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Carolina Financial Corporation Reports Results for the Fourth Quarter of 2019

NEWS RELEASE – For Release January 31, 2020, 4:00PM

 

For More Information, Contact:

 

William A. Gehman III, EVP and CFO, 843.723.7700

 

Charleston, S.C. January 31, 2020 - Carolina Financial Corporation (the “Company”) (NASDAQ: CARO) today announced financial results for the fourth quarter of 2019.

 

Financial highlights at and for the three months ended December 31, 2019, include:

 

  · Net income for Q4 2019 increased 6.8% to $16.5 million, or $0.74 per diluted share, from $15.4 million, or $0.68 per diluted share for Q4 2018.

  · Operating earnings for Q4 2019, which exclude certain non-operating income and expenses, increased 6.8% to $18.1 million, or $0.81 per diluted share, from $16.9 million, or $0.75 per diluted share, for Q4 2018.

  · Operating earnings for Q4 2019 have been adjusted to eliminate the following items:

  o Merger-related expenses of $2.3 million.
  o The fair value gain on interest rate swaps of approximately $873,000.

  o The loss on early extinguishment of debt of approximately $77,000.

  · Performance ratios for Q4 2019 compared to Q4 2018:

  o Return on average assets was 1.66% compared to 1.67%.

  o Operating return on average assets was 1.82% compared to 1.83%.

  o Return on average tangible equity was 13.55% compared to 14.53%.

  o Operating return on average tangible equity was 14.86% compared to 15.92%.

  · On December 31, 2019, the Company closed its acquisition of Carolina Trust BancShares, Inc. (“Carolina Trust”). The acquisition added $481.0 million of loans receivable, gross and $540.2 million of deposits.
  · Loans receivable, gross grew $703.6 million since December 31, 2018. Excluding the impact of loans acquired from Carolina Trust, loans receivable, gross grew $222.6 million, or 8.8% since December 31, 2018.

  · Total deposits increased $690.2 million since December 31, 2018. Excluding the impact of deposits acquired from Carolina Trust, deposits increased $150.0 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 fourth quarter of 2019, the Company repurchased approximately 9,000 shares at an average price of $34.77. Cumulatively since December 4, 2018, the Company repurchased approximately 390,000 shares at an average price of $32.01.

  · On November 17, 2019, the Company announced the execution of an agreement and plan of merger with United Bankshares, Inc. (“United”) (NASDAQ: UBSI), pursuant to which the Company will merge with and into United, with United as the surviving corporation of the merger. Pursuant to the merger agreement, each outstanding share of the Company’s common stock will be converted into the right to receive 1.13 shares of United common stock, par value $2.50 per share, resulting in an aggregate transaction value of approximately $1.1 billion, based on closing price of a share of United’s common stock as of that date. The transaction is subject to customary regulatory and shareholder approvals.

 

 
 

Financial Results

 

Carolina Financial Corporation

 

  · The Company reported net income for Q4 2019 of $16.5 million, or $0.74 per diluted share, as compared to $15.4 million, or $0.68 per diluted share, for Q4 2018.

  o Accretion income from acquired loans was $1.6 million for Q4 2019. Included in net income for Q4 2018 was a recovery of interest income of $0.9 million related to a payoff of a purchased credit impaired loan. Excluding the recovery, accretion income from acquired loans was $1.9 million for Q4 2018.

  · Operating earnings for Q4 2019, which exclude certain non-operating income and expenses, increased 6.8% to $18.1 million, or $0.81 per diluted share, from $16.9 million, or $0.75 per diluted share, for Q4 2018.

  o Included in net income for Q4 2019 were merger-related expenses of $2.3 million, a fair value gain on interest rate swaps of approximately $873,000 and a loss on early extinguishment of debt of approximately $77,000.

  o Included in net income for Q4 2018 was a fair value loss on interest rate swaps of $2.2 million and a gain on sale of securities of approximately $346,000.

  · The Company reported net income for the year ended December 31, 2019 of $62.7 million or $2.80 per diluted share, as compared to $49.7 million, or $2.26 per diluted share, for the year ended December 31, 2018.

  o Accretion income from acquired loans was $7.6 million for the year ended December 31, 2019 compared to $9.8 million for the year ended December 31, 2018. Provision for loan losses during the year ended December 31, 2019 and 2018 was $2.6 million and $2.1 million, respectively.

  · Operating earnings for the year ended December 31, 2019, which exclude certain non-operating income and expenses, increased to $67.6 million, or $3.02 per diluted share compared to $62.8 million, or $2.86 per diluted share, for the same period of 2018.

  o Included in net income for the year ended December 31, 2019 was a fair value loss on interest rate swaps of $3.7 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 $178,000 and merger-related expenses of $2.8 million.
  o Included in net income for the year ended December 31, 2018 was a fair value loss on interest rate swaps of approximately $340,000, a loss on sale of securities of $1.9 million and merger-related expenses of $15.2 million.

  · The Company’s net interest margin-tax equivalent (NIM) decreased to 3.94% for Q4 2019 compared to 4.23% for Q4 2018. Q4 2019 net interest income included accretion income from acquired loans of $1.6 million (18 bps to NIM) and early payoff fees of approximately $282,000 (3 bps to NIM). Q4 2018 accretion income included a recovery of interest income of approximately $0.9 million (11 bps to NIM), accretion income from acquired loans of $1.9 million (22 bps to NIM) and early payoff fees of approximately $414,000 (6 bps to NIM).

  o Excluding accretion income from acquired loans and early payoff fees, Q4 2019 net interest margin was 3.73% compared to 3.84% in Q4 2018.

  · The Company reported book value per common share of $30.14 and $25.83 as of December 31, 2019 and 2018, respectively. Tangible book value per common share was $22.00 and $19.36 as of December 31, 2019 and 2018, respectively.

  · At December 31, 2019, the Company’s regulatory capital ratios exceeded the minimum levels currently required. Stockholders’ equity totaled $743.4 million as of December 31, 2019 compared to $575.3 million at December 31, 2018. Tangible equity to tangible assets at December 31, 2019 was 12.04% compared to 11.83% at December 31, 2018.

  · During Q4 2019, the Company repurchased approximately 9,000 shares at an average price of $34.77.

 

Banking Segment

 

  · Banking segment net income increased 3.1% to $15.9 million for Q4 2019 compared to $15.4 million for Q4 2018. Accretion income from acquired loans was $1.6 million for Q4 2019. Included in net income for Q4 2018 was a recovery of interest income of $0.9 million related to a payoff of a purchased credit impaired loan. Excluding the recovery, accretion income from acquired loans was $1.9 million for Q4 2018.

  · Banking segment net income increased 27.7% to $63.4 million for the year ended December 31, 2019 compared to $49.6 million for the year ended December 31, 2018. Accretion income from acquired loans was $7.6 million for the year ended December 31, 2019 compared to $9.8 million for the year ended December 31, 2018. Provision for loan losses during the year ended December 31, 2019 and 2018 was $2.6 million and $2.1 million, respectively.

  · Banking segment operating earnings increased 3.5% to $17.5 million for Q4 2019 compared to $16.9 million for Q4 2018.

  · Banking segment operating earnings increased 4.9% to $65.9 million for the year ended December 31, 2019 compared to $62.8 million for the year ended December 31, 2018.

  · Provision for loan losses during Q4 2019 was $580,000. Provision for loan losses during Q4 2018 was $750,000. The provision for loan losses was primarily driven by the organic loan growth.

  · Non-performing assets were 0.59% and 0.35% of total assets at December 31, 2019 and 2018, respectively. The increase in the NPA ratio was primarily due to two fully collateralized lending relationships.

  · Loans receivable, gross grew $703.6 million since December 31, 2018. Excluding the impact of loans acquired from Carolina Trust, loans receivable, gross grew $222.6 million, or 8.8% since December 31, 2018.

  · Total deposits increased $690.2 million since December 31, 2018. Excluding the impact of deposits acquired from Carolina Trust, deposits increased $150.0 million since December 31, 2018.
 
 

Wholesale Mortgage Banking

 

  · Net income for the wholesale mortgage banking segment was approximately $949,000 for Q4 2019 compared to net income of approximately $599,000 for Q4 2018. Net income was $1.6 million for the year ended December 31, 2019 compared to $2.3 million for the year ended December 31, 2018.

  o Included in net income for the year ended December 31, 2019 was a temporary impairment of mortgage servicing rights (MSR) of $3.1 million. 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 $4.0  million for the year ended December 31, 2019.

  · Net margin was 2.03% for the three months ended December 31, 2019 compared to 1.84% for the three months ended December 31, 2018. Originations for Q4 2019 and Q4 2018 were $237.6 million and $168.0 million, respectively.

  · Net margin was 2.04% for the year ended December 31, 2019 compared to 1.74% for the year ended December 31, 2018. Originations for the year ended December 31, 2019 and 2018 were $800.0 million and $744.2 million, respectively.
 
 

Dividend Declared

 

On January 30, 2020, the Company declared a $0.10 dividend per common share, payable on April 6, 2020 to stockholders of record on March 16, 2020. 

 

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, 2019, Carolina Financial Corporation had approximately $4.7 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.

 

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CAROLINA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
         
   December 31,
2019
   December 31,
2018
 
   (Unaudited)   (Audited) 
   (In thousands) 
ASSETS          
Cash and due from banks  $41,411    28,857 
Interest-bearing cash   91,792    33,276 
Cash and cash equivalents   133,203    62,133 
Securities available-for-sale   879,235    842,801 
Federal Home Loan Bank stock, at cost   23,280    21,696 
Other investments   3,521    3,450 
Derivative assets   1,791    4,032 
Loans held for sale   31,282    16,972 
Loans receivable, gross   3,227,937    2,524,336 
Allowance for loan losses   (16,521)   (14,463)
Loans receivable, net   3,211,416    2,509,873 
           
Premises and equipment, net   70,702    60,866 
Right of use operating lease asset   17,163     
Accrued interest receivable   14,951    13,494 
Real estate acquired through foreclosure, net   2,325    1,534 
Deferred tax assets, net   2,463    5,786 
Mortgage servicing rights   25,941    32,933 
Cash value life insurance   71,267    58,728 
Core deposit intangible   16,621    16,462 
Goodwill   184,259    127,592 
Other assets   19,453    12,396 
Total assets  $4,708,873    3,790,748 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Liabilities:          
Noninterest-bearing deposits  $668,616    547,022 
Interest-bearing deposits   2,739,745    2,171,171 
Total deposits   3,408,361    2,718,193 
Short-term borrowed funds   449,814    405,500 
Long-term debt   42,761    59,436 
Right of use operating lease liability   17,593     
Derivative liabilities   3,427    1,232 
Drafts outstanding   8,193    8,129 
Advances from borrowers for insurance and taxes   3,288    4,100 
Accrued interest payable   2,450    1,591 
Reserve for mortgage repurchase losses   892    1,292 
Dividends payable to stockholders   2,227    1,576 
Accrued expenses and other liabilities   26,427    14,414 
Total liabilities   3,965,433    3,215,463 
Stockholders’ equity:          
Preferred stock        
Common stock   248    224 
Additional paid-in capital   514,272    408,224 
Retained earnings   221,103    167,173 
Accumulated other comprehensive income (loss), net of tax   7,817    (336)
Total stockholders’ equity   743,440    575,285 
Total liabilities and stockholders’ equity  $4,708,873    3,790,748 
 
 
CAROLINA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
                 
   For the Three Months   For the Year 
   Ended December 31,   Ended December 31, 
   2019   2018   2019   2018 
   (In thousands, except share data) 
Interest income                    
Loans  $37,769    35,214    147,921    133,252 
Investment securities   6,214    7,243    27,424    26,222 
Dividends from Federal Home Loan Bank stock   280    253    1,203    1,004 
Other interest income   123    209    568    580 
Total interest income   44,386    42,919    177,116    161,058 
Interest expense                    
Deposits   6,882    5,808    27,106    18,727 
Short-term borrowed funds   1,652    1,576    8,328    6,064 
Long-term debt   539    643    2,432    2,457 
Total interest expense   9,073    8,027    37,866    27,248 
Net interest income   35,313    34,892    139,250    133,810 
Provision for loan losses   580    750    2,580    2,059 
Net interest income after provision for loan losses   34,733    34,142    136,670    131,751 
Noninterest income                    
Mortgage banking income   5,527    3,593    19,326    15,295 
Deposit service charges   1,726    1,775    6,814    7,755 
Net loss on extinguishment of debt   (77)       (178)    
Net gain (loss) on sale of securities       346    3,891    (1,946)
Fair value adjustments on interest rate swaps   873    (2,222)   (3,659)   (340)
Net increase in cash value life insurance   395    377    1,591    1,530 
Mortgage loan servicing income   2,413    2,624    10,107    9,052 
Debit card income, net   1,500    1,246    4,839    4,809 
Other   934    781    4,379    3,741 
Total noninterest income   13,291    8,520    47,110    39,896 
Noninterest expense                    
Salaries and employee benefits   13,559    12,857    53,822    53,517 
Occupancy and equipment   4,379    4,101    16,902    15,961 
Marketing and public relations   307    320    1,614    1,330 
FDIC insurance       285    502    1,090 
Recovery of mortgage loan repurchase losses   (100)   (150)   (400)   (600)
Legal expense   66    95    438    422 
Other real estate expense (income), net   92    (10)   422    (13)
Mortgage subservicing expense   697    696    2,872    2,468 
Amortization of mortgage servicing rights   1,570    1,239    5,721    4,206 
Impairment of mortgage servicing rights           3,100     
Amortization of core deposit intangible   706    763    2,910    3,139 
Merger-related expenses   2,270        2,753    15,216 
Other   3,013    3,041    12,436    12,472 
Total noninterest expense   26,559    23,237    103,092    109,208 
Income before income taxes   21,465    19,425    80,688    62,439 
Income tax expense   4,972    3,981    17,948    12,769 
Net income  $16,493    15,444    62,740    49,670 
                     
Earnings per common share:                    
Basic  $0.74    0.69    2.83    2.28 
Diluted  $0.74    0.68    2.80    2.26 
Dividends declared per common share  $0.10    0.07    0.36    0.25 
Weighted average common shares outstanding:                    
Basic   22,140,187    22,416,190    22,168,082    21,756,595 
Diluted   22,363,814    22,587,466    22,385,127    21,972,857 
 
 
CAROLINA FINANCIAL CORPORATION
(Unaudited)
                     
   At or for the Three Months Ended 
Selected Financial Data:  December 31,
2019
   September 30,
2019
   June 30,
2019
   March 31,
2019
   December 31,
2018
 
   (Dollars in thousands) 
Selected Average Balances:                    
Total assets  $3,978,345    3,891,019    3,878,269    3,826,116    3,700,795 
Investment securities and FHLB stock   822,430    815,207    832,224    833,720    838,834 
Loans receivable, net   2,711,061    2,639,921    2,610,394    2,535,192    2,428,603 
Loans held for sale   31,436    29,733    21,905    13,754    20,120 
Deposits   2,900,713    2,837,353    2,782,576    2,751,913    2,760,156 
Stockholders’ equity   628,850    614,550    598,196    580,300    569,528 
                          
Performance Ratios (annualized):                         
Return on average stockholders’ equity   10.49%   10.82%   10.08%   10.03%   10.85%
Return on average tangible equity (Non-GAAP)   13.55%   14.08%   13.24%   13.32%   14.53%
Return on average assets   1.66%   1.71%   1.55%   1.52%   1.67%
Operating return on average stockholders’ equity (Non-GAAP)   11.50%   12.08%   10.87%   10.11%   11.88%
Operating return on average tangible equity (Non-GAAP)   14.86   15.72%   14.28%   13.44%   15.92%
Operating return on average assets (Non-GAAP)   1.82%   1.91%   1.68%   1.53%   1.83%
Average earning assets to average total assets   90.28%   90.13%   89.83%   89.72%   89.64%
Average loans receivable to average deposits   93.46%   93.04%   93.81%   92.12%   87.99%
Average stockholders’ equity to average assets   15.81%   15.79%   15.42%   15.17%   15.39%
Net interest margin-tax equivalent (1)   3.94%   4.13%   3.99%   4.00%   4.23%
Net charge-offs (recoveries) to average loans receivable   0.03%   0.05%   (0.03)%   0.02%   (0.02)%
Nonperforming assets to period end loans receivable   0.85%   0.77%   0.54%   0.50%   0.53%
Nonperforming assets to total assets   0.59%   0.52%   0.37%   0.34%   0.35%
Nonperforming loans to total loans   0.78%   0.70%   0.50%   0.45%   0.47%
Allowance for loan losses as a percentage of gross loans receivable (end of period) (2)   0.51%   0.59%   0.60%   0.58%   0.57%
Allowance for loan losses as a percentage of gross non-acquired loans receivable (Non-GAAP)   0.74%   0.74%   0.77%   0.77%   0.79%
Allowance for loan losses as a percentage of nonperforming loans (2)   65.44%   84.73%   120.51%   129.74%   123.13%
                          
Nonperforming Assets, excluding purchased credit impaired:                         
Loans 90 days or more past due and still accruing  $81                20 
Nonaccrual loans   25,166    19,032    13,167    11,578    11,721 
Total nonperforming loans   25,247    19,032    13,167    11,578    11,741 
Real estate acquired through foreclosure, net   2,325    1,832    1,218    1,335    1,534 
Total nonperforming assets  $27,572    20,864    14,385    12,913    13,275 

 

(1)Net interest margin-tax equivalent reflects tax-exempt income on a tax-equivalent basis.
(2)Acquired loans represent 30.7%, 20.2%, 22.7%, 24.9%, and 27.2%,  of gross loans receivable at December 31, 2019, September 30, 2019,  June 30, 2019, March 31, 2019, and December 31, 2018, respectively.
 
 

Carolina Financial Corporation

Segment Information

(Unaudited)

(Dollars in thousands)

                         
   For the Three Months   For the Year   Increase (Decrease) 
   Ended December 31,   Ended December 31,   Three     
   2019   2018   2019   2018   Months   Year 
Segment net income:                              
Community banking  $15,933    15,449    63,382    49,624    484    13,758 
Wholesale mortgage banking   949    599    1,572    2,315    350    (743)
Other   (424)   (594)   (2,299)   (2,266)   170    (33)
Eliminations   35    (10)   85    (3)   45    88 
Total net income  $16,493    15,444    62,740    49,670    1,049    13,070 

 

   For the Three Months Ended 
   December 31,
2019
   September 30,
2019
   June 30,
2019
   March 31,
2019
   December 31,
2018
 
Segment net income:                         
Community banking  $15,933    16,864    15,804    14,781    15,449 
Wholesale mortgage banking   949    325    (92)   390    599 
Other   (424)   (582)   (657)   (636)   (594)
Eliminations   35    21    19    10    (10)
Total net income  $16,493    16,628    15,074    14,545    15,444 

 

   For the Three Months Ended December 31, 2019 
   Community   Mortgage             
   Banking   Banking   Other   Eliminations   Total 
Interest income  $43,991    399    13    (17)   44,386 
Interest expense   8,574    61    501    (63)   9,073 
Net interest income (expense)   35,417    338    (488)   46    35,313 
Provision for loan losses   589    (9)           580 
Noninterest income from external customers   6,222    7,045    24        13,291 
Intersegment noninterest income   242            (242)    
Noninterest expense from external customers   20,423    5,924    212        26,559 
Intersegment noninterest expense       240    2    (242)    
Income (loss) before income taxes   20,869    1,228    (678)   46    21,465 
Income tax expense (benefit)   4,936    279    (254)   11    4,972 
Net income (loss)  $15,933    949    (424)   35    16,493 

 

   For the Three Months Ended December 31, 2018 
   Community   Mortgage             
   Banking   Banking   Other   Eliminations   Total 
Interest income  $42,577    480    15    (153)   42,919 
Interest expense   7,494    170    537    (174)   8,027 
Net interest income (expense)   35,083    310    (522)   21    34,892 
Provision for loan losses   750                750 
Noninterest income from external customers   2,990    5,507    23        8,520 
Intersegment noninterest income   242    36        (278)    
Noninterest expense from external customers   18,141    4,818    277    1    23,237 
Intersegment noninterest expense       240    2    (242)    
Income (loss) before income taxes   19,424    795    (778)   (16)   19,425 
Income tax expense (benefit)   3,975    196    (184)   (6)   3,981 
Net income (loss)  $15,449    599    (594)   (10)   15,444 
 
 

Carolina Financial Corporation

Segment Information, Continued

(Unaudited)

(Dollars in thousands)  

                     
   For the Year Ended December 31, 2019 
   Community   Mortgage             
   Banking   Banking   Other   Eliminations   Total 
Interest income  $175,726    1,695    59    (364)   177,116 
Interest expense   35,736    483    2,138    (491)   37,866 
Net interest income (expense)   139,990    1,212    (2,079)   127    139,250 
Provision for loan losses   2,709    (129)           2,580 
Noninterest income from external customers   21,384    25,652    74        47,110 
Intersegment noninterest income   966    17        (983)    
Noninterest expense from external customers   77,921    24,004    1,167        103,092 
Intersegment noninterest expense       960    6    (966)    
Income (loss) before income taxes   81,710    2,046    (3,178)   110    80,688 
Income tax expense (benefit)   18,328    474    (879)   25    17,948 
Net income (loss)  $63,382    1,572    (2,299)   85    62,740 

 

   For the Year Ended December 31, 2018 
   Community   Mortgage             
   Banking   Banking   Other   Eliminations   Total 
Interest income  $159,483    1,841    56    (322)   161,058 
Interest expense   25,227    414    2,025    (418)   27,248 
Net interest income (expense)   134,256    1,427    (1,969)   96    133,810 
Provision for loan losses   2,034    25            2,059 
Noninterest income from external customers   18,680    21,106    110        39,896 
Intersegment noninterest income   966    99        (1,065)    
Noninterest expense from external customers   89,459    18,631    1,117    1    109,208 
Intersegment noninterest expense       960    6    (966)    
Income (loss) before income taxes   62,409    3,016    (2,982)   (4)   62,439 
Income tax expense (benefit)   12,785    701    (716)   (1)   12,769 
Net income (loss)  $49,624    2,315    (2,266)   (3)   49,670 

 

   Loan Originations   Mortgage Banking Income   Margin 
   For the Three Months Ended December 31, 
   2019   2018   2019   2018   2019   2018 
Additional segment information:    
Community banking  $24,473    16,935    706    509    2.88%   3.01%
Wholesale mortgage banking   237,604    168,002    4,821    3,084    2.03   1.84%
Total  $262,077    184,937    5,527    3,593    2.11%   1.94%

 

   Loan Originations   Mortgage Banking Income   Margin 
   For the Year Ended December 31, 
   2019   2018   2019   2018   2019   2018 
Additional segment information:    
Community banking  $107,452    108,721    2,998    2,352    2.79   2.16%
Wholesale mortgage banking   799,975    744,208    16,328    12,943    2.04%   1.74%
Total  $907,427    852,929    19,326    15,295    2.13%   1.79%
 
 

Carolina Financial Corporation

Reconciliation of Non-GAAP Financial Measures - Consolidated

(Unaudited)

(In thousands, except share data)

 

   At the Month Ended 
   December 31,   September 30,   June 30,   March 31,   December 31, 
   2019   2019   2019   2019   2018 
                     
Core deposits:                         
Noninterest-bearing demand accounts  $668,616    611,959    616,823    575,990    547,022 
Interest-bearing demand accounts   651,577    587,963    561,094    581,424    566,527 
Savings accounts   218,786    180,827    184,764    188,725    192,322 
Money market accounts   590,916    428,867    437,716    458,575    431,246 
Total core deposits (Non-GAAP)   2,129,895    1,809,616    1,800,397    1,804,714    1,737,117 
                          
Certificates of deposit:                         
Less than $250,000   1,159,978    948,218    921,309    923,709    875,749 
$250,000 or more   118,488    85,380    84,403    88,647    105,327 
Total certificates of deposit   1,278,466    1,033,598    1,005,712    1,012,356    981,076 
Total deposits  $3,408,361    2,843,214    2,806,109    2,817,070    2,718,193 
                          
Tangible book value per share:                         
Total stockholders’ equity  $743,440    621,595    605,579    589,150    575,285 
Less intangible assets   (200,880)   (141,849)   (142,570)   (143,305)   (144,054)
Tangible common equity (Non-GAAP)  $542,560    479,746    463,009    445,845    431,231 
                          
Issued and outstanding shares   24,777,608    22,249,424    22,284,981    22,296,372    22,387,009 
Less nonvested restricted stock awards   (112,549)   (115,933)   (109,728)   (111,578)   (117,966)
Period end dilutive shares   24,665,059    22,133,491    22,175,253    22,184,794    22,269,043 
                          
Total stockholders’ equity  $743,440    621,595    605,579    589,150    575,285 
Divided by period end dilutive shares   24,665,059    22,133,491    22,175,253    22,184,794    22,269,043 
Common book value per share  $30.14    28.08    27.31    26.56    25.83 
                          
Tangible common equity (Non-GAAP)  $542,560    479,746    463,009    445,845    431,231 
Divided by period end dilutive shares   24,665,059    22,133,491    22,175,253    22,184,794    22,269,043 
Tangible common book value per share (Non-GAAP)  $22.00    21.68    20.88    20.10    19.36 
     
   At the Month Ended 
   December 31,   September 30,   June 30,   March 31,   December 31, 
   2019   2019   2019   2019   2018 
Acquired and non-acquired loans:                         
Acquired loans receivable  $989,534    548,754    601,193    644,461    686,401 
Non-acquired gross loans receivable   2,238,403    2,173,427    2,050,043    1,946,149    1,837,935 
Total gross loans receivable  $3,227,937    2,722,181    2,651,236    2,590,610    2,524,336 
% Acquired   30.66   20.16%   22.68%   24.88%   27.19%
                          
Non-acquired loans  $2,238,403    2,173,427    2,050,043    1,946,149    1,837,935 
Allowance for loan losses   16,521    16,125    15,867    15,021    14,463 
Allowance for loan losses to non-acquired loans (Non-GAAP)   0.74%   0.74%   0.77%   0.77%   0.79%
                          
Total gross loans receivable  $3,227,937    2,722,181    2,651,236    2,590,610    2,524,336 
Allowance for loan losses   16,521    16,125    15,867    15,021    14,463 
Allowance for loan losses to total gross loans receivable   0.51%   0.59%   0.60%   0.58%   0.57%

 

   For the Three Months Ended   For the Year Ended 
   December 31,
2019
   September 30,
2019
   June 30,
2019
   March 31,
2019
   December 31,
2018
   December 31,
2019
   December 31,
2018
 
Net interest margin - core:                                   
Net interest margin-tax equivalent (1)  $35,672    36,539    34,661    33,899    35,349    140,773    135,122 
Purchased loan accretion and early payoff charges and deferred fees   (1,916)   (3,209)   (1,521)   (1,617)   (3,283)   (8,264)   (11,491)
Net interest margin - core (2) (Non-GAAP)  $33,756    33,330    33,140    32,282    32,066    132,509    123,631 
                                    
Loans receivable interest income - core:                                   
Loans receivable interest income  $37,452    38,291    36,325    34,813    34,969    146,882    132,289 
Purchased loan accretion and early payoff charges and deferred fees   (1,916)   (3,209)   (1,521)   (1,617)   (3,283)   (8,264)   (11,491)
Loans receivable interest income - core (2) (Non-GAAP)  $35,536    35,082    34,804    33,196    31,686    138,618    120,798 

 

(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 Year Ended 
   December 31,
2019
   September 30,
2019
   June 30,
2019
   March 31,
2019
   December 31,
2018
   December 31,
2019
   December 31,
2018
 
             
As Reported:    
Income before income taxes  $21,465    21,372    19,356    18,495    19,425    80,688    62,439 
Tax expense   4,972    4,744    4,282    3,950    3,981    17,948    12,769 
Net Income  $16,493    16,628    15,074    14,545    15,444    62,740    49,670 
                                    
Average equity  $628,850    614,550    598,196    580,300    569,528    605,629    526,701 
Average tangible equity (Non-GAAP)   486,716    472,349    455,270    436,630    425,105    462,902    381,110 
Average assets   3,978,345    3,891,019    3,878,269    3,826,116    3,700,795    3,893,831    3,629,490 
Average loans receivable   2,711,061    2,639,921    2,610,394    2,535,192    2,428,603    2,624,667    2,388,856 
Average interest earning assets   3,591,503    3,507,155    3,483,713    3,432,818    3,322,894    3,504,258    3,252,914 
                                    
Return on average assets   1.66%   1.71%   1.55%   1.52%   1.67%   1.61%   1.37%
Return on average equity   10.49%   10.82%   10.08%   10.03%   10.85%   10.36%   9.43%
Return on average tangible equity (Non-GAAP)   13.55%   14.08%   13.24%   13.32%   14.53%   13.55%   13.03%
Tangible equity to tangible assets (Non-GAAP)   12.04%   12.50%   12.36%   12.05%   11.83%   12.04%   11.83%
Net interest margin-tax equivalent (1)   3.94%   4.13%   3.99%   4.00%   4.23%   4.02%   4.15%
Net interest margin-core (2) (Non-GAAP)   3.73%   3.77%   3.82%   3.81%   3.84%   3.78%   3.80%
Yield on loans receivable-core (2) (Non-GAAP)   5.20%   5.27%   5.35%   5.31%   5.18%   5.28%   5.06%
                                    
Weighted average common shares outstanding:                                   
Basic   22,140,187    22,149,567    22,189,508    22,193,861    22,416,190    22,168,082    21,756,595 
Diluted   22,363,814    22,336,383    22,372,273    22,381,809    22,587,466    22,385,127    21,972,857 
Earnings per common share:                                   
Basic  $0.74    0.75    0.68    0.66    0.69    2.83    2.28 
Diluted  $0.74    0.74    0.67    0.65    0.68    2.80    2.26 
                                    
Operating Earnings and Performance Ratios:                                   
Income before income taxes  $21,465    21,372    19,356    18,495    19,425    80,688    62,439 
(Gain)/loss on sale of securities       (756)   (1,941)   (1,194)   (346)   (3,891)   1,946 
Fair value adjustments on interest rate swaps   (873)   996    2,164    1,371    2,222    3,659    340 
Merger related expenses   2,270    484                2,753    15,216 
Loss on extinguishment of debt   77    70    31            178     
Impairment of mortgage servicing rights       1,800    1,300            3,100     
Operating earnings before income taxes   22,939    23,966    20,910    18,672    21,301    86,487    79,941 
Tax expense (3)   4,858    5,400    4,653    4,001    4,379    18,868    17,105 
Operating earnings (Non-GAAP)  $18,081    18,566    16,257    14,671    16,922    67,619    62,836 
                                    
Average equity  $628,850    614,550    598,196    580,300    569,528    605,629    526,701 
Less average intangible assets   (142,134)   (142,201)   (142,926)   (143,670)   (144,423)   (142,727)   (145,591)
Average tangible common equity (Non-GAAP)  $486,716    472,349    455,270    436,630    425,105    462,902    381,110 
                                    
Average assets  $3,978,345    3,891,019    3,878,269    3,826,116    3,700,795    3,893,831    3,629,490 
Less average intangible assets   (142,134)   (142,201)   (142,926)   (143,670)   (144,423)   (142,727)   (145,591)
Average tangible assets (Non-GAAP)  $3,836,211    3,748,818    3,735,343    3,682,446    3,556,372    3,751,104    3,483,899 
                                    
Operating return on average assets (Non-GAAP)   1.82%   1.91%   1.68%   1.53%   1.83%   1.74%   1.73%
Operating return on average stockholders’ equity (Non-GAAP)   11.50%   12.08%   10.87%   10.11%   11.88%   11.17%   11.93%
Operating return on average tangible assets (Non-GAAP)   1.89%   1.98%   1.74%   1.59%   1.90%   1.80%   1.80%
Operating return on average tangible equity (Non-GAAP)   14.86%   15.72%   14.28%   13.44%   15.92%   14.61%   16.49%
                                    
Weighted average common shares outstanding:                                   
Basic   22,140,187    22,149,567    22,189,508    22,193,861    22,416,190    22,168,082    21,756,595 
Diluted   22,363,814    22,336,383    22,372,273    22,381,809    22,587,466    22,385,127    21,972,857 
Operating earnings per common share:                                   
Basic (Non-GAAP)  $0.82    0.84    0.73    0.66    0.75    3.05    2.89 
Diluted (Non-GAAP)  $0.81    0.83    0.73    0.66    0.75    3.02    2.86 

 

(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 Year Ended 
   December 31,
2019
   September 30,
2019
   June 30,
2019
   March 31,
2019
   December 31,
2018
   December 31,
2019
   December 31,
2018
 
Segment net income:                                   
Community banking  $15,933    16,864    15,804    14,781    15,449    63,382    49,624 
Wholesale mortgage banking   949    325    (92)   390    599    1,572    2,315 
Other   (424)   (582)   (657)   (636)   (594)   (2,299)   (2,266)
Eliminations   35    21    19    10    (10)   85    (3)
Total net income  $16,493    16,628    15,074    14,545    15,444    62,740    49,670 
                                    
Community banking segment operating earnings:                                   
Income before income taxes  $20,869    21,716    20,299    18,827    19,424    81,710    62,409 
Tax expense (1)   4,936    4,852    4,495    4,046    3,975    18,328    12,785 
Bank segment net income  $15,933    16,864    15,804    14,781    15,449    63,382    49,624 
                                    
Weighted average common shares outstanding:                                   
Basic   22,140,187    22,149,567    22,189,508    22,193,861    22,416,190    22,168,082    21,756,595 
Diluted   22,363,814    22,336,383    22,372,273    22,381,809    22,587,466    22,385,127    21,972,857 
                                    
Bank segment earnings per common share:                                   
Basic  $0.72    0.76    0.71    0.67    0.69    2.86    2.28 
Diluted  $0.71    0.76    0.71    0.66    0.68    2.83    2.26 
                                    
Bank segment income before taxes  $20,869    21,716    20,299    18,827    19,424    81,710    62,409 
(Gain)/loss on sale of securities       (756)   (1,941)   (1,194)   (346)   (3,891)   1,941 
Fair value adjustments on interest rate swaps   (873)   996    2,164    1,371    2,222    3,659    388 
Loss on extinguishment of debt   77    70    31            178     
Merger related expenses   2,270    484                2,753    15,216 
Operating earnings before income taxes   22,343    22,510    20,553    19,004    21,300    84,409    79,954 
Tax expense (1)   4,821    5,043    4,566    4,096    4,371    18,513    17,117 
Operating bank segment earnings (Non-GAAP)  $17,522    17,467    15,987    14,908    16,929    65,896    62,837 
                                    
Operating bank segment earnings per common share:                                   
Basic (Non-GAAP)  $0.79    0.79    0.72    0.67    0.76    2.97    2.89 
Diluted (Non-GAAP)  $0.78    0.78    0.71    0.67    0.75    2.94    2.86 

 

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

 

The following information was filed by Carolina Financial Corp (CARO) on Friday, January 31, 2020 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-K Annual Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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