %
Net income (loss) before provision for taxes (2,119 ) 172 -1332.0 %
Provision for income taxes   (742 )   60     -1336.7 %
Net income (loss) $ (1,377 ) $ 112   -1329.5 %
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   -     858     -100.0 %
Operating net income (loss) $ (1,377 ) $ (1,480 ) -7.0 %
Average Assets / Intersegment Eliminations $ (287,678 ) $ (286,204 ) 0.5 %
Wealth Management/Other Segments Contribution to earnings -5 % 0 % -1326.8 %

Consolidated:
Net interest income $ 62,229 $ 56,289 10.6 %
Non-interest income 32,144 32,952 -2.5 %
Net realized gain on available-for-sale securities 3,614 382 846.1 %
Loss on extinguishment of debt 3,638 - 100.0 %
Non-interest expense   52,771     47,022     12.2 %
Net income before provision for loan losses and taxes 41,578 42,601 -2.4 %
Provision for loan losses 680 1,486 -54.2 %
Provision for income taxes   13,730     14,005     -2.0 %
Net income $ 27,168   $ 27,110   0.2 %
Add: merger & acquisition (M&A) expense - 471 -100.0 %
Add: legal expense associated with litigation settlement - 500 -100.0 %
Less: litigation settlement - (2,950 ) -100.0 %
Less: increase/(decrease) in unrealized gains on mortgage banking activities (SAB 109) (9,385 ) (7,662 ) 22.5 %
Less: provision for income taxes associated with M&A expense, litigation settlement & SAB 109   3,332     3,420     -2.6 %
Operating net income $ 21,115   $ 20,889   1.1 %
Average Assets $ 4,030,602 $ 3,498,814 15.2 %
 
       
Table 12.
Cardinal Financial Corporation and Subsidiaries
Historical Segment Performance
(Dollars in thousands, except per share data)
(Unaudited)
 

Commercial Banking

Mortgage Banking

Wealth Management/ Other
Consolidated
For the Three Months Ended June 30, 2016:
Net income (loss) $ 10,757 $ 3,994 $ (650 ) $ 14,101
Earnings per common share - diluted $ 0.32 $ 0.12 $ (0.02 ) $ 0.42
Segment Contribution to Earnings 76.2 % 28.6 % -4.8 % 100 %
 
For the Three Months Ended June 30, 2015:
Net income $ 9,721 $ 2,412 $ 1,246 $ 13,379
Earnings per common share - diluted $ 0.29 $ 0.07 $ 0.04 $ 0.40
Segment Contribution to Earnings 72.7 % 18.0 % 9.3 % 100 %
 
For the Six Months Ended June 30, 2016:
Net income (loss) $ 20,998 $ 7,547 $ (1,377 ) $ 27,168
Earnings per common share - diluted $ 0.63 $ 0.22 $ (0.04 ) $ 0.81
Segment Contribution to Earnings 77.3 % 27.8 % -5.1 % 100 %
 
For the Six Months Ended June 30, 2015:
Net income $ 18,612 $ 8,386 $ 112 $ 27,110
Earnings per common share - diluted $ 0.56 $ 0.26 $ 0.00 $ 0.82
Segment Contribution to Earnings 68.3 % 31.7 % 0.0 % 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)
 
 
Ending Balance 12/31/2015   New Loans   Loan Payoffs  

Net Draws/Pay Downsand Transfers
 

Ending Balance 6/30/2016
 
 
Commercial and industrial $ 379,414 $ 24,124 $ (8,057 ) $ (45,275 ) $ 350,206
Real estate - commercial 1,372,627 275,331 (37,060 ) (5,030 ) 1,605,868
Real estate - construction 694,408 21,286 (200,670 ) 55,245 570,269
Real estate - residential 448,168 43,259 (24,867 ) (3,166 ) 463,394
Home equity lines 156,852 15,910 (12,956 ) 1,852 161,658
Consumer   4,841     4,870     (1,512 )     (2,723 )     5,476
Total loans, net of fees $ 3,056,310 $ 384,780 $ (285,122 ) $ 903 $ 3,156,871
 
         
Table 14.
Cardinal Financial Corporation and Subsidiaries
Commercial Real Estate ("CRE") Concentrations
(Dollars in thousands)
(Unaudited)
 
 
06/30/16 03/31/16 12/31/15 09/30/15 06/30/15
Construction, land development, and other land loans $ 443,879 $ 497,691 $ 459,261 $ 453,263 $ 540,030
Owner-occupied construction, land development loans   (89,225 )   (76,351 )   (83,237 )   (68,592 )   (92,819 )
Construction loans concentration less owner-occupied $ 354,654   $ 421,340   $ 376,024   $ 384,671   $ 447,211  
 

As a percentage of risk-based capital (consolidated):
Construction loans concentration 98.3 % 113.2 % 107.2 % 108.0 % 131.4 %
Construction loans concentration less owner-occupied 78.6 % 95.8 % 87.7 % 91.7 % 108.8 %
 
 
 
Loans secured by commercial real estate properties $ 2,146,775 $ 2,105,479 $ 2,079,265 $ 1,996,623 $ 1,875,188
Owner-occupied commercial real estate properties (409,772 ) (392,514 ) (421,278 ) (365,010 ) (342,222 )
Owner-occupied construction, land development loans   (89,225 )   (76,351 )   (83,237 )   (68,592 )   (92,819 )
Commercial real estate concentration less owner-occupied construction $ 1,647,778   $ 1,636,614   $ 1,574,750   $ 1,563,021   $ 1,440,147  
 

As a percentage of risk-based capital (consolidated):
Commercial real estate concentration 384.7 % 389.5 % 386.9 % 388.9 % 373.0 %
Commercial real estate concentration less owner-occupied construction 365.0 % 372.1 % 367.5 % 372.6 % 350.4 %
 

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