8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  July 15, 2015

CARDINAL FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Virginia
(State or other jurisdiction
of incorporation) 0-24557
(Commission
File Number) 54-1874630
(I.R.S. Employer
Identification No.)

8270 Greensboro Drive, Suite 500
McLean, Virginia
(Address of principal executive offices) 22102
(Zip Code)

Registrant’s telephone number, including area code:  (703) 584-3400

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02Results of Operations and Financial Condition.

On July 15, 2015, Cardinal Financial Corporation (“Cardinal”) issued a press release reporting its financial results for the period ended June 30, 2015.  A copy of the press release is being furnished as an exhibit to this report and is incorporated by reference into this Item 2.02.

Item 8.01Other Events.

On July 15, 2015, Cardinal’s Board of Directors declared a cash dividend of $0.11 for each share of its common stock outstanding. The dividend is payable on August 14, 2015 to shareholders of record on July 30, 2015. Based on the current number of shares outstanding, the aggregate payment will be approximately $3,543,000.

Item 9.01Financial Statements and Exhibits.

(d)Exhibits.

Exhibit No.	Description
99.1	Press Release dated July 15, 2015.

2

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		CARDINAL FINANCIAL CORPORATION
	(Registrant)
Date: July 16, 2015	By:	/s/ Mark A. Wendel
		Mark A. Wendel
		Executive Vice President and Chief Financial Officer

3

Exhibit Index

Exhibit No.	Description
99.1	Press Release dated July 15, 2015.

4

EX-99.1

Exhibit 99.1

NEWS RELEASE

FOR IMMEDIATE RELEASE	Contact:	Bernard H. Clineburg,
Tysons Corner, Virginia		Chairman, Chief Executive Officer
July 15, 2015		or
		Mark A. Wendel,
		EVP, Chief Financial Officer
		703-584-3400

CARDINAL ANNOUNCES SECOND QUARTER 2015 EARNINGS

Company Experiences Record Loan Growth, Credit Quality Remains Pristine

Cardinal Financial Corporation (NASDAQ: CFNL) (the “Company”) today reported that second quarter of 2015 earnings increased 59% from a year ago, to $13.4 million, or $0.40 per diluted share, compared to $8.4 million, or $0.26 per diluted share, for the quarterly period ended June 30, 2014.  For the six month year to date period, earnings increased 113%, and was $27.1 million, or $0.82 per diluted share, compared to $12.7 million, or $0.39 per diluted share, for the six month year to date period of 2014.

Certain non-operating items impacted the financial results for the periods reported above. During the current quarter, Cardinal recorded one-time non interest income of approximately $2.95 million related to a settlement of litigation and approximately $500,000 of related legal expenses.  During previous quarters, results included expenses related to the Company’s January 2014 acquisition of United Financial Banking Companies, Inc. (UFBC).  Before the impact associated with the litigation settlement and the acquisition expenses related to UFBC (see Table 4), adjusted net income was $11.8 million for the current quarter, a 17% increase over $10.1 million reported for the same quarterly period ended June 30, 2014.  For the current year to date period, adjusted net income was $25.8 million, a 56% increase over $16.5 million reported for the same period a year ago.

Selected Highlights

·Loans held for investment grew a record $170 million during the quarter, or 26% annualized.   Asset quality remains excellent.  At June 30, 2015, nonperforming assets decreased to $904,000, or 0.02% of total assets.  Year to date, the Company had net recoveries of 0.03% of average loans outstanding.

·Operating net income (a non-GAAP measure) increased 50% to $11.2 million, or $0.34 per share, for the current quarter versus $7.5 million, or $0.23 per share, for the year ago quarter.  For the year to date period ended June 30, 2015, operating net income increased 80% to $20.9 million, or $0.64 per share, versus $11.6 million, or $0.36 per share, for the same period a year ago.  Management believes operating net income more accurately reflects the performance of the Company.  See Table 4 for a comparison of operating versus GAAP net income.

·Net income for the commercial banking segment was $18.6 million for the current year to date period, versus $13.2 million for the same period a year ago.  Before merger and acquisition (M&A) expenses, net income for these same respective periods was $18.9 million versus $16.6 million, an increase of 14%.

·The Company’s mortgage banking subsidiary, George Mason Mortgage, continued its solid performance.  For the current quarter, it reported net income of $2.4 million and delivered operating net income of $1.8 million.

·All capital ratios exceed the requirements of banking regulators to be considered well-capitalized.  Tangible common equity capital (TCE) as a percentage of total assets was 9.43% at June 30, 2015.

Review of Balance Sheet

At June 30, 2015, total assets of the Company were $3.77 billion, an increase of 15% from total assets of $3.28 billion at June 30, 2014. Loans held for investment grew to $2.80 billion versus $2.39 billion a year ago, a 17% increase.   Loans held for sale increased to $456 million at June 30, 2015 compared to $360 million at June 30, 2014.  Deposit balances increased $500 million to $2.94 billion from $2.44 billion for these same periods, respectively, an increase of 21%.   Non-interest bearing demand deposit accounts, which represented 21% of total deposits, increased $28 million to $611 million over the past twelve months. Customer deposits and customer repurchase accounts were $2.53 billion, an increase of 12.9% since June 30, 2014.

Net Interest Income

The Company’s net interest income increased 7%, to $28.9 million from $26.9 million, for the three month periods ended June 30, 2015 and 2014, respectively.  Average interest earning assets increased to $3.45 billion from $3.01 billion a year ago, and average interest bearing liabilities increased to $2.58 billion from $2.22 billion.  The Company’s tax equivalent net interest margin was 3.40% for the current quarter and 3.63% for the same quarter of last year.  The yield on interest earning assets declined from 4.32% for the year ago quarter to 4.07% for the current quarter as new loan originations and security purchases are being recorded at lower rates than maturing assets, a result of competition and the historically low rate environment that has existed for the past several years. For these same respective periods, the cost of interest bearing liabilities has declined from 0.96% to 0.90%. The Company initiated several deposit strategies to attract new banking relationships and new money during the first six months of the year.   Such activities have added over 1,000 consumer and business relationships and over $160 million in deposits.

Commercial Banking Review

For the current quarter ended June 30, 2015, net income for the commercial banking segment was $9.7 million, an increase of 27% from $7.7 million for the year ago quarter. Before acquisition expenses, operating net income was $9.7 million for the current quarter, versus $9.2 million for the year ago quarter, an increase of 6%. For the current year to date period, net income was $18.6 million, versus $13.2 million for the same period a year ago.  Before M&A expenses, net income for these same respective periods was $18.9 million versus $16.6 million, an increase of 14% (see Table 6).

The provision for loan losses was $1.4 million for the current quarter versus $615,000 for the year ago quarter. The increase is due to record quarterly growth in the loans held for investment portfolio.  The allowance for loan losses was 1.08% of loans outstanding at June 30, 2015 versus 1.24% at June 30, 2014.  This ratio decrease from a year ago is primarily the result of improving credit quality.  The Company’s nonperforming assets were 0.02% of total assets at June 30, 2015 compared to 0.19% a year ago.  For the year to date period, there were recoveries from previously charged off loans in excess of current charge offs of 0.03% of average loans outstanding.

Non-interest income was $1.3 million for the current quarter compared to $936,000 for the year ago quarter.  Loan fees were $491,000 for the current quarter versus $399,000 for the same period of 2014.  Securities gains totaled $356,000 for the current quarter versus $174,000 for the same year ago period.

Non-interest expense was $13.7 million for the current quarter versus $15.2 million for the prior year quarter.  Before M&A expenses of $2.3 million, non-interest expenses for the prior year quarter were $12.9 million.  The increase in non-interest expense from a year ago, excluding M&A, is primarily a result of the Company electing to change its parent company expense allocation associated with managing the bank, which resulted in a bank expense increase of over $640,000.

Mortgage Banking Review

For the current quarter ended June 30, 2015, the mortgage banking segment reported a net profit of $2.4 million, and it delivered operating net income of $1.8 million.  Operating net income (a non-GAAP measure) excludes the impact of the Staff Accounting Bulletin (“SAB”) 109 accounting requirement to record unrealized gains on forward commitments to sell its locked mortgage loan pipeline.  Comparable quarterly results are shown below.

Mortgage Banking: (in 000’s)	Q2 2015			Q2 2014			YTD 2015			YTD 2014
Reported Net Income	$	2,412		$	2,139		$	8,386		$	1,971
Reverse Impact of SAB 109	(629		)	(2,586		)	(4,942		)	(4,939		)
Operating Net Income	$	1,783		$	(447	)	$	3,444		$	(2,968	)

The accompanying Table 7 provides additional recent quarterly information regarding the impact of SAB 109.

During the second quarter of 2015, closed loans were $1.09 billion and loans sold to investors totaled $923 million, versus $842 million and $744 million, respectively, for the same quarter of 2014.  Net realized gain on sales and other fees, before the impact of SAB 109, were $10.1 million for the current quarter versus $6.2 million for the same period a year ago.  The 63% improvement is the result of the higher production levels and a gain on sale margin increase to 2.53% from 2.30% a year ago.  In late June, George Mason began a program to sell approximately 25% of its loan originations on a pooled mandatory delivery basis in order to increase profitability.  Traditionally, all loans have been sold individually on a best efforts basis. If successful, more of its production will be incorporated into this new program in the future.

Loan applications totaled $1.4 billion during the second quarter of 2015, down slightly from $1.6 billion for quarter ended March 31, 2015.  Purchase money applications were $1.08 billion, which represented 77% of total application volume in the current quarter versus 49% in the previous quarter.  The second quarter of each year is typically the most active for home buyers in George Mason’s markets, and purchase money activity usually slows from these levels during the third and fourth quarter.

Operating expenses increased $254,000 in the current quarter when compared to the year ago quarter.   The change was due to increases in employees’ overtime and higher incentive accruals resulting from higher levels of production.

Capital Ratios

The Company remains in excess of all regulatory standards to be considered a well capitalized bank.

MANAGEMENT COMMENTS

Bernard H. Clineburg, Chairman and Chief Executive Officer of the Company, said:

“I am extremely pleased with how our Company performed during the second quarter of 2015. On an operating basis, our commercial banking segment’s year to date net income improved 14%.  Our business development efforts and commitment to the local markets continued to drive new relationships. Record loan growth of $170 million attests to the quality of our commercial team and their persistence in achieving goals. Our already pristine credit metrics continued to improve further, and our banking offices successfully executed upon our deposit campaigns to increase our core customer balances by almost 13%.

“The mortgage banking division had another strong quarter as home buying activity replaced refinancing volume. Although costs increased slightly due to production levels, we remained focused on increasing operating efficiencies and continuing to build on our already outstanding purchase money market share.  As always, we stand ready to react to seasonal changes in volumes.

“Looking forward, we will continue to concentrate on gaining profitable market share, either through de novo expansion or acquisition, which will increase our franchise value.  We remain committed to maintaining and growing 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 some of the risks and uncertainties associated with forward-looking statements, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 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 $3.77 billion at June 30, 2015, serves the Washington Metropolitan region through its wholly-owned subsidiary, Cardinal Bank. Cardinal also operates several other subsidiaries: George Mason Mortgage, LLC, a residential mortgage lending company based in Fairfax, Virginia and Cardinal Wealth Services, Inc., a wealth management services company. The Company’s stock is traded on NASDAQ (CFNL). For additional information please visit our Web site at www.cardinalbank.com or call (703) 584-3400.

Table 1.

Cardinal Financial Corporation and Subsidiaries

Summary Statements of Condition

(Dollars in thousands)

										% Change
	June 30, 2015			December 31, 2014			June 30, 2014			Current Year		Year Over Year
	(Unaudited)						(Unaudited)
Cash and due from banks	$	24,186		$	20,298		$	32,457		19.2	%	-25.5	%
Federal funds sold	14,597			17,891			21,175			-18.4	%	-31.1	%
Investment securities available-for-sale	332,551			339,131			337,482			-1.9	%	-1.5	%
Investment securities held-to-maturity	3,879			4,024			5,933			-3.6	%	-34.6	%
Investment securities — trading	5,271			5,067			4,577			4.0	%	15.2	%
Total investment securities	341,701			348,222			347,992			-1.9	%	-1.8	%
Other investments	15,049			15,941			17,144			-5.6	%	-12.2	%
Loans held for sale	455,557			315,323			360,107			44.5	%	26.5	%
Loans receivable, net of fees:
Commercial and industrial	342,079			354,693			295,101			-3.6	%	15.9	%
Real estate - commercial	1,299,450			1,254,270			1,186,702			3.6	%	9.5	%
Real estate - construction	571,561			432,171			414,825			32.3	%	37.8	%
Real estate - residential	432,956			403,744			373,582			7.2	%	15.9	%
Home equity lines	144,896			131,156			117,112			10.5	%	23.7	%
Consumer	4,822			5,080			4,945			-5.1	%	-2.5	%
Loans receivable, net of fees	2,795,764			2,581,114			2,392,267			8.3	%	16.9	%
Allowance for loan losses	(30,198		)	(28,275		)	(29,566		)	6.8	%	2.1	%
Loans receivable, net	2,765,566			2,552,839			2,362,701			8.3	%	17.1	%
Premises and equipment, net	24,600			25,253			26,048			-2.6	%	-5.6	%
Goodwill and intangibles, net	36,927			37,312			37,197			-1.0	%	-0.7	%
Bank-owned life insurance	32,759			32,546			32,307			0.7	%	1.4	%
Other assets	54,332			33,509			40,544			62.1	%	34.0	%
TOTAL ASSETS	$	3,765,274		$	3,399,134		$	3,277,672		10.8	%	14.9	%
Non-interest bearing deposits	$	611,004		$	572,071		$	583,138		6.8	%	4.8	%
Interest checking	440,319			422,291			444,056			4.3	%	-0.8	%
Money markets	388,842			372,591			324,693			4.4	%	19.8	%
Statement savings	278,873			254,722			252,334			9.5	%	10.5	%
Certificates of deposit	711,226			603,237			530,886			17.9	%	34.0	%
Brokered certificates of deposit	505,133			310,418			300,309			62.7	%	68.2	%
Total deposits	2,935,397			2,535,330			2,435,416			15.8	%	20.5	%
Other borrowed funds	378,756			437,995			432,127			-13.5	%	-12.4	%
Mortgage funding checks	17,247			19,469			16,704			-11.4	%	3.3	%
Escrow liabilities	3,160			2,035			2,060			55.3	%	53.4	%
Other liabilities	33,919			26,984			30,134			25.7	%	12.6	%
Shareholders’ equity	396,795			377,321			361,231			5.2	%	9.8	%
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY	$	3,765,274		$	3,399,134		$	3,277,672		10.8	%	14.9	%

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 Six Months Ended
	June 30								June 30
	2015			2014			% Change		2015			2014			% Change
Net interest income	$	28,850		$	26,913		7.2	%	$	56,289		$	52,579		7.1	%
Provision for loan losses	(1,356		)	(615		)	120.5	%	(1,486		)	(2,541		)	-41.5	%
Net interest income after provision for loan losses	27,494			26,298			4.5	%	54,803			50,038			9.5	%
Non-interest income:
Service charges on deposit accounts	576			536			7.5	%	1,121			1,071			4.7	%
Loan fees	491			399			23.1	%	945			610			54.9	%
Income from bank owned life insurance	95			126			-24.6	%	213			244			-12.7	%
Net realized gains on investment securities	356			174			104.6	%	558			326			71.2	%
Litigation settlement	2,950			—			100.0	%	2,950			—			100.0	%
Other non-interest income	6			6			0.0	%	11			31			-64.5	%
Commercial banking & other non-interest income	4,474			1,241			260.5	%	5,798			2,282			154.1	%
Management fee income	—			—			0.0	%	—			21			-100.0	%
Gains from mortgage banking activities	24,290			21,098			15.1	%	52,839			36,916			43.1	%
Less: mortgage loan origination expenses	(13,178		)	(10,859		)	21.4	%	(25,561		)	(19,295		)	32.5	%
Mortgage banking non-interest income	11,112			10,239			8.5	%	27,278			17,642			54.6	%
Wealth management non-interest income	143			204			-29.9	%	258			426			-39.4	%
Total non-interest income	15,729			11,684			34.6	%	33,334			20,350			63.8	%
Net interest income and non-interest income	43,223			37,982			13.8	%	88,137			70,388			25.2	%
Salaries and benefits	11,963			11,471			4.3	%	24,044			22,860			5.2	%
Occupancy	2,347			2,544			-7.7	%	4,831			5,174			-6.6	%
Depreciation	845			905			-6.6	%	1,721			1,817			-5.3	%
Data processing & communications	1,459			1,688			-13.6	%	2,963			3,303			-10.3	%
Professional fees	1,137			876			29.8	%	2,726			1,693			61.0	%
FDIC insurance assessment	516			345			49.6	%	1,032			728			41.8	%
Mortgage loan repurchases and settlements	—			83			-100.0	%	—			83			-100.0	%
Merger and acquisition expense	3			2,404			-99.9	%	471			5,669			-91.7	%
Other operating expense	4,608			4,881			-5.6	%	9,234			9,657			-4.4	%
Total non-interest expense	22,878			25,197			-9.2	%	47,022			50,984			-7.8	%
Income before income taxes	20,345			12,785			59.1	%	41,115			19,404			111.9	%
Provision for income taxes	6,966			4,352			60.1	%	14,005			6,681			109.6	%
NET INCOME	$	13,379		$	8,433		58.7	%	$	27,110		$	12,723		113.1	%
Earnings per common share - basic	$	0.41		$	0.26		57.2	%	$	0.83		$	0.39		110.4	%
Earnings per common share - diluted	$	0.40		$	0.26		57.0	%	$	0.82		$	0.39		110.4	%
Weighted-average common shares outstanding - basic	32,723,903			32,422,673			0.9	%	32,681,800			32,275,747			1.3	%
Weighted-average common shares outstanding - diluted	33,207,329			32,866,666			1.0	%	33,132,076			32,709,500			1.3	%

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 June 30						For the Six Months Ended June 30
	2015			2014			2015			2014
Performance Ratios:
Return on average assets	1.48		%	1.07		%	1.55		%	0.82		%
Return on average equity	13.36		%	9.32		%	13.74		%	6.94		%
Net interest margin (1)	3.40		%	3.63		%	3.42		%	3.62		%
Efficiency ratio (2)	51.32		%	65.28		%	52.47		%	69.91		%
Non-interest income to average assets	1.74		%	1.48		%	1.91		%	1.31		%
Non-interest expense to average assets	2.53		%	3.19		%	2.69		%	3.28		%
Mortgage Banking Select Data:
$ of loan applications - George Mason Mortgage	$	1,403,000		$	1,120,000		$	2,998,000		$	2,081,000
$ of loan applications - Managed Mortgage Company Affiliates	—			—			—			1,400
Total	1,403,000			1,120,000			2,998,000			2,082,400
Refi % of loan applications - George Mason Mortgage	23		%	17		%	34		%	18		%
Refi % of loans applications- Managed Mortgage Company Affiliates	0		%	0		%	0		%	15		%
Total	23		%	17		%	34		%	18		%
$ of loans closed - George Mason Mortgage	$	1,086,264		$	842,089		$	1,929,998		$	1,393,532
$ of loans closed - Managed Mortgage Company Affiliates	—			—			—			13,034
Total	1,086,264			842,089			1,929,998			1,406,566
# of loans closed - George Mason Mortgage	3,234			2,549			5,688			4,238
# of loans closed - Managed Mortgage Company Affiliates	—			—			—			30
Total	3,234			2,549			5,688			4,268
$ of loans sold - George Mason Mortgage	$	923,406		$	743,871		$	1,771,966		$	1,305,827
$ of loans sold - Managed Mortgage Company Affiliates	—			—			—			71,504
Total	923,406			743,871			1,771,966			1,377,331
$ of locked commitments - George Mason Mortgage	$	1,000,012		$	845,938		$	2,098,692		$	1,513,716
$ locked commitments at period end - George Mason Mortgage							$	363,613		$	331,092
$ of loans held for sale at period end - George Mason Mortgage							$	427,351		$	322,466
Realized gain on sales and fees as a % of loan sold (3)	2.52		%	2.30		%	2.55		%	2.24		%
Net realized gains as a % of realized gains (Gain on sale margin) (4)	43.48		%	36.45		%	43.42		%	34.05		%
Asset Quality Data:
Net charge-offs (recoveries) to average loans receivable, net of fees							-0.03		%	0.07		%
Total nonaccrual loans							$	904		$	6,259
Real estate owned							$	—		$	—
Nonperforming loans to loans receivable, net of fees							0.03		%	0.26		%
Nonperforming loans to total assets							0.02		%	0.19		%
Nonperforming assets to total assets							0.02		%	0.19		%
Total loans receivable past due 30 to 89 days							$	120		$	688
Total loans receivable past due 90 days or more							$	—		$	—
Allowance for loan losses to loans receivable, net of fees							1.08		%	1.24		%
Allowance for loan losses to nonperforming loans							3340.49		%	472.38		%
Capital Ratios:
Common equity tier 1 capital							9.76		%	N/A
Tier 1 risk-based capital							10.45		%	11.13		%
Total risk-based capital							11.30		%	12.13		%
Leverage capital ratio							10.60		%	10.74		%
Book value per common share							$	12.32		$	11.30
Tangible book value per common share (5)							$	11.17		$	10.13
Common shares outstanding							32,209			31,976

(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 2015 and 2014.

(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

(Dollars in thousands, except share and per share data)

(Unaudited)

Mortgage Revenue Recognition Impact of SAB 109 (Written Loan Commitments Recorded at Fair Value Through Earnings)

	For the Three Months Ended						For the Six Months Ended
	June 30						June 30
	2015		2014		% Change		2015		2014		% Change
Net Gains from Mortgage Banking Activities:
As Reported
Fair value of LCs / unrealized gains recognized @ LC date **(see note below)	$	24,290	$	21,098	15.13	%	$	52,839	$	36,916	43.13	%
Loan origination expenses recognized @ loan sale date	13,178		10,859		21.36	%	25,561		19,295		32.47	%
Reported Net Gains from Mortgage Banking Activities	11,112		10,239		8.53	%	27,278		17,621		54.80	%
As Adjusted
Realized gains recognized @ loan sale date	23,315		17,088		36.44	%	45,177		29,258		54.41	%
Loan origination expenses recognized @ loan sale date	13,178		10,859		21.36	%	25,561		19,295		32.47	%
Adjusted Net Gains from Mortgage Banking Activities	10,137		6,229		62.74	%	19,616		9,963		96.89	%
Impact of SAB 109 on Net Gains from Mortgage Banking Activities:
Increase/(Decrease) in Unrealized Gains on Mortgage Banking Activities Related to SAB 109	$	975	$	4,010	-75.69	%	$	7,662	$	7,658	0.05	%

Net Income Reconciliation for the  Impact of Merger and Acquisition Expenses and SAB 109

	For the Three Months Ended								For the Six Months Ended
	June 30								June 30
	2015			2014			% Change		2015			2014			% Change
Net Income Reconciliation:
Reported net income	$	13,379		$	8,433		58.65	%	27,110			$	12,723		113.08	%
Aftertax litigation settlement (less associated legal expenses)	(1,592		)	—			100.00	%	(1,592		)	—			100.00	%
Aftertax merger and acquisition expense	2			1,617			-99.88	%	313			3,814			-91.80	%
Adjusted net income	11,789			10,050			17.30	%	$	25,831		$	16,537		56.20	%
Aftertax net increase / (decrease) in unrealized gains on mortgage banking activities related to SAB 109	629			2,586			-75.69	%	4,942			4,939			0.05	%
Operating Net Income	$	11,160		$	7,464		49.53	%	$	20,889		$	11,598		80.11	%
Earnings per Share (EPS) Reconciliation:
Reported net income	$	0.40		$	0.26		57.02	%	$	0.82		$	0.39		110.36	%
Aftertax litigation settlement (less associated legal expenses)	(0.04		)	—			100.00	%	(0.04		)	—			100.00	%
Aftertax merger and acquisition expense	0.00			0.05			-99.88	%	0.01			0.12			-91.90	%
Adjusted net income	0.36			0.31			16.10	%	0.79			0.51			56.19	%
Aftertax net increase / (decrease) in unrealized gains on mortgage banking activities related to SAB 109	0.02			0.08			-75.94	%	0.15			0.15			-1.22	%
Operating Net Income	$	0.34		$	0.23		47.99	%	$	0.64		$	0.36		75.68	%
Operating Performance Ratios:
Return on average assets	1.23		%	0.95		%			1.19		%	0.75		%
Return on average equity	11.15		%	8.25		%			10.59		%	6.33		%
Efficiency ratio	52.47		%	72.85		%			57.37		%	78.11		%
Non-interest income to average assets	1.63		%	0.97		%			1.47		%	0.82		%

**

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

Three and Six Months Ended June 30, 2015 and 2014

(Dollars in thousands)

(Unaudited)

	For the Three Months Ended										For the Six Months Ended
	June 30, 2015					June 30, 2014					June 30, 2015					June 30, 2014
	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	$	353,925		3.48	%	$	294,628		4.04	%	$	351,944		3.56	%	$	277,236		4.32	%
Real estate - commercial	1,269,520			4.42	%	1,175,020			4.35	%	1,264,283			4.48	%	1,167,100			4.33	%
Real estate - construction	515,073			4.75	%	416,671			5.10	%	480,684			4.73	%	406,989			4.98	%
Real estate - residential	396,447			3.77	%	320,339			4.00	%	393,773			3.78	%	312,486			4.06	%
Home equity lines	139,748			3.16	%	115,719			3.83	%	136,759			3.24	%	115,222			3.71	%
Consumer	5,128			5.94	%	4,926			6.18	%	4,969			5.76	%	5,691			5.70	%
Total loans	2,679,841			4.20	%	2,327,303			4.42	%	2,632,412			4.23	%	2,284,724			4.43	%
Loans held for sale	412,083			3.77	%	313,376			4.21	%	336,722			3.78	%	265,998			4.34	%
Investment securities - available-for-sale (1)	315,813			3.72	%	329,167			3.98	%	315,673			3.80	%	335,611			3.98	%
Investment securities - held-to-maturity	3,894			1.87	%	6,176			2.33	%	3,957			1.98	%	7,235			2.07	%
Other investments	13,876			3.98	%	14,176			4.07	%	13,564			4.38	%	14,845			3.78	%
Federal funds sold (1)	26,305			0.19	%	17,617			0.21	%	39,093			0.21	%	38,338			0.21	%
Total interest-earning assets	3,451,812			4.07	%	3,007,815			4.32	%	3,341,421			4.10	%	2,946,751			4.31	%
Non-interest earning assets:
Cash and due from banks	21,845					20,768					21,043					28,258
Premises and equipment, net	25,013					26,629					25,110					25,744
Goodwill and intangibles, net	37,039					37,318					37,136					35,084
Accrued interest and other assets	108,404					95,457					103,236					104,746
Allowance for loan losses	(29,432		)			(29,446		)			(29,132		)			(29,743		)
TOTAL ASSETS	$	3,614,681				$	3,158,541				$	3,498,814				$	3,110,840
Interest-bearing liabilities:
Interest checking	$	428,937		0.49	%	$	433,175		0.51	%	$	426,624		0.49	%	$	426,766		0.51	%
Money markets	378,268			0.33	%	325,786			0.31	%	372,906			0.32	%	319,257			0.31	%
Statement savings	272,319			0.34	%	254,254			0.28	%	268,152			0.32	%	250,929			0.28	%
Certificates of deposit	1,109,391			1.03	%	829,903			0.98	%	1,042,517			1.03	%	805,876			0.97	%
Total interest-bearing deposits	2,188,915			0.72	%	1,843,118			0.66	%	2,110,199			0.71	%	1,802,828			0.65	%
Other borrowed funds	386,872			1.94	%	373,306			2.41	%	368,702			2.10	%	374,534			2.36	%
Total interest-bearing liabilities	2,575,787			0.90	%	2,216,424			0.96	%	2,478,901			0.91	%	2,177,362			0.95	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits	596,892					549,605					588,025					534,395
Other liabilities	41,572					30,440					37,273					32,473
Shareholders’ equity	400,430					362,072					394,615					366,610
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY	$	3,614,681				$	3,158,541				$	3,498,814				$	3,110,840
NET INTEREST MARGIN (1)				3.40	%				3.63	%				3.42	%				3.62	%

(1) The average yields for loans receivable and investment securities available-for-sale are reported on a fully taxable-equivalent basis at a rate 33% for 2015 and 2014.

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 June 30, 2015:
Net interest income	$	28,389		$	642		$	—	$	(181	)	$	—		$	28,850
Non-interest income	1,329			11,150			119		3,131			—			15,729
Non-interest expense	13,736			7,990			114		1,038			—			22,878
Net income (loss) before provision and taxes	15,982			3,802			5		1,912			—			21,701
Provision for loan losses	1,356			—			—		—			—			1,356
Provision for income taxes	4,905			1,390			2		669			—			6,966
Reported net income (loss)	$	9,721		$	2,412		$	3	$	1,243		$	—		$	13,379
Add: merger & acquisition (M&A) expense reported above	3			—			—		—			—			3
Add: legal expense associated with litigation settlement	—			—			—		500			—			500
Less: litigation settlement	—			—			—		(2,950		)	—			(2,950		)
Less: increase/(decrease) in unrealized gains on mortgage banking activities (SAB 109)	—			(975		)	—		—			—			(975		)
Less: provision for income taxes associated with M&A expense, litigation settlement & SAB 109	(1		)	346			—		858			—			1,203
Operating net income (loss)	$	9,723		$	1,783		$	3	$	(349	)	$	—		$	11,160
Average Assets	$	3,549,647		$	428,458		$	2,415	$	415,288		$	(781,127	)	$	3,614,681
At and for the Three Months Ended June 30, 2014:
Net interest income	$	26,346		$	745		$	—	$	(178	)	$	—		$	26,913
Non-interest income	936			10,366			204		178			—			11,684
Non-interest expense	15,200			7,736			101		2,160			—			25,197
Net income (loss) before provision and taxes	12,082			3,375			103		(2,160		)	—			13,400
Provision for loan losses	615			—			—		—			—			615
Provision for income taxes	3,803			1,236			36		(723		)	—			4,352
Reported net income (loss)	$	7,664		$	2,139		$	67	$	(1,437	)	$	—		$	8,433
Add: merger & acquisition expense reported above	2,289			—			—		115			—			2,404
Less: increase/(decrease) in unrealized gains on mortgage banking activities (SAB 109)	—			(4,010		)	—		—			—			(4,010		)
Less: provision for income taxes associated with merger & acquisition expense & SAB 109	(749		)	1,424			—		(38		)	—			637
Operating net income (loss)	$	9,204		$	(447	)	$	67	$	(1,360	)	$	—		$	7,464
Average Assets	$	3,110,069		$	323,518		$	2,318	$	389,266		$	(666,630	)	$	3,158,541

	Commercial			Mortgage			Wealth					Intersegment
	Banking			Banking			Management		Other			Elimination			Consolidated
At and for the Six Months Ended June 30, 2015:
Net interest income	$	55,495		$	1,153		$	—	$	(359	)	$	—		$	56,289
Non-interest income	2,608			27,366			224		3,136			—			33,334
Non-interest expense	28,884			15,309			218		2,611			—			47,022
Net income (loss) before provision and taxes	29,219			13,210			6		166			—			42,601
Provision for loan losses	1,486			—			—		—			—			1,486
Provision for income taxes	9,121			4,824			2		58			—			14,005
Reported net income (loss)	$	18,612		$	8,386		$	4	$	108		$	—		$	27,110
Add: merger & acquisition (M&A) expense reported above	471			—			—		—			—			471
Add: legal expense associated with litigation settlement	—			—			—		500			—			500
Less: litigation settlement	—			—			—		(2,950		)	—			(2,950		)
Less: increase/(decrease) in unrealized gains on mortgage banking activities (SAB 109)	—			(7,662		)	—		—			—			(7,662		)
Less: provision for income taxes associated with M&A expense, litigation settlement & SAB 109	(158		)	2,720			—		858			—			3,420
Operating net income (loss)	$	18,925		$	3,444		$	4	$	(1,484	)	$	—		$	20,889
Average Assets	$	3,436,687		$	348,331		$	2,412	$	416,411		$	(705,027	)	$	3,498,814
At and for the Six Months Ended June 30, 2014:
Net interest income	$	51,539		$	1,382		$	—	$	(342	)	$	—		$	52,579
Non-interest income	1,865			17,758			371		356			—			20,350
Non-interest expense	30,987			16,030			213		3,754			—			50,984
Net income (loss) before provision and taxes	22,417			3,110			158		(3,740		)	—			21,945
Provision for loan losses	2,541			—			—		—			—			2,541
Provision for income taxes	6,698			1,139			55		(1,211		)	—			6,681
Reported net income (loss)	$	13,178		$	1,971		$	103	$	(2,529	)	$	—		$	12,723
Add: merger & acquisition expense reported above	5,114			—			—		555			—			5,669
Less: increase/(decrease) in unrealized gains on mortgage banking activities (SAB 109)	—			(7,658		)	—		—			—			(7,658		)
Less: provision for income taxes associated with merger & acquisition expense & SAB 109	(1,675		)	2,719			—		(180		)	—			864
Operating net income (loss)	$	16,617		$	(2,968	)	$	103	$	(2,154	)	$	—		$	11,598
Average Assets	$	3,047,522		$	227,228		$	2,309	$	384,564		$	(550,783	)	$	3,110,840

Table 7.

Cardinal Financial Corporation and Subsidiaries

Mortgage Banking Segment Supplemental Information

Summary of Activity and Impact of SAB 109 on Net Income

(Dollars in thousands)

(Unaudited)

	6/30/15		3/31/15		12/31/14			09/30/14			06/30/14
For the Three Months Ended:
Applications	$	1,403,000	$	1,595,000	$	922,000		$	973,000		$	1,120,000
Loans closed	1,086,264		843,734		778,586			826,786			842,089
Loans sold	923,406		848,559		768,971			889,549			743,871
At Period End:
Locked pipeline	$	363,613	$	449,865	$	194,919		$	265,443		$	331,092
Loans held for sale	427,351		264,494		269,319			259,703			322,466
SAB 109 total unrealized gains recognized	20,485		19,510		12,823			13,734			17,094
Change in unrealized gains	975		6,687		(910		)	(3,360		)	4,010
Change in aftertax income	629		4,313		(587		)	(2,167		)	2,586
REPORTED NET INCOME	$	2,412	$	5,974	$	762		$	(76	)	$	2,139
OPERATING NET INCOME	1,783		1,661		1,349			2,091			(447		)