News Column

Cardinal Announces Fourth Quarter Earnings

January 22, 2014

TYSONS CORNER, Va. --(BUSINESS WIRE)-- Cardinal Financial Corporation (NASDAQ: CFNL) (the “Company”) today announced quarterly earnings of $5.5 million , or $0.18 per diluted share, for the period ended December 31, 2013 . For the fiscal year, earnings were $25.5 million , or $0.82 per diluted share. This compares to earnings of $13.0 million , or $0.43 per diluted share, and $45.3 million , or $1.51 per diluted share, for the comparable three and twelve month periods of 2012. Quarterly results were again influenced by the mortgage banking segment of the Company’s business, which reported a net loss of $1.6 million for the fourth quarter of 2013 compared to net income of $3.7 million in the year ago quarter. Additionally, the Company had a write down of $300,000 on investments as a result of the Volcker rule. Cardinal also incurred approximately $160,000 of merger expenses in the fourth quarter 2013 and $464,000 for the 2013 year related to its acquisition of United Financial Banking Companies, Inc. (UFBC). Selected Highlights For the full year, the commercial banking business segment reported net income of $33.9 million in 2013 versus $30.5 million in 2012, an 11% increase. During the most recent quarter, loans held for investment grew $76.6 million , or 16% annualized, and balances now surpass $2.0 billion . For the year, loans grew $236.7 million , or 13%. Asset quality remains excellent. Nonperforming loans decreased to 0.08% of total assets, and the Company had net loan recoveries of 0.03% of average loans outstanding for the year ended December 31, 2013 . The Company continued to have $0 real estate owned and $0 loans 90 days or more past due and still accruing at December 31, 2013 . Non-accruing loans totaled $2.3 million at year end. Total deposits were $2.06 billion , a decrease of $184.9 million , or 8%, compared to December 31, 2012 . Consistent with our focus of growing core, non-maturing deposits, demand deposit and interest checking account balances increased $132.4 million , or 19%, year over year. Brokered deposits decreased $334.7 million from a year ago, which is correlated to a $411.8 million reduction of mortgage loans held for sale. Mortgage loan applications decreased 18% to $886 million for the current quarter versus $1.08 billion for the prior quarter. Refinance volume was 22% of total applications, up slightly from 19% in the prior quarter, but significantly down from 67% for the year ago quarter. In 2013, purchase money originations were over $3.4 billion , an increase of approximately $1.5 billion over 2012 levels. All capital ratios exceed the regulatory requirements to be considered well-capitalized. Tangible common equity capital (TCE) as a percentage of total assets was 10.58% at December 31, 2013 . In December 2013 , the Company received all regulatory approvals to complete the acquisition of UFBC, the holding company of The Business Bank . The acquisition became effective January 16, 2014 . Commercial Banking Segment Income Review For the current quarter ended December 31, 2013 , net income for the commercial banking segment decreased 23% to $7.8 million from $10.2 million for the year ago quarter. The fourth quarter 2012 included approximately $2.4 million of net proceeds from bank owned life insurance. Net interest income for the current quarter was $23.2 million compared to $23.9 million for the year ago quarter. The decrease in net interest income for the comparable quarters was due to lower average balances of interest earning assets resulting from a $341.3 million decline in the quarterly average of mortgage loans held for sale. The Company’s tax equivalent net interest margin was 3.65%, equal to the previous quarter, and up from 3.57% for the year ago quarter. Over the last quarter, the yield on interest earning assets decreased 0.01%, while the cost of interest bearing liabilities also decreased 0.01%. For the comparable annual periods ended December 31, 2013 and 2012, net income increased 11% to $33.9 million from $30.5 million . Although the net interest margin has declined over the comparable periods from 3.61% in 2012 to 3.52% in 2013, net interest income increased to $90.6 million versus $89.5 million a year ago due to the growth in average earning assets of approximately $115.4 million for the year 2013. The allowance for loan losses decreased to 1.37% of loans outstanding at December 31, 2013 . The Company’s nonperforming assets decreased to 0.08% of total assets compared to 0.09% at the previous quarter end and 0.25% a year ago. For the year of 2013, net loan recoveries were 0.03% of average loans outstanding, compared to net charge offs of 0.35% for 2012. The provision for loan losses was $400,000 for the current quarter and was a negative provision of $117,000 year to date, versus a provision for loan losses of $1.5 million and $6.9 million for the three month and annual periods ended December 31, 2012 , respectively. Non-interest expense increased 11.7% to $12.5 million for the current quarter compared to $11.2 million for the fourth quarter 2012. The current quarter includes approximately $160,000 of merger expenses and an impairment charge on certain pooled trust preferred securities of approximately $300,000 resulting from the Volcker rule. During 2013, the Company added commercial lenders, other key positions and opened two de novo banking offices, which accounts for the remaining modest increase in expenses during the fourth quarter of 2013 as compared to the 2012 fourth quarter. For the current quarter versus the third quarter 2013, non-interest expense increased $1.4 million due to the mentioned items and accruals related to performance compensation. On an annual basis, non interest expense remained relatively flat at $43.8 million for the 2013 year compared to $43.5 million for the year ended 2012. In November, the bank completed its branch profitability analysis and decided to close two low performing offices during the 1 st quarter of 2014. Mortgage Banking Segment Income Review For the current quarter ended December 31, 2013 , George Mason Mortgage , the Company’s mortgage banking subsidiary, reported a net loss of $1.6 million versus net income of $3.7 million for the year ago quarter. For the comparable 2013 and 2012 annual periods, the Company reported a net loss of $5.2 million versus net income of $17.6 million , respectively. Non-interest income, which is reported net of commissions and incentives, was $4.8 million in the current quarter versus $441,000 last quarter and $10.9 million for the fourth quarter of 2012. For the comparable annual periods ended December 31, 2013 and 2012, noninterest income for the mortgage banking segment was $24.8 million versus $54.8 million , respectively. The SAB 109 accounting adjustment, as reported in Table 4, resulted in a material decrease of $30.8 million in reported gains from mortgage banking activities in fiscal 2013 versus 2012. George Mason originators produced $4.2 billion of closed loans in 2013 versus $4.1 billion in 2012. Of this amount, purchase money represents $2.8 billion of closed loans in 2013 versus $1.5 billion in 2012. For the current quarter, non-interest expense decreased to $8.0 million compared to $8.8 million for the prior quarter. For the annual periods ended December 31 , 2013 and 2012, expenses increased to $35.2 million from $29.5 million , respectively. The increase in non-interest expense is attributable to the expansion of the Company’s mortgage banking operations during the first six months of the year. The mortgage banking segment currently has 192 loan officers, up from 160 officers a year ago. Over the past year, the Company added 4 offices and now operates in 20 mortgage banking locations. Mortgage banking originations and related revenues were significantly impacted by the increase in interest rates during the last half of 2013. Although the average margin on loans sold to investors increased during the current quarter to 2.24% from 1.91% for the third quarter of 2013, overall loan origination volume continued to decline. As previously discussed, certain cost control programs and margin enhancement measures were enacted as a result of the current operating environment. The impact of these actions began to be realized during the current quarter. The Company continues to take action to return the mortgage banking segment to profitability based upon market conditions and its projected production volumes. Review of Balance Sheet At December 31, 2013 , total assets of the Company decreased $143.7 million to $2.90 billion , a decrease of 5% from total assets of $3.04 billion at December 31, 2012 . Loans held for investment grew 13% to $2.04 billion at December 31, 2013 , from $1.80 billion at December 31, 2012 . During this period, the Bank’s investment portfolio increased to $360.0 million compared to $286.4 million a year ago. Loans held for sale decreased to $374.0 million compared to $785.8 million at December 31, 2012 . The decrease in total assets is primarily the result of the $411.8 million decrease in mortgage loans held for sale, which was partially offset by a $236.7 million increase in loans held for investment and a $73.3 million increase in total investment securities. Total deposits were $2.06 billion , a decrease of $185.0 million , or 8%, compared to December 31, 2012 . The Company uses short term brokered CDs as a source of funding for its mortgage loans held for sale portfolio. As these assets have declined, there has been an associated reduction of its brokered CD portfolio from $616.6 million a year ago to $282.0 million at December 31, 2013 . However, demand deposits and interest checking deposits grew $132.4 million over the past year, increasing 19% and reflecting the success of the Bank’s strategic initiatives to generate core deposits. Dividend Announcement The Company today also announced that its Board of Directors has declared an increase of $0.02 to its quarterly cash dividend. A dividend of $0.08 per share will be paid on February 24, 2014 to shareholders of record as of the close of business on February 6, 2014 . MANAGEMENT COMMENTS Bernard H. Clineburg , Chairman and Chief Executive Officer of the Company, said: “I’m pleased with the overall performance of our Company. Moving forward, we will continue to concentrate on gaining market share, either through de novo expansion or acquisition, which will increase our franchise value. We remain committed to building and maintaining a strong financial services company for our shareholders, employees, clients and the communities we serve.” 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 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, 2012 and other reports filed with and furnished to the Securities and Exchange Commission . About Cardinal Financial Corporation : Cardinal Financial Corporation , a financial holding company headquartered in Tysons Corner, Virginia with assets of $2.90 billion at December 31, 2013 , serves the Washington Metropolitan region through its wholly-owned subsidiary, Cardinal Bank , with 29 conveniently located banking offices. Cardinal also operates several other subsidiaries: George Mason Mortgage, LLC , a residential mortgage lending company based in Fairfax , with 20 offices throughout the Washington Metropolitan region; 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 Statements of Condition (Dollars in thousands) % Change December 31, 2013 December 31, 2012 Current Year (Unaudited) Cash and due from banks $ 18,285 $ 17,552 4.2 % Federal funds sold 10,924 49,588 -78.0 % Investment securities available-for-sale 349,319 271,903 28.5 % Investment securities held-to-maturity 6,477 11,366 -43.0 % Investment securities – trading 3,890 3,151 23.5 % Total investment securities 359,686 286,420 25.6 % Other investments 19,068 14,302 33.3 % Loans held for sale 373,993 785,751 -52.4 % Loans receivable, net of fees 2,040,168 1,803,429 13.1 % Allowance for loan losses (27,864 ) (27,400 ) 1.7 % Loans receivable, net 2,012,304 1,776,029 13.3 % Premises and equipment, net 20,389 19,192 6.2 % Goodwill and intangibles, net 10,144 10,292 -1.4 % Bank-owned life insurance 32,063 31,652 1.3 % Prepaid FDIC insurance premiums - 2,165 -100.0 % Other assets 37,374 46,244 -19.2 % TOTAL ASSETS $ 2,894,230 $ 3,039,187 -4.8 % Non-interest bearing deposits $ 433,749 $ 351,815 23.3 % Interest checking 398,136 347,697 14.5 % Money markets 266,316 214,788 24.0 % Statement savings 209,391 215,603 -2.9 % Certificates of deposit 469,279 497,206 -5.6 % Brokered certificates of deposit 281,988 616,649 -54.3 % Total deposits 2,058,859 2,243,758 -8.2 % Other borrowed funds 475,232 392,275 21.1 % Mortgage funding checks 6,528 51,679 -87.4 % Escrow liabilities 1,572 4,629 -66.0 % Other liabilities 31,507 38,780 -18.8 % Shareholders' equity 320,532 308,066 4.0 % TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 2,894,230 $ 3,039,187 -4.8 % Table 2. Cardinal Financial Corporation and Subsidiaries Summary Income Statements (Dollars in thousands, except share and per share data) (Unaudited) For the Three Months Ended For the Years Ended December 31 December 31 2013 2012 % Change 2013 2012 % Change Net interest income $ 23,800 $ 24,166 -1.5 % $ 92,345 $ 91,003 1.5 % Provision for loan losses (400 ) (1,500 ) -73.3 % 32 (7,123 ) -100.4 % Net interest income after provision for loan losses 23,400 22,666 3.2 % 92,377 83,880 10.1 % Non-interest income: Service charges on deposit accounts 494 503 -1.8 % 1,992 1,914 4.1 % Loan fees 590 357 65.3 % 1,447 1,599 -9.5 % Income from bank owned life insurance 105 2,565 -95.9 % 411 3,072 -86.6 % Net realized gains on investment securities (32 ) - -100.0 % 68 158 -57.0 % Gain (loss) on sale of real estate - - 0.0 % 30 (333 ) 109.0 % Other non-interest income (loss) 3 28 -89.3 % 43 (6 ) -816.7 % Commercial banking & other segment non-interest income 1,160 3,453 -66.4 % 3,991 6,404 -37.7 % Title insurance & other income 70 775 -91.0 % 987 2,489 -60.3 % Management fee income 498 1,248 -60.1 % 1,981 4,082 -51.5 % Gains from mortgage banking activities 14,711 24,080 -38.9 % 79,675 95,246 -16.3 % Less: mortgage loan origination expenses (10,482 ) (15,285 ) -31.4 % (58,060 ) (47,452 ) 22.4 % Mortgage banking segment non-interest income 4,797 10,818 -55.7 % 24,583 54,365 -54.8 % Wealth management segment non-interest income 194 706 -72.5 % 1,337 2,623 -49.0 % Total non-interest income 6,151 14,977 -58.9 % 29,911 63,392 -52.8 % Net interest income and noninterest income 29,551 37,643 -21.5 % 122,288 147,272 -17.0 % Salaries and benefits 11,156 6,865 62.5 % 41,523 39,370 5.5 % Occupancy 2,242 1,912 17.3 % 8,389 7,186 16.7 % Depreciation 865 721 20.0 % 3,196 2,669 19.7 % Data processing & communications 1,239 1,089 13.8 % 4,720 4,427 6.6 % Professional fees 518 1,543 -66.4 % 3,765 4,209 -10.5 % FDIC insurance assessment 342 356 -3.9 % 1,391 1,336 4.1 % Impairment of pooled trust preferred securities 300 - 100.0 % 300 - 100.0 % Mortgage loan repurchases and settlements - 491 -100.0 % (49 ) 962 -105.1 % Merger and acquisition expense 160 - 100.0 % 464 - 100.0 % Other operating expense 4,804 5,602 -14.2 % 20,904 19,158 9.1 % Total non-interest expense 21,626 18,579 16.4 % 84,603 79,317 6.7 % Income before income taxes 7,925 19,064 -58.4 % 37,685 67,955 -44.5 % Provision for income taxes 2,379 6,023 -60.5 % 12,175 22,658 -46.3 % NET INCOME $ 5,546 $ 13,041 -57.5 % $ 25,510 $ 45,297 -43.7 % Earnings per common share - basic $ 0.18 $ 0.43 -58.5 % $ 0.83 $ 1.53 -45.6 % Earnings per common share - diluted $ 0.18 $ 0.43 -58.4 % $ 0.82 $ 1.51 -45.6 % Weighted-average common shares outstanding - basic 30,747,472 30,030,407 2.4 % 30,686,980 29,653,917 3.5 % Weighted-average common shares outstanding - diluted 31,144,055 30,466,747 2.2 % 31,076,781 29,995,667 3.6 % Table 3. Cardinal Financial Corporation and Subsidiaries Selected Financial Information (Dollars in thousands, except per share data and ratios) (Unaudited) For the Three Months Ended For the Years Ended December 31 December 31 2013 2012 2013 2012 Performance Ratios: Return on average assets 0.80 % 1.81 % 0.92 % 1.70 % Return on average equity 6.83 % 17.23 % 7.96 % 16.02 % Net interest margin (1) 3.65 % 3.57 % 3.52 % 3.61 % Efficiency ratio (2) 72.20 % 47.46 % 69.20 % 51.37 % Non-interest income to average assets 0.89 % 2.08 % 1.07 % 2.37 % Non-interest expense to average assets 3.14 % 2.58 % 3.04 % 2.97 % Mortgage Banking Select Data: $ of loan applications - George Mason Mortgage $ 886,000 $ 1,413,000 $ 5,137,000 $ 5,291,000 $ of loan applications - Managed Mortgage Company Affiliates 236,000 663,000 1,767,000 2,832,000 Total 1,122,000 2,076,000 6,904,000 8,123,000 Refi % of loan applications - George Mason Mortgage 23 % 66 % 33 % 63 % Refi % of loans applications- Managed Mortgage Company Affiliates 18 % 68 % 29 % 62 % Total 22 % 67 % 32 % 63 % $ of loans closed - George Mason Mortgage $ 797,319 $ 1,271,651 $ 4,201,335 $ 4,105,809 $ of loans closed - Managed Mortgage Company Affiliates 268,833 638,839 1,578,656 2,471,966 Total 1,066,152 1,910,490 5,779,991 6,577,775 # of loans closed - George Mason Mortgage 2,436 3,737 12,420 12,127 # of loans closed - Managed Mortgage Company Affiliates 711 1,656 4,096 6,490 Total 3,147 5,393 16,516 18,617 $ of loans sold - George Mason Mortgage $ 758,355 $ 1,261,952 $ 4,499,490 $ 3,846,687 $ of loans sold - Managed Mortgage Company Affiliates 261,844 665,172 1,711,050 2,309,183 Total 1,020,199 1,927,124 6,210,540 6,155,870 $ of locked commitments - George Mason Mortgage $ 657,250 $ 1,159,226 $ 3,930,540 $ 4,376,830 $ locked commitments at period end - George Mason Mortgage $ 210,907 $ 481,703 $ of loans held for sale at period end - George Mason Mortgage $ 234,761 $ 532,916 Realized gain on sales and fees as a % of loan sold (3) 2.24 % 2.09 % 2.11 % 2.07 % Net realized gains as a % of realized gains (Gain on sale margin) (4) 38.33 % 42.13 % 38.76 % 40.37 % Asset Quality Data: Net charge-offs (recoveries) to average loans receivable, net of fees -0.03 % 0.35 % Total nonaccrual loans $ 2,314 $ 7,626 Real estate owned $ - $ - Nonperforming loans to loans receivable, net of fees 0.11 % 0.42 % Nonperforming loans to total assets 0.08 % 0.25 % Nonperforming assets to total assets 0.08 % 0.25 % Total loans receivable past due 30 to 89 days $ 507 $ - Total loans receivable past due 90 days or more $ - $ - Allowance for loan losses to loans receivable, net of fees 1.37 % 1.52 % Allowance for loan losses to nonperforming loans 1204.15 % 359.30 % Capital Ratios: Tier 1 risk-based capital 11.27 % 11.94 % Total risk-based capital 12.27 % 13.04 % Leverage capital ratio 11.70 % 10.49 % Book value per common share $ 10.57 $ 10.19 Tangible book value per common share (5) $ 10.23 $ 9.85 Common shares outstanding 30,333 30,226 (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 33% for 2013 and 35% for 2012. (2) Efficiency ratio is calculated as total non-interest expense divided by the total of net interest income and non-interest income. (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. (4) Net realized gains are gains net of loan origination expense recognized on the date the loan is sold and do not include the unrealized gains recognized at the loan commitment date. (5) Tangible book value is calculated as total shareholders' equity less goodwill and other intangible assets, divided by common shares outstanding. Table 4. Cardinal Financial Corporation and Subsidiaries Mortgage Revenue Recognition Impact of SAB 109 (Written Loan Commitments Recorded at Fair Value Through Earnings) For the Three Months and Years Ended December 31, 2013 and 2012 (Dollars in thousands, except share and per share data) (Unaudited) For the Three Months Ended For the Years Ended December 31 December 31 2013 2012 % Change 2013 2012 % Change Net Gains from Mortgage Banking Activities: As Reported Fair Value of LCs / Unrealized Gains Recognized @ LC date **(see note below) $ 14,711 $ 24,080 -38.91 % $ 79,675 $ 95,246 -16.35 % Loan origination expenses recognized @ Loan Sale Date 10,482 15,285 -31.42 % 58,060 47,452 22.36 % Reported Net Gains from Mortgage Banking Activities 4,229 8,795 -51.92 % 21,615 47,794 -54.77 % As Adjusted Realized Gains Recognized @ Loan Sale Date 16,997 26,412 -35.65 % 94,805 79,584 19.13 % Loan origination expenses recognized @ Loan Sale Date 10,482 15,285 -31.42 % 58,060 47,452 22.36 % Adjusted Net Gains from Mortgage Banking Activities 6,515 11,127 -41.45 % 36,745 32,132 14.36 % Impact of SAB 109 on Net Gains from Mortgage Banking Activities: Increase/(Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB 109 $ (2,286 ) $ (2,332 ) -1.97 % $ (15,130 ) $ 15,662 -196.60 % Net Income Reconciliation: Reported Net Income $ 5,546 $ 13,041 -57.47 % $ 25,510 $ 45,297 -43.68 % Aftertax Net Increase / (Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB109 (1,474 ) (1,504 ) -1.97 % (9,759 ) 10,102 -196.60 % Adjusted Net Income Before Increase / (Decrease) in Unrealized Gain on Mortgage Banking Activities $ 7,020 $ 14,545 -51.73 % $ 35,269 $ 35,195 0.21 % Earnings per Share (EPS) Reconciliation: Reported Net Income $ 0.18 $ 0.43 -58.40 % $ 0.82 $ 1.51 -45.64 % Aftertax Net Increase / (Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB109 (0.05 ) (0.05 ) -4.10 % (0.31 ) 0.34 -193.24 % Adjusted Net Income Before Increase / (Decrease) in Unrealized Gain on Mortgage Banking Activities $ 0.23 $ 0.48 -52.78 % $ 1.13 $ 1.17 -3.28 % Performance Ratios (adjusted for change in unrealized mortgage banking gains): Return on average assets 1.02 % 2.02 % 1.27 % 1.32 % Return on average equity 8.65 % 19.22 % 11.00 % 12.45 % Efficiency ratio 67.08 % 44.80 % 61.58 % 57.17 % Non-interest income to average assets 1.22 % 2.41 % 1.62 % 1.79 % ** Per the accounting guidance set forth by SEC Staff Accounting Bulleting (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 (formally 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 5. Cardinal Financial Corporation and Subsidiaries Average Statements of Condition and Yields on Earning Assets and Interest-Bearing Liabilities For the Three Months and Years Ended December 31, 2013 and 2012 (Dollars in thousands) (Unaudited) For the Three Months Ended For the Twelve Months Ended December 31, 2013 December 31, 2012 December 31, 2013 December 31, 2012 Average Average Average Average Average Average Average Average Balance Yield Balance Yield Balance Yield Balance Yield Interest-earning assets: Loans receivable, net of fees (1) Commercial and industrial $ 218,324 4.24 % $ 219,526 4.12 % $ 215,263 4.09 % $ 228,407 4.16 % Real estate - commercial 1,000,286 4.52 % 768,493 5.27 % 911,493 4.71 % 750,979 5.40 % Real estate - construction 343,793 5.17 % 374,103 5.20 % 349,913 5.24 % 341,365 5.29 % Real estate - residential 286,403 4.22 % 251,303 4.68 % 251,980 4.37 % 246,622 4.79 % Home equity lines 110,333 3.65 % 118,764 3.73 % 112,756 3.68 % 119,902 3.71 % Consumer 3,853 5.56 % 4,183 4.75 % 3,333 5.46 % 3,568 5.01 % Total loans 1,962,992 4.57 % 1,736,372 4.92 % 1,844,738 4.67 % 1,690,843 5.00 % Loans held for sale 285,466 4.82 % 626,814 3.72 % 406,673 4.11 % 486,134 3.91 % Investment securities - available-for-sale (1) 337,097 4.03 % 257,320 4.29 % 276,483 4.16 % 266,092 4.35 % Investment securities - held-to-maturity 9,694 1.70 % 11,577 2.35 % 10,407 1.82 % 12,173 2.50 % Other investments 13,728 2.68 % 13,567 2.54 % 13,473 2.47 % 15,123 1.70 % Federal funds sold (1) 35,880 0.25 % 88,705 0.29 % 106,192 0.25 % 72,176 0.25 % Total interest-earning assets 2,644,857 4.45 % 2,734,355 4.42 % 2,657,966 4.33 % 2,542,541 4.56 % Non-interest earning assets: Cash and due from banks 18,159 18,742 17,122 16,273 Premises and equipment, net 19,995 19,279 19,701 18,874 Goodwill and intangibles, net 10,144 10,316 10,199 10,394 Accrued interest and other assets 92,763 122,100 105,657 110,652 Allowance for loan losses (27,565 ) (27,150 ) (27,397 ) (27,101 ) TOTAL ASSETS $ 2,758,353 $ 2,877,642 $ 2,783,248 $ 2,671,633 Interest-bearing liabilities: Interest checking $ 387,340 0.53 % $ 331,008 0.66 % $ 375,193 0.58 % $ 281,807 0.87 % Money markets 301,097 0.25 % 376,575 0.31 % 294,466 0.27 % 305,058 0.34 % Statement savings 214,209 0.27 % 215,239 0.26 % 213,677 0.27 % 217,797 0.30 % Certificates of deposit 741,677 1.18 % 903,887 1.11 % 825,070 1.14 % 888,661 1.20 % Total interest-bearing deposits 1,644,323 0.74 % 1,826,709 0.77 % 1,708,406 0.76 % 1,693,323 0.88 % Other borrowed funds 304,069 2.87 % 317,910 2.83 % 293,927 2.98 % 318,240 2.89 % Total interest-bearing liabilities 1,948,392 1.07 % 2,144,619 1.08 % 2,002,333 1.09 % 2,011,563 1.20 % Noninterest-bearing liabilities: Noninterest-bearing deposits 444,791 372,969 414,192 333,496 Other liabilities 40,583 57,348 46,171 43,831 Shareholders' equity 324,587 302,706 320,552 282,743 TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 2,758,353 $ 2,877,642 $ 2,783,248 $ 2,671,633 NET INTEREST MARGIN (1) 3.65 % 3.57 % 3.52 % 3.61 % (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 33% for 2013 and 35% for 2012. Table 6. Cardinal Financial Corporation and Subsidiaries Segment Reporting (Dollars in thousands) (Unaudited) Commercial Mortgage Wealth Intersegment Banking Banking Management Other Elimination Consolidated At and for the Three Months Ended December 31, 2013 : Net interest income $ 23,153 $ 809 $ - $ (162 ) $ - $ 23,800 Non-interest income 1,237 4,760 194 (27 ) (13 ) 6,151 Non-interest expense 12,537 7,963 108 1,031 (13 ) 21,626 Net income (loss) before provision and taxes 11,853 (2,394 ) 86 (1,220 ) - 8,325 Provision for loan losses 400 - - - - 400 Provision for income taxes 3,671 (793 ) 30 (529 ) - 2,379 Net income (loss) $ 7,782 $ (1,601 ) $ 56 $ (691 ) $ - $ 5,546 Average Assets $ 2,756,264 $ 297,443 $ 2,237 $ 325,669 $ (623,260 ) $ 2,758,353 At and for the Three Months Ended December 31, 2012 : Net interest income $ 23,920 $ 453 $ - $ (207 ) $ - $ 24,166 Non-interest income 3,395 10,901 707 4 (30 ) 14,977 Non-interest expense 11,223 5,705 676 1,005 (30 ) 18,579 Net income (loss) before provision and taxes 16,092 5,649 31 (1,208 ) - 20,564 Provision for loan losses 1,500 - - - - 1,500 Provision for income taxes 4,441 1,996 9 (423 ) - 6,023 Net income (loss) $ 10,151 $ 3,653 $ 22 $ (785 ) $ - $ 13,041 Average Assets $ 2,869,185 $ 640,869 $ 526 $ 289,528 $ (922,466 ) $ 2,877,642 Commercial Mortgage Wealth Intersegment Banking Banking Management Other Elimination Consolidated At and for the Twelve Months Ended December 31, 2013 : Net interest income $ 90,563 $ 2,474 $ - $ (692 ) $ - $ 92,345 Non-interest income 3,767 24,760 1,337 85 (38 ) 29,911 Non-interest expense 43,832 35,185 1,580 4,044 (38 ) 84,603 Net income (loss) before provision and taxes 50,498 (7,951 ) (243 ) (4,651 ) - 37,653 Provision for loan losses (117 ) 85 - - - (32 ) Provision for income taxes 16,734 (2,821 ) (81 ) (1,657 ) - 12,175 Net income (loss) $ 33,881 $ (5,215 ) $ (162 ) $ (2,994 ) $ - $ 25,510 Average Assets $ 2,774,462 $ 419,933 $ 2,321 $ 327,549 $ (741,017 ) $ 2,783,248 At and for the Twelve Months Ended December 31, 2012 : Net interest income $ 89,472 $ 2,365 $ - $ (834 ) $ - $ 91,003 Non-interest income 5,868 54,794 2,623 176 (69 ) 63,392 Non-interest expense 43,495 29,529 2,656 3,706 (69 ) 79,317 Net income (loss) before provision and taxes 51,845 27,630 (33 ) (4,364 ) - 75,078 Provision for loan losses 6,865 258 - - - 7,123 Provision for income taxes 14,436 9,764 (14 ) (1,528 ) - 22,658 Net income (loss) $ 30,544 $ 17,608 $ (19 ) $ (2,836 ) $ - $ 45,297 Average Assets $ 2,671,673 $ 492,137 $ 550 $ 285,440 $ (778,167 ) $ 2,671,633 Cardinal Financial Corporation Bernard H. Clineburg Chairman, Chief Executive Officer or Mark A. Wendel , EVP, Chief Financial Officer 703-584-3400 Source: Cardinal Financial Corporation


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