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Carolina Financial Corporation Reports Results for First Quarter of 2019

Carolina Financial Corporation Reports Results for First Quarter of 2019

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

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

• Net income for Q1 2019 increased 258.6% to $14.5 million, or $0.65 per diluted share, from $4.1 million, or $0.19 per diluted share for Q1 2018.

  • Accretion income from acquired loans for Q1 2019 was $1.5 million compared to $2.9 million for Q1 2018.
  • Provision for loan losses during Q1 2019 was $700,000. There was no provision for loan losses recorded during Q1 2018 primarily due to the net recoveries experienced and asset quality.

• Operating earnings for Q1 2019, which exclude certain non-operating income and expenses, decreased 1.8% to $14.7 million, or $0.66 per diluted share, from $14.9 million, or $0.71 per diluted share, for Q1 2018.

• Operating earnings for Q1 2019 have been adjusted to eliminate the following significant items:

  • The fair value loss on interest rate swaps of $1.4 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 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 $6.7 million at the end of Q1 2019 compared to Q4 2018.
  • The gain on sale of securities of $1.2 million.

• Performance ratios Q1 2019 compared to Q1 2018:

  • Return on average assets was 1.52% compared to 0.46%.
  • Operating return on average assets was 1.53% compared to 1.70%.
  • Return on average tangible equity was 13.32% compared to 4.90%.
  • Operating return on average tangible equity was 13.44% compared to 18.06%.

• Loans receivable, gross grew $66.3 million from December 31, 2018, or at an annualized rate of 10.5%.

• Total deposits increased $98.9 million from December 31, 2018.

• On December 3, 2018, the Company announced that the Board of Directors had approved a plan to repurchase up to $25,000,000 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 first quarter, the Company repurchased approximately 129,000 shares at an average price of $32.33. Cumulatively since December 4, 2018, the Company repurchased approximately 304,000 shares at an average price of $31.35.

“We continue to see the impact of solid organic growth and prior acquisitions on earnings. Overall, results for the first quarter of 2019 continued to improve with an increase of 258.6% in net income to $14.5 million compared to the first quarter of 2018,” stated Jerry Rexroad, the Company’s Chief Executive Officer.

Financial Results

Carolina Financial Corporation

• The Company reported an increase in net income for Q1 2019 to $14.5 million, or $0.65 per diluted share, as compared to $4.1 million, or $0.19 per diluted share, for Q1 2018.

  • Included in net income for Q1 2019 and Q1 2018 was accretion income from acquired loans of $1.5 million and $2.9 million, respectively. Provision for loan losses during Q1 2019 was $700,000. There was no provision for loan losses recorded during Q1 2018.

• Operating earnings for Q1 2019, which exclude certain non-operating income and expenses, decreased 1.8% to $14.7 million, or $0.66 per diluted share, from $14.9 million, or $0.71 per diluted share, from Q1 2018.

  • Included in net income for Q1 2019 was a fair value loss on interest rate swaps of $1.4 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. Interest rate swaps that are not designated as hedges are primarily used 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 $6.7 million at the end of Q1 2019 compared to Q4 2018. Q1 2019 also reflects a $1.2 million gain on sale of securities. Included in net income for Q1 2018 were merger-related expenses of $14.7 million.

• The Company’s net interest margin-tax equivalent (NIM) decreased to 4.00% for Q1 2019 compared to 4.20% for Q1 2018. Q1 2019 included accretion income from acquired loans of $1.5 million (18 bps to NIM) and early payoff fees of $99,000 (1bps to NIM) compared to Q1 2018 accretion income from acquired loans of $2.9 million (38 bps to NIM) and early payoff fees of $244,000 (3 bps to NIM).

• Excluding accretion income from acquired loans and early payoff fees, Q1 2019 net interest margin was 3.81% compared to 3.84% in Q4 2018.

• The Company reported book value per common share of $26.56 and $25.83 as of March 31, 2019 and December 31, 2018, respectively. Tangible book value per common share was $20.10 and $19.36 as of March 31, 2019 and December 31, 2018, respectively.

• At March 31, 2019, the Company’s regulatory capital ratios exceeded the minimum levels currently required. Stockholders’ equity totaled $589.2 million as of March 31, 2019 compared to $575.3 million at December 31, 2018. Tangible equity to tangible assets at March 31, 2019 was 12.05% compared to 11.83% at December 31, 2018.

• During Q1 2019, the Company repurchased approximately 129,000 shares at an average price of $32.33.

Banking Segment

  • Banking segment net income increased 271.0% to $14.8 million for Q1 2019 compared to $4.0 million for Q1 2018. Included in net income for Q1 2019 and Q1 2018 was accretion income from acquired loans of $1.5 million and $2.9 million, respectively. Included in net income for Q1 2018 were merger-related expenses of $14.7 million.
  • Banking segment operating earnings remained flat at $14.9 million for Q1 2019 and Q1 2018.
  • Provision for loan losses during Q1 2019 was $700,000. The provision for loan losses during Q1 2019 was primarily driven by organic loan growth. There was no provision for loan losses recorded during Q1 2018 primarily due to the net recoveries experienced and asset quality.
  • Other non-interest expense for Q1 2019 included a loss on sale and expense of other real estate owned of approximately $186,000. 
  • Non-performing assets (NPA) were 0.34% and 0.35% of total assets at March 31, 2019 and December 31, 2018, respectively.
  • Loans receivable, gross increased at an annualized rate of 10.5% to $2.6 billion at March 31, 2019 compared to $2.5 billion at December 31, 2018.
  • Total deposits increased $98.9 million since December 31, 2018.

Wholesale Mortgage Banking Segment

  • Net income for the wholesale mortgage banking segment was $390,000 for Q1 2019 compared to $562,000 for Q1 2018. The decrease in Q1 2019 was primarily driven by a decrease in origination activity and closings  impacting mortgage banking income.
  • Net margin was 2.04% for Q1 2019 compared to 1.74% for Q1 2018. Originations for Q1 2019 and 2018 were $140.3 million and $180.5 million, respectively.

Dividend Declared

On April 24, 2019 the Company declared a $0.09 dividend per common share, payable on July 5, 2019, to stockholders of record on June 14, 2019.

Conference Call

A conference call will be held at 11:00 a.m., Eastern Time on April 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 6047389. 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 and 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 6047389.

About Carolina Financial Corporation

Carolina Financial Corporation (CARO) is the holding company of CresCom Bank, which also owns and operates Atlanta-based Crescent Mortgage Company.  As of March 31, 2019, Carolina Financial Corporation had approximately $3.8 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, net interest margin-core and yield on loans receivable-core, which are non-GAAP measures. We believe that such non-GAAP measures are useful because they enhance the ability of investors and management to evaluate and compare the Company’s operating results from period to period in a meaningful manner. Non-GAAP measures should not be considered as an alternative to any measure of performance as promulgated under GAAP. Investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company’s results or financial condition as reported under GAAP.

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

Forward-Looking Statements

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

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: (1) competitive pressures among depository and other financial institutions may increase significantly and have an effect on pricing, spending, third-party relationships and revenues; (2) the strength of the United States economy in general and the strength of the local economies in which we conduct operations may be different than expected resulting in, among other things, a deterioration in the credit quality or a reduced demand for credit, including the resultant effect on the Company’s loan portfolio and allowance for loan losses; (3) the rate of delinquencies and amounts of charge-offs, the level of allowance for loan loss, the rates of loan growth, or adverse changes in asset quality in our loan portfolio, which may result in increased credit risk-related losses and expenses; (4) the risk that the preliminary financial information reported herein and our current preliminary analysis will be different when our review is finalized; (5) changes in the U.S. legal and regulatory framework including, but not limited to, the Dodd-Frank Act and regulations adopted thereunder; (6) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) could have a negative impact on the Company; (7) the business related to acquisitions may not be integrated successfully or such integration may take longer to accomplish than expected; (8) the expected cost savings and any revenue synergies from acquisitions may not be fully realized within expected timeframes; (9) disruption from acquisitions may make it more difficult to maintain relationships with clients, associates, or suppliers; and (10) the impact of 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
             
    March 31,
2019
    December 31,
2018
 
    (Unaudited)     (Audited)  
             
             
    (Dollars in thousands)  
ASSETS                
Cash and due from banks   $ 25,757       28,857  
Interest-bearing cash     34,251       33,276  
Cash and cash equivalents     60,008       62,133  
Securities available-for-sale     813,257       842,801  
Federal Home Loan Bank stock, at cost     18,349       21,696  
Other investments     3,473       3,450  
Derivative assets     3,176       4,032  
Loans held for sale     23,799       16,972  
Loans receivable, gross     2,590,610       2,524,336  
Allowance for loan losses     (15,021 )     (14,463 )
Loans receivable, net     2,575,589       2,509,873  
                 
Premises and equipment, net     60,547       60,866  
Right of use operating lease asset     18,004        
Accrued interest receivable     13,618       13,494  
Real estate acquired through foreclosure, net     1,335       1,534  
Deferred tax assets, net     4,270       5,786  
Mortgage servicing rights     32,033       32,933  
Cash value life insurance     58,896       58,728  
Core deposit intangible     15,713       16,462  
Goodwill     127,592       127,592  
Other assets     12,521       12,396  
Total assets   $ 3,842,180       3,790,748  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Liabilities:                
Noninterest-bearing deposits   $ 575,990       547,022  
Interest-bearing deposits     2,241,080       2,171,171  
Total deposits     2,817,070       2,718,193  
Short-term borrowed funds     321,000       405,500  
Long-term debt     59,480       59,436  
Right of use operating lease liability     18,296        
Derivative liabilities     2,492       1,232  
Drafts outstanding     7,610       8,129  
Advances from borrowers for insurance and taxes     5,934       4,100  
Accrued interest payable     2,371       1,591  
Reserve for mortgage repurchase losses     1,192       1,292  
Dividends payable to stockholders     1,785       1,576  
Accrued expenses and other liabilities     15,800       14,414  
Total liabilities     3,253,030       3,215,463  
Stockholders’ equity:                
Preferred stock            
Common stock     223       224  
Additional paid-in capital     404,869       408,224  
Retained earnings     179,845       167,173  
Accumulated other comprehensive income (loss), net of tax     4,213       (336 )
Total stockholders’ equity     589,150       575,285  
Total liabilities and stockholders’ equity   $ 3,842,180       3,790,748  
                 


CAROLINA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
    For the Three Months  
    Ended March 31,  
    2019     2018  
             
    (In thousands, except share data)  
Interest income                
Loans   $ 34,977       31,663  
Investment securities     7,355       5,707  
Dividends from Federal Home Loan Bank stock     262       175  
Other interest income     187       131  
Total interest income     42,781       37,676  
Interest expense                
Deposits     6,303       3,642  
Short-term borrowed funds     2,316       1,253  
Long-term debt     691       650  
Total interest expense     9,310       5,545  
Net interest income     33,471       32,131  
Provision for loan losses     700        
Net interest income after provision for loan losses     32,771       32,131  
Noninterest income                
Mortgage banking income     3,418       3,801  
Deposit service charges     1,667       2,024  
Net gain (loss) on sale of securities     1,194       (697 )
Fair value adjustments on interest rate swaps     (1,371 )     803  
Net increase in cash value life insurance     398       390  
Mortgage loan servicing income     2,638       2,025  
Debit card income, net     975       927  
Other     952       775  
Total noninterest income     9,871       10,048  
Noninterest expense                
Salaries and employee benefits     13,471       13,668  
Occupancy and equipment     4,121       3,652  
Marketing and public relations     426       376  
FDIC insurance     255       255  
Recovery of mortgage loan repurchase losses     (100 )     (150 )
Legal expense     86       76  
Other real estate expense (income), net     186       (94 )
Mortgage subservicing expense     706       565  
Amortization of mortgage servicing rights     1,236       979  
Amortization of core deposit intangible     749       806  
Merger-related expenses           14,710  
Other     3,011       2,755  
Total noninterest expense     24,147       37,598  
Income before income taxes     18,495       4,581  
Income tax expense     3,950       525  
Net income   $ 14,545       4,056  
                 
Earnings per common share:                
Basic   $ 0.66       0.19  
Diluted   $ 0.65       0.19  
Dividends per common share   $ 0.07       0.05  
Weighted average common shares outstanding:                
Basic     22,193,861       20,908,225  
Diluted     22,381,809       21,119,316  
                 


CAROLINA FINANCIAL CORPORATION
(Unaudited)
(Dollars in thousands)
                               
    At or for the Three Months Ended  
Selected Financial Data:   March 31,
2019
    December 31,
2018
    September 30,
2018
    June 30,
2018
    March 31,
2018
 
                               
Selected Average Balances:                                        
Total assets   $ 3,826,116       3,700,795       3,663,915       3,627,402       3,522,407  
Investment securities and FHLB stock     833,720       838,834       831,793       809,625       770,161  
Loans receivable, net     2,535,192       2,428,603       2,402,075       2,401,075       2,322,203  
Loans held for sale     13,754       20,120       23,692       23,137       21,645  
Deposits     2,751,913       2,760,156       2,735,346       2,677,401       2,616,640  
Stockholders’ equity     580,300       569,528       559,401       497,694       477,830  
                                         
Performance Ratios (annualized):                                        
Return on average stockholders’ equity     10.03     10.85 %     10.87 %     12.03 %     3.40 %
Return on average tangible equity (Non-GAAP)     13.32 %     14.53 %     14.68 %     17.02 %     4.90 %
Return on average assets     1.52 %     1.67 %     1.66 %     1.65 %     0.46 %
Operating return on average stockholders’ equity (Non-GAAP)     10.11 %     11.88 %     10.99 %     12.54 %     12.51 %
Operating return on average tangible equity (Non-GAAP)     13.44 %     15.92 %     14.85 %     17.74 %     18.06 %
Operating return on average assets (Non-GAAP)     1.53 %     1.83 %     1.68 %     1.72 %     1.70 %
Average earning assets to average total assets     89.72 %     89.64 %     89.59 %     89.82 %     89.28 %
Average loans receivable to average deposits     92.12 %     87.99 %     87.82 %     89.68 %     88.75 %
Average stockholders’ equity to average assets     15.17 %     15.39 %     15.27 %     13.72 %     13.57 %
Net interest margin-tax equivalent (1)     4.00 %     4.23 %     4.15 %     4.11 %     4.20 %
Net charge-offs (recoveries) to average loans receivable     0.02 %     (0.02 )%     0.02 %     0.04 %     (0.21 )%
Nonperforming assets to period end loans receivable     0.50 %     0.53 %     0.49 %     0.42 %     0.45 %
Nonperforming assets to total assets     0.34 %     0.35 %     0.32 %     0.28 %     0.30 %
Nonperforming loans to total loans     0.45 %     0.47 %     0.43 %     0.35 %     0.36 %
Allowance for loan losses as a percentage of gross loans receivable (end of period) (2)     0.58 %     0.57 %     0.55 %     0.54 %     0.53 %
Allowance for loan losses as a percentage of gross non-acquired loans receivable (Non-GAAP)     0.77 %     0.79 %     0.80 %     0.80 %     0.85 %
Allowance for loan losses as a percentage of nonperforming loans (2)     129.74 %     123.13 %     129.26 %     153.84 %     146.93 %
                                         
Nonperforming Assets, excluding purchased credit impaired:                                        
Loans 90 days or more past due and still accruing   $       20       32       19        
Nonaccrual loans     11,578       11,721       10,501       8,423       8,649  
Total nonperforming loans     11,578       11,741       10,533       8,442       8,649  
Real estate acquired through foreclosure, net     1,335       1,534       1,601       1,726       1,963  
Total nonperforming assets   $ 12,913       13,275       12,134       10,168       10,612  

(1) Net interest margin-tax equivalent reflects tax-exempt income on a tax-equivalent basis.
(2) Acquired loans represent 24.9%, 27.2%, 30.5%, 33.5% and 36.8%, of gross loans receivable at March 31, 2019, December 31, 2018, September 30, 2018, June 30, 2018 and March 31, 2018, respectively. 

Carolina Financial Corporation                  
Segment Information                  
(Unaudited)                  
(Dollars in thousands)      
    For the Three Months Ended     Increase
(Decrease)
 
    March 31,     Three  
    2019     2018     Months  
Segment net income:                        
Community banking   $ 14,781       3,984       10,797  
Wholesale mortgage banking     390       562       (172 )
Other     (636 )     (497 )     (139 )
Eliminations     10       7       3  
Total net income   $ 14,545       4,056       10,489  


                               
    For the Three Months Ended  
    March 31,
2019
    December 31,
2018
    September 30,
2018
    June 30,
2018
    March 31,
2018
 
Segment net income:                                        
Community banking   $ 14,781       15,449       15,263       14,928       3,984  
Wholesale mortgage banking     390       599       555       598       562  
Other     (636 )     (594 )     (606 )     (568 )     (497 )
Eliminations     10       (10 )     (8 )     8       7  
Total net income   $ 14,545       15,444       15,204       14,966       4,056  


                               
    For the Three Months Ended March 31, 2019  
    Community     Mortgage                    
    Banking     Banking     Other     Eliminations     Total  
Interest income   $ 42,476       390       15       (100 )     42,781  
Interest expense     8,756       128       556       (130 )     9,310  
Net interest income (expense)     33,720       262       (541 )     30       33,471  
Provision for loan losses     700                         700  
Noninterest income from external customers     4,556       5,296       19             9,871  
Intersegment noninterest income     242       18             (260 )      
Noninterest expense     18,991       4,846       310             24,147  
Intersegment noninterest expense           240       2       (242 )      
Income (loss) before income taxes     18,827       490       (834 )     12       18,495  
Income tax expense (benefit)     4,046       100       (198 )     2       3,950  
Net income (loss)   $ 14,781       390       (636 )     10       14,545  


       
    For the Three Months Ended March 31, 2018  
    Community     Mortgage                    
    Banking     Banking     Other     Eliminations     Total  
Interest income   $ 37,257       431       13       (25 )     37,676  
Interest expense     5,084       53       461       (53 )     5,545  
Net interest income (expense)     32,173       378       (448 )     28       32,131  
Provision for loan losses                              
Noninterest income from external customers     5,059       4,924       65             10,048  
Intersegment noninterest income     242       17             (259 )      
Noninterest expense     32,929       4,389       280             37,598  
Intersegment noninterest expense           240       2       (242 )      
Income (loss) before income taxes     4,545       690       (665 )     11       4,581  
Income tax expense (benefit)     561       128       (168 )     4       525  
Net income (loss)   $ 3,984       562       (497 )     7       4,056  


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