Carolina Financial Corporation Reports Results for the Third Quarter of 2019

Published

CHARLESTON, S.C., Oct. 24, 2019 (GLOBE NEWSWIRE) -- Carolina Financial Corporation (the “Company”) (NASDAQ: CARO) today announced financial results for the third quarter of 2019.

Financial highlights at and for the three months ended September 30, 2019, include:

• Net income for Q3 2019 increased 9.3% to $16.6 million, or $0.74 per diluted share, from $15.2 million, or $0.66 per diluted share for Q3 2018. • Operating earnings for Q3 2019, which exclude certain non-operating income and expenses, increased 20.8% to $18.6 million, or $0.83 per diluted share, from $15.4 million, or $0.67 per diluted share, for Q3 2018. • Operating earnings for Q3 2019 have been adjusted to eliminate the following significant items:

  • The fair value loss on interest rate swaps of $1.0 million due to the continued impact of falling long-term interest rates during the quarter on the valuation of longer-duration derivatives that do not meet hedge accounting requirements. The balance sheet fair value of securities increased $3.5 million at the end of Q3 2019 compared to Q2 2019.
  • The gain on sale of securities of approximately $756,000.
  • Merger-related expenses of approximately $484,000.
  • The loss on early extinguishment of debt of approximately $70,000.
  • The temporary impairment of our mortgage servicing rights (MSR) of $1.8 million due to increased prepayment speed assumptions in the portfolio driven by the continued impact of falling interest rates.

• Performance ratios for Q3 2019 compared to Q3 2018:

  • Return on average assets was 1.71% compared to 1.66%.
  • Operating return on average assets was 1.91% compared to 1.68%.
  • Return on average tangible equity was 14.08% compared to 14.68%
  • Operating return on average tangible equity was 15.72% compared to 14.85%.

• Loans receivable, gross grew $70.9 million from June 30, 2019, or at an annualized rate of 10.7%, and grew $197.8 million, or at an annualized rate of 10.5% since December 31, 2018. • Total deposits increased $37.1 million from June 30, 2019 and increased $125.0 million since December 31, 2018. • On December 3, 2018, the Company announced that the Board of Directors had approved a plan to repurchase up to $25 million in shares of the Company’s common stock through open market and privately negotiated transactions over the next three years. The Company began stock repurchases on December 4, 2018. During the third quarter of 2019, the Company repurchased approximately 47,000 shares at an average price of $34.23. Cumulatively since December 4, 2018, the Company repurchased approximately 381,000 shares at an average price of $31.94.

Financial Results

Carolina Financial Corporation

• The Company reported net income for Q3 2019 of $16.6 million, or $0.74 per diluted share, as compared to $15.2 million, or $0.66 per diluted share, for Q3 2018.

  • Included in net income for Q3 2019 was a recovery of interest income of approximately $1.2 million related to a payoff of a purchased credit impaired loan. Excluding the recovery, accretion income from acquired loans was $1.7 million for Q3 2019, as compared to $2.2 million for Q3 2018.
  • In August 2019, some of our coastal markets were impacted by storm conditions from Hurricane Dorian. While our businesses experienced impacts due to business interruptions, we did not experience any significant damage from the storm and are not expecting material customer impacts.

• Operating earnings for Q3 2019, which excludes certain non-operating income and expenses, increased 20.8% to $18.6 million, or $0.83 per diluted share, from $15.4 million, or $0.67 per diluted share, for Q3 2018.

  • Included in net income for Q3 2019 was a fair value loss on interest rate swaps of $1.0 million due to the continued impact of falling long-term interest rates on the valuation of longer-duration derivatives that do not meet hedge accounting requirements. The Company uses standalone interest rate swaps to more closely match the interest rate characteristics of assets and liabilities and to mitigate the risks arising from timing mismatches between assets and liabilities including duration mismatches, which includes securities. The balance sheet fair value of securities increased $3.5 million at the end of Q3 2019 compared to Q2 2019. Q3 2019 also reflects a $1.8 million temporary impairment of mortgage servicing rights, a gain on sale of securities of approximately $756,000, an approximate $70,000 loss on early extinguishment of debt and merger-related expenses of approximately $484,000.
  • Included in net income for Q3 2018 was a fair value gain on interest rate swaps of approximately $628,000, and a loss on sale of securities of approximately $849,000.

• The Company reported net income for the nine months ended September 30, 2019 of $46.2 million or $2.07 per diluted share, as compared to $34.2 million, or $1.57 per diluted share, for the nine months ended September 30, 2018.

  • Accretion income from acquired loans was $5.9 million for the nine months ended September 30, 2019 compared to $7.0 million for the nine months ended September 30, 2018. Provision for loan losses during the nine months ended September 30, 2019 and 2018 was $2.0 million and $1.3 million, respectively.

• Operating earnings for the nine months ended September 30, 2019, which exclude certain non-operating income and expenses, increased to $49.5 million, or $2.21 per diluted share compared to $45.9 million, or $2.10 per diluted share, for the same period of 2018.

  • Included in net income for the nine months ended September 30, 2019 was a fair value loss on interest rate swaps of $4.5 million, a temporary impairment of mortgage servicing rights of $3.1 million, a gain on sale of securities of $3.9 million, a loss on early extinguishment of debt of approximately $101,000 and merger-related expenses of approximately $484,000.
  • Included in net income for the nine months ended September 30, 2018 was a fair value gain on interest rate swaps of $1.9 million, a loss on sale of securities of $2.3 million and merger-related expenses of $15.2 million.

• The Company’s net interest margin-tax equivalent (NIM) decreased to 4.13% for Q3 2019 (including recovery of interest income of approximately $1.2 million, or 13 bps to NIM) compared to 4.15% for Q3 2018. In addition, Q3 2019 net interest income included accretion income from acquired loans of $1.7 million (20 bps to NIM) and early payoff fees of approximately $276,000 (3bps to NIM) compared to Q3 2018 accretion income from acquired loans of $2.2 million (27 bps to NIM) and early payoff fees of $620,000 (8 bps to NIM).

  • Excluding accretion income from acquired loans and early payoff fees, Q3 2019 net interest margin was 3.77% compared to 3.80% in Q3 2018.

• The Company reported book value per common share of $28.08 and $25.83 as of September 30, 2019 and December 31, 2018, respectively. Tangible book value per common share was $21.68 and $19.36 as of September 30, 2019 and December 31, 2018, respectively. • At September 30, 2019, the Company’s regulatory capital ratios exceeded the minimum levels currently required. Stockholders’ equity totaled $621.6 million as of September 30, 2019 compared to $575.3 million at December 31, 2018. Tangible equity to tangible assets at September 30, 2019 was 12.50% compared to 11.83% at December 31, 2018. • During Q3 2019, the Company repurchased approximately 47,000 shares at an average price of $34.23.

Banking Segment

• Banking segment net income increased 10.5% to $16.9 million for Q3 2019 compared to $15.3 million for Q3 2018. Included in net income for Q3 2019 was a recovery of interest income of approximately $1.2 million related to a payoff of a purchased credit impaired loan. Including the $1.2 million recovery, Q3 2019 net income included accretion income from acquired loans of $2.9 million for Q3 2019, as compared to $2.2 million for Q3 2018. • Banking segment net income increased 38.8% to $47.5 million for the nine months ended September 30, 2019 compared to $34.2 million for the nine months ended September 30, 2018. Accretion income from acquired loans was $5.9 million for the nine months ended September 30, 2019 compared to $7.0 million for the nine months ended September 30, 2018. Provision for loan losses during the nine months ended September 30, 2019 and 2018 was $2.1 million and $1.3 million, respectively. • Banking segment operating earnings increased 13.2% to $17.5 million for Q3 2019 compared to $15.4 million for Q3 2018. • Banking segment operating earnings increased 5.3% to $48.4 million for the nine months ended September 30, 2019 compared to $45.9 million for the nine months ended September 30, 2018. • Provision for loan losses during Q3 2019 was $720,000. Provision for loan losses during Q3 2018 was $750,000. The provision for loan losses was primarily driven by the organic loan growth. • Non-performing assets were 0.52% and 0.35% of total assets at September 30, 2019 and December 31, 2018, respectively. The increase in the NPA ratio was primarily due to one fully collateralized lending relationship. • Loans receivable, gross increased at an annualized rate of 10.5% to $2.7 billion at September 30, 2019 compared to $2.5 billion at December 31, 2018. • Total deposits increased $125.0 million since December 31, 2018.

Wholesale Mortgage Banking

• Net income for the wholesale mortgage banking segment was $325,000 for Q3 2019 compared to net income of $555,000 for Q3 2018. Net income was $0.6 million for the nine months ended September 30, 2019 compared to $1.7 million for the nine months ended September 30, 2018.

  • Included in net income for the three and nine months ended September 30, 2019 was a temporary impairment of mortgage servicing rights of $1.8 million and $3.1 million, respectively. The Company does not hedge the mortgage servicing rights positions and the impact of falling long-term interest rates increased prepayment speed assumptions driving down the value of the MSR asset. Excluding the impact of the temporary impairment of mortgage servicing rights, operating earnings were $1.7 million for Q3 2019 and $3.0 million for the nine months ended September 30, 2019.
  • Included in net income for the three and nine months ended September 30, 2018 was a loss on sale of other real estate owned of approximately $92,000 and the cost to terminate an equipment lease in the amount of $206,000. Additionally, included in net income for the three and nine months ended September 30, 2018 was the impact of Hurricane Florence on origination activity and closings.

• Net margin was 2.19% for the three months ended September 30, 2019 compared to 1.65% for the three months ended September 30, 2018. Originations for Q3 2019 and Q3 2018 were $232.9 million and $190.1 million, respectively. • Net margin was 2.05% for the nine months ended September 30, 2019 compared to 1.71% for the nine months ended September 30, 2018. Originations for the nine months ended September 30, 2019 and 2018 were $562.4 million and $576.2 million, respectively.

Dividend Declared

On October 23, 2019, the Company declared a $0.10 dividend per common share, payable on January 3, 2020 to stockholders of record on December 13, 2019

Conference Call

A conference call will be held at 11:00 a.m., Eastern Time on October 25, 2019. The conference call can be accessed by dialing (866) 464-9448 or (213) 660-0874 and requesting the Carolina Financial Corporation earnings call. The conference ID number is 6565867. Listeners should dial in 10 minutes prior to the start of the call.  The live webcast and presentation slides will be available on www.haveanicebank.com under Investor Relations.

A replay of the webcast will be available on www.haveanicebank.com under Investor Relations, News & Market Information and Presentations approximately three hours after the call and can be accessed by dialing (855) 859-2056 or (404) 537-3406 and requesting conference number 6565867.

About Carolina Financial Corporation

Carolina Financial Corporation (NASDAQ: CARO) is the holding company of CresCom Bank, which also owns and operates Atlanta-based Crescent Mortgage Company.  As of September 30, 2019, Carolina Financial Corporation had approximately $4.0 billion in total assets and Crescent Mortgage Company was approved to originate loans in 48 states partnering with community banks, credit unions and mortgage brokers.

Addendum to News Release – Use of Certain Non-GAAP Financial Measures and Forward-Looking Statements

This news release contains financial information determined by methods other than in accordance with generally accepted accounting principles (“GAAP”). Such statements should be read along with the accompanying tables, which provide a reconciliation of non-GAAP measures to GAAP measures. This news release and the accompanying tables discuss financial measures, including but not limited to, core deposits, tangible book value, operating earnings and net income related to segments of the Company, which are non-GAAP measures. We believe that such non-GAAP measures are useful because they enhance the ability of investors and management to evaluate and compare the Company’s operating results from period to period in a meaningful manner. Non-GAAP measures should not be considered as an alternative to any measure of performance as promulgated under GAAP. Investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company’s results or financial condition as reported under GAAP.

Please refer to the Non-GAAP reconciliation tables later in this release for additional information. 

Forward-Looking Statements

Certain statements in this news release contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to future plans and expectations, and are thus prospective.  Such forward-looking statements include but are not limited to statements with respect to our plans, objectives, expectations and intentions and other statements that are not historical facts, and other statements identified by words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” and “projects,” as well as similar expressions.  Such statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.  Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate.  Therefore, we can give no assurance that the results contemplated in the forward-looking statements will be realized.  The inclusion of this forward-looking information should not be construed as a representation by the Company or any person that the future events, plans, or expectations contemplated by the Company will occur or be achieved.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: (1) competitive pressures among depository and other financial institutions may increase significantly and have an effect on pricing, spending, third-party relationships and revenues; (2) the strength of the United States economy in general and the strength of the local economies in which we conduct operations may be different than expected resulting in, among other things, a deterioration in the credit quality or a reduced demand for credit, including the resultant effect on the Company’s loan portfolio and allowance for loan losses; (3) the rate of delinquencies and amounts of charge-offs, the level of allowance for loan loss, the rates of loan growth, or adverse changes in asset quality in our loan portfolio, which may result in increased credit risk-related losses and expenses; (4) the risk that the preliminary financial information reported herein and our current preliminary analysis will be different when our review is finalized; (5) changes in the U.S. legal and regulatory framework including, but not limited to, the Dodd-Frank Act and regulations adopted thereunder; (6) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) could have a negative impact on the Company; (7) the business related to acquisitions may not be integrated successfully or such integration may take longer to accomplish than expected; (8) the expected cost savings and any revenue synergies from acquisitions may not be fully realized within expected timeframes; (9) disruption from acquisitions may make it more difficult to maintain relationships with clients, associates, or suppliers; and (10) the impact of hurricanes and other natural disasters on our loan portfolio and the economic prospects of our coastal markets.  Additional factors that could cause our results to differ materially from those described in the forward-looking statements can be found in our reports (such as our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K) filed with the SEC and available at the SEC’s Internet site (http://www.sec.gov).  All subsequent written and oral forward-looking statements concerning the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above. We do not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.

 

 
CAROLINA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
           
  September 30, 2019     December 31, 2018  
  (Unaudited)     (Audited)  
     
  (In thousands)  
ASSETS              
Cash and due from banks $ 25,519       28,857  
Interest-bearing cash   51,358       33,276  
Cash and cash equivalents   76,877       62,133  
Securities available-for-sale   796,097       842,801  
Federal Home Loan Bank stock, at cost   21,707       21,696  
Other investments   3,520       3,450  
Derivative assets   2,303       4,032  
Loans held for sale   36,882       16,972  
Loans receivable   2,722,181       2,524,336  
Allowance for loan losses   (16,125 )     (14,463 )
Loans receivable, net   2,706,056       2,509,873  
               
Premises and equipment, net   59,841       60,866  
Right of use operating lease asset   17,551        
Accrued interest receivable   13,029       13,494  
Real estate acquired through foreclosure, net   1,832       1,534  
Deferred tax assets, net   1,174       5,786  
Mortgage servicing rights   26,528       32,933  
Cash value life insurance   59,699       58,728  
Core deposit intangible   14,257       16,462  
Goodwill   127,592       127,592  
Other assets   14,943       12,396  
Total assets $ 3,979,888       3,790,748  
               
LIABILITIES AND STOCKHOLDERS’ EQUITY              
Liabilities:              
Noninterest-bearing deposits $ 611,959       547,022  
Interest-bearing deposits   2,231,255       2,171,171  
Total deposits   2,843,214       2,718,193  
Short-term borrowed funds   417,000       405,500  
Long-term debt   42,570       59,436  
Right of use operating lease liability   17,905        
Derivative liabilities   4,952       1,232  
Drafts outstanding   6,518       8,129  
Advances from borrowers for insurance and taxes   6,923       4,100  
Accrued interest payable   2,009       1,591  
Reserve for mortgage repurchase losses   992       1,292  
Dividends payable to stockholders   2,003       1,576  
Accrued expenses and other liabilities   14,207       14,414  
Total liabilities   3,358,293       3,215,463  
Stockholders’ equity:              
Preferred stock          
Common stock   222       224  
Additional paid-in capital   403,700       408,224  
Retained earnings   207,535       167,173  
Accumulated other comprehensive income (loss), net of tax   10,138       (336 )
Total stockholders’ equity   621,595       575,285  
Total liabilities and stockholders’ equity $ 3,979,888       3,790,748  

 
CAROLINA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
                       
  For the Three Months     For the Nine Months  
  Ended September 30,     Ended September 30,  
  2019     2018     2019     2018  
     
  (In thousands, except share data)  
Interest income                              
Loans $ 38,604       33,623       110,152       98,037  
Investment securities   6,745       6,912       21,209       18,979  
Dividends from Federal Home Loan Bank stock   331       313       923       751  
Other interest income   134       137       446       371  
Total interest income   45,814       40,985       132,730       118,138  
Interest expense                              
Deposits   7,125       5,029       20,224       12,919  
Short-term borrowed funds   1,931       1,529       6,676       4,488  
Long-term debt   575       544       1,893       1,813  
Total interest expense   9,631       7,102       28,793       19,220  
Net interest income   36,183       33,883       103,937       98,918  
Provision for loan losses   620       750       2,000       1,309  
Net interest income after provision for loan losses   35,563       33,133       101,937       97,609  
Noninterest income                              
Mortgage banking income   6,063       3,685       13,799       11,701  
Deposit service charges   1,742       2,084       5,088       6,096  
Net loss on extinguishment of debt   (70 )           (101 )      
Net gain (loss) on sale of securities   756       (849 )     3,891       (2,292 )
Fair value adjustments on interest rate swaps   (996 )     628       (4,531 )     1,883  
Net increase in cash value life insurance   400       378       1,196       1,153  
Mortgage loan servicing income   2,490       2,313       7,694       6,428  
Debit card income, net   1,148       1,086       3,339       3,562  
Other   1,183       975       3,444       2,846  
Total noninterest income   12,716       10,300       33,819       31,377  
Noninterest expense                              
Salaries and employee benefits   13,634       13,451       40,264       40,660  
Occupancy and equipment   4,286       4,113       12,523       11,860  
Marketing and public relations   432       312       1,306       1,011  
FDIC insurance         285       502       805  
Recovery of mortgage loan repurchase losses   (100 )     (150 )     (300 )     (450 )
Legal expense   159       94       372       327  
Other real estate expense (income), net   36       (13 )     330       (2 )
Mortgage subservicing expense   702       640       2,176       1,772  
Amortization of mortgage servicing rights   1,572       1,099       4,151       2,967  
Impairment of mortgage servicing rights   1,800             3,100        
Amortization of core deposit intangible   720       778       2,204       2,375  
Merger-related expenses   484             484       15,216  
Other   3,182       3,393       9,421       9,431  
Total noninterest expense   26,907       24,002       76,533       85,972  
Income before income taxes   21,372       19,431       59,223       43,014  
Income tax expense   4,744       4,227       12,976       8,788  
Net income $ 16,628       15,204       46,247       34,226  
                               
Earnings per common share:                              
Basic $ 0.75       0.67       2.09       1.58  
Diluted $ 0.74       0.66       2.07       1.57  
Dividends declared per common share $ 0.09       0.07       0.26       0.18  
Weighted average common shares outstanding:                              
Basic   22,149,567       22,678,681       22,177,483       21,616,485  
Diluted   22,336,383       22,898,983       22,365,193       21,842,769  

 
CAROLINA FINANCIAL CORPORATION
(Unaudited)
                             
  At or for the Three Months Ended  
Selected Financial Data: September 30, 2019     June 30, 2019     March 31, 2019     December 31, 2018     September 30, 2018  
     
  (Dollars in thousands)  
Selected Average Balances:                                      
Total assets $ 3,891,019       3,878,269       3,826,116       3,700,795       3,663,915  
Investment securities and FHLB stock   815,207       832,224       833,720       838,834       831,793  
Loans receivable, net   2,639,921       2,610,394       2,535,192       2,428,603       2,402,075  
Loans held for sale   29,733       21,905       13,754       20,120       23,692  
Deposits   2,837,353       2,782,576       2,751,913       2,760,156       2,735,346  
Stockholders’ equity   614,550       598,196       580,300       569,528       559,401  
                                       
Performance Ratios (annualized):                                      
Return on average stockholders’ equity   10.82 %     10.08 %     10.03 %     10.85 %     10.87 %
Return on average tangible equity (Non-GAAP)   14.08 %     13.24 %     13.32 %     14.53 %     14.68 %
Return on average assets   1.71 %     1.55 %     1.52 %     1.67 %     1.66 %
Operating return on average stockholders’ equity (Non-GAAP)   12.08 %     10.87 %     10.11 %     11.88 %     10.99 %
Operating return on average tangible equity (Non-GAAP)   15.72 %     14.28 %     13.44 %     15.92 %     14.85 %
Operating return on average assets (Non-GAAP)   1.91 %     1.68 %     1.53 %     1.83 %     1.68 %
Average earning assets to average total assets   90.13 %     89.83 %     89.72 %     89.64 %     89.59 %
Average loans receivable to average deposits   93.04 %     93.81 %     92.12 %     87.99 %     87.82 %
Average stockholders’ equity to average assets   15.79     15.42 %     15.17 %     15.39 %     15.27 %
Net interest margin-tax equivalent (1)   4.13 %     3.99 %     4.00 %     4.23 %     4.15 %
Net charge-offs (recoveries) to average loans receivable   0.05 %     (0.03 )%     0.02 %     (0.02 )%     0.02 %
Nonperforming assets to period end loans receivable   0.77 %     0.54 %     0.50 %     0.53 %     0.49 %
Nonperforming assets to total assets   0.52 %     0.37 %     0.34 %     0.35 %     0.32 %
Nonperforming loans to total loans   0.70 %     0.50 %     0.45 %     0.47 %     0.43 %
Allowance for loan losses as a percentage of gross loans receivable (end of period) (2)   0.59 %     0.60 %     0.58 %     0.57 %     0.55 %
Allowance for loan losses as a percentage of gross non-acquired loans receivable (Non-GAAP)   0.74 %     0.77 %     0.77 %     0.79 %     0.80 %
Allowance for loan losses as a percentage of nonperforming loans (2)   84.73 %     120.51 %     129.74 %     123.13 %     129.26 %
                                       
Nonperforming Assets, excluding purchased credit impaired:                                      
Loans 90 days or more past due and still accruing $                   20       32  
Nonaccrual loans   19,032       13,167       11,578       11,721       10,501  
Total nonperforming loans   19,032       13,167       11,578       11,741       10,533  
Real estate acquired through foreclosure, net   1,832       1,218       1,335       1,534       1,601  
Total nonperforming assets $ 20,864       14,385       12,913       13,275       12,134  

                             (1) Net interest margin-tax equivalent reflects tax-exempt income on a tax-equivalent basis.(2) Acquired loans represent 20.2%, 22.7%, 24.9%, 27.2%, and 30.5%, of gross loans receivable at September 30, 2019,  June 30, 2019, March 31, 2019, December 31, 2018, and September 30, 2018, respectively.   

 
Carolina Financial Corporation
Segment Information
(Unaudited)
(Dollars in thousands)
                                   
  For the Three Months     For the Nine Months     Increase (Decrease)  
  Ended September 30,     Ended September 30,     Three     Nine  
  2019     2018     2019     2018     Months     Months  
Segment net income:                                              
Community banking $ 16,864       15,263       47,450       34,175       1,601       13,275  
Wholesale mortgage banking   325       555       623       1,716       (230 )     (1,093 )
Other   (582 )     (606 )     (1,876 )     (1,672 )     24       (204 )
Eliminations   21       (8 )     50       7       29       43  
Total net income $ 16,628       15,204       46,247       34,226       1,424       12,021  

                             
  For the Three Months Ended  
  September 30, 2019     June 30, 2019     March 31, 2019     December 31, 2018     September 30, 2018  
Segment net income:                                      
Community banking $ 16,864       15,804       14,781       15,449       15,263  
Wholesale mortgage banking   325       (92 )     390       599       555  
Other   (582 )     (657 )     (636 )     (594 )     (606 )
Eliminations   21       19       10       (10 )     (8 )
Total net income $ 16,628       15,074       14,545       15,444       15,204  

                             
  For the Three Months Ended September 30, 2019  
  Community     Mortgage                    
  Banking     Banking     Other     Eliminations     Total  
Interest income $ 45,478       438       14       (116 )     45,814  
Interest expense   9,103       142       530       (144 )     9,631  
Net interest income (expense)   36,375       296       (516 )     28       36,183  
Provision for loan losses   720       (100 )                 620  
Noninterest income from external customers   5,306       7,389       21             12,716  
Intersegment noninterest income   242                   (242 )      
Noninterest expense   19,487       7,107       313             26,907  
Intersegment noninterest expense         240       2       (242 )      
Income (loss) before income taxes   21,716       438       (810 )     28       21,372  
Income tax expense (benefit)   4,852       113       (228 )     7       4,744  
Net income (loss) $ 16,864       325       (582 )     21       16,628  

                             
  For the Three Months Ended September 30, 2018  
  Community     Mortgage                    
  Banking     Banking     Other     Eliminations     Total  
Interest income $ 40,588       472       14       (89 )     40,985  
Interest expense   6,582       113       520       (113 )     7,102  
Net interest income (expense)   34,006       359       (506 )     24       33,883  
Provision for loan losses   750                         750  
Noninterest income from external customers   5,060       5,240                   10,300  
Intersegment noninterest income   242       36             (278 )      
Noninterest expense   19,041       4,674       287             24,002  
Intersegment noninterest expense         242             (242 )      
Income (loss) before income taxes   19,517       719       (793 )     (12 )     19,431  
Income tax expense (benefit)   4,254       164       (187 )     (4 )     4,227  
Net income (loss) $ 15,263       555       (606 )     (8 )     15,204  

 
Carolina Financial Corporation
Segment Information, Continued
(Unaudited)
(Dollars in thousands)
                             
  For the Nine Months Ended September 30, 2019  
  Community     Mortgage                    
  Banking     Banking     Other     Eliminations     Total  
Interest income $ 131,735       1,296       45       (346 )     132,730  
Interest expense   27,162       422       1,638       (429 )     28,793  
Net interest income (expense)   104,573       874       (1,593 )     83       103,937  
Provision for loan losses   2,120       (120 )                 2,000  
Noninterest income from external customers   15,162       18,606       51             33,819  
Intersegment noninterest income   724       18             (742 )      
Noninterest expense   57,498       18,079       956             76,533  
Intersegment noninterest expense         720       4       (724 )      
Income (loss) before income taxes   60,841       819       (2,502 )     65       59,223  
Income tax expense (benefit)   13,391       196       (626 )     15       12,976  
Net income (loss) $ 47,450       623       (1,876 )     50       46,247  

                             
  For the Nine Months Ended September 30, 2018  
  Community     Mortgage                    
  Banking     Banking     Other     Eliminations     Total  
Interest income $ 116,905       1,361       41       (169 )     118,138  
Interest expense   17,732       244       1,488       (244 )     19,220  
Net interest income (expense)   99,173       1,117       (1,447 )     75       98,918  
Provision for loan losses   1,284       25                   1,309  
Noninterest income from external customers   15,690       15,599       88             31,377  
Intersegment noninterest income   724       64             (788 )      
Noninterest expense   71,318       13,809       845             85,972  
Intersegment noninterest expense         725             (725 )      
Income (loss) before income taxes   42,985       2,221       (2,204 )     12       43,014  
Income tax expense (benefit)   8,810       505       (532 )     5       8,788  
Net income (loss) $ 34,175       1,716       (1,672 )     7       34,226  

                                   
  Loan Originations     Mortgage Banking Income     Margin  
     
  For the Three Months Ended September 30,  
  2019     2018     2019     2018     2019     2018  
     
Additional segment information:    
Community banking $ 33,233       27,563       968       541       2.91 %     1.96 %
Wholesale mortgage banking   232,874       190,142       5,095       3,144       2.19 %     1.65 %
Total $ 266,107       217,705       6,063       3,685       2.28     1.69 %

                                   
  Loan Originations     Mortgage Banking Income     Margin  
     
  For the Nine Months Ended September 30,  
  2019     2018     2019     2018     2019     2018  
     
Additional segment information:    
Community banking $ 82,979       91,786       2,292       1,843       2.76 %     2.01 %
Wholesale mortgage banking   562,371       576,205       11,507       9,858       2.05 %     1.71 %
Total $ 645,350       667,991       13,799       11,701       2.14     1.75 %

 
Carolina Financial Corporation
Reconciliation of Non-GAAP Financial Measures - Consolidated
(Unaudited)
(In thousands, except share data)
 
  At the Month Ended  
  September 30,     June 30,     March 31,     December 31,     September 30,  
  2019     2019     2019     2018     2018  
Core deposits:                                      
Noninterest-bearing demand accounts $ 611,959       616,823       575,990       547,022       567,394  
Interest-bearing demand accounts   587,963       561,094       581,424       566,527       579,522  
Savings accounts   180,827       184,764       188,725       192,322       190,946  
Money market accounts   428,867       437,716       458,575       431,246       453,957  
Total core deposits (Non-GAAP)   1,809,616       1,800,397       1,804,714       1,737,117       1,791,819  
                                       
Certificates of deposit:                                      
Less than $250,000   948,218       921,309       923,709       875,749       863,290  
$250,000 or more   85,380       84,403       88,647       105,327       104,514  
Total certificates of deposit   1,033,598       1,005,712       1,012,356       981,076       967,804  
Total deposits $ 2,843,214       2,806,109       2,817,070       2,718,193       2,759,623  
                                       
Tangible book value per share:                                      
Total stockholders’ equity $ 621,595       605,579       589,150       575,285       564,027  
Less intangible assets   (141,849 )     (142,570 )     (143,305 )     (144,054 )     (144,817 )
Tangible common equity (Non-GAAP) $ 479,746       463,009       445,845       431,231       419,210  
                                       
Issued and outstanding shares   22,249,424       22,284,981       22,296,372       22,387,009       22,570,445  
Less nonvested restricted stock awards   (115,933 )     (109,728 )     (111,578 )     (117,966 )     (135,045 )
Period end dilutive shares   22,133,491       22,175,253       22,184,794       22,269,043       22,435,400  
                                       
Total stockholders’ equity $ 621,595       605,579       589,150       575,285       564,027  
Divided by period end dilutive shares   22,133,491       22,175,253       22,184,794       22,269,043       22,435,400  
Common book value per share $ 28.08       27.31       26.56       25.83       25.14  
                                       
Tangible common equity (Non-GAAP) $ 479,746       463,009       445,845       431,231       419,210  
Divided by period end dilutive shares   22,133,491       22,175,253       22,184,794       22,269,043       22,435,400  
Tangible common book value per share (Non-GAAP) $ 21.68       20.88       20.10       19.36       18.69  

                             
Carolina Financial Corporation
Reconciliation of Non-GAAP Financial Measures - Consolidated
(Unaudited)
(In thousands, except share data)
 
  At the Month Ended  
  September 30,     June 30,     March 31,     December 31,     September 30,  
  2019     2019     2019     2018     2018  
Acquired and non-acquired loans:                                      
Acquired loans receivable $ 548,754       601,193       644,461       686,401       749,442  
Non-acquired gross loans receivable   2,173,427       2,050,043       1,946,149       1,837,935       1,708,022  
Total gross loans receivable $ 2,722,181       2,651,236       2,590,610       2,524,336       2,457,464  
% Acquired   20.16 %     22.68 %     24.88 %     27.19 %     30.50 %
                                       
Non-acquired loans $ 2,173,427       2,050,043       1,946,149       1,837,935       1,708,022  
Allowance for loan losses   16,125       15,867       15,021       14,463       13,615  
Allowance for loan losses to non-acquired loans (Non-GAAP)   0.74     0.77 %     0.77 %     0.79 %     0.80 %
                                       
Total gross loans receivable $ 2,722,181       2,651,236       2,590,610       2,524,336       2,457,464  
Allowance for loan losses   16,125       15,867       15,021       14,463       13,615  
Allowance for loan losses to total gross loans receivable   0.59 %     0.60 %     0.58 %     0.57 %     0.55 %

                                         
  For the Three Months Ended     For the Nine Months Ended  
  September 30, 2019     June 30, 2019     March 31, 2019     December 31, 2018     September 30, 2018     September 30, 2019     September 30, 2018  
Net interest margin - core:                                                      
Net interest margin-tax equivalent (1) $ 36,539       34,661       33,899       35,349       34,298       105,093       100,189  
Purchased loan accretion and early payoff charges and deferred fees   (3,209 )     (1,521 )     (1,617 )     (3,283 )     (2,831 )     (6,347 )     (8,208 )
Net interest margin - core (2) (Non-GAAP) $ 33,330       33,140       32,282       32,066       31,467       98,746       91,981  
                                                       
Loans receivable interest income - core:                                                      
Loans receivable interest income $ 38,291       36,325       34,813       34,969       33,357       109,430       97,311  
Purchased loan accretion and early payoff charges and deferred fees   (3,209 )     (1,521 )     (1,617 )     (3,283 )     (2,831 )     (6,347 )     (8,208 )
Loans receivable interest income - core (2) (Non-GAAP) $ 35,082       34,804       33,196       31,686       30,526       103,083       89,103  

(1) Net interest margin-tax equivalent reflects tax-exempt income on a tax-equivalent basis.(2) Net interest margin-core and yield on loans - core excludes the impact of purchase accounting accretion, loan payoff charges and related deferred fees recognized related to early loan repayments.

 
Carolina Financial Corporation
Reconciliation of Non-GAAP Financial Measures - Consolidated
(Unaudited)
(In thousands, except share data)
 
  For the Three Months Ended     For the Nine Months Ended  
  September 30, 2019     June 30, 2019     March 31, 2019     December 31, 2018     September 30, 2018     September 30, 2019     September 30, 2018  
     
As Reported:    
Income before income taxes $ 21,372       19,356       18,495       19,425       19,431       59,223       43,014  
Tax expense   4,744       4,282       3,950       3,981       4,227       12,976       8,788  
Net Income $ 16,628       15,074       14,545       15,444       15,204       46,247       34,226  
                                                       
Average equity $ 614,550       598,196       580,300       569,528       559,401       597,804       512,268  
Average tangible equity (Non-GAAP)   472,349       455,270       436,630       425,105       414,205       454,877       366,284  
Average assets   3,891,019       3,878,269       3,826,116       3,700,795       3,663,915       3,865,350       3,605,432  
Average loans receivable   2,639,921       2,610,394       2,535,192       2,428,603       2,402,075       2,595,553       2,375,461  
Average interest earning assets   3,507,155       3,483,713       3,432,818       3,322,894       3,282,426       3,474,864       3,229,234  
                                                       
Return on average assets   1.71     1.55 %     1.52 %     1.67 %     1.66 %     1.60     1.27 %
Return on average equity   10.82 %     10.08 %     10.03 %     10.85 %     10.87 %     10.31 %     8.91 %
Return on average tangible equity (Non-GAAP)   14.08 %     13.24 %     13.32 %     14.53 %     14.68 %     13.56 %     12.46 %
Tangible equity to tangible assets (Non-GAAP)   12.50 %     12.36 %     12.05 %     11.83 %     11.72 %     12.50 %     11.72 %
Net interest margin-tax equivalent (1)   4.13 %     3.99 %     4.00 %     4.23 %     4.15 %     4.04 %     4.15 %
Net interest margin-core (2) (Non-GAAP)   3.77 %     3.82 %     3.81 %     3.84 %     3.80 %     3.80 %     3.81 %
Yield on loans receivable-core (2) (Non-GAAP)   5.27 %     5.35 %     5.31 %     5.18 %     5.04 %     5.31 %     5.02 %
                                                       
Weighted average common shares outstanding:                                                      
Basic   22,149,567       22,189,508       22,193,861       22,416,190       22,678,681       22,177,483       21,616,485  
Diluted   22,336,383       22,372,273       22,381,809       22,587,466       22,898,983       22,365,193       21,842,769  
Earnings per common share:                                                      
Basic $ 0.75       0.68       0.66       0.69       0.67       2.09       1.58  
Diluted $ 0.74       0.67       0.65       0.68       0.66       2.07       1.57  
                                                       
Operating Earnings and Performance Ratios:                                                      
Income before income taxes $ 21,372       19,356       18,495       19,425       19,431       59,223       43,014  
(Gain)/loss on sale of securities   (756 )     (1,941 )     (1,194 )     (346 )     849       (3,891 )     2,292  
Fair value adjustments on interest rate swaps   996       2,164       1,371       2,222       (628 )     4,531       (1,883 )
Merger related expenses   484                               484       15,216  
Loss on extinguishment of debt   70       31                         101        
Impairment of mortgage servicing rights   1,800       1,300                         3,100        
Operating earnings before income taxes   23,966       20,910       18,672       21,301       19,652       63,548       58,639  
Tax expense (3)   5,400       4,653       4,001       4,379       4,279       14,047       12,726  
Operating earnings (Non-GAAP) $ 18,566       16,257       14,671       16,922       15,373       49,501       45,913  
                                                       
Average equity $ 614,550       598,196       580,300       569,528       559,401       597,804       512,268  
Less average intangible assets   (142,201 )     (142,926 )     (143,670 )     (144,423 )     (145,196 )     (142,927 )     (145,984 )
Average tangible common equity (Non-GAAP) $ 472,349       455,270       436,630       425,105       414,205       454,877       366,284  
                                                       
Average assets $ 3,891,019       3,878,269       3,826,116       3,700,795       3,663,915       3,865,350       3,605,432  
Less average intangible assets   (142,201 )     (142,926 )     (143,670 )     (144,423 )     (145,196 )     (142,927 )     (145,984 )
Average tangible assets (Non-GAAP) $ 3,748,818       3,735,343       3,682,446       3,556,372       3,518,719       3,722,423       3,459,448  
                                                       
Operating return on average assets (Non-GAAP)   1.91 %     1.68 %     1.53 %     1.83 %     1.68 %     1.71 %     1.70 %
Operating return on average stockholders’ equity (Non-GAAP)   12.08 %     10.87 %     10.11 %     11.88 %     10.99 %     11.04 %     11.95 %
Operating return on average tangible assets (Non- GAAP)   1.98 %     1.74 %     1.59 %     1.90 %     1.75 %     1.77 %     1.77 %
Operating return on average tangible equity (Non- GAAP)   15.72 %     14.28 %     13.44 %     15.92 %     14.85 %     14.51 %     16.71 %
                                                       
Weighted average common shares outstanding:                                                      
Basic   22,149,567       22,189,508       22,193,861       22,416,190       22,678,681       22,177,483       21,616,485  
Diluted   22,336,383       22,372,273       22,381,809       22,587,466       22,898,983       22,365,193       21,842,769  
Operating earnings per common share:                                                      
Basic (Non-GAAP) $ 0.84       0.73       0.66       0.75       0.68       2.23       2.12  
Diluted (Non-GAAP) $ 0.83       0.73       0.66       0.75       0.67       2.21       2.10  

(1) Net interest margin-tax equivalent reflects tax-exempt income on a tax-equivalent basis.(2) Net interest margin-core and yield on loans - core excludes the impact of purchase accounting accretion, loan payoff charges and related deferred fees recognized related to early loan repayments.(3) Tax expense is determined using the effective tax rate adjusted to eliminate the impact of the non-operating items.

 
Carolina Financial Corporation
Reconciliation of Non-GAAP Financial Measures - Community Banking Segment
(Unaudited)
(In thousands, except share data)
                                         
  For the Three Months Ended     For the Nine Months Ended  
  September 30, 2019     June 30, 2019     March 31, 2019     December 31, 2018     September 30, 2018     September 30, 2019     September 30, 2018  
Segment net income:                                                      
Community banking $ 16,864       15,804       14,781       15,449       15,263       47,450       34,175  
Wholesale mortgage banking   325       (92 )     390       599       555       623       1,716  
Other   (582 )     (657 )     (636 )     (594 )     (606 )     (1,876 )     (1,672 )
Eliminations   21       19       10       (10 )     (8 )     50       7  
Total net income $ 16,628       15,074       14,545       15,444       15,204       46,247       34,226  
                                                       
Community banking segment operating earnings:                                                      
Income before income taxes $ 21,716       20,299       18,827       19,424       19,517       60,841       42,985  
Tax expense (1)   4,852       4,495       4,046       3,975       4,254       13,391       8,810  
Bank segment net income $ 16,864       15,804       14,781       15,449       15,263       47,450       34,175  
                                                       
Weighted average common shares outstanding:                                                      
Basic   22,149,567       22,189,508       22,193,861       22,416,190       22,678,681       22,177,483       21,616,485  
Diluted   22,336,383       22,372,273       22,381,809       22,587,466       22,898,983       22,365,193       21,842,769  
                                                       
Bank segment earnings per common share:                                                      
Basic $ 0.76       0.71       0.67       0.69       0.67       2.14       1.58  
Diluted $ 0.76       0.71       0.66       0.68       0.67       2.12       1.56  
                                                       
Bank segment income before taxes $ 21,716       20,299       18,827       19,424       19,517       60,841       42,985  
(Gain) loss on sale of securities   (756 )     (1,941 )     (1,194 )     (346 )     849       (3,891 )     2,287  
Fair value adjustments on interest rate swaps   996       2,164       1,371       2,222       (628 )     4,531       (1,835 )
Loss on extinguishment of debt   70       31                         101        
Merger related expenses   484                               484       15,216  
Operating earnings before income taxes   22,510       20,553       19,004       21,300       19,738       62,066       58,653  
Tax expense (1)   5,043       4,566       4,096       4,371       4,306       13,706       12,746  
Operating bank segment earnings (Non-GAAP) $ 17,467       15,987       14,908       16,929       15,432       48,360       45,907  
                                                       
Operating bank segment earnings per common share:                                                      
Basic (Non-GAAP) $ 0.79       0.72       0.67       0.76       0.68       2.18       2.12  
Diluted (Non-GAAP) $ 0.78       0.71       0.67       0.75       0.67       2.16       2.10  

(1)  Tax expense is determined using the effective tax rate adjusted to eliminate the impact of the non-operating items.

For More Information, Contact:

William A. Gehman III, EVP and CFO, 843.723.7700

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Carolina Financial Corporation

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