Carolina Financial Corporation Reports Results for Third Quarter of 2018

NEWS RELEASE – For Release October 24, 2018, 4:00PM

 

For More Information, Contact:

William A. Gehman III, EVP and CFO, 843.723.7700

 

Charleston, S.C. October 24, 2018 - Carolina Financial Corporation (the “Company”) (NASDAQ: CARO) today announced financial results for the third quarter of 2018.

 

Financial highlights at and for the periods ended September 30, 2018, include:

 

·Net income for the third quarter 2018 increased 90.2% to $15.2 million, or $0.66 per diluted share, from $8.0 million, or $0.49 per diluted share for the third quarter of 2017.
·Operating earnings for the third quarter of 2018, which exclude certain non-operating income and expenses, increased 94.7% to $15.4 million, or $0.67 per diluted share, from $7.9 million, or $0.49 per diluted share, for the third quarter of 2017.
·Operating earnings for Q3 2018 have been adjusted to eliminate the following significant items:
oThe fair value gain on interest rate swaps of $628,000.
oThe loss on sale of securities of $849,000.
·Performance ratios for Q3 2018 compared to Q3 2017:
oReturn on average assets was 1.66% compared to 1.43%.
oOperating return on average assets was 1.68% compared to 1.42%.
oReturn on average tangible equity was 14.68% compared to 13.24%.
oOperating return on average tangible equity was 14.85% compared to 13.08%.
·Loans receivable, gross grew $137.9 million, or at an annualized rate of 7.9% since December 31, 2017.
·Nonperforming assets to total assets were 0.32% at September 30, 2018 compared to 0.20% at December 31, 2017.
·Total deposits increased $154.7 million since December 31, 2017. Core deposits increased $49.0 million since December 31, 2017.

 

“Despite the impacts of Hurricane Florence on our markets in the third quarter, we continued to see the impact of solid organic growth and prior acquisitions on earnings. Overall, results for the third quarter of 2018 continued to improve with an increase of 90.2% in net income to $15.2 million compared to the third quarter of 2017.” stated Jerry Rexroad, Chief Executive Officer.

 

 

 

Hurricane Florence Update

 

On September 14, 2018, Hurricane Florence made landfall near Wilmington, NC. As a result of Florence, our markets’ business activities were significantly impacted along the Eastern and Coastal regions of the Carolinas. The impact of Florence on our third quarter results is difficult to quantify. However, we believe the hurricane adversely impacted our operating earnings in the following areas:

 

nLimited mortgage banking activities in Eastern and Coastal markets during most of September 2018.
nDelayed closings on mortgage loans, in which we provided free extensions to customers, reducing margin.
nCosts related to relocating employees, repairs of facilities, compensation costs and contributions to relief efforts.
nRefunds of foreign ATM fees to customers affected by the storm.
nDelayed closings on commercial loans and limited business activity for most of September in the impacted areas.
nIncreased provision for loan losses for unknown impacts of Florence.

 

The aggregate financial effects of these items was a reduction in income and an increase in expense of approximately $500,000 to $600,000 pretax for the quarter. We are continuing to assess the impact of Florence on the economic prospects of our markets affected by it in future periods.

 

Financial Results

 

Carolina Financial Corporation

 

nThe Company reported net income for the three months ended September 30, 2018 of $15.2 million, or $0.66 per diluted share, as compared to $8.0 million, or $0.49 per diluted share, for the three months ended September 30, 2017. The Company reported net income for the nine months ended September 30, 2018 of $34.2 million or $1.57 per diluted share, as compared to $22.2 million, or $1.47 per diluted share, for the nine months ended September 30, 2017. Included in net income for the nine months ended September 30, 2018 and 2017 were pretax merger-related expenses of $15.2 million and $1.9 million, respectively.
nOperating earnings for the third quarter of 2018, which excludes certain non-operating income and expenses, increased 94.7% to $15.4 million, or $0.67 per diluted share, from $7.9 million, or $0.49 per diluted share, for the third quarter of 2017. Operating earnings for the nine months ended September 30, 2018, which excludes certain non-operating income and expenses, increased 101.4% to $45.9 million, or $2.10 per diluted share, from $22.8 million, or $1.50 per diluted share, for the same period of 2017.
nThe Company’s net interest margin-tax equivalent increased to 4.15% for the third quarter of 2018 compared to 3.94% for the third quarter of 2017.
nThe Company reported common book value per share of $25.14 and $22.76 as of September 30, 2018 and December 31, 2017, respectively. Tangible common book value per share was $18.69 and $15.71 as of September 30, 2018 and December 31, 2017, respectively.
nAt September 30, 2018, the Company’s regulatory capital ratios exceeded the minimum levels currently required. Stockholders’ equity totaled $564.0 million as of September 30, 2018 compared to $475.4 million at December 31, 2017. Tangible equity to tangible assets at September 30, 2018 was 11.7% compared to 9.7% at December 31, 2017.

 

Community Banking

 

nCommunity banking segment net income increased 94.8% to $15.3 million for the three months ended September 30, 2018 compared to $7.8 million for the three months ended September 30, 2017. The community banking segment net income increased 64.4% to $34.2 million for the nine months ended September 30, 2018 compared to $20.8 million for the nine months ended September 30, 2017. Included in net income for the nine months ended September 30, 2018 and 2017 were pretax merger-related expenses of $15.2 million and $1.9 million, respectively. And, as noted above, community banking net income during the third quarter of 2018 was adversely affected by Hurricane Florence.

 

 

 

 

nCommunity banking segment operating earnings increased 99.4% to $15.4 million for the three months ended September 30, 2018 compared to $7.7 million for the three months ended September 30, 2017. The community banking segment operating earnings increased 115.3% to $45.9 million for the nine months ended September 30, 2018 compared to $21.3 million for the nine months ended September 30, 2017. Provision for loan loss during the three months ended September 30, 2018 was $750,000. There was no provision for loan loss during the three months ended September 30, 2017. Asset quality and historical loss experience continue to remain favorable. The provision for loan loss was primarily driven by organic loan growth and unknown potential storm related impacts.
nNon-performing assets were 0.32% and 0.20% of total assets at September 30, 2018 and December 31, 2017, respectively.
nLoans receivable, gross increased to $2.5 billion at September 30, 2018 compared to $2.3 billion at December 31, 2017. Loans increased $137.9 million for the nine months ended September 30, 2018, or at an annualized rate of 7.9% over December 31, 2017.
nTotal deposits increased $154.7 million since December 31, 2017. As of September 30, 2018 and December 31, 2017, core deposits, defined as demand deposits, savings accounts and money market accounts, comprised approximately 64.9% and 66.9% respectively, of total deposits.

 

 

Wholesale Mortgage Banking

 

nNet income for the wholesale mortgage banking segment was $555,000 for the three months ended September 30, 2018 compared to $449,000 for the three months ended September 30, 2017. The increase in the three months ended September 30, 2018 was primarily due to higher mortgage servicing income on higher average servicing balances, partially offset by the impact of Hurricane Florence on origination activity and closings. Net income was $1.7 million for the nine months ended September 30, 2018 compared to $2.3 million for the nine months ended September 30, 2017. The decrease in the nine months ended September 30, 2018 was primarily due to a decrease in mortgage banking income, early lease termination costs, and loss on sale of other real estate expense incurred in second quarter 2018, and the impact of Hurricane Florence in the third quarter. Additionally, income taxes in 2017 were reduced due to tax benefits related to the vesting of employee stock-based compensation.
nNet margin was 1.65% for the three months ended September 30, 2018 compared to 1.44% for the three months ended September 30, 2017. Originations for the three months ended September 30, 2018 and 2017 were $190.1 million and $217.0 million, respectively. Originations during September 2018 were affected by storm related interruptions. Net margin was 1.71% for the nine months ended September 30, 2018 compared to 1.65% for the nine months ended September 30, 2017. Originations for the nine months ended September 30, 2018 and 2017 were $576.2 million and $611.6 million, respectively.

 

Dividend Declared

 

On October 17, 2018, the Company declared a $0.07 dividend per common share, payable on January 4, 2019, to stockholders of record on December 14, 2018.

 

Conference Call

 

A conference call will be held at 10:00 a.m., Eastern Time on October 25, 2018. 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 7386054. 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, “Investor Presentations.”

 

 

 

A replay of the webcast will be available on www.haveanicebank.com under Investor Relations, “Investor Presentations” approximately three hours after the call and can be accessed by dialing (855) 859-2056 or (404) 537-3406 and requesting conference number 7386054.

About Carolina Financial Corporation

Carolina Financial Corporation (NASDAQ: CARO) is the holding company of CresCom Bank, which also owns and operates Atlanta-based Crescent Mortgage Company.  As of September 30, 2018, Carolina Financial Corporation had approximately $3.7 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 be achieved.

 

 

 

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

 

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CAROLINA FINANCIAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   September 30, 2018  December 31, 2017
   (Unaudited)  (Audited)
   (Dollars in thousands)
ASSETS      
Cash and due from banks  $37,930    25,254 
Interest-bearing cash   38,017    55,998 
Cash and cash equivalents   75,947    81,252 
Securities available-for-sale   817,745    743,239 
Federal Home Loan Bank stock, at cost   17,446    19,065 
Other investments   3,428    3,446 
Derivative assets   6,151    2,803 
Loans held for sale   25,356    35,292 
Loans receivable, gross   2,457,464    2,319,528 
Allowance for loan losses   (13,615)   (11,478)
Loans receivable, net   2,443,849    2,308,050 
           
Premises and equipment, net   61,702    61,407 
Accrued interest receivable   13,390    11,992 
Real estate acquired through foreclosure, net   1,601    3,106 
Deferred tax assets, net   6,746    2,436 
Mortgage servicing rights   32,995    21,003 
Cash value life insurance   58,354    57,195 
Core deposit intangible   17,225    19,601 
Goodwill   127,592    127,592 
Other assets   11,958    21,538 
Total assets  $3,721,485    3,519,017 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Liabilities:          
Noninterest-bearing deposits  $567,394    525,615 
Interest-bearing deposits   2,192,229    2,079,314 
Total deposits   2,759,623    2,604,929 
Short-term borrowed funds   320,500    340,500 
Long-term debt   44,391    72,259 
Derivative liabilities   —      156 
Drafts outstanding   8,593    7,324 
Advances from borrowers for insurance and taxes   5,435    3,005 
Accrued interest payable   1,793    1,126 
Reserve for mortgage repurchase losses   1,442    1,892 
Dividends payable to stockholders   1,580    1,051 
Accrued expenses and other liabilities   14,101    11,394 
Total liabilities   3,157,458    3,043,636 
Stockholders’ equity:          
Preferred stock   —      —   
Common stock   226    210 
Additional paid-in capital   412,990    348,037 
Retained earnings   153,371    123,537 
Accumulated other comprehensive (loss) income, net of tax   (2,560)   3,597 
Total stockholders’ equity   564,027    475,381 
Total liabilities and stockholders’ equity  $3,721,485    3,519,017 

 

 

 

CAROLINA FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   For the Three Months  For the Nine Months
   Ended September 30,  Ended September 30,
   2018  2017  2018  2017
   (In thousands, except share data)
Interest income                    
Loans  $33,623    18,960    98,037    52,207 
Investment securities   6,912    3,761    18,979    9,975 
Dividends from Federal Home Loan Bank stock   313    135    751    351 
Other interest income   137    70    371    185 
Total interest income   40,985    22,926    118,138    62,718 
Interest expense                    
Deposits   5,029    2,422    12,919    6,212 
Short-term borrowed funds   1,529    441    4,488    1,225 
Long-term debt   544    514    1,813    1,364 
Total interest expense   7,102    3,377    19,220    8,801 
Net interest income   33,883    19,549    98,918    53,917 
Provision for loan losses   750    —      1,309    —   
Net interest income after provision for loan losses   33,133    19,549    97,609    53,917 
Noninterest income                    
Mortgage banking income   3,685    3,625    11,701    11,522 
Deposit service charges   2,084    1,072    6,096    2,928 
Net (loss) gain on sale of securities   (849)   368    (2,292)   1,174 
Fair value adjustments on interest rate swaps   628    90    1,883    (37)
Net increase in cash value life insurance   378    267    1,153    759 
Mortgage loan servicing income   2,313    1,652    6,428    4,822 
Other   2,061    801    6,408    2,742 
Total noninterest income   10,300    7,875    31,377    23,910 
Noninterest expense                    
Salaries and employee benefits   13,451    8,623    40,660    26,487 
Occupancy and equipment   4,113    2,508    11,860    7,129 
Marketing and public relations   312    385    1,011    1,182 
FDIC insurance   285    205    805    380 
Recovery of mortgage loan repurchase losses   (150)   (225)   (450)   (675)
Legal expense   94    157    327    373 
Other real estate (income) expense, net   (13)   (5)   (2)   40 
Mortgage subservicing expense   640    494    1,772    1,485 
Amortization of mortgage servicing rights   1,099    748    2,967    2,083 
Merger-related expenses   —      311    15,216    1,910 
Other   4,171    2,255    11,806    6,538 
Total noninterest expense   24,002    15,456    85,972    46,932 
Income before income taxes   19,431    11,968    43,014    30,895 
Income tax expense   4,227    3,975    8,788    8,659 
Net income  $15,204    7,993    34,226    22,236 
                     
Earnings per common share:                    
Basic  $0.67    0.50    1.58    1.48 
Diluted  $0.66    0.49    1.57    1.47 
Dividends Per Common Share  $0.07    0.04    0.18    0.12 
Weighted average common shares outstanding:                    
Basic   22,678,681    16,029,332    21,616,485    14,980,349 
Diluted   22,898,983    16,187,869    21,842,769    15,146,972 

 

 

 

CAROLINA FINANCIAL CORPORATION

(Unaudited)

(Dollars in thousands)

 

   At or for the Three Months Ended
Selected Financial Data:  September 30,
2018
  June 30,
2018
  March 31,
2018
  December 31,
2017
  September 30,
2017
                
Selected Average Balances:                         
Total assets  $3,663,915    3,627,402    3,522,407    3,048,214    2,230,586 
Investment securities and FHLB stock   831,793    809,625    770,161    647,276    521,569 
Loans receivable, net   2,402,075    2,401,075    2,322,203    2,003,429    1,463,771 
Loans held for sale   23,692    23,137    21,645    25,001    27,282 
Deposits   2,735,346    2,677,401    2,616,640    2,352,303    1,710,263 
Stockholders’ equity   559,401    497,694    477,830    380,529    286,524 
                          
Performance Ratios (annualized):                         
Return on average stockholders’ equity   10.87%   12.03%   3.40%   6.65%   11.16%
Return on average tangible equity (Non-GAAP)   14.68%   17.02%   4.90%   8.78%   13.24%
Return on average assets   1.66%   1.65%   0.46%   0.83%   1.43%
Operating return on average stockholders’ equity (Non-GAAP)   10.99%   12.54%   12.51%   11.69%   11.02%
Operating return on average tangible equity (Non-GAAP)   14.85%   17.74%   18.06%   15.44%   13.08%
Operating return on average assets (Non-GAAP)   1.68%   1.72%   1.70%   1.46%   1.42%
Average earning assets to average total assets   89.59%   89.82%   89.28%   89.25%   91.09%
Average loans receivable to average deposits   87.82%   89.68%   88.75%   85.17%   85.59%
Average stockholders’ equity to average assets   15.27%   13.72%   13.57%   12.48%   12.85%
Net interest margin-tax equivalent (1)   4.15%   4.11%   4.20%   4.19%   3.94%
Net charge-offs  (recoveries) to average loans receivable   0.02%   0.04%   (0.21)%   0.02%   0.02%
Nonperforming assets to period end loans receivable   0.49%   0.42%   0.45%   0.30%   0.44%
Nonperforming assets to total assets   0.32%   0.28%   0.30%   0.20%   0.29%
Nonperforming loans to total loans   0.43%   0.35%   0.36%   0.17%   0.33%
Allowance for loan losses as a percentage of gross loans receivable (end of period) (2)   0.55%   0.54%   0.53%   0.49%   0.72%
Allowance for loan losses as a percentage of gross non-acquired loans receivable (Non-GAAP)   0.80%   0.80%   0.85%   0.84%   0.87%
Allowance for loan losses as a percentage of nonperforming loans (2)   129.26%   153.84%   146.93%   291.81%   216.53%
                          
Nonperforming Assets:                         
Non-acquired loans 90 days or more past due and still accruing  $32    19    —      —      —   
Non-acquired nonaccrual loans   10,501    8,423    8,649    3,934    4,924 
Total nonperforming loans   10,533    8,442    8,649    3,934    4,924 
Real estate acquired through foreclosure, net   1,601    1,726    1,963    3,106    1,640 
Total nonperforming assets  $12,134    10,168    10,612    7,040    6,564 

 

(1) Net interest margin-tax equivalent reflects tax-exempt income on a tax-equivalent basis.

(2) Acquired loans represent 30.5%, 33.5%, 36.8%, 41.1%, and 17.3%, of gross loans receivable at September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017, and September 30, 2017, respectively.

 

 

 

Carolina Financial Corporation

Segment Information

(Unaudited)

(Dollars in thousands)

 

   For the Three Months  For the Nine Months  Increase (Decrease)
   September 30,  Ended September 30,  Three  Nine
   2018  2017  2018  2017  Months  Months
Segment net income:                              
Community banking  $15,263    7,837    34,175    20,788    7,426    13,387 
Wholesale mortgage banking   555    449    1,716    2,333    106    (617)
Other   (606)   (320)   (1,672)   (910)   (286)   (762)
Eliminations   (8)   27    7    25    (35)   (18)
Total net income  $15,204    7,993    34,226    22,236    7,211    11,990 

 

   For the Three Months Ended
   September 30,
2018
  June 30,
2018
  March 31,
2018
  December 31,
2017
  September 30,
2017
Segment net income:                         
Community banking  $15,263    14,928    3,984    6,050    7,837 
Wholesale mortgage banking   555    598    562    118    449 
Other   (606)   (568)   (497)   124    (320)
Eliminations   (8)   8    7    36    27 
Total net income  $15,204    14,966    4,056    6,328    7,993 

 

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

 

   For the Three Months Ended September 30, 2017
   Community  Mortgage         
   Banking  Banking  Other  Eliminations  Total
Interest income  $22,460    480    8    (22)   22,926 
Interest expense   3,086    65    291    (65)   3,377 
Net interest income (expense)   19,374    415    (283)   43    19,549 
Provision for loan losses   —      —      —      —      —   
Noninterest income from external customers   3,097    4,778    —      —      7,875 
Intersegment noninterest income   242    —      —      (242)   —   
Noninterest expense   10,999    4,234    223    —      15,456 
Intersegment noninterest expense   —      240    2    (242)   —   
Income (loss) before income taxes   11,714    719    (508)   43    11,968 
Income tax expense (benefit)   3,877    270    (188)   16    3,975 
Net income (loss)  $7,837    449    (320)   27    7,993 

 

 

 

Carolina Financial Corporation

Segment Information, Continued

(Unaudited)

(Dollars in thousands)

 

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

 

   For the Nine Months Ended September 30, 2017
   Community  Mortgage         
   Banking  Banking  Other  Eliminations  Total
Interest income  $61,409    1,302    21    (14)   62,718 
Interest expense   8,051    119    750    (119)   8,801 
Net interest income (expense)   53,358    1,183    (729)   105    53,917 
Provision for loan losses   —      —      —      —      —   
Noninterest income from external customers   9,011    14,899    —      —      23,910 
Intersegment noninterest income   725    64    —      (789)   —   
Noninterest expense   33,773    12,448    711    —      46,932 
Intersegment noninterest expense   —      720    5    (725)   —   
Income (loss) before income taxes   29,321    2,978    (1,445)   41    30,895 
Income tax expense (benefit)   8,533    645    (535)   16    8,659 
Net income (loss)  $20,788    2,333    (910)   25    22,236 

 

 

   For the Three Months Ended September 30,  
   Loan Originations  Mortgage Banking Income  Margin  
   2018  2017  2018  2017  2018   2017  
Additional segment information:                           
Community banking  $27,563   20,342   541   500   1.96%    2.46 %
Wholesale mortgage banking   190,142   217,014   3,144   3,125   1.65%    1.44 %
Total  $217,705   237,356   3,685   3,625   1.69%    1.53 %

 

   For the Nine Months Ended September 30,  
   Loan Originations  Mortgage Banking Income  Margin  
   2018  2017  2018  2017  2018   2017  
Additional segment information:                             
Community banking  $91,786   59,511   1,843   1,441   2.01%    2.42 %
Wholesale mortgage banking   576,205   611,597   9,858   10,081   1.71%    1.65 %
Total  $667,991   671,108   11,701   11,522   1.75%    1.72 %

 

 

 

Carolina Financial Corporation

Reconciliation of Non-GAAP Financial Measures - Consolidated

(Unaudited)

(In thousands, except share data)

 

   At the Month Ended
   September 30,  June 30,  March 31,  December 31,  September 30,
   2018  2018  2018  2017  2017
                
Core deposits:                         
Noninterest-bearing demand accounts  $567,394    577,568    547,744    525,615    333,267 
Interest-bearing demand accounts   579,522    584,719    558,942    551,308    309,241 
Savings accounts   190,946    198,571    212,249    213,142    69,552 
Money market accounts   453,957    458,558    463,676    452,734    377,754 
Total core deposits (Non-GAAP)   1,791,819    1,819,416    1,782,611    1,742,799    1,089,814 
                          
Certificates of deposit:                         
Less than $250,000   863,290    788,693    791,789    755,887    567,483 
$250,000 or more   104,514    100,689    102,569    106,243    50,357 
Total certificates of deposit   967,804    889,382    894,358    862,130    617,840 
Total deposits  $2,759,623    2,708,798    2,676,969    2,604,929    1,707,654 

 

   At the Month Ended
   September 30,  June 30,  March 31,  December 31,  September 30,
   2018  2018  2018  2017  2017
                
Tangible book value per share:                         
Total stockholders’ equity  $564,027    551,784    475,046    475,381    290,224 
Less intangible assets   (144,817)   (145,595)   (146,387)   (147,193)   (44,953)
Tangible common equity (Non-GAAP)  $419,210    406,189    328,659    328,188    245,271 
                          
Issued and outstanding shares   22,570,445    22,570,182    21,057,539    21,022,202    16,159,309 
Less nonvested restricted stock awards   (135,045)   (137,345)   (136,395)   (134,302)   (99,639)
Period end dilutive shares   22,435,400    22,432,837    20,921,144    20,887,900    16,059,670 
                          
Total stockholders’ equity  $564,027   $551,784   $475,046   $475,381   $290,224 
Divided by period end dilutive shares   22,435,400    22,432,837    20,921,144    20,887,900    16,059,670 
Common book value per share  $25.14   $24.60   $22.71   $22.76   $18.07 
                          
Tangible common equity (Non-GAAP)  $419,210   $406,189   $328,659   $328,188   $245,271 
Divided by period end dilutive shares   22,435,400    22,432,837    20,921,144    20,887,900    16,059,670 
Tangible common book value per share (Non-GAAP)  $18.69   $18.11   $15.71   $15.71   $15.27 

 

 

   At the Month Ended
   September 30,  June 30,  March 31,  December 31,  September 30,
   2018  2018  2018  2017  2017
Acquired and non-acquired loans:                         
Acquired loans receivable  $749,442    813,688    877,012    952,220    257,461 
Non-acquired gross loans receivable   1,708,022    1,613,533    1,503,006    1,367,308    1,227,000 
Total gross loans receivable  $2,457,464    2,427,221    2,380,018    2,319,528    1,484,461 
% Acquired   30.50%   33.52%   36.85%   41.05%   17.34%
                          
Non-acquired loans  $1,708,022    1,613,533    1,503,006    1,367,308    1,227,000 
Allowance for loan losses   13,615    12,987    12,708    11,478    10,662 
Allowance for loan losses to non-acquired loans (Non-GAAP)   0.80%   0.80%   0.85%   0.84%   0.87%
                          
Total gross loans receivable  $2,457,464    2,427,221    2,380,018    2,319,528    1,484,461 
Allowance for loan losses   13,615    12,987    12,708    11,478    10,662 
Allowance for loan losses to total gross loans receivable   0.55%   0.54%   0.53%   0.49%   0.72%

 

 

 

Carolina Financial Corporation

Reconciliation of Non-GAAP Financial Measures - Consolidated

(Unaudited)

(In thousands, except share data)

 

   For the Three Months Ended  For the Nine Months Ended
   September 30,
2018
  June 30,
2018
  March 31,
2018
  December 31,
2017
  September 30,
2017
  September 30,
2018
  September 30,
2017
As Reported:                     
Income before income taxes  $19,431    19,002    4,581    10,630    11,968    43,014    30,895 
Tax expense   4,227    4,036    525    4,302    3,975    8,788    8,659 
Net Income  $15,204    14,966    4,056    6,328    7,993    34,226    22,236 
                                    
Average equity  $559,401   $497,694   $477,830   $380,529   $286,524   512,268   258,101 
Average tangible equity (Non-GAAP)  $414,205   $351,703   $331,047   $288,156   $241,489   $366,284   $213,122 
Average assets  $3,663,915   $3,627,401   $3,522,407   $3,048,214   $2,230,586   3,605,432   2,055,237 
                                    
Return on average assets   1.66%   1.65%   0.46%   0.83%   1.43%   1.27%   1.44%
Return on average equity   10.87%   12.03%   3.40%   6.65%   11.16%   8.91%   11.49%
Return on average tangible equity (Non-GAAP)   14.68%   17.02%   4.90%   8.78%   13.24%   12.46%   13.91%
Tangible equity to tangible assets   11.72%   11.45%   9.65%   9.73%   11.09%   11.72%   11.09%
                                    
Weighted average common shares outstanding:                                   
Basic   22,678,681    21,243,094    20,908,225    19,207,307    16,029,332    21,616,485    14,980,349 
Diluted   22,898,983    21,454,039    21,119,316    19,443,353    16,187,869    21,842,769    15,146,972 
Earnings per common share:                                   
Basic  $0.67   $0.70   $0.19   $0.33   $0.50   1.58   1.48 
Diluted  $0.66   $0.70   $0.19   $0.33   $0.49   $1.57   $1.47 
                                    
Operating Earnings and Performance Ratios:                                   
Income before income taxes  $19,431    19,002    4,581    10,630    11,968    43,014    30,895 
(Gain)/loss on sale of securities   849    746    697    242    (368)   2,292    (1,174)
Fair value adjustments on interest rate swaps   (628)   (451)   (803)   (419)   (90)   (1,883)   37 
Merger related expenses   —      506    14,710    6,391    311    15,216    1,910 
Operating earnings before income taxes   19,652    19,803    19,185    16,844    11,821    58,639    31,668 
Tax expense (1)   4,279    4,205    4,242    5,721    3,926    12,726    8,876 
Operating earnings (Non-GAAP)  $15,373    15,598    14,943    11,123    7,895    45,913    22,792 
                                    
Average equity  $559,401    497,694    477,830    380,529    286,524    512,268    258,101 
Less average intangible assets   (145,196)   (145,991)   (146,783)   (92,373)   (45,035)   (145,984)   (44,979)
Average tangible common equity (Non-GAAP)  $414,205    351,703    331,047    288,156    241,489    366,284    213,122 
                                    
Average assets  $3,663,915    3,627,401    3,522,407    3,048,214    2,230,586    3,605,432    2,055,237 
Less average intangible assets   (145,196)   (145,991)   (146,783)   (92,373)   (45,035)   (145,984)   (44,979)
Average tangible assets (Non-GAAP)  $3,518,719    3,481,410    3,375,624    2,955,841    2,185,551    3,459,448    2,010,258 
                                    
Operating return on average assets (Non-GAAP)   1.68%   1.72%   1.70%   1.46%   1.42%   1.70%   1.48%
Operating return on average equity (Non-GAAP)   10.99%   12.54%   12.51%   11.69%   11.02%   11.95%   11.77%
Operating return on average tangible assets (Non-GAAP)   1.75%   1.79%   1.77%   1.51%   1.44%   1.77%   1.51%
Operating return on average tangible equity (Non-GAAP)   14.85%   17.74%   18.06%   15.44%   13.08%   16.71%   14.26%
                                    
Weighted average common shares outstanding:                                   
Basic   22,678,681    21,243,094    20,908,225    19,207,307    16,029,332    21,616,485    14,980,349 
Diluted   22,898,983    21,454,039    21,119,316    19,443,353    16,187,869    21,842,769    15,146,972 
Operating earnings per common share:                                   
Basic (Non-GAAP)  $0.68   $0.73   $0.71   $0.58   $0.49   2.12   $1.52 
Diluted (Non-GAAP)  $0.67   $0.73   $0.71   $0.57   $0.49   $2.10   $1.50 

 

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

 

 

 

Carolina Financial Corporation

Reconciliation of Non-GAAP Financial Measures - Community Banking Segment

(Unaudited)

(In thousands, except share data)

 

   For the Three Months Ended  For the Nine Months Ended
   September 30,
2018
  June 30,
2018
  March 31,
2018
  December 31,
2017
  September 30,
2017
  September 30,
2018
  September 30,
2017
Segment net income:                                   
Community banking  $15,263    14,928    3,984    6,052    7,837    34,175    20,788 
Wholesale mortgage banking   555    598    562    117    449    1,716    2,333 
Other   (606)   (568)   (497)   124    (320)   (1,672)   (910)
Eliminations   (8)   8    7    35    27    7    25 
Total net income  $15,204    14,966    4,056    6,328    7,993    34,226    22,236 
                                    
Community banking segment operating earnings:                                   
Income before income taxes  $19,517    18,924    4,545    10,447    11,714    42,985    29,321 
Tax expense (1)   4,254    3,996    561    4,397    3,877    8,810    8,533 
Bank segment net income  $15,263    14,928    3,984    6,050    7,837    34,175    20,788 
                                    
Weighted average common shares outstanding:                                   
Basic   22,678,681    21,243,094    20,908,225    19,207,307    16,029,332    21,616,485    14,980,349 
Diluted   22,898,983    21,454,039    21,119,316    19,443,353    16,187,869    21,842,769    15,146,972 
                                    
Bank segment earnings per common share:                                   
Basic  $0.67   $0.70   $0.19   $0.31   $0.49   $1.58   $1.39 
Diluted  $0.67   $0.70   $0.19   $0.31   $0.48   $ 1.56   $1.37 
                                    
Bank segment income before taxes  $19,517    18,924    4,545    10,447    11,714    42,985    29,321 
(Gain) loss on sale of securities   849    746    692    242    (368)   2,287    (1,174)
Fair value adjustments on interest rate swaps   (628)   (451)   (755)   (419)   (90)   (1,835)   37 
Merger related expenses   —      506    14,710    6,391    311    15,216    1,901 
Operating earnings before income taxes   19,738    19,725    19,192    16,661    11,567    58,653    30,085 
Tax expense (1)   4,306    4,152    4,288    5,778    3,828    12,746    8,762 
Operating bank segment earnings (Non-GAAP)  $15,432    15,573    14,904    10,883    7,739    45,907    21,323 
                                    
Operating bank segment earnings per common share:                                   
Basic (Non-GAAP)  $0.68   0.73   $ 0.71   $ 0.57   $ 0.48   $ 2.12   $1.42 
Diluted (Non-GAAP)  $0.67   $0.73   $ 0.71   $ 0.56   $ 0.48   $2.10   $1.41 

 

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

 

 

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