Carolina Financial Corporation Reports Results for Fourth Quarter of 2018

CHARLESTON, S.C., Jan. 24, 2019 (GLOBE NEWSWIRE) -- Carolina Financial Corporation (the “Company”) (NASDAQ: CARO) today announced financial results for the fourth quarter of 2018.

Financial highlights at and for the three months ended December 31, 2018, include:

• Net income for Q4 2018 increased 144.0% to $15.4 million, or $0.68 per diluted share, from $6.3 million, or $0.33 per diluted share for Q4 2017.
• Operating earnings for Q4 2018, which exclude certain non-operating income and expenses, increased 52.1% to $16.9 million, or $0.75 per diluted share, from $11.1 million, or $0.57 per diluted share, for Q4 2017.
• Operating earnings for Q4 2018 have been adjusted to eliminate the following significant items:
  • The fair value loss on interest rate swaps of $2.2 million due to the 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 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 $4.1 million at the end of Q4 2018 compared to Q3 2018.
  • The gain on sale of securities of $346,000.
•  Performance ratios Q4 2018 compared to Q4 2017:
  • Return on average assets was 1.67% compared to 0.83%.
  • Operating return on average assets was 1.83% compared to 1.46%.
  • Return on average tangible equity was 14.53% compared to 8.78%.
  • Operating return on average tangible equity was 15.92% compared to 15.44%.
• Loans receivable, gross grew $66.9 million from September 30, 2018, or at an annualized rate of 10.9% and grew $204.8 million, or at a rate of 8.8%, since December 31, 2017.
• Total deposits decreased $41.4 million from September 30, 2018 and increased $113.3 million since December 31, 2017.
• On December 3, 2018, the Company announced that the Board of Directors had approved a plan to repurchase up to $25,000,000 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 fourth quarter, the Company repurchased approximately 176,000 shares at an average price of $30.64. Subsequent to December 31, 2018 through January 22, 2019, the Company repurchased an additional 87,000 shares at an average price of $31.42.

“We continue to see the impact of solid organic growth and prior acquisitions on earnings. Overall, results for the fourth quarter of 2018 continued to improve with an increase of 144.0% in net income to $15.4 million compared to the fourth quarter of 2017,” stated Jerry Rexroad, the Company’s Chief Executive Officer.

CresCom Bank Expansion to Charlotte, NC Market

On January 21, 2019, the Company announced its planned expansion into the Charlotte, North Carolina market and the hiring of Robin Lyle as Charlotte market leader. The expansion brings the Company’s footprint to the center of the state as a natural expansion to the existing footprint across Eastern North Carolina. CresCom Bank finalized the acquisition of Washington, North Carolina-based First South Bank in November 2017, which added 30 locations to its branch network.

Financial Results

Carolina Financial Corporation

• The Company reported an increase in net income for Q4 2018 to $15.4 million, or $0.68 per diluted share, as compared to $6.3 million, or $0.33 per diluted share, for Q4 2017. Included in net income for Q4 2018 was a one-time recovery of interest income of approximately $0.9 million related to a payoff of a purchased credit impaired loan, as well as a fair value loss on interest rate swaps of $2.2 million due to the impact of falling long-term interest rates on the valuation of longer-duration derivatives that do not meet hedge accounting requirements. Interest rate swaps that are not designated as hedges are primarily used 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 $4.1 million at the end of Q4 2018 compared to Q3 2018. Q4 2018 also reflects a $346,000 gain on sale of securities.
• Operating earnings for Q4 2018, which excludes certain non-operating income and expenses, increased 52.1% to $16.9 million, or $0.75 per diluted share, from $11.1 million, or $0.57 per diluted share, from Q4 2017.
• The Company recognized approximately $300,000 less incentive compensation expense in Q4 2018 compared to Q3 2018 as a result of not achieving certain performance metrics.
• The Company reported an increase in net income for the year ended December 31, 2018 to $49.7 million, or $2.26 per diluted share, as compared to $28.6 million, or $1.73 per diluted share, for the year ended December 31, 2017. Included in net income for the year ended December 31, 2018 and 2017 were pretax merger-related expenses of $15.2 million and $8.3 million, respectively.
• Operating earnings for the year ended December 31, 2018, which excludes certain non-operating income and expenses, increased 85.9% to $62.8 million, or $2.86 per diluted share, from $33.8 million, or $2.04 per diluted share, from the same period of 2017.
• The Company’s net interest margin-tax equivalent (NIM) increased to 4.23% for Q4 2018 (including the one-time recovery of interest income of approximately $0.9 million, or 11 bps to NIM) compared to 4.19% for Q4 2017. In addition, in Q4 2018, included in interest income was purchased loan accretion of $1.9 million (23 bps to NIM) and early payoff fees of $414,000 (5 bps to NIM). In Q4 2017, included in interest income was purchased loan accretion of $2.2 million (32 bps to NIM) and early payoff fees of $47,000 (1 bp to NIM).
• The Company reported book value per common share of $25.83 and $22.76 as of December 31, 2018 and December 31, 2017, respectively. Tangible book value per common share was $19.36 and $15.71 as of December 31, 2018 and December 31, 2017, respectively.
• At December 31, 2018, the Company’s regulatory capital ratios exceeded the minimum levels currently required. Stockholders’ equity totaled $575.3 million as of December 31, 2018 compared to $475.4 million at December 31, 2017. Tangible equity to tangible assets at December 31, 2018 was 11.83% compared to 9.73% at December 31, 2017.
• On June 11, 2018 Carolina Financial Corporation completed the sale of 1.5 million shares of its common stock. The net proceeds of the offering to the Company, after estimated expenses, were approximately $63.1 million.
• During Q4 2018, the Company repurchased approximately 176,000 shares at an average price of $30.64. Subsequent to December 31, 2018 through January 22, 2019, the Company repurchased an additional 87,000 shares at an average price of $31.42.
• Income tax expense increased $239,000 for Q4 2017 and the year ended December 31, 2017 related to application of Tax Cuts and Jobs Act implementation on deferred tax assets and liabilities.

Community Banking

• Community banking segment net income increased 155.3% to $15.4 million for Q4 2018 compared to $6.1 million for Q4 2017.
• Community banking segment net income increased 84.9% to $49.6 million for the year ended December 31, 2018 compared to $26.8 million for the year ended December 31, 2017.
• Community banking segment operating earnings increased 55.6% to $16.9 million for Q4 2018 compared to $10.9 million for Q4 2017.
• Community banking segment operating earnings increased 95.1% to $62.8 million for the year ended December 31, 2018 compared to $32.2 million for the year ended December 31, 2017.
• Provision for loan loss during Q4 2018 was $750,000. Provision for loan loss during Q4 2017 was $779,000. Asset quality and historical loss experience continue to remain favorable. The provision for loan loss during both 2018 and 2017 was primarily driven by organic loan growth.
• Non-performing assets (NPA) were 0.35% and 0.20% of total assets at December 31, 2018 and December 31, 2017, respectively. While December 2017 reflected historical NPA ratio lows and ratios continue to remain favorable, we have experienced an increase in NPA frequency. Approximately half of the increase relates to five purchased non-credit impaired loans with balances in excess of $500,000.
• Loans receivable, gross increased at a rate of 8.8% to $2.5 billion at December 31, 2018 compared to $2.3 billion at December 31, 2017.
• Total deposits increased $113.3 million since December 31, 2017.
• As a result of the implementation of the Tax Cuts and Jobs Act and the revaluation of deferred tax assets and liabilities, income tax expense was increased $416,000 for Q4 2017 and the year ended December 31, 2017.

Wholesale Mortgage Banking

• Net income for the wholesale mortgage banking segment was $599,000 for Q4 2018 compared to $117,000 for Q4 2017. The increase in Q4 2018 was primarily due to higher mortgage loan servicing income and reduced income taxes, both as further described below.
• Net income was $2.3 million for the year ended December 31, 2018 compared to $2.5 million for the year ended December 31, 2017. The net decrease in the year ended December 31, 2018 was primarily due to a decrease in mortgage banking income, early lease termination costs incurred, a loss on sale of other real estate, and the impact of Hurricane Florence, net of higher mortgage loan servicing income and reduced income taxes, as further described below.
• Net margin was 1.84% for Q4 2018 compared to 1.43% for Q4 2017. Originations for Q4 2018 and 2017 were $168.0 million and $212.6 million, respectively.
• Net margin was 1.74% for the year ended December 31, 2018 compared to 1.59% for the year ended December 31, 2017. Originations for the year ended December 31, 2018 and 2017 were $744.2 million and $824.3 million, respectively.
• During fiscal 2018 (primarily in the third quarter), the wholesale mortgage banking segment purchased approximately $880 million of servicing from third parties in addition to increasing its servicing portfolio through organic growth.
• As a result of the implementation of Tax Cuts and Jobs Act and the revaluation of deferred tax assets and liabilities, income tax expense was increased $331,000 for Q4 2017 and the year ended December 31, 2017.

Dividend Declared

On January 23, 2019 the Company declared a $0.08 dividend per common share, payable on April 5, 2019, to stockholders of record on March 15, 2019. This represents a 14.3% increase in the quarterly dividend. Over the last 4 quarters, the Company has increased its quarterly dividend from $0.04 per share to $0.08 per share, or by 100%, as a result of increased earnings.

Conference Call

A conference call will be held at 10:00 a.m., Eastern Time on January 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 7660616. 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 and 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 7660616.

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 December 31, 2018, Carolina Financial Corporation had approximately $3.8 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 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 recent and future 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
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