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Carolina Financial Corporation Reports Results for the Fourth Quarter of 2019

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

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

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

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

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

    • Merger-related expenses of $2.3 million.
    • The fair value gain on interest rate swaps of approximately $873,000.
    • The loss on early extinguishment of debt of approximately $77,000.

  • Performance ratios for Q4 2019 compared to Q4 2018:

    • Return on average assets was 1.66% compared to 1.67%.
    • Operating return on average assets was 1.82% compared to 1.83%.
    • Return on average tangible equity was 13.55% compared to 14.53%.
    • Operating return on average tangible equity was 14.86% compared to 15.92%.

  • On December 31, 2019, the Company closed its acquisition of Carolina Trust BancShares, Inc. (“Carolina Trust”). The acquisition added $481.0 million of loans receivable, gross and $540.2 million of deposits.

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

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

  • On December 3, 2018, the Company announced that the Board of Directors had approved a plan to repurchase up to $25 million in shares of the Company’s common stock through open market and privately negotiated transactions over the next three years. The Company began stock repurchases on December 4, 2018. During the fourth quarter of 2019, the Company repurchased approximately 9,000 shares at an average price of $34.77. Cumulatively since December 4, 2018, the Company repurchased approximately 390,000 shares at an average price of $32.01.

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

Financial Results

Carolina Financial Corporation

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

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

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

    • Included in net income for Q4 2019 were merger-related expenses of $2.3 million, a fair value gain on interest rate swaps of approximately $873,000 and a loss on early extinguishment of debt of approximately $77,000.
    • Included in net income for Q4 2018 was a fair value loss on interest rate swaps of $2.2 million and a gain on sale of securities of approximately $346,000.

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

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

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

    • Included in net income for the year ended December 31, 2019 was a fair value loss on interest rate swaps of $3.7 million, a temporary impairment of mortgage servicing rights of $3.1 million, a gain on sale of securities of $3.9 million, a loss on early extinguishment of debt of approximately $178,000 and merger-related expenses of $2.8 million.
    • Included in net income for the year ended December 31, 2018 was a fair value loss on interest rate swaps of approximately $340,000, a loss on sale of securities of $1.9 million and merger-related expenses of $15.2 million.

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

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

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

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

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

Banking Segment

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

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

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

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

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

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

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

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

Wholesale Mortgage Banking

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

    • Included in net income for the year ended December 31, 2019 was a temporary impairment of mortgage servicing rights (MSR) of $3.1 million. The Company does not hedge the mortgage servicing rights positions and the impact of falling long-term interest rates increased prepayment speed assumptions driving down the value of the MSR asset. Excluding the impact of the temporary impairment of mortgage servicing rights, operating earnings were $4.0 million for the year ended December 31, 2019.

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

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

Dividend Declared

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

About Carolina Financial Corporation

Carolina Financial Corporation (NASDAQ: CARO) is the holding company of CresCom Bank, which also owns and operates Atlanta-based Crescent Mortgage Company.  As of December 31, 2019, Carolina Financial Corporation had approximately $4.7 billion in total assets and Crescent Mortgage Company was approved to originate loans in 48 states partnering with community banks, credit unions and mortgage brokers.

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

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

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

Forward-Looking Statements

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

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

 
 
CAROLINA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
       
  December 31,
2019
  December 31,
2018
 
  (Unaudited)  (Audited) 
  (In thousands) 
ASSETS        
Cash and due from banks $41,411   28,857 
Interest-bearing cash  91,792   33,276 
Cash and cash equivalents  133,203   62,133 
Securities available-for-sale  879,235   842,801 
Federal Home Loan Bank stock, at cost  23,280   21,696 
Other investments  3,521   3,450 
Derivative assets  1,791   4,032 
Loans held for sale  31,282   16,972 
Loans receivable, gross  3,227,937   2,524,336 
Allowance for loan losses  (16,521)  (14,463)
Loans receivable, net  3,211,416   2,509,873 
         
Premises and equipment, net  70,702   60,866 
Right of use operating lease asset  17,163    
Accrued interest receivable  14,951   13,494 
Real estate acquired through foreclosure, net  2,325   1,534 
Deferred tax assets, net  2,463   5,786 
Mortgage servicing rights  25,941   32,933 
Cash value life insurance  71,267   58,728 
Core deposit intangible  16,621   16,462 
Goodwill  184,259   127,592 
Other assets  19,453   12,396 
Total assets $4,708,873   3,790,748 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Liabilities:        
Noninterest-bearing deposits $668,616   547,022 
Interest-bearing deposits  2,739,745   2,171,171 
Total deposits  3,408,361   2,718,193 
Short-term borrowed funds  449,814   405,500 
Long-term debt  42,761   59,436 
Right of use operating lease liability  17,593    
Derivative liabilities  3,427   1,232 
Drafts outstanding  8,193   8,129 
Advances from borrowers for insurance and taxes  3,288   4,100 
Accrued interest payable  2,450   1,591 
Reserve for mortgage repurchase losses  892   1,292 
Dividends payable to stockholders  2,227   1,576 
Accrued expenses and other liabilities  26,427   14,414 
Total liabilities  3,965,433   3,215,463 
Stockholders’ equity:        
Preferred stock      
Common stock  248   224 
Additional paid-in capital  514,272   408,224 
Retained earnings  221,103   167,173 
Accumulated other comprehensive income (loss), net of tax  7,817   (336)
Total stockholders’ equity  743,440   575,285 
Total liabilities and stockholders’ equity $4,708,873   3,790,748 
         
         


CAROLINA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
             
  For the Three Months  For the Year 
  Ended December 31,  Ended December 31, 
  2019  2018  2019  2018 
                 
  (In thousands, except share data) 
Interest income                
Loans $37,769   35,214   147,921   133,252 
Investment securities  6,214   7,243   27,424   26,222 
Dividends from Federal Home Loan Bank stock  280   253   1,203   1,004 
Other interest income  123   209   568   580 
Total interest income  44,386   42,919   177,116   161,058 
Interest expense                
Deposits  6,882   5,808   27,106   18,727 
Short-term borrowed funds  1,652   1,576   8,328   6,064 
Long-term debt  539   643   2,432   2,457 
Total interest expense  9,073   8,027   37,866   27,248 
Net interest income  35,313   34,892   139,250   133,810 
Provision for loan losses  580   750   2,580   2,059 
Net interest income after provision for loan losses  34,733   34,142   136,670   131,751 
Noninterest income                
Mortgage banking income  5,527   3,593   19,326   15,295 
Deposit service charges  1,726   1,775   6,814   7,755 
Net loss on extinguishment of debt  (77)     (178)   
Net gain (loss) on sale of securities     346   3,891   (1,946)
Fair value adjustments on interest rate swaps  873   (2,222)  (3,659)  (340)
Net increase in cash value life insurance  395   377   1,591   1,530 
Mortgage loan servicing income  2,413   2,624   10,107   9,052 
Debit card income, net  1,500   1,246   4,839   4,809 
Other  934   781   4,379   3,741 
Total noninterest income  13,291   8,520   47,110   39,896 
Noninterest expense                
Salaries and employee benefits  13,559   12,857   53,822   53,517 
Occupancy and equipment  4,379   4,101   16,902   15,961 
Marketing and public relations  307   320   1,614   1,330 
FDIC insurance     285   502   1,090 
Recovery of mortgage loan repurchase losses  (100)  (150)  (400)  (600)
Legal expense  66   95   438   422 
Other real estate expense (income), net  92   (10)  422   (13)
Mortgage subservicing expense  697   696   2,872   2,468 
Amortization of mortgage servicing rights  1,570   1,239   5,721   4,206 
Impairment of mortgage servicing rights        3,100    
Amortization of core deposit intangible  706   763   2,910   3,139 
Merger-related expenses  2,270      2,753   15,216 
Other  3,013   3,041   12,436   12,472 
Total noninterest expense  26,559   23,237   103,092   109,208 
Income before income taxes  21,465   19,425   80,688   62,439 
Income tax expense  4,972   3,981   17,948   12,769 
Net income $16,493   15,444   62,740   49,670 
                 
Earnings per common share:                
Basic $0.74   0.69   2.83   2.28 
Diluted $0.74   0.68   2.80   2.26 
Dividends declared per common share $0.10   0.07   0.36   0.25 
Weighted average common shares outstanding:                
Basic  22,140,187   22,416,190   22,168,082   21,756,595 
Diluted  22,363,814   22,587,466   22,385,127   21,972,857 
                 
                 


CAROLINA FINANCIAL CORPORATION
(Unaudited)
                
  At or for the Three Months Ended 
Selected Financial Data: December 31,
2019
  September 30,
2019
  June 30,
2019
  March 31,
2019
  December 31,
2018
 
                     
  (Dollars in thousands) 
Selected Average Balances:               
Total assets $3,978,345   3,891,019   3,878,269   3,826,116   3,700,795 
Investment securities and FHLB stock  822,430   815,207   832,224   833,720   838,834 
Loans receivable, net  2,711,061   2,639,921   2,610,394   2,535,192   2,428,603 
Loans held for sale  31,436   29,733   21,905   13,754   20,120 
Deposits  2,900,713   2,837,353   2,782,576   2,751,913   2,760,156 
Stockholders’ equity  628,850   614,550   598,196   580,300   569,528 
                     
Performance Ratios (annualized):                    
Return on average stockholders’ equity  10.49%  10.82%  10.08%  10.03%  10.85%
Return on average tangible equity (Non-GAAP)  13.55%  14.08%  13.24%  13.32%  14.53%
Return on average assets  1.66%  1.71%  1.55%  1.52%  1.67%
Operating return on average stockholders’ equity (Non-GAAP)  11.50%  12.08%  10.87%  10.11%  11.88%
Operating return on average tangible equity (Non-GAAP)  14.86  15.72%  14.28%  13.44%  15.92%
Operating return on average assets (Non-GAAP)  1.82%  1.91%  1.68%  1.53%  1.83%
Average earning assets to average total assets  90.28%  90.13%  89.83%  89.72%  89.64%
Average loans receivable to average deposits  93.46%  93.04%  93.81%  92.12%  87.99%
Average stockholders’ equity to average assets  15.81%  15.79%  15.42%  15.17%  15.39%
Net interest margin-tax equivalent (1)  3.94%  4.13%  3.99%  4.00%  4.23%
Net charge-offs (recoveries) to average loans receivable  0.03%  0.05%  (0.03)%  0.02%  (0.02)%
Nonperforming assets to period end loans receivable  0.85%  0.77%  0.54%  0.50%  0.53%
Nonperforming assets to total assets  0.59%  0.52%  0.37%  0.34%  0.35%
Nonperforming loans to total loans  0.78%  0.70%  0.50%  0.45%  0.47%
Allowance for loan losses as a percentage of gross loans receivable (end of period) (2)  0.51%  0.59%  0.60%  0.58%  0.57%
Allowance for loan losses as a percentage of gross non-acquired loans receivable (Non-GAAP)  0.74%  0.74%  0.77%  0.77%  0.79%
Allowance for loan losses as a percentage of nonperforming loans (2)  65.44%  84.73%  120.51%  129.74%  123.13%
                     
Nonperforming Assets, excluding purchased credit impaired:                    
Loans 90 days or more past due and still accruing $81            20 
Nonaccrual loans  25,166   19,032   13,167   11,578   11,721 
Total nonperforming loans  25,247   19,032   13,167   11,578   11,741 
Real estate acquired through foreclosure, net  2,325   1,832   1,218   1,335   1,534 
Total nonperforming assets $27,572   20,864   14,385   12,913   13,275 
                     
(1)  Net interest margin-tax equivalent reflects tax-exempt income on a tax-equivalent basis.
(2)  Acquired loans represent 30.7%, 20.2%, 22.7%, 24.9%, and 27.2%, of gross loans receivable at December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019, and December 31, 2018, respectively.
 
 


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


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


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


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


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


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


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


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


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


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


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

        

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

For More Information, Contact:

William A. Gehman III, EVP and CFO, 843.723.7700

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