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At first glance Cardinal Financial in McLean, Va., blew away earnings expectations, rising 220% in the first quarter from the same time last year.
April 23 -
Worth Carter is reluctant to talk to investors and media. He is tight-fisted with costs and is willing to hold off making loans. His namesake bank doesn't offer online banking. But the institution is riding a hot streak of profitability that would make other banks jealous.
June 12 -
Smaller banks are eager to launch new businesses to increase noninterest income. But a new survey indicates that many are struggling to generate returns from such endeavors.
January 6
Wealth management at Cardinal Financial remains a work in progress a decade after the Tysons Corner, Va., company made its first big push into the business.
The $3.8 billion-asset Cardinal, which has a robust mortgage banking operation, paid $6.5 million in 2005 for Wilson Bennett Capital Management, an investment adviser in Alexandria, Va. A year later, it bought a large pool of trust assets from a unit of FBR & Co.
Since then, management has been trying to find ways to leverage the business, with underwhelming results. For instance, wealth management profits totaled just $4,000 in the second quarter on $224,000 of revenue. Annual profit in that business has never exceeded $162,000.
Cardinal, however, now seems intent on shaking things up.
"Compared to commercial banking or mortgages, it's a very small part of our overall operation, but it's one we're interested in growing," said Christopher Bergstrom, Cardinal's chief risk officer. "We're looking at various ways to do that. Everything is on the table."
Such determination to make meaningful strides could be explained by the abundant affluence in northern Virginia. The median household income in Fairfax County exceeds $110,000, according to the latest data from the U.S. Census Bureau. The median tops $120,000 in neighboring Loudoun County.
Cardinal has significant operations in both counties.
A market like northern Virginia offers ample opportunities for motivated community banks to build successful wealth management operations, said Paul Simoff, a principal at consulting firm Austin Associates in Toledo, Ohio.
"The big players are continuing to go upscale in terms of the size of the relationships they're trying to attract," Simoff said. "Community banks are succeeding in niches that have been abandoned by the large national and international banks. It can be done."
Cardinal isn't the only community bank in the area looking to make a bigger splash.
Access National in Reston, Va., started a wealth management unit in 2011. Michael Clarke, the $1.2 billion-asset company's president and chief executive, said in a June interview that he wanted
Cardinal, for its part, had big aspirations a decade ago with its two deals, neither of which panned out as hoped.
John Fisher, founder and chief executive of Wilson Bennett, left about a year after selling his firm to Cardinal. Though Fisher signed a one-year consulting contract, his eventual departure led to the loss of several significant customer relationships.
According to Bergstrom, 401(k) plan money accounted for a significant portion of the assets, and Cardinal's management quickly discovered that they were spending an increasing amount of time serving as a custodian to those accounts.
Cardinal announced it would reorganize its wealth management business in 2012, exiting the custody business and merging Wilson Bennett into Cardinal Wealth Services.
"Management's time and focus are finite resources," Bergstrom said. "We began thinking we would be better off expending them on areas where we had a competitive advantage."
The move made sense, said Bryce Rowe, an analyst at Robert W. Baird, because it allowed management to focus on more profitable parts of the business.
"There were volatility and a lack of profit," Rowe said. "Management made the strategic decision to smooth out that volatility and still be in a position to serve clients."
Cardinal does not need to rush into expanding wealth management, Rowe said.
"Wealth management is not that material," Rowe added. "Cardinal is executing what it wants to do. … They are still in a position where they don't have to hand their clients off to another firm, so it works well."
It certainly helps that Cardinal has strong mortgage and commercial lending businesses. The company is on track to post its highest annual profit ever. It earned $27 million through June 30, setting it up to top the $43.5 million in made in 2012.
Cardinal's George Mason Mortgage unit ranks among the nation's top mortgage lenders, with $3 billion in originations last year. Asset quality has been superb; nonperforming loans comprised just 0.03% of the company's $2.8 billion loan book loans at June 30.
The first half of 2015 "may have been our best ever," Bergstrom said, though he declined to provide a full-year forecast. "We're very pleased with our momentum and growth."
The success of those businesses provides Cardinal with some breathing room, allowing management to avoid making any rushed decisions.
"We feel like the wealth area is a wonderful opportunity," Bergstrom said. "We operate in an affluent market and customers desire wealth management products. We're interested in growing the business but we don't feel like we have to make it happen next week or next month."
