Carolina Financial Corporation Reports Results for the Second Quarter of 2019

NEWS RELEASE – For Release July 25, 2019, 4:00PM

 

For More Information, Contact:

 

William A. Gehman III, EVP and CFO, 843.723.7700

 

Charleston, S.C. July 25, 2019 - 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.
oAccretion 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:
oThe 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.
oThe gain on sale of securities of $1.9 million.
oThe loss on early extinguishment of debt of approximately $31,000.
oThe 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:
oReturn on average assets was 1.55% compared to 1.65%.
oOperating return on average assets was 1.68% compared to 1.72%.
oReturn on average tangible equity was 13.24% compared to 17.02%.
oOperating 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.
oIncluded 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.
oIncluded 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.
oIncluded 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.
oIncluded 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.
oIncluded 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).
oExcluding 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.
oIncluded 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.
oIncluded 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.

 

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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.

 

 


The following information was filed by Carolina Financial Corp (CARO) on Thursday, July 25, 2019 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-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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