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

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

• Net income for Q3 2019 increased 9.3% to $16.6 million, or $0.74 per diluted share, from $15.2 million, or $0.66 per diluted share for Q3 2018.
• Operating earnings for Q3 2019, which exclude certain non-operating income and expenses, increased 20.8% to $18.6 million, or $0.83 per diluted share, from $15.4 million, or $0.67 per diluted share, for Q3 2018.
• Operating earnings for Q3 2019 have been adjusted to eliminate the following significant items:

  • The fair value loss on interest rate swaps of $1.0 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 $3.5 million at the end of Q3 2019 compared to Q2 2019.
  • The gain on sale of securities of approximately $756,000.
  • Merger-related expenses of approximately $484,000.
  • The loss on early extinguishment of debt of approximately $70,000.
  • The temporary impairment of our mortgage servicing rights (MSR) of $1.8 million due to increased prepayment speed assumptions in the portfolio driven by the continued impact of falling interest rates.

• Performance ratios for Q3 2019 compared to Q3 2018:

  • Return on average assets was 1.71% compared to 1.66%.
  • Operating return on average assets was 1.91% compared to 1.68%.
  • Return on average tangible equity was 14.08% compared to 14.68%
  • Operating return on average tangible equity was 15.72% compared to 14.85%.

• Loans receivable, gross grew $70.9 million from June 30, 2019, or at an annualized rate of 10.7%, and grew $197.8 million, or at an annualized rate of 10.5% since December 31, 2018.
• Total deposits increased $37.1 million from June 30, 2019 and increased $125.0 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 third quarter of 2019, the Company repurchased approximately 47,000 shares at an average price of $34.23. Cumulatively since December 4, 2018, the Company repurchased approximately 381,000 shares at an average price of $31.94.

Financial Results

Carolina Financial Corporation

• The Company reported net income for Q3 2019 of $16.6 million, or $0.74 per diluted share, as compared to $15.2 million, or $0.66 per diluted share, for Q3 2018.

  • Included in net income for Q3 2019 was a recovery of interest income of approximately $1.2 million related to a payoff of a purchased credit impaired loan. Excluding the recovery, accretion income from acquired loans was $1.7 million for Q3 2019, as compared to $2.2 million for Q3 2018.
  • In August 2019, some of our coastal markets were impacted by storm conditions from Hurricane Dorian. While our businesses experienced impacts due to business interruptions, we did not experience any significant damage from the storm and are not expecting material customer impacts.

• Operating earnings for Q3 2019, which excludes certain non-operating income and expenses, increased 20.8% to $18.6 million, or $0.83 per diluted share, from $15.4 million, or $0.67 per diluted share, for Q3 2018.

  • Included in net income for Q3 2019 was a fair value loss on interest rate swaps of $1.0 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 $3.5 million at the end of Q3 2019 compared to Q2 2019. Q3 2019 also reflects a $1.8 million temporary impairment of mortgage servicing rights, a gain on sale of securities of approximately $756,000, an approximate $70,000 loss on early extinguishment of debt and merger-related expenses of approximately $484,000.
  • Included in net income for Q3 2018 was a fair value gain on interest rate swaps of approximately $628,000, and a loss on sale of securities of approximately $849,000.

• The Company reported net income for the nine months ended September 30, 2019 of $46.2 million or $2.07 per diluted share, as compared to $34.2 million, or $1.57 per diluted share, for the nine months ended September 30, 2018.

  • Accretion income from acquired loans was $5.9 million for the nine months ended September 30, 2019 compared to $7.0 million for the nine months ended September 30, 2018. Provision for loan losses during the nine months ended September 30, 2019 and 2018 was $2.0 million and $1.3 million, respectively.

• Operating earnings for the nine months ended September 30, 2019, which exclude certain non-operating income and expenses, increased to $49.5 million, or $2.21 per diluted share compared to $45.9 million, or $2.10 per diluted share, for the same period of 2018.

  • Included in net income for the nine months ended September 30, 2019 was a fair value loss on interest rate swaps of $4.5 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 $101,000 and merger-related expenses of approximately $484,000.
  • Included in net income for the nine months ended September 30, 2018 was a fair value gain on interest rate swaps of $1.9 million, a loss on sale of securities of $2.3 million and merger-related expenses of $15.2 million.

• The Company’s net interest margin-tax equivalent (NIM) decreased to 4.13% for Q3 2019 (including recovery of interest income of approximately $1.2 million, or 13 bps to NIM) compared to 4.15% for Q3 2018. In addition, Q3 2019 net interest income included accretion income from acquired loans of $1.7 million (20 bps to NIM) and early payoff fees of approximately $276,000 (3bps to NIM) compared to Q3 2018 accretion income from acquired loans of $2.2 million (27 bps to NIM) and early payoff fees of $620,000 (8 bps to NIM).

  • Excluding accretion income from acquired loans and early payoff fees, Q3 2019 net interest margin was 3.77% compared to 3.80% in Q3 2018.

• The Company reported book value per common share of $28.08 and $25.83 as of September 30, 2019 and December 31, 2018, respectively. Tangible book value per common share was $21.68 and $19.36 as of September 30, 2019 and December 31, 2018, respectively.
• At September 30, 2019, the Company’s regulatory capital ratios exceeded the minimum levels currently required. Stockholders’ equity totaled $621.6 million as of September 30, 2019 compared to $575.3 million at December 31, 2018. Tangible equity to tangible assets at September 30, 2019 was 12.50% compared to 11.83% at December 31, 2018.
• During Q3 2019, the Company repurchased approximately 47,000 shares at an average price of $34.23.

Banking Segment

• Banking segment net income increased 10.5% to $16.9 million for Q3 2019 compared to $15.3 million for Q3 2018. Included in net income for Q3 2019 was a recovery of interest income of approximately $1.2 million related to a payoff of a purchased credit impaired loan. Including the $1.2 million recovery, Q3 2019 net income included accretion income from acquired loans of $2.9 million for Q3 2019, as compared to $2.2 million for Q3 2018.
• Banking segment net income increased 38.8% to $47.5 million for the nine months ended September 30, 2019 compared to $34.2 million for the nine months ended September 30, 2018. Accretion income from acquired loans was $5.9 million for the nine months ended September 30, 2019 compared to $7.0 million for the nine months ended September 30, 2018. Provision for loan losses during the nine months ended September 30, 2019 and 2018 was $2.1 million and $1.3 million, respectively.
• Banking segment operating earnings increased 13.2% to $17.5 million for Q3 2019 compared to $15.4 million for Q3 2018.
• Banking segment operating earnings increased 5.3% to $48.4 million for the nine months ended September 30, 2019 compared to $45.9 million for the nine months ended September 30, 2018.
• Provision for loan losses during Q3 2019 was $720,000. Provision for loan losses during Q3 2018 was $750,000. The provision for loan losses was primarily driven by the organic loan growth.
• Non-performing assets were 0.52% and 0.35% of total assets at September 30, 2019 and December 31, 2018, respectively. The increase in the NPA ratio was primarily due to one fully collateralized lending relationship.
• Loans receivable, gross increased at an annualized rate of 10.5% to $2.7 billion at September 30, 2019 compared to $2.5 billion at December 31, 2018.
• Total deposits increased $125.0 million since December 31, 2018.

Wholesale Mortgage Banking

• Net income for the wholesale mortgage banking segment was $325,000 for Q3 2019 compared to net income of $555,000 for Q3 2018. Net income was $0.6 million for the nine months ended September 30, 2019 compared to $1.7 million for the nine months ended September 30, 2018.

  • Included in net income for the three and nine months ended September 30, 2019 was a temporary impairment of mortgage servicing rights of $1.8 million and $3.1 million, respectively. 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 $1.7 million for Q3 2019 and $3.0 million for the nine months ended September 30, 2019.
  • Included in net income for the three and nine months ended September 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. Additionally, included in net income for the three and nine months ended September 30, 2018 was the impact of Hurricane Florence on origination activity and closings.

• Net margin was 2.19% for the three months ended September 30, 2019 compared to 1.65% for the three months ended September 30, 2018. Originations for Q3 2019 and Q3 2018 were $232.9 million and $190.1 million, respectively.
• Net margin was 2.05% for the nine months ended September 30, 2019 compared to 1.71% for the nine months ended September 30, 2018. Originations for the nine months ended September 30, 2019 and 2018 were $562.4 million and $576.2 million, respectively.

Dividend Declared

On October 23, 2019, the Company declared a $0.10 dividend per common share, payable on January 3, 2020 to stockholders of record on December 13, 2019. 

Conference Call

A conference call will be held at 11:00 a.m., Eastern Time on October 25, 2019. The conference call can be accessed by dialing (866) 464-9448 or (213) 660-0874 and requesting the Carolina Financial Corporation earnings call. The conference ID number is 6565867. 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 6565867.

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, 2019, Carolina Financial Corporation had approximately $4.0 billion in total assets and Crescent Mortgage Company was approved to originate loans in 48 states partnering with community banks, credit unions and mortgage brokers.

Addendum to News Release – Use of Certain Non-GAAP Financial Measures and Forward-Looking Statements

This news release contains financial information determined by methods other than in accordance with generally accepted accounting principles (“GAAP”). Such statements should be read along with the accompanying tables, which provide a reconciliation of non-GAAP measures to GAAP measures. This news release and the accompanying tables discuss financial measures, including but not limited to, core deposits, tangible book value, operating earnings and net income related to segments of the Company, which are non-GAAP measures. We believe that such non-GAAP measures are useful because they enhance the ability of investors and management to evaluate and compare the Company’s operating results from period to period in a meaningful manner. Non-GAAP measures should not be considered as an alternative to any measure of performance as promulgated under GAAP. Investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company’s results or financial condition as reported under GAAP.

Please refer to the Non-GAAP reconciliation tables later in this release for additional information. 

Forward-Looking Statements

Certain statements in this news release contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to future plans and expectations, and are thus prospective.  Such forward-looking statements include but are not limited to statements with respect to our plans, objectives, expectations and intentions and other statements that are not historical facts, and other statements identified by words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” and “projects,” as well as similar expressions.  Such statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.  Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate.  Therefore, we can give no assurance that the results contemplated in the forward-looking statements will be realized.  The inclusion of this forward-looking information should not be construed as a representation by the Company or any person that the future events, plans, or expectations contemplated by the Company will occur or be achieved.

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

 

 
CAROLINA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
      
 September 30,
2019
  December 31,
2018
 
 (Unaudited)  (Audited) 
   
 (In thousands) 
ASSETS       
Cash and due from banks$25,519   28,857 
Interest-bearing cash 51,358   33,276 
Cash and cash equivalents 76,877   62,133 
Securities available-for-sale 796,097   842,801 
Federal Home Loan Bank stock, at cost 21,707   21,696 
Other investments 3,520   3,450 
Derivative assets 2,303   4,032 
Loans held for sale 36,882   16,972 
Loans receivable 2,722,181   2,524,336 
Allowance for loan losses (16,125)  (14,463)
Loans receivable, net 2,706,056   2,509,873 
        
Premises and equipment, net 59,841   60,866 
Right of use operating lease asset 17,551    
Accrued interest receivable 13,029   13,494 
Real estate acquired through foreclosure, net 1,832   1,534 
Deferred tax assets, net 1,174   5,786 
Mortgage servicing rights 26,528   32,933 
Cash value life insurance 59,699   58,728 
Core deposit intangible 14,257   16,462 
Goodwill 127,592   127,592 
Other assets 14,943   12,396 
Total assets$3,979,888   3,790,748 
        
LIABILITIES AND STOCKHOLDERS’ EQUITY       
Liabilities:       
Noninterest-bearing deposits$611,959   547,022 
Interest-bearing deposits 2,231,255   2,171,171 
Total deposits 2,843,214   2,718,193 
Short-term borrowed funds 417,000   405,500 
Long-term debt 42,570   59,436 
Right of use operating lease liability 17,905    
Derivative liabilities 4,952   1,232 
Drafts outstanding 6,518   8,129 
Advances from borrowers for insurance and taxes 6,923   4,100 
Accrued interest payable 2,009   1,591 
Reserve for mortgage repurchase losses 992   1,292 
Dividends payable to stockholders 2,003   1,576 
Accrued expenses and other liabilities 14,207   14,414 
Total liabilities 3,358,293   3,215,463 
Stockholders’ equity:       
Preferred stock     
Common stock 222   224 
Additional paid-in capital 403,700   408,224 
Retained earnings 207,535   167,173 
Accumulated other comprehensive income (loss), net of tax 10,138   (336)
Total stockholders’ equity 621,595   575,285 
Total liabilities and stockholders’ equity$3,979,888   3,790,748 


 
CAROLINA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
            
 For the Three Months  For the Nine Months 
 Ended September 30,  Ended September 30, 
 2019  2018  2019  2018 
   
 (In thousands, except share data) 
Interest income               
Loans$38,604   33,623   110,152   98,037 
Investment securities 6,745   6,912   21,209   18,979 
Dividends from Federal Home Loan Bank stock 331   313   923   751 
Other interest income 134   137   446   371 
Total interest income 45,814   40,985   132,730   118,138 
Interest expense               
Deposits 7,125   5,029   20,224   12,919 
Short-term borrowed funds 1,931   1,529   6,676   4,488 
Long-term debt 575   544   1,893   1,813 
Total interest expense 9,631   7,102   28,793   19,220 
Net interest income 36,183   33,883   103,937   98,918 
Provision for loan losses 620   750   2,000   1,309 
Net interest income after provision for loan losses 35,563   33,133   101,937   97,609 
Noninterest income               
Mortgage banking income 6,063   3,685   13,799   11,701 
Deposit service charges 1,742   2,084   5,088   6,096 
Net loss on extinguishment of debt (70)     (101)   
Net gain (loss) on sale of securities 756   (849)  3,891   (2,292)
Fair value adjustments on interest rate swaps (996)  628   (4,531)  1,883 
Net increase in cash value life insurance 400   378   1,196   1,153 
Mortgage loan servicing income 2,490   2,313   7,694   6,428 
Debit card income, net 1,148   1,086   3,339   3,562 
Other 1,183   975   3,444   2,846 
Total noninterest income 12,716   10,300   33,819   31,377 
Noninterest expense               
Salaries and employee benefits 13,634   13,451   40,264   40,660 
Occupancy and equipment 4,286   4,113   12,523   11,860 
Marketing and public relations 432   312   1,306   1,011 
FDIC insurance    285   502   805 
Recovery of mortgage loan repurchase losses (100)  (150)  (300)  (450)
Legal expense 159   94   372   327 
Other real estate expense (income), net 36   (13)  330   (2)
Mortgage subservicing expense 702   640   2,176   1,772 
Amortization of mortgage servicing rights 1,572   1,099   4,151   2,967 
Impairment of mortgage servicing rights 1,800      3,100    
Amortization of core deposit intangible 720   778   2,204   2,375 
Merger-related expenses 484      484   15,216 
Other 3,182   3,393   9,421   9,431 
Total noninterest expense 26,907   24,002   76,533   85,972 
Income before income taxes 21,372   19,431   59,223   43,014 
Income tax expense 4,744   4,227   12,976   8,788 
Net income$16,628   15,204   46,247   34,226 
                
Earnings per common share:               
Basic$0.75   0.67   2.09   1.58 
Diluted$0.74   0.66   2.07   1.57 
Dividends declared per common share$0.09   0.07   0.26   0.18 
Weighted average common shares outstanding:               
Basic 22,149,567   22,678,681   22,177,483   21,616,485 
Diluted 22,336,383   22,898,983   22,365,193   21,842,769 


 
CAROLINA FINANCIAL CORPORATION
(Unaudited)
               
 At or for the Three Months Ended 
Selected Financial Data:September 30,
2019
  June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
2018
 
   
 (Dollars in thousands) 
Selected Average Balances:                   
Total assets$3,891,019   3,878,269   3,826,116   3,700,795   3,663,915 
Investment securities and FHLB stock 815,207   832,224   833,720   838,834   831,793 
Loans receivable, net 2,639,921   2,610,394   2,535,192   2,428,603   2,402,075 
Loans held for sale 29,733   21,905   13,754   20,120   23,692 
Deposits 2,837,353   2,782,576   2,751,913   2,760,156   2,735,346 
Stockholders’ equity 614,550   598,196   580,300   569,528   559,401 
                    
Performance Ratios (annualized):                   
Return on average stockholders’ equity 10.82%  10.08%  10.03%  10.85%  10.87%
Return on average tangible equity (Non-GAAP) 14.08%  13.24%  13.32%  14.53%  14.68%
Return on average assets 1.71%  1.55%  1.52%  1.67%  1.66%
Operating return on average stockholders’ equity (Non-GAAP) 12.08%  10.87%  10.11%  11.88%  10.99%
Operating return on average tangible equity (Non-GAAP) 15.72%  14.28%  13.44%  15.92%  14.85%
Operating return on average assets (Non-GAAP) 1.91%  1.68%  1.53%  1.83%  1.68%
Average earning assets to average total assets 90.13%  89.83%  89.72%  89.64%  89.59%
Average loans receivable to average deposits 93.04%  93.81%  92.12%  87.99%  87.82%
Average stockholders’ equity to average assets 15.79  15.42%  15.17%  15.39%  15.27%
Net interest margin-tax equivalent (1) 4.13%  3.99%  4.00%  4.23%  4.15%
Net charge-offs (recoveries) to average loans receivable 0.05%  (0.03)%  0.02%  (0.02)%  0.02%
Nonperforming assets to period end loans receivable 0.77%  0.54%  0.50%  0.53%  0.49%
Nonperforming assets to total assets 0.52%  0.37%  0.34%  0.35%  0.32%
Nonperforming loans to total loans 0.70%  0.50%  0.45%  0.47%  0.43%
Allowance for loan losses as a percentage of gross loans receivable (end of period) (2) 0.59%  0.60%  0.58%  0.57%  0.55%
Allowance for loan losses as a percentage of gross non-acquired loans receivable (Non-GAAP) 0.74%  0.77%  0.77%  0.79%  0.80%
Allowance for loan losses as a percentage of nonperforming loans (2) 84.73%  120.51%  129.74%  123.13%  129.26%
                    
Nonperforming Assets, excluding purchased credit impaired:                   
Loans 90 days or more past due and still accruing$         20   32 
Nonaccrual loans 19,032   13,167   11,578   11,721   10,501 
Total nonperforming loans 19,032   13,167   11,578   11,741   10,533 
Real estate acquired through foreclosure, net 1,832   1,218   1,335   1,534   1,601 
Total nonperforming assets$20,864   14,385   12,913   13,275   12,134 

                             
(1) Net interest margin-tax equivalent reflects tax-exempt income on a tax-equivalent basis.
(2) Acquired loans represent 20.2%, 22.7%, 24.9%, 27.2%, and 30.5%, of gross loans receivable at September 30, 2019,  June 30, 2019, March 31, 2019, December 31, 2018, and September 30, 2018, respectively.   

 
Carolina Financial Corporation
Segment Information
(Unaudited)
(Dollars in thousands)
                  
 For the Three Months  For the Nine Months  Increase (Decrease) 
 Ended September 30,  Ended September 30,  Three  Nine 
 2019  2018  2019  2018  Months  Months 
Segment net income:                       
Community banking$16,864   15,263   47,450   34,175   1,601   13,275 
Wholesale mortgage banking 325   555   623   1,716   (230)  (1,093)
Other (582)  (606)  (1,876)  (1,672)  24   (204)
Eliminations 21   (8)  50   7   29   43 
Total net income$16,628   15,204   46,247   34,226   1,424   12,021 


               
 For the Three Months Ended 
 September 30,
2019
  June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
2018
 
Segment net income:                   
Community banking$16,864   15,804   14,781   15,449   15,263 
Wholesale mortgage banking 325   (92)  390   599   555 
Other (582)  (657)  (636)  (594)  (606)
Eliminations 21   19   10   (10)  (8)
Total net income$16,628   15,074   14,545   15,444   15,204 


               
 For the Three Months Ended September 30, 2019 
 Community  Mortgage          
 Banking  Banking  Other  Eliminations  Total 
Interest income$45,478   438   14   (116)  45,814 
Interest expense 9,103   142   530   (144)  9,631 
Net interest income (expense) 36,375   296   (516)  28   36,183 
Provision for loan losses 720   (100)        620 
Noninterest income from external customers 5,306   7,389   21      12,716 
Intersegment noninterest income 242         (242)   
Noninterest expense 19,487   7,107   313      26,907 
Intersegment noninterest expense    240   2   (242)   
Income (loss) before income taxes 21,716   438   (810)  28   21,372 
Income tax expense (benefit) 4,852   113   (228)  7   4,744 
Net income (loss)$16,864   325   (582)  21   16,628 


               
 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 


 
Carolina Financial Corporation
Segment Information, Continued
(Unaudited)
(Dollars in thousands)
               
 For the Nine Months Ended September 30, 2019 
 Community  Mortgage          
 Banking  Banking  Other  Eliminations  Total 
Interest income$131,735   1,296   45   (346)  132,730 
Interest expense 27,162   422   1,638   (429)  28,793 
Net interest income (expense) 104,573   874   (1,593)  83   103,937 
Provision for loan losses 2,120   (120)        2,000 
Noninterest income from external customers 15,162   18,606   51      33,819 
Intersegment noninterest income 724   18      (742)   
Noninterest expense 57,498   18,079   956      76,533 
Intersegment noninterest expense    720   4   (724)   
Income (loss) before income taxes 60,841   819   (2,502)  65   59,223 
Income tax expense (benefit) 13,391   196   (626)  15   12,976 
Net income (loss)$47,450   623   (1,876)  50   46,247 


               
 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 


                  
 Loan Originations  Mortgage Banking Income  Margin 
   
 For the Three Months Ended September 30, 
 2019  2018  2019  2018  2019  2018 
   
Additional segment information:  
Community banking$33,233   27,563   968   541   2.91%  1.96%
Wholesale mortgage banking 232,874   190,142   5,095   3,144   2.19%  1.65%
Total$266,107   217,705   6,063   3,685   2.28  1.69%


                  
 Loan Originations  Mortgage Banking Income  Margin 
   
 For the Nine Months Ended September 30, 
 2019  2018  2019  2018  2019  2018 
   
Additional segment information:  
Community banking$82,979   91,786   2,292   1,843   2.76%  2.01%
Wholesale mortgage banking 562,371   576,205   11,507   9,858   2.05%  1.71%
Total$645,350   667,991   13,799   11,701   2.14  1.75%


 
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, 
 2019  2019  2019  2018  2018 
Core deposits:                   
Noninterest-bearing demand accounts$611,959   616,823   575,990   547,022   567,394 
Interest-bearing demand accounts 587,963   561,094   581,424   566,527   579,522 
Savings accounts 180,827   184,764   188,725   192,322   190,946 
Money market accounts 428,867   437,716   458,575   431,246   453,957 
Total core deposits (Non-GAAP) 1,809,616   1,800,397   1,804,714   1,737,117   1,791,819 
                    
Certificates of deposit:                   
Less than $250,000 948,218   921,309   923,709   875,749   863,290 
$250,000 or more 85,380   84,403   88,647   105,327   104,514 
Total certificates of deposit 1,033,598   1,005,712   1,012,356   981,076   967,804 
Total deposits$2,843,214   2,806,109   2,817,070   2,718,193   2,759,623 
                    
Tangible book value per share:                   
Total stockholders’ equity$621,595   605,579   589,150   575,285   564,027 
Less intangible assets (141,849)  (142,570)  (143,305)  (144,054)  (144,817)
Tangible common equity (Non-GAAP)$479,746   463,009   445,845   431,231   419,210 
                    
Issued and outstanding shares 22,249,424   22,284,981   22,296,372   22,387,009   22,570,445 
Less nonvested restricted stock awards (115,933)  (109,728)  (111,578)  (117,966)  (135,045)
Period end dilutive shares 22,133,491   22,175,253   22,184,794   22,269,043   22,435,400 
                    
Total stockholders’ equity$621,595   605,579   589,150   575,285   564,027 
Divided by period end dilutive shares 22,133,491   22,175,253   22,184,794   22,269,043   22,435,400 
Common book value per share$28.08   27.31   26.56   25.83   25.14 
                    
Tangible common equity (Non-GAAP)$479,746   463,009   445,845   431,231   419,210 
Divided by period end dilutive shares 22,133,491   22,175,253   22,184,794   22,269,043   22,435,400 
Tangible common book value per share (Non-GAAP)$21.68   20.88   20.10   19.36   18.69 


               
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, 
 2019  2019  2019  2018  2018 
Acquired and non-acquired loans:                   
Acquired loans receivable$548,754   601,193   644,461   686,401   749,442 
Non-acquired gross loans receivable 2,173,427   2,050,043   1,946,149   1,837,935   1,708,022 
Total gross loans receivable$2,722,181   2,651,236   2,590,610   2,524,336   2,457,464 
% Acquired 20.16%  22.68%  24.88%  27.19%  30.50%
                    
Non-acquired loans$2,173,427   2,050,043   1,946,149   1,837,935   1,708,022 
Allowance for loan losses 16,125   15,867   15,021   14,463   13,615 
Allowance for loan losses to non-acquired loans (Non-GAAP) 0.74  0.77%  0.77%  0.79%  0.80%
                    
Total gross loans receivable$2,722,181   2,651,236   2,590,610   2,524,336   2,457,464 
Allowance for loan losses 16,125   15,867   15,021   14,463   13,615 
Allowance for loan losses to total gross loans receivable 0.59%  0.60%  0.58%  0.57%  0.55%


                     
 For the Three Months Ended  For the Nine Months Ended 
 September 30,
2019
  June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
2018
  September 30,
2019
  September 30,
2018
 
Net interest margin - core:                           
Net interest margin-tax equivalent (1)$36,539   34,661   33,899   35,349   34,298   105,093   100,189 
Purchased loan accretion and early payoff charges and deferred fees (3,209)  (1,521)  (1,617)  (3,283)  (2,831)  (6,347)  (8,208)
Net interest margin - core (2) (Non-GAAP)$33,330   33,140   32,282   32,066   31,467   98,746   91,981 
                            
Loans receivable interest income - core:                           
Loans receivable interest income$38,291   36,325   34,813   34,969   33,357   109,430   97,311 
Purchased loan accretion and early payoff charges and deferred fees (3,209)  (1,521)  (1,617)  (3,283)  (2,831)  (6,347)  (8,208)
Loans receivable interest income - core (2) (Non-GAAP)$35,082   34,804   33,196   31,686   30,526   103,083   89,103 

(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 Nine
Months Ended
 
 September 30,
2019
  June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
2018
  September 30,
2019
  September 30,
2018
 
   
As Reported:  
Income before income taxes$21,372   19,356   18,495   19,425   19,431   59,223   43,014 
Tax expense 4,744   4,282   3,950   3,981   4,227   12,976   8,788 
Net Income$16,628   15,074   14,545   15,444   15,204   46,247   34,226 
                            
Average equity$614,550   598,196   580,300   569,528   559,401   597,804   512,268 
Average tangible equity (Non-GAAP) 472,349   455,270   436,630   425,105   414,205   454,877   366,284 
Average assets 3,891,019   3,878,269   3,826,116   3,700,795   3,663,915   3,865,350   3,605,432 
Average loans receivable 2,639,921   2,610,394   2,535,192   2,428,603   2,402,075   2,595,553   2,375,461 
Average interest earning assets 3,507,155   3,483,713   3,432,818   3,322,894   3,282,426   3,474,864   3,229,234 
                            
Return on average assets 1.71  1.55%  1.52%  1.67%  1.66%  1.60  1.27%
Return on average equity 10.82%  10.08%  10.03%  10.85%  10.87%  10.31%  8.91%
Return on average tangible equity (Non-GAAP) 14.08%  13.24%  13.32%  14.53%  14.68%  13.56%  12.46%
Tangible equity to tangible assets (Non-GAAP) 12.50%  12.36%  12.05%  11.83%  11.72%  12.50%  11.72%
Net interest margin-tax equivalent (1) 4.13%  3.99%  4.00%  4.23%  4.15%  4.04%  4.15%
Net interest margin-core (2) (Non-GAAP) 3.77%  3.82%  3.81%  3.84%  3.80%  3.80%  3.81%
Yield on loans receivable-core (2) (Non-GAAP) 5.27%  5.35%  5.31%  5.18%  5.04%  5.31%  5.02%
                            
Weighted average common shares outstanding:                           
Basic 22,149,567   22,189,508   22,193,861   22,416,190   22,678,681   22,177,483   21,616,485 
Diluted 22,336,383   22,372,273   22,381,809   22,587,466   22,898,983   22,365,193   21,842,769 
Earnings per common share:                           
Basic$0.75   0.68   0.66   0.69   0.67   2.09   1.58 
Diluted$0.74   0.67   0.65   0.68   0.66   2.07   1.57 
                            
Operating Earnings and Performance Ratios:                           
Income before income taxes$21,372   19,356   18,495   19,425   19,431   59,223   43,014 
(Gain)/loss on sale of securities (756)  (1,941)  (1,194)  (346)  849   (3,891)  2,292 
Fair value adjustments on interest rate swaps 996   2,164   1,371   2,222   (628)  4,531   (1,883)
Merger related expenses 484               484   15,216 
Loss on extinguishment of debt 70   31            101    
Impairment of mortgage servicing rights 1,800   1,300            3,100    
Operating earnings before income taxes 23,966   20,910   18,672   21,301   19,652   63,548   58,639 
Tax expense (3) 5,400   4,653   4,001   4,379   4,279   14,047   12,726 
Operating earnings (Non-GAAP)$18,566   16,257   14,671   16,922   15,373   49,501   45,913 
                            
Average equity$614,550   598,196   580,300   569,528   559,401   597,804   512,268 
Less average intangible assets (142,201)  (142,926)  (143,670)  (144,423)  (145,196)  (142,927)  (145,984)
Average tangible common equity (Non-GAAP)$472,349   455,270   436,630   425,105   414,205   454,877   366,284 
                            
Average assets$3,891,019   3,878,269   3,826,116   3,700,795   3,663,915   3,865,350   3,605,432 
Less average intangible assets (142,201)  (142,926)  (143,670)  (144,423)  (145,196)  (142,927)  (145,984)
Average tangible assets (Non-GAAP)$3,748,818   3,735,343   3,682,446   3,556,372   3,518,719   3,722,423   3,459,448 
                            
Operating return on average assets (Non-GAAP) 1.91%  1.68%  1.53%  1.83%  1.68%  1.71%  1.70%
Operating return on average stockholders’ equity (Non-GAAP) 12.08%  10.87%  10.11%  11.88%  10.99%  11.04%  11.95%
Operating return on average tangible assets (Non- GAAP) 1.98%  1.74%  1.59%  1.90%  1.75%  1.77%  1.77%
Operating return on average tangible equity (Non- GAAP) 15.72%  14.28%  13.44%  15.92%  14.85%  14.51%  16.71%
                            
Weighted average common shares outstanding:                           
Basic 22,149,567   22,189,508   22,193,861   22,416,190   22,678,681   22,177,483   21,616,485 
Diluted 22,336,383   22,372,273   22,381,809   22,587,466   22,898,983   22,365,193   21,842,769 
Operating earnings per common share:                           
Basic (Non-GAAP)$0.84   0.73   0.66   0.75   0.68   2.23   2.12 
Diluted (Non-GAAP)$0.83   0.73   0.66   0.75   0.67   2.21   2.10 

(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 Nine Months Ended 
 September 30,
2019
  June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
2018
  September 30,
2019
  September 30,
2018
 
Segment net income:                           
Community banking$16,864   15,804   14,781   15,449   15,263   47,450   34,175 
Wholesale mortgage banking 325   (92)  390   599   555   623   1,716 
Other (582)  (657)  (636)  (594)  (606)  (1,876)  (1,672)
Eliminations 21   19   10   (10)  (8)  50   7 
Total net income$16,628   15,074   14,545   15,444   15,204   46,247   34,226 
                            
Community banking segment operating earnings:                           
Income before income taxes$21,716   20,299   18,827   19,424   19,517   60,841   42,985 
Tax expense (1) 4,852   4,495   4,046   3,975   4,254   13,391   8,810 
Bank segment net income$16,864   15,804   14,781   15,449   15,263   47,450   34,175 
                            
Weighted average common shares outstanding:                           
Basic 22,149,567   22,189,508   22,193,861   22,416,190   22,678,681   22,177,483   21,616,485 
Diluted 22,336,383   22,372,273   22,381,809   22,587,466   22,898,983   22,365,193   21,842,769 
                            
Bank segment earnings per common share:                           
Basic$0.76   0.71   0.67   0.69   0.67   2.14   1.58 
Diluted$0.76   0.71   0.66   0.68   0.67   2.12   1.56 
                            
Bank segment income before taxes$21,716   20,299   18,827   19,424   19,517   60,841   42,985 
(Gain) loss on sale of securities (756)  (1,941)  (1,194)  (346)  849   (3,891)  2,287 
Fair value adjustments on interest rate swaps 996   2,164   1,371   2,222   (628)  4,531   (1,835)
Loss on extinguishment of debt 70   31            101    
Merger related expenses 484               484   15,216 
Operating earnings before income taxes 22,510   20,553   19,004   21,300   19,738   62,066   58,653 
Tax expense (1) 5,043   4,566   4,096   4,371   4,306   13,706   12,746 
Operating bank segment earnings (Non-GAAP)$17,467   15,987   14,908   16,929   15,432   48,360   45,907 
                            
Operating bank segment earnings per common share:                           
Basic (Non-GAAP)$0.79   0.72   0.67   0.76   0.68   2.18   2.12 
Diluted (Non-GAAP)$0.78   0.71   0.67   0.75   0.67   2.16   2.10 

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


For More Information, Contact:

William A. Gehman III, EVP and CFO, 843.723.7700