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CST: 21/10/2019 01:04:41   

Carolina Financial Corporation Reports Results for the Second Quarter of 2019

87 Days ago

CHARLESTON, S.C., July 25, 2019 (GLOBE NEWSWIRE) -- Carolina Financial Corporation (the “Company”) (NASDAQ: CARO) today announced financial results for the second quarter of 2019.

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

•  Net income for Q2 2019 increased 0.7% to $15.1 million, or $0.67 per diluted share, from $15.0 million, or $0.70 per diluted share for Q2 2018.

  • Accretion income from acquired loans for Q2 2019 was $1.5 million compared to $1.9 million for Q2 2018.

•  Operating earnings for Q2 2019, which exclude certain non-operating income and expenses, increased 4.2% to $16.3 million, or $0.73 per diluted share, from $15.6 million, or $0.73 per diluted share, for Q2 2018.

•  Operating earnings for Q2 2019 have been adjusted to eliminate the following significant items:

  • The fair value loss on interest rate swaps of $2.2 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 $6.0 million at the end of Q2 2019 compared to Q1 2019.
  • The gain on sale of securities of $1.9 million.
  • The loss on early extinguishment of debt of approximately $31,000.
  • The temporary impairment of our mortgage servicing rights (MSR) of $1.3 million due to increased prepayment speed assumptions in the portfolio driven by the continued impact of falling interest rates.

•  Performance ratios for Q2 2019 compared to Q2 2018:

  • Return on average assets was 1.55% compared to 1.65%.
  • Operating return on average assets was 1.68% compared to 1.72%.
  • Return on average tangible equity was 13.24% compared to 17.02%.
  • Operating return on average tangible equity was 14.28% compared to 17.74%.

•  Loans receivable, gross grew $60.6 million from March 31, 2019, or at an annualized rate of 9.4%, and grew $126.9 million, or at an annualized rate of 10.0% since December 31, 2018.

•  Total deposits decreased $11.0 million from March 31, 2019 and increased $87.9 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 second quarter of 2019, the Company repurchased approximately 30,000 shares at an average price of $34.33. Cumulatively since December 4, 2018, the Company repurchased approximately 334,000 shares at an average price of $31.62.

Announcement of Agreement to Acquire Carolina Trust BancShares, Inc.

On July 15, 2019, the Company and Carolina Trust BancShares, Inc., the parent company of Carolina Trust Bank (together, “Carolina Trust”), jointly announced the signing of a definitive merger agreement. Carolina Trust currently operates 11 banking locations and a loan production office in and around the Charlotte-Concord-Gastonia, NC-SC metropolitan statistical area. The transaction deepens the Company’s market presence in North Carolina and complements the previously announced expansion into the Charlotte, North Carolina market. Upon completion of the acquisition, the combined company will have over $4.5 billion in assets, $3.1 billion in loans and $3.3 billion in deposits.

“We are very pleased to announce the signing of a merger agreement with Carolina Trust. We view this relationship as strategic to our stated objective to be acquisitive, while maximizing stockholder value. This transaction complements our previously announced expansion into the Charlotte, North Carolina market and provides a strong core deposit franchise. In addition, we continue to see the impact of solid organic growth and prior acquisitions on earnings. Overall, results for the second quarter of 2019 continued to improve,” stated Jerry Rexroad, the Company’s Chief Executive Officer.

Financial Results

Carolina Financial Corporation

•  The Company reported net income for Q2 2019 of $15.1 million, or $0.67 per diluted share, as compared to $15.0 million, or $0.70 per diluted share, for Q2 2018.

  • Included in net income for Q2 2019 and Q2 2018 was accretion income from acquired loans of $1.5 million and $1.9 million, respectively.

•  Operating earnings for Q2 2019, which excludes certain non-operating income and expenses, increased 4.2% to $16.3 million, or $0.73 per diluted share, from $15.6 million, or $0.73 per diluted share, for Q2 2018.

  • Included in net income for Q2 2019 was a fair value loss on interest rate swaps of $2.2 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 $6.0 million at the end of Q2 2019 compared to Q1 2019. Q2 2019 also reflects a temporary $1.3 million impairment of mortgage servicing rights, a $1.9 million gain on sale of securities and an approximate $31,000 loss on early extinguishment of debt.
  • Included in net income for Q2 2018 was a fair value gain on interest rate swaps of $451,000, a loss on sale of securities of $746,000 and merger-related expenses of $506,000.

•  The Company reported net income for the six months ended June 30, 2019 of $29.6 million or $1.32 per diluted share, as compared to $19.0 million, or $0.90 per diluted share, for the six months ended June 30, 2018.

  • Included in net income for the six months ended June 30, 2019 and 2018 was accretion income from acquired loans of $3.0 million and $4.8 million, respectively. Provision for loan losses during the six months ended June 30, 2019 and 2018 was $1.4 million and $0.6 million, respectively.

•  Operating earnings for the six months ended June 30, 2019, which exclude certain non-operating income and expenses, increased to $30.9 million, or $1.38 per diluted share compared to $30.8 million, or $1.46 per diluted share, for the same period of 2018.

  • Included in net income for the six months ended June 30, 2019 was a fair value loss on interest rate swaps of $3.5 million, a temporary impairment of mortgage servicing rights of $1.3 million, a gain on sale of securities of $3.1 million and a loss on early extinguishment of debt of approximately $31,000. Included in operating earnings for the six months ended June 30, 2018 was a fair value gain on interest rate swaps of $1.3 million, a loss on sale of securities of $1.4 million and merger-related expenses of $15.2 million.

•  The Company’s net interest margin-tax equivalent (NIM) decreased to 3.99% for Q2 2019 compared to 4.11% for Q2 2018. Q2 2019 net interest income included accretion income from acquired loans of $1.5 million (17 bps to NIM) and early payoff fees of $46,000 (1bps to NIM) compared to Q2 2018 accretion income from acquired loans of $1.9 million (24 bps to NIM) and early payoff fees of $300,000 (4 bps to NIM).

  • Excluding accretion income from acquired loans and early payoff fees, Q2 2019 net interest margin was 3.82% compared to 3.83% in Q2 2018.

•  The Company reported book value per common share of $27.31 and $25.83 as of June 30, 2019 and December 31, 2018, respectively. Tangible book value per common share was $20.88 and $19.36 as of June 30, 2019 and December 31, 2018, respectively.

•  At June 30, 2019, the Company’s regulatory capital ratios exceeded the minimum levels currently required. Stockholders’ equity totaled $605.6 million as of June 30, 2019 compared to $575.3 million at December 31, 2018. Tangible equity to tangible assets at June 30, 2019 was 12.36% compared to 11.83% at December 31, 2018.

•  During Q2 2019, the Company repurchased approximately 30,000 shares at an average price of $34.33.

Banking Segment

•  Banking segment net income increased 5.9% to $15.8 million for Q2 2019 compared to $14.9 million for Q2 2018. Included in net income for Q2 2019 and Q2 2018 was accretion income from acquired loans of $1.5 million and $1.9 million, respectively.

•  Banking segment net income increased 61.7% to $30.6 million for the six months ended June 30, 2019 compared to $18.9 million for the six months ended June 30, 2018. Included in net income for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 was accretion income from acquired loans of $3.0 million and $4.8 million, respectively. Provision for loan losses during the six months ended June 30, 2019 and 2018 was $1.4 million and $0.6 million, respectively.

•  Banking segment operating earnings increased 2.7% to $16.0 million for Q2 2019 compared to $15.6 million for Q2 2018.

•  Banking segment operating earnings slightly increased to $30.9 million for the six months ended June 30, 2019 compared to $30.8 million for the six months ended June 30, 2018.

•  Provision for loan losses during Q2 2019 was $700,000. Provision for loan losses during Q2 2018 was $534,000. Asset quality and historical loss experience continue to remain favorable. The provision for loan losses was primarily driven by the organic loan growth.

•  Non-performing assets were 0.37% and 0.35% of total assets at June 30, 2019 and December 31, 2018, respectively.

•  Loans receivable, gross increased at an annualized rate of 10.0% to $2.7 billion at June 30, 2019 compared to $2.5 billion at December 31, 2018.

•  Total deposits increased $87.9 million since December 31, 2018.

Wholesale Mortgage Banking

•  Net loss for the wholesale mortgage banking segment was $92,000 for Q2 2019 compared to net income of $598,000 for Q2 2018. Net income was $0.3 million for the six months ended June 30, 2019 compared to $1.2 million for the six months ended June 30, 2018.

  • Included in net income for the three and six months ended June 30, 2019 was a temporary $1.3 million impairment of mortgage servicing rights. 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 $1.3 million temporary impairment of mortgage servicing rights, operating earnings were $0.9 million for Q2 2019 and $1.3 million for the six months ended June 30, 2019.
  • Included in net income for the three and six months ended June 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.

•  Originations for Q2 2019 and Q2 2018 were $189.2 million and $205.6 million, respectively.

•  Net margin was 1.95% for the six months ended June 30, 2019 compared to 1.74% for the six months ended June 30, 2018. Originations for the six months ended June 30, 2019 and 2018 were $329.5 million and $386.1 million, respectively.

CresCom Bank Charlotte Branch Approval Received

The Company received approval to open a full service retail branch in Charlotte, NC. The Company previously announced its expansion into the Charlotte, NC market and the hiring of Robin Lyle as market leader in January 2019. The Company expects to commence full service retail operations at the branch in Q3 2019.

Dividend Declared

On July 24, 2019 the Company declared a $0.09 dividend per common share, payable on October 4, 2019, to stockholders of record on September 13, 2019.

Conference Call

A conference call will be held at 11:00 a.m., Eastern Time on July 26, 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 8789464. 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 8789464.

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 June 30, 2019, Carolina Financial Corporation had approximately $3.9 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
             
        June 30, 2019   December 31, 2018
        (Unaudited)   (Audited)
             
        (Dollars in thousands)
ASSETS        
  Cash and due from banks   $     34,614     28,857  
  Interest-bearing cash       33,804     33,276  
    Cash and cash equivalents       68,418     62,133  
  Securities available-for-sale       791,151     842,801  
  Federal Home Loan Bank stock, at cost       19,900     21,696  
  Other investments       3,501     3,450  
  Derivative assets       2,399     4,032  
  Loans held for sale       28,521     16,972  
  Loans receivable, gross       2,651,236     2,524,336  
  Allowance for loan losses       (15,867 )   (14,463 )
    Loans receivable, net       2,635,369     2,509,873  
             
  Premises and equipment, net       59,829     60,866  
  Right of use operating lease asset       17,516     -  
  Accrued interest receivable       12,920     13,494  
  Real estate acquired through foreclosure, net       1,218     1,534  
  Deferred tax assets, net       1,512     5,786  
  Mortgage servicing rights       29,640     32,933  
  Cash value life insurance       59,294     58,728  
  Core deposit intangible       14,978     16,462  
  Goodwill       127,592     127,592  
  Other assets       14,316     12,396  
    Total assets   $     3,888,074     3,790,748  
             
LIABILITIES AND STOCKHOLDERS' EQUITY        
Liabilities:        
  Noninterest-bearing deposits   $     616,823     547,022  
  Interest-bearing deposits       2,189,286     2,171,171  
    Total deposits       2,806,109     2,718,193  
  Short-term borrowed funds       370,500     405,500  
  Long-term debt       46,525     59,436  
  Right of use operating lease liability       17,807     -  
  Derivative liabilities       3,910     1,232  
  Drafts outstanding       13,908     8,129  
  Advances from borrowers for insurance and taxes       6,515     4,100  
  Accrued interest payable       2,450     1,591  
  Reserve for mortgage repurchase losses       1,092     1,292  
  Dividends payable to stockholders       2,007     1,576  
  Accrued expenses and other liabilities       11,672     14,414  
    Total liabilities       3,282,495     3,215,463  
Stockholders' equity:        
  Preferred stock       -     -  
  Common stock       223     224  
  Additional paid-in capital       404,578     408,224  
  Retained earnings       192,910     167,173  
  Accumulated other comprehensive income (loss), net of tax       7,868     (336 )
    Total stockholders' equity       605,579     575,285  
  Total liabilities and stockholders' equity   $     3,888,074     3,790,748  
             

 

                     
CAROLINA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
                     
        For the Three Months   For the Six Months
        Ended June 30,   Ended June 30,
        2019   2018   2019   2018
                     
        (In thousands, except share data)
Interest income                
  Loans   $     36,571     32,753       71,548     64,416  
  Investment securities       7,108     6,359       14,464     12,066  
  Dividends from Federal Home Loan Bank stock       331     263       593     438  
  Other interest income       125     102       311     234  
    Total interest income       44,135     39,477       86,916     77,154  
Interest expense                
  Deposits       6,796     4,248       13,100     7,891  
  Short-term borrowed funds       2,429     1,705       4,745     2,958  
  Long-term debt       627     619       1,318     1,269  
    Total interest expense       9,852     6,572       19,163     12,118  
Net interest income       34,283     32,905       67,753     65,036  
Provision for loan losses       680     559       1,380     559  
  Net interest income after provision for loan losses       33,603     32,346       66,373     64,477  
Noninterest income                
  Mortgage banking income       4,318     4,215       7,736     8,017  
  Deposit service charges       1,678     1,988       3,346     4,012  
  Net loss on extinguishment of debt       (31 )   -       (31 )   -  
  Net gain (loss) on sale of securities       1,941     (746 )     3,135     (1,443 )
  Fair value adjustments on interest rate swaps       (2,164 )   451       (3,535 )   1,255  
  Net increase in cash value life insurance       398     385       796     775  
  Mortgage loan servicing income       2,566     2,090       5,204     4,114  
  Debit card income, net       1,215     1,267       2,191     2,194  
  Other       1,310     1,377       2,261     2,152  
    Total noninterest income       11,231     11,027       21,103     21,076  
Noninterest expense                
  Salaries and employee benefits       13,159     13,541       26,630     27,210  
  Occupancy and equipment       4,116     4,094       8,237     7,747  
  Marketing and public relations       448     322       874     698  
  FDIC insurance       247     265       502     520  
  Recovery of mortgage loan repurchase losses       (100 )   (150 )     (200 )   (300 )
  Legal expense       127     157       213     233  
  Other real estate expense, net       106     105       294     11  
  Mortgage subservicing expense       770     568       1,474     1,132  
  Amortization of mortgage servicing rights       1,342     889       2,578     1,868  
  Impairment of mortgage servicing rights       1,300     -       1,300     -  
  Amortization of core deposit intangible       735     849       1,484     1,598  
  Merger-related expenses       -       506       -       15,216  
  Other       3,228     3,225       6,239     6,037  
    Total noninterest expense       25,478     24,371       49,625     61,970  
Income before income taxes       19,356     19,002       37,851     23,583  
Income tax expense       4,282     4,036       8,232     4,561  
  Net income   $     15,074     14,966       29,619     19,022  
                     
Earnings per common share:                
  Basic   $     0.68       0.70       1.33       0.91  
  Diluted   $     0.67       0.70       1.32       0.90  
Dividends declared per common share   $     0.09       0.06       0.17       0.11  
Weighted average common shares outstanding:                
  Basic       22,189,508     21,243,094       22,191,673     20,961,182  
  Diluted       22,372,273     21,454,039       22,374,534     21,174,936  
                     

 

CAROLINA FINANCIAL CORPORATION
(Unaudited)
(Dollars in thousands)
 
                       
      At or for the Three Months Ended
Selected Financial Data:   June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
2018
  June 30,
2018
                       
Selected Average Balances:                    
Total assets   $     3,878,269     3,826,116     3,700,795     3,663,915     3,627,402  
Investment securities and FHLB stock       832,224     833,720     838,834     831,793     809,625  
Loans receivable, net       2,610,394     2,535,192     2,428,603     2,402,075     2,401,075  
Loans held for sale       21,905     13,754     20,120     23,692     23,137  
Deposits       2,782,576     2,751,913     2,760,156     2,735,346     2,677,401  
Stockholders' equity       598,196     580,300     569,528     559,401     497,694  
                       
Performance Ratios (annualized):                    
Return on average stockholders' equity     10.08 %   10.03 %   10.85 %   10.87 %   12.03 %
Return on average tangible equity (Non-GAAP)     13.24 %   13.32 %   14.53 %   14.68 %   17.02 %
Return on average assets     1.55 %   1.52 %   1.67 %   1.66 %   1.65 %
Operating return on average stockholders' equity (Non-GAAP)     10.87 %   10.11 %   11.88 %   10.99 %   12.54 %
Operating return on average tangible equity (Non-GAAP)     14.28 %   13.44 %   15.92 %   14.85 %   17.74 %
Operating return on average assets (Non-GAAP)     1.68 %   1.53 %   1.83 %   1.68 %   1.72 %
Average earning assets to average total assets     89.83 %   89.72 %   89.64 %   89.59 %   89.82 %
Average loans receivable to average deposits     93.81 %   92.12 %   87.99 %   87.82 %   89.68 %
Average stockholders' equity to average assets     15.42 %   15.17 %   15.39 %   15.27 %   13.72 %
Net interest margin-tax equivalent (1)     3.99 %   4.00 %   4.23 %   4.15 %   4.11 %
Net (recoveries) charge-offs to average loans receivable       (0.03 )%   0.02 %   (0.02 )%   0.02 %   0.04 %
Nonperforming assets to period end loans receivable     0.54 %   0.50 %   0.53 %   0.49 %   0.42 %
Nonperforming assets to total assets     0.37 %   0.34 %   0.35 %   0.32 %   0.28 %
Nonperforming loans to total loans     0.50 %   0.45 %   0.47 %   0.43 %   0.35 %
Allowance for loan losses as a percentage of gross loans receivable (end of period) (2)     0.60 %   0.58 %   0.57 %   0.55 %   0.54 %
Allowance for loan losses as a percentage of gross non-acquired loans receivable (Non-GAAP)     0.77 %   0.77 %   0.79 %   0.80 %   0.80 %
Allowance for loan losses as a percentage of nonperforming loans (2)     120.51 %   129.74 %   123.13 %   129.26 %   153.84 %
                       
Nonperforming Assets, excluding purchased credit impaired:                    
Loans 90 days or more past due and still accruing   $     -       -     20     32     19  
Nonaccrual loans       13,167     11,578     11,721     10,501     8,423  
  Total nonperforming loans       13,167     11,578     11,741     10,533     8,442  
Real estate acquired through foreclosure, net       1,218     1,335     1,534     1,601     1,726  
  Total nonperforming assets   $     14,385     12,913     13,275     12,134     10,168  
                       
(1) Net interest margin-tax equivalent reflects tax-exempt income on a tax-equivalent basis.
(2) Acquired loans represent 22.7%, 24.9%, 27.2%, 30.5%, and 33.5%, of gross loans receivable at June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018, and June 30, 2018 , respectively.
                       

 

                         
Carolina Financial Corporation                        
Segment Information                        
(Unaudited)                        
(Dollars in thousands)        
                         
    For the Three Months   For the Six Months   Increase (Decrease)
    Ended June 30,   Ended June 30,   Three   Six
    2019   2018   2019   2018   Months   Months
Segment net income:                        
Community banking   $     15,804     14,928       30,586     18,912     876     11,674  
Wholesale mortgage banking       (92 )   598       298     1,160     (690 )   (862 )
Other       (657 )   (568 )     (1,294 )   (1,065 )   (89 )   (229 )
Eliminations       19     8       29     15     11     14  
Total net income   $     15,074     14,966       29,619     19,022     108     10,597  
                         
    For the Three Months Ended    
    June 30,
2019
  March 31, 
  2019
  December 31, 
  2018
  September 30, 
  2018
  June 30, 
  2018
   
Segment net income:                        
Community banking   $     15,804     14,781     15,449     15,263     14,928      
Wholesale mortgage banking       (92 )   390     599     555     598      
Other       (657 )   (636 )   (594 )   (606 )   (568 )    
Eliminations       19     10     (10 )   (8 )   8      
Total net income   $     15,074     14,545     15,444     15,204     14,966      
                         
    For the Three Months Ended June 30, 2019    
      Community       Mortgage                  
      Banking       Banking       Other       Eliminations     Total    
Interest income   $     43,781       469       15       (130 )     44,135      
Interest expense       9,303       153       551       (155 )     9,852      
Net interest income (expense)       34,478       316       (536 )     25       34,283      
Provision for loan losses       700       (20 )     -         -         680      
Noninterest income from external customers       5,299       5,921       11       -         11,231      
Intersegment noninterest income       242       -         -         (242 )     -        
Noninterest expense       19,020       6,126       332       -         25,478      
Intersegment noninterest expense       -         240       2       (242 )     -        
Income (loss) before income taxes       20,299       (109 )     (859 )     25       19,356      
Income tax expense (benefit)       4,495       (17 )     (202 )     6       4,282      
Net income (loss)   $     15,804       (92 )     (657 )     19       15,074      
                         
    For the Three Months Ended June 30, 2018    
    Community   Mortgage                
    Banking   Banking   Other   Eliminations   Total    
Interest income   $ 39,060     458     14     (55 )   39,477      
Interest expense     6,066     77     506     (77 )   6,572      
Net interest income (expense)     32,994     381     (492 )   22     32,905      
Provision for loan losses     534     25     -     -     559      
Noninterest income from external customers     5,570     5,434     23     -     11,027      
Intersegment noninterest income     242     9     -     (251 )   -      
Noninterest expense     19,348     4,748     275     -     24,371      
Intersegment noninterest expense     -     240     2     (242 )   -      
Income (loss) before income taxes     18,924     811     (746 )   13     19,002      
Income tax expense (benefit)     3,996     213     (178 )   5     4,036      
Net income (loss)   $ 14,928     598     (568 )   8     14,966      
                         
                         
Carolina Financial Corporation                        
Segment Information, Continued                        
(Unaudited)                        
(Dollars in thousands)        
                         
    For the Six Months Ended June 30, 2019    
      Community       Mortgage                  
      Banking       Banking       Other       Eliminations     Total    
Interest income   $     86,257       859       30       (230 )     86,916      
Interest expense       18,060       281       1,106       (284 )     19,163      
Net interest income (expense)       68,197       578       (1,076 )     54       67,753      
Provision for loan losses       1,400       (20 )     -         -         1,380      
Noninterest income from external customers       9,855       11,217       31       -         21,103      
Intersegment noninterest income       484       18       -         (502 )     -        
Noninterest expense       38,010       10,972       643       -         49,625      
Intersegment noninterest expense       -         480       4       (484 )     -        
Income (loss) before income taxes       39,126       381       (1,692 )     36       37,851      
Income tax expense (benefit)       8,540       83       (398 )     7       8,232      
Net income (loss)   $     30,586       298       (1,294 )     29       29,619      
                         
    For the Six Months Ended June 30, 2018    
    Community   Mortgage                
    Banking   Banking   Other   Eliminations   Total    
Interest income   $ 76,317     889     27     (79 )   77,154      
Interest expense     11,150     130     968     (130 )   12,118      
Net interest income (expense)     65,167     759     (941 )   51     65,036      
Provision for loan losses     534     25     -     -     559      
Noninterest income from external customers     10,630     10,358     88     -     21,076      
Intersegment noninterest income     483     26     -     (509 )   -      
Noninterest expense     52,278     9,137     554     1     61,970      
Intersegment noninterest expense     -     480     3     (483 )   -      
Income (loss) before income taxes     23,468     1,501     (1,410 )   24     23,583      
Income tax expense (benefit)     4,556     341     (345 )   9     4,561      
Net income (loss)   $ 18,912     1,160     (1,065 )   15     19,022      
                         
    Loan Originations   Mortgage Banking Income   Margin
             
    For the Three Months Ended June 30,
    2019   2018   2019   2018   2019   2018
Additional segment information:                        
Community banking   $     29,308     32,796       765     648     2.61 %   1.98 %
Wholesale mortgage banking       189,245     205,569       3,553     3,567     1.88 %   1.74 %
Total   $     218,553     238,365       4,318     4,215     1.98 %   1.77 %
                         
    Loan Originations   Mortgage Banking Income   Margin
             
    For the Six Months Ended June 30,
    2019   2018   2019   2018   2019   2018
Additional segment information:                        
Community banking   $     49,746     64,223       1,324     1,302     2.66 %   2.03 %
Wholesale mortgage banking       329,496     386,063       6,412     6,715     1.95 %   1.74 %
Total   $     379,242     450,286       7,736     8,017     2.04 %   1.78 %
                         

 

                       
Carolina Financial Corporation                    
Reconciliation of Non-GAAP Financial Measures - Consolidated                  
(Unaudited)                    
(In thousands, except share data)
      At the Month Ended
      June 30,   March 31,   December 31,   September 30,   June 30,
      2019   2019   2018   2018   2018
                       
Core deposits:                    
Noninterest-bearing demand accounts   $     616,823     575,990     547,022     567,394     577,568  
Interest-bearing demand accounts       561,094     581,424     566,527     579,522     584,719  
Savings accounts       184,764     188,725     192,322     190,946     198,571  
Money market accounts       437,716     458,575     431,246     453,957     458,558  
  Total core deposits (Non-GAAP)       1,800,397     1,804,714     1,737,117     1,791,819     1,819,416  
                       
Certificates of deposit:                    
Less than $250,000       921,309     923,709     875,749     863,290     788,693  
$250,000 or more       84,403     88,647     105,327     104,514     100,689  
  Total certificates of deposit       1,005,712     1,012,356     981,076     967,804     889,382  
Total deposits   $     2,806,109     2,817,070     2,718,193     2,759,623     2,708,798  
                       
      At the Month Ended
      June 30,   March 31,   December 31,   September 30,   June 30,
      2019   2019   2018   2018   2018
                       
Tangible book value per share:                      
Total stockholders' equity   $     605,579     589,150     575,285     564,027     551,784  
Less intangible assets       (142,570 )   (143,305 )   (144,054 )   (144,817 )   (145,595 )
Tangible common equity (Non-GAAP)   $     463,009     445,845     431,231     419,210     406,189  
                       
Issued and outstanding shares       22,284,981     22,296,372     22,387,009     22,570,445     22,570,182  
Less nonvested restricted stock awards       (109,728 )   (111,578 )   (117,966 )   (135,045 )   (137,345 )
Period end dilutive shares       22,175,253     22,184,794     22,269,043     22,435,400     22,432,837  
                       
Total stockholders' equity   $     605,579     589,150     575,285     564,027     551,784  
Divided by period end dilutive shares       22,175,253     22,184,794     22,269,043     22,435,400     22,432,837  
Common book value per share   $     27.31     26.56     25.83     25.14     24.60  
                       
Tangible common equity (Non-GAAP)   $     463,009     445,845     431,231     419,210     406,189  
Divided by period end dilutive shares       22,175,253     22,184,794     22,269,043     22,435,400     22,432,837  
Tangible common book value per share (Non-GAAP) $     20.88     20.10     19.36     18.69     18.11  
                       
      At the Month Ended
      June 30,   March 31,   December 31,   September 30,   June 30,
      2019   2019   2018   2018   2018
Acquired and non-acquired loans:                    
Acquired loans receivable   $     601,193     644,461     686,401     749,442     813,688  
Non-acquired gross loans receivable       2,050,043     1,946,149     1,837,935     1,708,022     1,613,533  
Total gross loans receivable   $     2,651,236     2,590,610     2,524,336     2,457,464     2,427,221  
% Acquired     22.68 %   24.88 %   27.19 %   30.50 %   33.52 %
                       
Non-acquired loans   $     2,050,043     1,946,149     1,837,935     1,708,022     1,613,533  
Allowance for loan losses       15,867     15,021     14,463     13,615     12,987  
Allowance for loan losses to non-acquired loans (Non-GAAP)   0.77 %   0.77 %   0.79 %   0.80 %   0.80 %
                       
Total gross loans receivable   $     2,651,236     2,590,610     2,524,336     2,457,464     2,427,221  
Allowance for loan losses       15,867     15,021     14,463     13,615     12,987  
Allowance for loan losses to total gross loans receivable   0.60 %   0.58 %   0.57 %   0.55 %   0.54 %
                       


         
    For the
Three Months Ended
  For the
Six Months Ended
    June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
2018
  June 30,
2018
  June 30,
2019
  June 30,
2018
Net interest margin - core:                                            
Net interest margin-tax equivalent (2)   $ 34,661     33,899     35,349     34,298     33,320     68,559     65,891  
Purchased loan accretion and early payoff charges and deferred fees     (1,521 )   (1,617 )   (3,283 )   (2,831 )   (2,226 )   (3,137 )   (5,377 )
Net interest margin - core (3) (Non-GAAP)   $ 33,140     32,282     32,066     31,467     31,094     65,422     60,514  
                                             
Loans receivable interest income - core:                                            
Loans receivable interest income   $ 36,325     34,813     34,969     33,357     32,497     71,139     60,514  
Purchased loan accretion and early payoff charges and deferred fees     (1,521 )   (1,617 )   (3,283 )   (2,831 )   (2,226 )   (3,137 )   (5,377 )
Loans receivable interest income - core (3) (Non-GAAP)   $ 34,804     33,196     31,686     30,526     30,271     68,002     58,577  
                                             


Carolina Financial Corporation
Reconciliation of Non-GAAP Financial Measures - Consolidated , continued
(Unaudited)
(In thousands, except share data)        
                               
      For the Three Months Ended   For the Six Months Ended
      June 30,
2019
  March 31,
2019
  December 31, 
  2018
  September 30, 
  2018
  June 30, 
  2018
  June 30,  
  2019
  June 30, 
  2018
As Reported:                            
Income before income taxes   $     19,356     18,495     19,425     19,431     19,002       37,851     23,583  
Tax expense       4,282     3,950     3,981     4,227     4,036       8,232     4,561  
Net Income   $     15,074     14,545     15,444     15,204     14,966       29,619     19,022  
                               
Average equity   $     598,196     580,300     569,528     559,401     497,694     589,297     487,532  
Average tangible equity (Non-GAAP)       455,270     436,630     425,105     414,205     351,703     446,001     341,148  
Average assets       3,878,269     3,826,116     3,700,795     3,663,915     3,627,402     3,852,336     3,575,708  
Average loans receivable       2,610,394     2,535,192     2,428,603     2,402,075     2,401,075     2,573,001     2,361,933  
Average interest earning assets       3,483,713     3,432,818     3,322,894     3,282,426     3,253,708     3,458,017     3,199,448  
                               
Return on average assets     1.55 %   1.52 %   1.67 %   1.66 %   1.65 %   1.54 %   1.06 %
Return on average equity     10.08 %   10.03 %   10.85 %   10.87 %   12.03 %   10.05 %   7.80 %
Return on average tangible equity (Non-GAAP)     13.24 %   13.32 %   14.53 %   14.68 %   17.02 %   13.28 %   11.15 %
Tangible equity to tangible assets     12.36 %   12.05 %   11.83 %   11.72 %   11.45 %   12.36 %   11.45 %
Net interest margin-tax equivalent (2)     3.99 %   4.00 %   4.23 %   4.15 %   4.11 %   4.00 %   4.15 %
Net interest margin-core (3) (Non-GAAP)     3.82 %   3.81 %   3.84 %   3.80 %   3.83 %   3.82 %   3.81 %
Yield on loans receivable-core (3) (Non-GAAP)     5.35 %   5.31 %   5.18 %   5.04 %   5.06 %   5.33 %   5.00 %
                               
Weighted average common shares outstanding:                            
  Basic       22,189,508     22,193,861     22,416,190     22,678,681     21,243,094       22,191,673     20,961,182  
  Diluted       22,372,273     22,381,809     22,587,466     22,898,983     21,454,039       22,374,534     21,174,936  
Earnings per common share:                            
  Basic   $     0.68     0.66     0.69     0.67     0.70       1.33     0.91  
  Diluted   $     0.67     0.65     0.68     0.66     0.70       1.32     0.90  
                               
                               
Operating Earnings and Performance Ratios:                            
Income before income taxes   $     19,356     18,495     19,425     19,431     19,002       37,851     23,583  
(Gain)/loss on sale of securities       (1,941 )   (1,194 )   (346 )   849     746       (3,135 )   1,443  
Fair value adjustments on interest rate swaps       2,164     1,371     2,222     (628 )   (451 )     3,535     (1,255 )
Merger related expenses       -       -     -     -     506       -       15,216  
Loss on extinguishment of debt       31     -     -     -     -       31     -  
Impairment of mortgage servicing rights       1,300     -     -     -     -       1,300     -  
Operating earnings before income taxes       20,910     18,672     21,301     19,652     19,803       39,582     38,987  
Tax expense (1)       4,653     4,001     4,379     4,279     4,205       8,647     8,168  
Operating earnings (Non-GAAP)   $     16,257     14,671     16,922     15,373     15,598       30,935     30,819  
                               
Average equity   $     598,196     580,300     569,528     559,401     497,694       589,297     487,532  
Less average intangible assets       (142,926 )   (143,670 )   (144,423 )   (145,196 )   (145,991 )     (143,296 )   (146,384 )
Average tangible common equity (Non-GAAP)   $     455,270     436,630     425,105     414,205     351,703       446,001     341,148  
                               
Average assets   $     3,878,269     3,826,116     3,700,795     3,663,915     3,627,402       3,852,336     3,575,708  
Less average intangible assets       (142,926 )   (143,670 )   (144,423 )   (145,196 )   (145,991 )     (143,296 )   (146,384 )
Average tangible assets (Non-GAAP)   $     3,735,343     3,682,446     3,556,372     3,518,719     3,481,411       3,709,040     3,429,324  
                               
Operating return on average assets (Non-GAAP)     1.68 %   1.53 %   1.83 %   1.68 %   1.72 %   1.61 %   1.72 %
Operating return on average equity (Non-GAAP)     10.87 %   10.11 %   11.88 %   10.99 %   12.54 %   10.50 %   12.64 %
Operating return on average tangible assets (Non-GAAP)   1.74 %   1.59 %   1.90 %   1.75 %   1.79 %   1.67 %   1.80 %
Operating return on average tangible equity (Non-GAAP)   14.28 %   13.44 %   15.92 %   14.85 %   17.74 %   13.87 %   18.07 %
                               
Weighted average common shares outstanding:                            
  Basic       22,189,508     22,193,861     22,416,190     22,678,681     21,243,094       22,191,673     20,961,182  
  Diluted       22,372,273     22,381,809     22,587,466     22,898,983     21,454,039       22,374,534     21,174,936  
Operating earnings per common share:                            
  Basic (Non-GAAP)   $     0.73     0.66     0.75     0.68     0.73       1.39     1.47  
  Diluted (Non-GAAP)   $     0.73     0.66     0.75     0.67     0.73       1.38     1.46  
                               
(1) Tax expense is determined using the effective tax rate adjusted to eliminate the impact of the non-operating items.
(2) Net interest margin-tax equivalent reflects tax-exempt income on a tax-equivalent basis.
(3) 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 - Community Banking Segment                    
(Unaudited)                            
(In thousands, except share data)        
                               
      For the Three Months Ended   For the Six Months Ended
      June 30,
2019
  March 31, 
  2019
  December 31, 
  2018
  September 30, 
  2018
  June 30, 
  2018
  June 30,
2019
  June 30,
2018
Segment net income:                            
Community banking   $     15,804     14,781     15,449     15,263     14,928       30,586     18,912  
Wholesale mortgage banking       (92 )   390     599     555     598       298     1,160  
Other       (657 )   (636 )   (594 )   (606 )   (568 )     (1,294 )   (1,065 )
Eliminations       19     10     (10 )   (8 )   8       29     15  
Total net income   $     15,074     14,545     15,444     15,204     14,966       29,619     19,022  
                               
Community banking segment operating earnings:                            
Income before income taxes   $     20,299     18,827     19,424     19,517     18,924       39,126     23,468  
Tax expense (1)       4,495     4,046     3,975     4,254     3,996       8,540     4,556  
Bank segment net income   $     15,804     14,781     15,449     15,263     14,928       30,586     18,912  
                               
Weighted average common shares outstanding:                            
  Basic       22,189,508     22,193,861     22,416,190     22,678,681     21,243,094       22,191,673     20,961,182  
  Diluted       22,372,273     22,381,809     22,587,466     22,898,983     21,454,039       22,374,534     21,174,936  
                               
Bank segment earnings per common share:                            
  Basic   $     0.71     0.67     0.69     0.67     0.70       1.38     0.90  
  Diluted   $     0.71     0.66     0.68     0.67     0.70       1.37     0.89  
                               
Bank segment income before taxes   $     20,299     18,827     19,424     19,517     18,924       39,126     23,468  
(Gain) loss on sale of securities       (1,941 )   (1,194 )   (346 )   849     746       (3,135 )   1,438  
Fair value adjustments on interest rate swaps       2,164     1,371     2,222     (628 )   (451 )     3,535     (1,207 )
Loss on extinguishment of debt       31     -     -     -     -       31     -  
Merger related expenses       -       -     -     -     506       -       15,216  
Operating earnings before income taxes       20,553     19,004     21,300     19,738     19,725       39,557     38,915  
Tax expense (1)       4,566     4,096     4,371     4,306     4,152       8,662     8,159  
Operating bank segment earnings (Non-GAAP)   $     15,987     14,908     16,929     15,432     15,573       30,895     30,756  
                               
                               
Operating bank segment earnings per common share:                            
  Basic (Non-GAAP)   $     0.72     0.67     0.76     0.68     0.73       1.39     1.47  
  Diluted (Non-GAAP)   $     0.71     0.67     0.75     0.67     0.73       1.38     1.45  
                               
(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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