Cardinal Financial Corporation (NASDAQ: CFNL) (the "Company") today reported record earnings of $50.5 million for the year ended December 31, 2016, which included $3.3 million of after-tax expenses related to the August 17 th announcement of the merger with United Bankshares. Diluted earnings per share were $1.50, or $1.60, before the merger expense impact. The adjusted net income of $53.8 million in 2016, which are exclusive of the merger expenses, represent a 17% increase over 2015 adjusted net income (see Table 7).

Earnings for the quarter ended December 31, 2016 were $10.8 million, compared to $9.0 million for the same year ago quarter. Diluted earnings per share were $0.32 and $0.27 for these same respective periods. Before the current quarter merger expenses, the Company had adjusted net income of $12.4 million, or $0.37 per share.

Selected Highlights
  • Return on average assets ("ROAA") and average equity ("ROAE") were 1.23% and 11.40% for 2016. Before merger expenses, ROAA was 1.31% and ROAE was 12.14% for the year.
  • Before taxes and the provision for loan losses, the commercial banking segment's earnings for the current year were also a record, improving 19% from a year ago to $71.2 million.
  • Total assets of the Company exceeded $4.21 billion, increasing 4.5% from December 31, 2015.
  • Loans held for investment were $3.28 billion, increasing 7.4% from a year ago.
  • Non-interest bearing demand deposit accounts increased 11.6% over the past year, totaling 27% of customer deposits.
  • For the fourth consecutive quarter, the Company had no nonaccrual loans and no other real estate owned at quarter end.
  • Net interest margin was 3.37% for the fourth quarter of 2016, an increase from 3.25% for the year ago fourth quarter.
  • Total mortgage loan closings were over $4.07 billion in 2016, an increase of $466 million from $3.60 billion in 2015. Purchase money mortgages represented 69% of the year's closed loan volume.
  • During 2016, purchase money mortgage application volume increased by $400 million compared to 2015 and nearly $900 million compared to 2014.

Review of Balance Sheet

At December 31, 2016, total assets of the Company were $4.21 billion, an increase of 4.5% from total assets of $4.03 billion at December 31, 2015. Average interest earning assets for the fourth quarter increased to $3.99 billion from $3.78 billion a year ago, and average interest bearing liabilities for the fourth quarter 2016 increased to $2.86 billion from $2.81 billion a year ago.

Loans held for investment grew 7.4% to $3.28 billion at December 31, 2016 versus $3.06 billion a year ago, overcoming $531 million in loan payoffs during the year. Loans held for sale were $298 million at December 31, 2016, compared to $432 million at September 30, 2016. The Company's investment securities portfolio increased slightly to $400 million from $398 million at the end of the previous quarter.

Over the past year, deposit balances increased $250 million to $3.28 billion from $3.03 billion, an increase of 8.2%. Non-interest bearing demand deposit accounts, which totaled $733 million and represented 27% of customer deposits, increased $76 million since December 31, 2015, or 11.6%. The increase in customer deposits is due primarily to steady focus on relationship banking within the markets the Company serves.

Net Interest Income

Net interest income increased 7.2%, to $32.7 million from $30.5 million, for the quarters ended December 31, 2016 and 2015, respectively. For the current quarter, the Company's tax equivalent net interest margin was 3.37%, an increase from 3.35% for the prior sequential quarter and up from 3.25% for the year ago linked quarter in 2015.

The yield on loans held for investment was 4.10% for the fourth quarter of 2016, the same as the third quarter of 2016, while the yield on loans held for sale decreased to 3.51% for the fourth quarter of 2016 versus 3.65% for the previous quarter, reflecting the lower interest rate environment for mortgage loans that existed for most of the current period. The average balance of loans held for sale experienced a normal seasonal decline to $333 million in the most recent quarter, versus $422 million in the third quarter of 2016. The yield on total interest earning assets was 3.98% for the fourth quarter of 2016, compared to 3.97% for the previous quarter. For these same respective periods, the Company's total cost of interest bearing liabilities increased to 0.85% from 0.84%. Including DDAs, the Company's total cost of funds decreased to 0.67% from 0.68%.

Commercial Banking Review

For the current year ended December 31, 2016, the commercial banking segment's (the Bank's) net income increased 23% to a record $48.3 million versus $39.2 million for the year ended December 31, 2015. Before taxes and the provision for loan losses, the Bank's income for the current year was also a record $71.2 million, a 19% improvement from the year ago level of $60.0 million.

For the quarter ended December 31, 2016, net income for the Bank was $15.8 million, an increase of 65% from $9.6 million for the fourth quarter of last year. During the current quarter, there was a negative provision for loan losses of $1.9 million versus a provision of $449,000 during the year ago quarter. Before taxes and the provision for loan losses, the Bank's income for the current quarter was $20.9 million, a 37% improvement from the same quarter a year ago.

For the current quarter, there were annualized net charge offs (recoveries) of (0.01%) of average loans outstanding. The allowance for loan losses was 0.97% of loans outstanding at December 30, 2016 versus 1.04% at December 31, 2015. This ratio decrease from a year ago is primarily the result of continued improvement of credit quality. The Company continued to have no nonperforming loans at December 31, 2016 versus nonperforming loans of 0.01% of total assets at December 31, 2015.

Non-interest income was $2.9 million for the current quarter compared to $963,000 for the year ago quarter. Fees primarily associated with loans that paid off before their maturity increased $887,000. Before gains on securities sales of $4.6 million, current year non-interest income was $5.6 million versus $5.3 million for the 2015 year. Securities gains were offset by $3.6 million of FHLB Advance prepayment fees, which are recorded in non-interest expense, and which together were part of a strategy to increase net interest income.

For the fourth quarter of 2016, non-interest expense was $14.8 million, compared to $15.9 million for the prior sequential quarter and $15.7 million for the fourth quarter of 2015. For the year ended December 31, 2016, total non-interest expense was $66.7 million, which included $3.6 million from the prepayment of FHLB Advances. This compares to $60.0 million of non-interest expense in 2015. The efficiency ratio for the Bank was 47.0% versus 50.0% for these respective periods, which reflects the Company's continued focus on expense controls.

Mortgage Banking Review

The Company's mortgage banking subsidiary, George Mason Mortgage (GMM), had an extremely active year as it accepted approximately $5.8 billion in loan applications versus $5.2 billion in 2015. Purchase money applications increased to $4.0 billion in 2016 from $3.6 billion in the previous year. Although refinance activity contributed to the results, GMM's primary focus remains on the relatively more stable purchase money mortgage business.
                             
   

Q42016
 

Q32016
 

Q22016
 

Q12016
 

Q42015
 

YTD2016
 

YTD2015
Mortgage Loan Applications (000's)   $1,043   $1,575   $1,704   $1,503   $1,063   $5,825   $5,211
Purchase Money %   73%   63%   75%   68%   74%   69%   67%
# of Units   2,971   4,532   4,757   4,402   3,005   16,662   15,226
             

During the fourth quarter of 2016, the Company experienced a typical seasonal slowdown, and for the quarter ended December 31, 2016, GMM reported a net loss of $3.0 million. However, operating net income was $4.0 million, one of the best quarters on record. 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.

On a year to date basis, reported net income was $7.3 million in 2016 versus $9.2 million in 2015, and operating net income was $9.8 million in 2016 versus $6.8 million in 2015. The SAB 109 impact resulted in a decrease of $2.4 million to reported earnings in 2016 versus an increase of $2.4 million in 2015.

Comparable recent quarterly and year to date results are shown below.
                             
   

Q42016
 

Q32016
 

Q22016
 

Q12016
 

Q42015
 

YTD2016
 

YTD2015

Mortgage Banking: (in 000's)
                           
Reported Net Income (Loss)   $(3,017)   $2,816   $3,994   $3,553   $164   $7,346   $9,180
Reverse Impact of SAB 109   7,012   1,446   (2,259)   (3,794)   765   2,405   (2,417)
Operating Net Income (Loss)   3,995   4,262   1,735   (241)   929   9,715   6,763
Pretax Operating Net Income (Loss)   6,156   6,643   2,743   (329)   1,331   15,212   10,600
             

The net realized gain on sales and other fees, before the impact of SAB 109, was $55.0 million for the year ended December 31, 2016 versus $39.7 million for 2015. The gain on sale margin was 2.75% for the 2016 year versus 2.60% for 2015. The increase from previous year is primarily due to the success of selling a majority of its production on a mandatory delivery basis.

Non-interest expenses were $40.9 million for 2016 compared to $31.8 million last year. In addition to the added personnel costs related to compliance with the new TILA/RESPA Integrated Disclosure (TRID) regulations, other expenses increased as a result of the increased volume of lending activity. All other fixed expenses have remained consistent.

Bob Brower, President and CEO of George Mason Mortgage said:

"George Mason Mortgage (GMM) had a strong year recording a 44% increase in pretax operating income to $15.2 million for 2016 and a near record finish with fourth quarter pretax operating income of $6.2 million. Our ongoing focus on increasing the firm's market share of purchase money mortgages has been beneficial, and our approach and philosophy to the mortgage business has continued to attract many of the top professionals in the industry to the GMM team. We are very excited about our pending merger with United Bank and the opportunity to join forces with such a strong, well respected company. The merger should only further benefit our strong momentum and enhance the products we offer."

Parent Company Only Review

For the year ended December 31, 2016, Cardinal's parent company reported a net loss of $5.2 million versus a net loss of $1.1 million for the previous year. The current year includes approximately $3.3 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 9.90% at December 31, 2016.

COMMENTS ON THE YEAR

Bernard H. Clineburg, Executive Chairman, and Christopher W. Bergstrom, President and CEO, share the following thoughts:

"In August, we announced our intention to merge with United Bankshares with the belief that the combination of our institutions represents a tremendous opportunity to create a dominant bank in the Washington DC metropolitan area which will benefit our customers and shareholders. The process of seeking required approvals from shareholders and regulators has proceeded as expected, and we have been collaborating on integration plans.

"Meanwhile, our 2016 results are indicative of our commitment to continue our positive momentum as we have begun to focus on combining our companies. These results show record earnings and improving profitability metrics while maintaining pristine asset quality levels. Increased balances in the loan portfolio combined with an increasing net interest margin resulted in continued revenue growth. George Mason reported excellent results for the year with operating earnings at record levels. We have an ongoing commitment to building a quality team of mortgage bankers with deep ties to the realtor and builder communities.

"Since Cardinal's beginning, we have always been committed to maintaining and growing a strong financial services company for our employees, clients, the communities we serve, and especially our shareholders. We are pleased with our 2016 results and especially proud of our team's commitment to ongoing excellence. We look forward to our opportunity for continuing success as we join the United Bankshares team ."

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 $4.21 billion at December 31, 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, once it becomes effective, that United has filed 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)
 
% Change % Change
Current From
  12/31/16     09/30/16   Quarter   06/30/16     03/31/16     12/31/15   Year Ago
 
Cash and due from banks $ 21,104 $ 23,928 -11.8 % $ 24,081 $ 19,379 $ 24,760 -14.8 %
Federal funds sold 76,728 23,481 226.8 % 11,481 41,489 14,577 426.4 %
 
Investment securities available-for-sale 388,191 387,150 0.3 % 402,522 407,980 414,077 -6.3 %
Investment securities held-to-maturity 3,543 3,780 -6.3 % 3,796 3,814 3,836 -7.6 %
Investment securities - trading   8,383     6,958   20.5 %   6,489     6,221     5,881   42.5 %
Total investment securities 400,117 397,888 0.6 % 412,807 418,015 423,794 -5.6 %
 
Other investments 16,420 18,736 -12.4 % 18,136 19,411 20,967 -21.7 %
Loans held for sale 297,766 432,350 -31.1 % 456,359 365,489 383,768 -22.4 %
 
Loans receivable, net of fees:
Commercial and industrial 373,637 336,444 11.1 % 350,206 363,405 379,414 -1.5 %
Real estate - commercial 1,685,001 1,690,305 -0.3 % 1,605,868 1,555,985 1,372,627 22.8 %
Real estate - construction 587,089 570,776 2.9 % 570,269 560,114 694,408 -15.5 %
Real estate - residential 468,463 460,400 1.8 % 463,394 455,952 448,168 4.5 %
Home equity lines 161,135 161,515 -0.2 % 161,658 161,691 156,852 2.7 %
Consumer   5,834     5,383   8.4 %   5,476     4,831     4,841   20.5 %
Total loans, net of fees 3,281,159 3,224,823 1.7 % 3,156,871 3,101,978 3,056,310 7.4 %
Allowance for loan losses   (31,767 )   (33,641 ) -5.6 %   (32,984 )   (32,407 )   (31,723 ) 0.1 %
Loans receivable, net 3,249,392 3,191,182 1.8 % 3,123,887 3,069,571 3,024,587 7.4 %
 
Premises and equipment, net 22,736 24,190 -6.0 % 24,273 24,845 25,163 -9.6 %
Goodwill and intangibles, net 35,982 36,115 -0.4 % 36,262 36,415 36,576 -1.6 %
Bank-owned life insurance 33,388 33,314 0.2 % 33,213 33,102 32,978 1.2 %
Other real estate owned - - 0.0 % - - 253 -100.0 %
Other assets 56,881 38,464 47.9 % 56,667 46,829 42,498 33.8 %
         
TOTAL ASSETS $ 4,210,514   $ 4,219,648   -0.2 % $ 4,197,166   $ 4,074,545   $ 4,029,921   4.5 %
 
Non-interest bearing deposits $ 733,475 $ 757,184 -3.1 % $ 710,318 $ 687,493 $ 657,398 11.6 %
Interest checking 453,863 437,358 3.8 % 437,724 459,377 451,545 0.5 %
Money markets 466,290 492,547 -5.3 % 445,639 447,565 448,888 3.9 %
Statement savings 346,463 333,272 4.0 % 319,116 310,055 291,484 18.9 %
Certificates of deposit 738,658 756,991 -2.4 % 763,013 788,756 776,413 -4.9 %
Brokered certificates of deposit   543,951     447,148   21.6 %   568,996     451,781     407,043   33.6 %
Total deposits 3,282,700 3,224,500 1.8 % 3,244,806 3,145,027 3,032,771 8.2 %
 
Other borrowed funds 426,671 464,876 -8.2 % 450,696 437,065 537,965 -20.7 %
Mortgage funding checks 13,762 36,740 -62.5 % 23,921 28,765 12,554 9.6 %
Escrow liabilities 1,506 3,653 -58.8 % 2,491 2,777 2,676 -43.7 %
Other liabilities 33,698 38,042 -11.4 % 37,320 34,366 30,808 9.4 %
 
Shareholders' equity   452,177     451,837   0.1 %   437,932     426,545     413,147   9.4 %
 
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 4,210,514   $ 4,219,648   -0.2 % $ 4,197,166   $ 4,074,545   $ 4,029,921   4.5 %
             
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
% Change % Change
Current From
  12/31/16     09/30/16   Quarter   06/30/16     03/31/16     12/31/15   Year Ago
 
Net interest income $ 32,663 $ 32,965 -0.9 % $ 31,523 $ 30,706 $ 30,471 7.2 %
Provision for loan losses   (1,934 )   990   -295.4 %   430     250     449   -530.7 %
Net interest income after provision for loan losses   34,597     31,975   8.2 %   31,093     30,456     30,022   15.2 %
 
Non-interest income:
Service charges on deposit accounts 572 612 -6.5 % 581 551 590 -3.1 %
Loan fees 1,194 596 100.3 % 359 309 307 288.9 %
Income from bank-owned life insurance 74 101 -26.7 % 111 124 102 -27.5 %
Net realized gains (losses) on investment securities 758 331 129.0 % 3,918 (84 ) (127 ) -696.9 %
Other non-interest income   215     134   60.4 %   127     145     22   877.3 %
Commercial banking & other segment non-interest income 2,813 1,774 58.6 % 5,096 1,045 894 214.7 %
 
Gains from mortgage banking activities 18,742 32,035 -41.5 % 34,613 27,041 19,939 -6.0 %
Less: mortgage loan origination expenses   (12,543 )   (16,412 ) -23.6 %   (19,304 )   (12,902 )   (11,874 ) 5.6 %
Mortgage banking segment non-interest income 6,199 15,623 -60.3 % 15,309 14,139 8,065 -23.1 %
 
Wealth management segment non-interest income   94     94   0.0 %   84     85     133   -29.3 %
Total non-interest income   9,106     17,491   -47.9 %   20,489     15,269     9,092   0.2 %
 
Net interest income and non-interest income   43,703     49,466   -11.7 %   51,582     45,725     39,114   11.7 %
 
Salaries and benefits 16,582 17,331 -4.3 % 16,037 15,497 14,391 15.2 %
Occupancy 2,590 2,577 0.5 % 2,448 2,592 2,501 3.6 %
Depreciation 708 764 -7.3 % 833 844 853 -17.0 %
Data processing & communications 1,494 1,542 -3.1 % 1,517 1,346 1,273 17.4 %
Professional fees 393 727 -45.9 % 549 1,135 1,034 -62.0 %
FDIC insurance assessment 516 516 0.0 % 516 516 516 0.0 %
Loss on extinguishment of debt - - 0.0 % 3,638 - - 0.0 %
Mortgage loan repurchases and settlements - - 0.0 % - 100 350 -100.0 %
Merger and acquisition expense 1,809 2,284 0.0 % - - - 100.0 %
Other operating expense   4,335     4,594   -5.6 %   4,579     4,262     4,364   -0.7 %
Total non-interest expense   28,427     30,335   -6.3 %   30,117     26,292     25,282   12.4 %
Income before income taxes 15,276 19,131 -20.2 % 21,465 19,433 13,832 10.4 %
Provision for income taxes   4,475       6,609   -32.3 %     7,364       6,366       4,817   -7.1 %
NET INCOME $ 10,801     $ 12,522   -13.7 %   $ 14,101     $ 13,067     $ 9,015   19.8 %
 
Earnings per common share - basic $ 0.32     $ 0.38   -14.5 %   $ 0.43     $ 0.40     $ 0.27   17.5 %
Earnings per common share - diluted $ 0.32     $ 0.37   -14.6 %   $ 0.42     $ 0.39     $ 0.27   17.3 %
Weighted-average common shares outstanding - basic   33,477,798       33,200,426   0.8 %     33,032,595       32,977,970       32,844,212   1.9 %
Weighted-average common shares outstanding - diluted   34,095,904       33,767,143   1.0 %     33,569,058       33,435,858       33,379,656   2.1 %
     
Table 3.
Cardinal Financial Corporation and Subsidiaries
Summary Consolidated Income Statements
(In thousands, except share data and per share data)
(Unaudited)
 
 
For the Years Ended
% Change
From
  12/31/16     12/31/15   Year Ago
 
Net interest income $ 127,857 $ 116,394 9.8 %
Provision for loan losses   (264 )   1,388   -119.0 %
Net interest income after provision for loan losses   128,121     115,006   11.4 %
 
Non-interest income:
Service charges on deposit accounts 2,315 2,294 0.9 %
Loan fees 2,458 1,596 54.0 %
Income from bank-owned life insurance 410 433 -5.3 %
Net realized gains on investment securities 4,923 1,391 253.9 %
Litigation recovery - 2,950 -100.0 %
Other non-interest income   622     83   649.4 %
Commercial banking & other segment non-interest income 10,728 8,747 22.6 %
 
Gains from mortgage banking activities 112,430 95,693 17.5 %
Less: mortgage loan origination expenses   (61,161 )   (52,237 ) 17.1 %
Mortgage banking segment non-interest income 51,269 43,456 18.0 %
 
Wealth management segment non-interest income   357     489   -27.0 %
Total non-interest income   62,354     52,692   18.3 %
 
Net interest income and non-interest income   190,475     167,698   13.6 %
 
Salaries and benefits 65,446 51,844 26.2 %
Occupancy 10,206 9,823 3.9 %
Depreciation 3,150 3,403 -7.4 %
Data processing & communications 5,899 5,609 5.2 %
Professional fees 2,804 4,611 -39.2 %
FDIC insurance assessment 2,064 2,064 0.0 %
Loss on extinguishment of debt 3,638 - 100.0 %
Mortgage loan repurchases and settlements 100 397 -74.8 %
Merger and acquisition expense 4,093 472 767.2 %
Other operating expense   17,770     18,075   -1.7 %
Total non-interest expense   115,170     96,298   19.6 %
Income before income taxes 75,305 71,400 5.5 %
Provision for income taxes   24,814       24,066   3.1 %
NET INCOME $ 50,491     $ 47,334   6.7 %
 
Earnings per common share - basic $ 1.52     $ 1.45   5.3 %
Earnings per common share - diluted $ 1.50     $ 1.43   5.1 %
Weighted-average common shares outstanding - basic   33,173,095       32,744,154   1.3 %
Weighted-average common shares outstanding - diluted   33,689,854       33,208,266   1.5 %
         
Table 4.
Cardinal Financial Corporation and Subsidiaries
Selected Financial Information
(In thousands, except per share data and ratios)
(Unaudited)
 
 
  12/31/16     09/30/16     06/30/16     03/31/16     12/31/15  
Capital Ratios:

At Period End:
Common equity tier 1 capital 10.83 % 10.58 % 10.33 % 9.99 % 9.86 %
Tier 1 risk-based capital 11.48 % 11.23 % 10.99 % 10.64 % 10.52 %
Total risk-based capital 12.32 % 12.11 % 11.86 % 11.50 % 11.37 %
Leverage capital ratio 10.77 % 10.33 % 10.38 % 10.28 % 10.18 %
Book value per common share $ 13.74 $ 13.77 $ 13.50 $ 13.16 $ 12.76
Tangible book value per common share (1) $ 12.65 $ 12.67 $ 12.38 $ 12.04 $ 11.63
Common shares outstanding 32,910 32,803 32,441 32,415 32,373
 
Performance Ratios (annualized):

For the Three Months Ended:
Return on average assets 1.04 % 1.19 % 1.39 % 1.31 % 0.92 %
Return on average equity 9.39 % 11.10 % 12.92 % 12.34 % 8.72 %
Net interest margin (2) 3.37 % 3.35 % 3.33 % 3.31 % 3.25 %
Efficiency ratio (3) 63.73 % 55.59 % 54.71 % 57.19 % 63.90 %
 
Asset Quality Data:

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

At Period End:
Total nonaccrual loans $ - $ - $ - $ - $ 520
Other real estate owned $ - $ - $ - $ - $ 253
Nonperforming loans to loans receivable, net of fees 0.00 % 0.00 % 0.00 % 0.00 % 0.02 %
Nonperforming loans to total assets 0.00 % 0.00 % 0.00 % 0.00 % 0.01 %
Nonperforming assets to total assets 0.00 % 0.00 % 0.00 % 0.00 % 0.02 %
Total loans receivable past due 30 to 89 days $ 225 $ 394 $ 736 $ 163 $ 938
Total loans receivable past due 90 days or more $ - $ - $ 41 $ - $ -
Allowance for loan losses to loans receivable, net of fees 0.97 % 1.04 % 1.04 % 1.04 % 1.04 %
 
Mortgage Banking Data:

For the Three Months Ended:
Applications $ 1,043,000 $ 1,575,200 $ 1,703,500 $ 1,503,300 $ 1,063,400
Loans closed 927,828 1,198,737 1,172,339 769,080 786,363
Loans sold 1,046,704 1,233,801 1,073,282 791,680 778,854
Purchase money % of loans closed - George Mason Mortgage 68 % 65 % 76 % 62 % 74 %
Realized gain on sales and fees as a % of loan sold (4) 2.83 % 2.78 % 2.71 % 2.67 % 2.71 %

At Period End:
Locked Pipeline $ 217,815 $ 411,245 $ 458,555 $ 451,905 $ 247,448
SAB 109 Total Unrealized Gains Recognized 12,841 23,713 25,955 22,453 16,571
Change in Unrealized Gains (10,872 ) (2,242 ) 3,502 5,882 (1,186 )
Change in After-tax Income (7,012 ) (1,446 ) 2,259 3,794 (765 )
 

(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 December 31, 2016, non-interest expense excludes $1.8 million of merger and acquisition expense. 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)
 
 
  12/31/16     12/31/15  
Performance Ratios:

For the Year Ended:
Return on average assets 1.23 % 1.29 %
Return on average equity 11.40 % 11.76 %
Net interest margin (1) 3.33 % 3.37 %
Efficiency ratio (2) 57.58 % 57.66 %
 
Mortgage Banking Data:

For the Year Ended:
Applications $ 5,825,000 $ 5,211,000
Loans closed $ 4,067,984 3,602,075
Loans sold $ 4,145,467 3,534,175
Realized gain on sales and fees as a % of loan sold (3) 2.75 % 2.60 %
 

(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 year ended December 31, 2016, non-interest expense excludes a $3.6 million loss on extinguishment of debt and $4.1 million of merger and acquisition expense. Non-interest income excludes $3.6 million in realized gains on investment securities. For the year ended December 31, 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
% Change % Change
Current From
  12/31/16     09/30/16   Quarter   06/30/16     03/31/16     12/31/15   Year Ago

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

As Reported
Fair Value of LCs / Unrealized Gains Recognized @ LC date $ 18,742 $ 32,035 -41.5 % $ 34,613 $ 27,041 $ 19,939 -6.0 %
Loan origination expenses recognized @ Loan Sale Date   12,543     16,412     -23.6 %   19,304     12,902     11,874     5.6 %
Reported Net Gains from Mortgage Banking Activities   6,199     15,623     -60.3 %   15,309     14,139     8,065     -23.1 %
 

As Adjusted
Realized Gains Recognized @ Loan Sale Date 29,614 34,277 -13.6 % 31,111 21,159 21,125 40.2 %
Loan origination expenses recognized @ Loan Sale Date   12,543     16,412     -23.6 %   19,304     12,902     11,874     5.6 %
Adjusted Net Gains from Mortgage Banking Activities   17,071     17,865     -4.4 %   11,807     8,257     9,251     84.5 %
 

Impact of SAB 109 on Net Gains from Mortgage Banking Activities:
Increase/(Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB 109 $ (10,872 ) $ (2,242 )   384.9 % $ 3,502   $ 5,882   $ (1,186 )   816.7 %
 
 

Net Income Reconciliation:
Reported Net Income $ 10,801 $ 12,522 -13.7 % $ 14,101 $ 13,067 $ 9,015 19.8 %
After-tax Merger and Acquisition Expense   1,646     1,644     0.0 %   -     -     -     0.0 %
Adjusted Net Income $ 12,447 $ 14,166 -12.1 % $ 14,101 $ 13,067 $ 9,015 38.1 %
After-tax Net Increase / (Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB 109   (7,012 )   (1,446 )   384.9 %   2,259     3,794     (765 )   816.7 %
Operating Net Income $ 19,459   $ 15,612     24.6 % $ 11,842   $ 9,273   $ 9,780     99.0 %
 
 

Diluted Earnings per Share (EPS) Reconciliation:
Reported Net Income $ 0.32 $ 0.37 -14.6 % $ 0.42 $ 0.39 $ 0.27 17.3 %
After-tax Merger and Acquisition Expense $ 0.05     0.05     0.0 %   -     -     -     0.0 %
Adjusted Net Income $ 0.37     0.42     -13.0 %   0.42     0.39     0.27     35.2 %
After-tax Net Increase / (Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB 109   (0.21 )   (0.04 )   380.2 %   0.07     0.11     (0.02 )   838.4 %
Operating Net Income $ 0.58   $ 0.46     25.6 % $ 0.35   $ 0.28   $ 0.29   98.9 %
 
 

Performance Ratios (adjusted for change in unrealized mortgage banking gains):
Return on average assets 1.88 % 1.48 % 1.17 % 0.93 % 1.00 %
Return on average equity 16.91 % 13.84 % 10.85 % 8.76 % 9.46 %
Efficiency ratio 54.00 % 57.56 % 62.08 % 65.58 % 62.04 %
Non-interest income to average assets 1.93 % 1.87 % 1.67 % 0.94 % 1.05 %
 
**
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 Years Ended
% Change
From
  12/31/16     12/31/15   Year Ago

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

As Reported
Fair Value of LCs / Unrealized Gains Recognized @ LC date $ 112,430 $ 95,693 17.5 %
Loan origination expenses recognized @ Loan Sale Date   61,161     52,237     17.1 %
Reported Net Gains from Mortgage Banking Activities   51,269     43,456     18.0 %
 

As Adjusted
Realized Gains Recognized @ Loan Sale Date 116,159 91,945 26.3 %
Loan origination expenses recognized @ Loan Sale Date   61,161     52,237     17.1 %
Adjusted Net Gains from Mortgage Banking Activities   54,998     39,708     38.5 %
 

Impact of SAB 109 on Net Gains from Mortgage Banking Activities:
Increase/(Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB 109 $ (3,729 ) $ 3,748     -199.5 %
 
 

Net Income Reconciliation:
Reported Net Income $ 50,491 $ 47,334 6.7 %
After-tax litigation settlement (less associated legal expenses) - (1,592 ) -100.0 %
After-tax Merger and Acquisition Expense   3,290     314     947.8 %
Adjusted Net Income $ 53,781 $ 46,056 16.8 %
After-tax Net Increase / (Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB 109   (2,405 )   2,417     -199.5 %
Operating Net Income $ 56,186   $ 43,639     28.8 %
 
 

Diluted Earnings per Share (EPS) Reconciliation:
Reported Net Income $ 1.50 $ 1.43 5.1 %
After-tax litigation settlement (less associated legal expenses) - (0.05 ) -100.0 %
After-tax Merger and Acquisition Expense   0.10     0.01     932.8 %
Adjusted Net Income   1.60     1.39     15.1 %
After-tax Net Increase / (Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB 109   (0.07 )   0.07     -198.1 %
Operating Net Income $ 1.67   $ 1.32   26.8 %
 
 

Performance Ratios (adjusted for change in unrealized mortgage banking gains):
Return on average assets 1.37 % 1.19 %
Return on average equity 12.68 % 10.84 %
Efficiency ratio 59.38 % 58.24 %
Non-interest income to average assets 1.61 % 1.33 %
 
**
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
12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015

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 $ 250,362 3.82 % $ 243,678 3.75 % $ 258,678 3.74 % $ 266,353 3.74 % $ 255,255 3.66 %
Commercial and industrial - tax exempt (1) 96,842 2.95 % 101,749 2.90 % 103,221 2.82 % 105,386 2.80 % 103,456 2.50 %
Real estate - commercial (1) 1,699,067 4.23 % 1,659,767 4.27 % 1,563,089 4.37 % 1,532,293 4.28 % 1,361,134 4.27 %
Real estate - construction 578,744 4.63 % 572,704 4.60 % 556,939 4.37 % 549,907 4.62 % 661,665 4.59 %
Real estate - residential 442,922 3.58 % 445,848 3.53 % 448,453 3.57 % 441,134 3.67 % 423,533 3.65 %
Home equity lines 159,837 3.35 % 160,877 3.28 % 160,303 3.23 % 160,240 3.16 % 153,366 3.10 %
Consumer   5,214     5.11 %   5,246     5.01 %   5,239     4.91 %   5,284     4.72 %   4,739     5.44 %
Total loans 3,232,988 4.10 % 3,189,869 4.10 % 3,095,922 4.09 % 3,060,597 4.10 % 2,963,148 4.08 %
 
Loans held for sale 332,728 3.51 % 421,843 3.65 % 365,520 3.71 % 304,653 3.88 % 339,793 3.87 %
Investment securities (1) 390,538 3.67 % 400,936 3.67 % 400,085 3.82 % 419,678 3.76 % 426,776 3.52 %
Federal funds sold   38,445     0.48 %   41,050     0.50 %   33,435     0.45 %   55,018     0.47 %   45,307     0.25 %
Total interest-earning assets 3,994,699 3.98 % 4,053,698 3.97 % 3,894,962 3.99 % 3,839,946 3.99 % 3,775,024 3.95 %
 
Non-interest earning assets:
Cash and due from banks 20,982 21,764 21,899 21,169 22,226
Premises and equipment, net 23,774 24,399 24,642 25,185 25,498
Goodwill and intangibles, net 36,050 36,189 36,333 36,498 36,662
Accrued interest and other assets 98,318 124,196 119,723 105,663 102,977
Allowance for loan losses (33,265 ) (33,461 ) (32,702 ) (32,113 ) (31,515 )
         
TOTAL ASSETS $ 4,140,558   $ 4,226,785   $ 4,064,857   $ 3,996,348   $ 3,930,872  
 
Interest-bearing liabilities:
Interest checking $ 441,472 0.35 % $ 432,246 0.36 % $ 445,991 0.36 % $ 457,528 0.40 % $ 438,527 0.48 %
Money markets 490,461 0.41 % 479,455 0.39 % 438,863 0.36 % 451,303 0.37 % 466,452 0.36 %
Statement savings 342,699 0.44 % 327,653 0.43 % 315,804 0.42 % 301,734 0.42 % 285,257 0.40 %
Certificates of deposit 751,633 1.22 % 773,912 1.23 % 773,053 1.23 % 784,306 1.23 % 752,104 1.23 %
Brokered certificates of deposit   439,499     0.95 %   538,130     0.89 %   454,152     0.93 %   398,455     0.91 %   400,793     0.88 %
Total interest-bearing deposits 2,465,764 0.75 % 2,551,396 0.75 % 2,427,863 0.75 % 2,393,326 0.75 % 2,343,133 0.76 %
 
Other borrowed funds   394,356     1.49 %   441,576     1.39 %   456,044     1.69 %   487,087     1.87 %   470,416     1.82 %
Total interest-bearing liabilities 2,860,120 0.85 % 2,992,972 0.84 % 2,883,907 0.90 % 2,880,413 0.94 % 2,813,549 0.93 %
 
Noninterest-bearing liabilities:
Noninterest-bearing deposits 776,242 732,506 698,123 653,432 660,236
Other liabilities 43,990 50,098 46,193 38,986 43,357
 
Shareholders' equity 460,206 451,209 436,634 423,517 413,730
         
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 4,140,558   $ 4,226,785   $ 4,064,857   $ 3,996,348   $ 3,930,872  
 
NET INTEREST MARGIN (1) 3.37 % 3.35 % 3.33 % 3.31 % 3.25 %
 
(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 Years Ended
12/31/2016 12/31/2015

Average Balance
 

Average Yield

Average Balance
 

Average Yield
Interest-earning assets:
Loans receivable, net of fees (1)
Commercial and industrial $ 254,725 3.76 % $ 272,026 3.87 %
Commercial and industrial - tax exempt (1) 101,786 2.87 % 73,460 2.88 %
Real estate - commercial (1) 1,577,443 4.29 % 1,305,202 4.37 %
Real estate - construction 601,106 4.54 % 554,527 4.67 %
Real estate - residential 444,588 3.59 % 405,517 3.73 %
Home equity lines 160,315 3.25 % 143,180 3.17 %
Consumer   5,245     4.96 %   4,819     5.64 %
Total loans 3,145,208 4.10 % 2,758,731 4.18 %
 
Loans held for sale 360,147 3.64 % 344,501 3.85 %
Investment securities (1) 402,763 3.73 % 366,611 3.18 %
Federal funds sold   41,973     0.48 %   41,167     0.22 %
Total interest-earning assets 3,950,091 3.98 % 3,511,010 4.06 %
 
Non-interest earning assets:
Cash and due from banks 21,453 21,069
Premises and equipment, net 24,498 25,191
Goodwill and intangibles, net 36,267 36,943
Accrued interest and other assets 108,134 104,991
Allowance for loan losses (32,888 ) (30,346 )
   
TOTAL ASSETS $ 4,107,555   $ 3,668,858  
 
Interest-bearing liabilities:
Interest checking $ 444,269 0.37 % $ 430,276 0.49 %
Money markets 465,129 0.38 % 411,369 0.34 %
Statement savings 322,044 0.43 % 275,567 0.36 %
Certificates of deposit 770,683 1.22 % 691,026 1.22 %
Brokered certificates of deposit   457,730     0.92 %   404,293     0.80 %
Total interest-bearing deposits 2,459,855 0.75 % 2,212,531 0.73 %
 
Other borrowed funds   444,619     1.62 %   394,536     2.00 %
Total interest-bearing liabilities 2,904,474 0.88 % 2,607,067 0.92 %
 
Noninterest-bearing liabilities:
Noninterest-bearing deposits 715,291 618,988
Other liabilities 44,829 40,264
 
Shareholders' equity 442,961 402,539
   
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 4,107,555   $ 3,668,858  
 
NET INTEREST MARGIN (1) 3.33 % 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 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
12/31/2016 9/30/2016 Quarter 6/30/2016 3/31/2016 12/31/2015 Year Ago

Commercial Banking:
Net interest income $ 32,758 $ 32,980 -0.7 % $ 31,442 $ 30,545 $ 30,042 9.0 %
Non-interest income 2,050 1,391 47.4 % 1,056 1,104 963 112.9 %
Net realized gain on available-for-sale securities 868 - 100.0 % 3,614 112 - 100.0 %
Loss on extinguishment of debt - - 0.0 % 3,638 - - 0.0 %
Non-interest expense   14,794     15,940     -7.2 %   15,823     16,514     15,734     -6.0 %
Net income before provision for loan losses and taxes 20,882 18,431 13.3 % 16,651 15,247 15,271 36.7 %
Provision for loan losses (1,934 ) 990 -295.4 % 430 250 449 -530.7 %
Provision for income taxes   6,993     5,978     17.0 %   5,464     4,757     5,238     33.5 %
Net income $ 15,823   $ 11,463   38.0 % $ 10,757   $ 10,240   $ 9,584   65.1 %
Average Assets $ 4,059,989 $ 4,140,341 $ 3,998,824 $ 3,937,805 $ 3,866,407
Commercial Banking Segment Contribution to earnings 146 % 92 % 76 % 78 % 106 %

Mortgage Banking:
Net interest income $ 128 $ 196 -34.7 % $ 283 $ 358 $ 619 -79.3 %
Non-interest income 6,198 15,669 -60.4 % 15,344 14,158 8,115 -23.6 %
Non-interest expense   11,042     11,464     -3.7 %   9,382     8,963     8,589     28.6 %
Net income before provision for taxes (4,716 ) 4,401 -207.2 % 6,245 5,553 145 -3352.4 %
Provision for income taxes   (1,699 )   1,585     -207.2 %   2,251     2,000     (19 )   8842.1 %
Net income (loss) $ (3,017 ) $ 2,816   -207.1 % $ 3,994   $ 3,553   $ 164   -1939.6 %
Add:decrease in unrealized gains (or (Less):increase in unrealized gains) on mortgage banking activities (SAB 109) 10,872 2,242 384.9 % (3,502 ) (5,882 ) 1,186 816.7 %
Add / (Less): provision for income taxes associated with SAB 109   (3,860 )   (796 )   384.9 %   1,243     2,088     (421 )   816.7 %
Operating net income (loss) $ 3,995   $ 4,262   -6.3 % $ 1,735   $ (241 ) $ 929   330.1 %
Average Assets $ 347,419 $ 455,608 -23.7 % $ 382,899 $ 317,034 $ 351,129 -1.1 %
Mortgage Banking Segment Contribution to earnings -28 % 22 % 28 % 27 % 2 %

Wealth Management/Other:
Net interest income $ (223 ) $ (211 ) 5.7 % $ (201 ) $ (197 ) $ (190 ) 17.4 %
Non-interest income (10 ) 431 -102.3 % 473 (105 ) 14 -171.4 %
Non-interest expense   2,591     2,931     -11.6 %   1,273     815     959     170.2 %
Net income (loss) before provision for taxes (2,824 ) (2,711 ) 4.2 % (1,001 ) (1,117 ) (1,135 ) 148.8 %
Provision for income taxes   (819 )   (954 )   -14.2 %   (351 )   (391 )   (402 )   103.7 %
Net income (loss) $ (2,005 ) $ (1,757 ) 14.1 % $ (650 ) $ (726 ) $ (733 ) 173.5 %
Add: merger & acquisition (M&A) expense 1,809 2,284 -20.8 % - - - 100.0 %
Subtract: provision for income taxes associated with M&A expense   (163 )   (640 )   -74.5 %         -100.0 %
Operating net income (loss) $ (359 ) $ (113 ) 217.7 % $ (650 ) $ (726 ) $ (733 ) -51.0 %
Average Assets / Intersegment Eliminations $ (266,850 ) $ (369,164 ) -27.7 % $ (316,866 ) $ (258,491 ) $ (286,664 ) -6.9 %
Wealth Management/Other Segments Contribution to earnings -18 % -14 % 27.0 % -5 % -5 % -8 % 116.0 %

Consolidated:
Net interest income $ 32,663 $ 32,965 -0.9 % $ 31,524 $ 30,706 $ 30,471 7.2 %
Non-interest income 8,238 17,491 -52.9 % 16,873 15,157 9,092 -9.4 %
Net realized gain on available-for-sale securities 868 - 100.0 % 3,614 112 - 100.0 %
Loss on extinguishment of debt - - 0.0 % 3,638 - - 0.0 %
Non-interest expense   28,427     30,335     -6.3 %   26,478     26,292     25,282     12.4 %
Net income before provision for loan losses and taxes 13,342 20,121 -33.7 % 21,895 19,683 14,281 -6.6 %
Provision for loan losses (1,934 ) 990 -295.4 % 430 250 449 -530.7 %
Provision for income taxes   4,475     6,609     -32.3 %   7,364     6,366     4,817     -7.1 %
Net income $ 10,801   $ 12,522   -13.7 % $ 14,101   $ 13,067   $ 9,015   19.8 %
Add: merger & acquisition (M&A) expense 1,809 2,284 -20.8 % - - - 100.0 %
Add:decrease in unrealized gains (or (Less): increase in unrealized gains) on mortgage banking activities (SAB 109) 10,872 2,242 384.9 % (3,502 ) (5,882 ) 1,186 816.7 %
Add/(Less): provision for income taxes associated with M&A expenses & SAB 109   (4,023 )   (1,436 )   180.1 %   1,243     2,088     (421 )   855.4 %
Operating net income $ 19,459   $ 15,612   24.6 % $ 11,842   $ 9,273   $ 9,780   99.0 %
Average Assets $ 4,140,558 $ 4,226,785 -2.0 % $ 4,064,857 $ 3,996,348 $ 3,930,872 5.3 %
 
     
Table 11.
Cardinal Financial Corporation and Subsidiaries
Segment Reporting - as Reported and Non-GAAP Reconciliation
(Dollars in thousands)
(Unaudited)
 
For the Years Ended
% Change
From
12/31/2016 12/31/2015 Year Ago

Commercial Banking:
Net interest income $ 127,726 $ 114,674 11.4 %
Non-interest income 5,602 5,293 5.8 %
Net realized gain on available-for-sale securities 4,594 - 100.0 %
Loss on extinguishment of debt 3,638 - 100.0 %
Non-interest expense   63,072     59,956     5.2 %
Net income before provision for loan losses and taxes 71,212 60,011 18.7 %
Provision for loan losses (264 ) 1,388 -119.0 %
Provision for income taxes   23,192     19,448     19.3 %
Net income $ 48,284   $ 39,175   23.3 %
Add: merger & acquisition (M&A) expense - 472 -100.0 %
Less: provision for income taxes associated with M&A expense   -     (158 ) -100.0 %
Operating net income $ 48,284   $ 39,489  
Average Assets $ 4,026,960 $ 3,604,942
Commercial Banking Segment Contribution to earnings 96 % 83 %

Mortgage Banking:
Net interest income $ 964 $ 2,454 -60.7 %
Non-interest income 51,369 43,700 17.5 %
Non-interest expense   40,850     31,806     28.4 %
Net income before provision for taxes 11,483 14,348 -20.0 %
Provision for income taxes   4,137     5,168     -19.9 %
Net income $ 7,346   $ 9,180   -20.0 %
Add:decrease in unrealized gains (or (Less):increase in unrealized gains) on mortgage banking activities (SAB 109) 3,729 (3,748 ) -199.5 %
Add / (Less): provision for income taxes associated with SAB 109   (1,324 )   1,331     -199.5 %
Operating net income $ 9,751   $ 6,763   44.2 %
Average Assets $ 383,520 $ 357,145 7.4 %
Mortgage Banking Segment Contribution to earnings 14 % 19 %

Wealth Management/Other:
Net interest income $ (833 ) $ (734 ) 13.5 %
Non-interest income 789 3,699 -78.7 %
Non-interest expense   7,610     4,536     67.8 %
Net income (loss) before provision for taxes (7,654 ) (1,571 ) 387.2 %
Provision for income taxes   (2,515 )   (550 )   357.3 %
Net income (loss) $ (5,139 ) $ (1,021 ) 403.3 %
Add: merger & acquisition (M&A) expense 4,093 - 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   (803 )   858     -193.6 %
Operating net income (loss) $ (1,849 ) $ (2,613 ) -29.2 %
Average Assets / Intersegment Eliminations $ (302,925 ) $ (293,229 ) 3.3 %
Wealth Management/Other Segments Contribution to earnings -10 % -2 % 371.9 %

Consolidated:
Net interest income $ 127,857 $ 116,394 9.8 %
Non-interest income 57,760 52,692 9.6 %
Net realized gain on available-for-sale securities 4,594 - 100.0 %
Loss on extinguishment of debt 3,638 - 100.0 %
Non-interest expense   111,532     96,298     15.8 %
Net income before provision for loan losses and taxes 75,041 72,788 3.1 %
Provision for loan losses (264 ) 1,388 -119.0 %
Provision for income taxes   24,814     24,066     3.1 %
Net income $ 50,491   $ 47,334   6.7 %
Add: merger & acquisition (M&A) expense 4,093 472 767.2 %
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) 3,729 (3,748 ) -199.5 %
Less: provision for income taxes associated with M&A expense, litigation settlement & SAB 109   (2,127 )   2,031     -204.7 %
Operating net income $ 56,186   $ 43,639   28.8 %
Average Assets $ 4,107,555 $ 3,668,858 12.0 %
 
       
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 December 31, 2016:
Net income (loss) $ 15,823 $ (3,017) $ (2,005) $ 10,801
Earnings per common share - diluted $ 0.46 $ (0.09) $ (0.05) $ 0.32
Segment Contribution to Earnings 146.0% -28.4% -17.6% 100%
 
For the Three Months Ended December 31, 2015:
Net income (loss) $ 9,584 $ 164 $ (733) $ 9,015
Earnings per common share - diluted $ 0.29 $ 0.00 $ (0.02) $ 0.27
Segment Contribution to Earnings     106.3%     1.8%     -8.1%     100%
                 
For the Year Ended December 31, 2016:
Net income (loss) $ 48,284 $ 7,346 $ (5,139) $ 50,491
Earnings per common share - diluted $ 1.43 $ 0.22 $ (0.15) $ 1.50
Segment Contribution to Earnings 95.7% 14.5% -10.2% 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     12/31/2016
 
 
Commercial and industrial $ 379,414 $ 59,523 $ (30,287 ) $ (35,013 ) $ 373,637
Real estate - commercial 1,372,627 477,445 (140,785 ) (24,286 ) $ 1,685,001
Real estate - construction 694,408 69,017 (262,695 ) 86,359 $ 587,089
Real estate - residential 448,168 96,299 (64,559 ) (11,445 ) $ 468,463
Home equity lines 156,852 29,014 (29,242 ) 4,511 $ 161,135
Consumer   4,841       8,582       (3,039 )       (4,550 )     $ 5,834
Total loans, net of fees $ 3,056,310 $ 739,880 $ (530,607 ) $ 15,576 $ 3,281,159
 
         
Table 14.
Cardinal Financial Corporation and Subsidiaries
Commercial Real Estate ("CRE") Concentrations
(Dollars in thousands)
(Unaudited)
 
 
12/31/16 09/30/16 06/30/16 03/31/16 12/31/15
Construction, land development, and other land loans $ 461,898 $ 470,914 $ 443,879 $ 497,691 $ 459,261
Owner-occupied construction, land development loans   (85,529 )   (105,709 )   (89,225 )   (76,351 )   (83,237 )
Construction loans concentration less owner-occupied $ 376,369   $ 365,205   $ 354,654   $ 421,340   $ 376,024  
 

As a percentage of risk-based capital (consolidated):
Construction loans concentration 97.4 % 100.8 % 98.3 % 113.2 % 107.2 %
Construction loans concentration less owner-occupied 79.4 % 78.2 % 78.6 % 95.8 % 87.7 %
 
 
 
Loans secured by commercial real estate properties $ 2,231,663 $ 2,228,820 $ 2,146,775 $ 2,105,479 $ 2,079,265
Owner-occupied commercial real estate properties (436,697 ) (426,048 ) (409,772 ) (392,514 ) (421,278 )
Owner-occupied construction, land development loans   (85,529 )   (105,709 )   (89,225 )   (76,351 )   (83,237 )
Commercial real estate concentration less owner-occupied construction $ 1,709,437   $ 1,697,063   $ 1,647,778   $ 1,636,614   $ 1,574,750  
 

As a percentage of risk-based capital (consolidated):
Commercial real estate concentration 378.7 % 386.0 % 384.7 % 389.5 % 386.9 %
Commercial real estate concentration less owner-occupied construction 360.6 % 363.4 % 365.0 % 372.1 % 367.5 %
 

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