Carolina Financial Corporation Reports Results for the Second Quarter of 2019


CHARLESTON, S.C., July 25, 2019 (GLOBE NEWSWIRE) -- 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.

  • Accretion 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:

  • The 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.
  • The gain on sale of securities of $1.9 million.
  • The loss on early extinguishment of debt of approximately $31,000.
  • The 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:

  • Return on average assets was 1.55% compared to 1.65%.
  • Operating return on average assets was 1.68% compared to 1.72%.
  • Return on average tangible equity was 13.24% compared to 17.02%.
  • Operating 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.

  • 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.

•  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.

  • Included 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.
  • Included 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.

  • Included 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.

  • Included 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).

  • Excluding 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.

  • Included 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.
  • Included 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.

       
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.
                

For More Information, Contact:

William A. Gehman III, EVP and CFO, 843.723.7700