Exhibit 99.1
NEWS RELEASE
FOR IMMEDIATE RELEASE | Contact: | Bernard H. Clineburg, |
Tysons Corner, Virginia | | Chairman, Chief Executive Officer |
January 22, 2014 | | or |
| | Mark A. Wendel, |
| | EVP, Chief Financial Officer |
| | 703-584-3400 |
CARDINAL ANNOUNCES FOURTH QUARTER EARNINGS
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 1st 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
December 31 | | For the Years Ended 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
December 31 | | | | For the Years Ended 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
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 | | $ | 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 | |
