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Edited Transcript of CARO earnings conference call or presentation 25-Oct-19 3:00pm GMT

Q3 2019 Carolina Financial Corp Earnings Call

CHARLESTON Nov 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Carolina Financial Corp earnings conference call or presentation Friday, October 25, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jerold L. Rexroad

Carolina Financial Corporation - President, CEO & Director

* William A. Gehman

Carolina Financial Corporation - Executive VP & CFO

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Conference Call Participants

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* Kevin Patrick Fitzsimmons

D.A. Davidson & Co., Research Division - MD & Senior Research Analyst

* Stuart Lotz

Keefe, Bruyette, & Woods, Inc., Research Division - Research Analyst

* William Jefferson Wallace

Raymond James & Associates, Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Carolina Financial Corporation 2019 Third Quarter Earnings Call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Mr. William Gehman, Chief Financial Officer. Please go ahead, sir.

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William A. Gehman, Carolina Financial Corporation - Executive VP & CFO [2]

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Thank you, operator. And again, welcome to the Carolina Financial Corporation's Third Quarter 2019 Investor Call. Please refer to Slide 2 regarding forward-looking statements and non-GAAP measures.

And now I'd like to turn the call over to Jerry Rexroad, CEO of Carolina Financial Corporation.

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [3]

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Thanks, Bill. And I do thank all of you for attending our third quarter earnings release call for Carolina Financial.

If you turn to Page 3. Overall, I thought we had a very good third quarter. Really pleased with the overall results. Net income for the third quarter 2019 increased 9.3% to $16.6 million or $0.74 per diluted share compared to $15.2 million or $0.66 per diluted share in the third quarter of 2018. On an operating basis, earnings increased 20.8% to $18.6 million or $0.83 per diluted share, up from $15.4 million or $0.67 per diluted share for the third quarter of 2018.

Loans receivable grew $71 million for the quarter. And on an annualized rate, that's 10.7%. And for the year, have grown almost $198 million for an annualized rate of 10.5%. Really pleased with our loan growth, and really want to thank our team members for an excellent job, particularly when you consider that this year we've had a nice decrease in our PCI loans of about $12 million. We've chosen to get out of a couple of lines of business that we picked up through merger primarily the ag business and the leasing division business that we had picked up. And both of those areas are down fairly significantly. And then quite frankly, in the third quarter, we had a fair amount of repayment of mortgage loans. So overall, loan growth was excellent and very pleased with our overall loan growth. And I do apologize, that was my phone, not Bill's.

If you look forward on Page 3. Provision for loan loss for the quarter was $620,000 in the third quarter 2019. That compares to $750,000 in the third quarter of 2018. Deposit increase for the year $125 million. For the quarter, about $37 million. I am real pleased to say that we've announced the execution of our agreement this quarter to acquire and merge with Carolina Trust BancShares. Combined, our company will have over $4.7 billion in total assets. And all the regulatory approvals for that transaction were received in September and October of 2019. And the shareholder vote is scheduled for December 18.

We did have some impact in our markets from Hurricane Dorian. Primarily impacted, particularly the tourism business along the coast for probably a couple weeks. Certainly, had some impact on our deposits being a little lower early on in the quarter. In addition, it did impact our Mortgage business quite a bit in September, particularly in our banking segment. But overall, really the damage was minimal. I don't expect any customer impacts to be material. And overall, really limited impact this year from storms, unlike what we had last year.

Book value per common share $28.08 that -- at the end of third quarter, that compares to $25.83 at the end of the year. Tangible book value per share was $21.68 at September 30, 2019. And that compares to $19.36 at the beginning of the year. We've previously announced the stock repurchase plan. That stock repurchase plan is somewhat limited because we're in a transaction with Carolina Trust. But we did purchase -- repurchase approximately 47,000 shares in the quarter at an average price of $34.23.

I'm pleased to announce that our Board of Directors on October 23, did increase our dividend. And we declared a dividend of $0.10 per common share payable on January 3, 2020. And that's to shareholders of record on December 13. This represents an 11% increase in the dividend. And over the last 4 quarters, the company has increased its quarterly dividend from $0.07 a share to $0.10 a share, almost 43%, as a result of improving earnings.

Let's talk about our community banking segment results on Page 5. Overall, really good quarter. Community banking segment, $16.9 million in the third quarter of '19 or $0.76 a share, compared to $15.3 million in the third quarter of '18 or $0.67 a share.

On an operating basis, third quarter 2019 $17.5 million or $0.78 per diluted share compared to $15.4 million in the prior year third quarter or $0.67 a share. Segment return on average assets was 1.73% for the third quarter '19. On an operating basis, community banking segment was 1.8% for the third quarter of 2019.

Sure most of you want to know what happened with margin and that's on Page 6. We give a lot of information here. We tried to give you all the different pieces, and there are a lot of moving pieces this quarter. During the quarter, we did have recognition of interest income of approximately $1.2 million related to the payoff of our previously purchased credit impaired loan. And that had an impact on loan yield of almost 18 basis points.

Our accretion income for the quarter was $1.7 million. That compares to $1.5 million in the second quarter of 2019. Also we had early payoff fees related to loan repayments and interest income of $276,000 in the third quarter of '19, that compares to $46,000 in the second quarter of '19.

I will point out that we make that available for everybody to see what it is simply because it really is a part of our normal ongoing business. We do generally require prepayment penalties on term commercial loans, however, they're choppy in the recognition and they can kind of move up and down. So we do break it out separately.

When you exclude the accretion income, our net interest margin was 3.77% for the quarter compared to 3.82% in the second quarter of 2019. Cost of funds decreased 4 basis points. And overall, felt like the margin really held up pretty nicely, considering the decreases in prime rate that we experienced here recently.

Operating efficiency in the bank remains very strong. We've had 4 quarters in a row where our noninterest expense divided by average assets is less than 2%. It's really been a goal for a long time, and we had started achieving that late last year. And frankly, have continue to be able to achieve that level of efficiency throughout this year. I'm very proud of our team and the hard work they do to make sure that happens.

And I talked about our balance sheet growth on Page 8, I won't spend much time on that. I will go to Page 9 and mention that we did have 1 NPA that was material that occurred this quarter. Our NPAs are still, I think, very favorable, 0.52% of assets. The increase in net NPA ratio was primarily due to 1 fully collateralized lending relationship that had not hit 90 days delinquent, but we chose to go ahead and put it on nonaccrual and we do believe that it is fully collateralized based on the information we have at this time.

Provision for loan loss for the quarter, $620,000. And I think you can continue to see that our loan mix continues to be fairly conservative I think. 26% of our portfolio is 1-4 family, with a very small emphasis on consumer being less than 4% of our total loans.

I'm going to go forward to talk about Crescent Mortgage on Page 12. Crescent Mortgage had a really good quarter. I'm really pleased with the margin increase. You can see that the margin increased 31 basis points from last quarter and 54 basis points from the third quarter of 2018. Also our origination volume, $233 million in the third quarter compared to $189 million in the second quarter of 2019 and $190 million in the third quarter of 2018. That's a 23% increase.

The Mortgage Company -- Crescent Mortgage company made $325,000 or $0.01 a share. That compares to $555,000 on a GAAP basis, or $0.02 a share a year ago. However, this year included in net income for the third quarter was a $1.8 million temporary impairment of mortgage servicing rights. And so if you exclude that, which we believe is a nonoperating item, our actual earnings in our Wholesale Mortgage segment were $1.7 million, or $0.08 a share. There were some impact this year, I mentioned, from Dorian, but of course, last year, did had some fairly significant impact from Hurricane Florence.

I do want you to look down at the right side of Page 12, at the bottom there. We've added some information that I think's very valuable. Our servicing portfolio began the year at about $4 billion. We haven't added a whole lot to it this year, a little less than $100 million. And you can see that repayments for the year are $413 million. That's 10%. Now when I say repayments, that includes amortization and early payoffs. So a pretty benign number when you really look at interest rates and what they've done. If you look to the right of that, you can see that we've actually amortized through normal amortization 12% of the asset. But in addition, due to the fair value requirements under generally accepted accounting principles that are based upon really market metrics, you can see that we've written down the asset an additional 10% for fair value adjustment.

So we've actually decreased the asset 22%, whereas the servicing portfolio is only decreased 10%. And I will say, it will take time for us to figure out what happens as we go forward. But I am generally very pleased that our servicing portfolio has repaid fairly slowly. It's certainly paying slower then peer. And obviously, the third-party valuations are based on market metrics and the expectation of future repayments.

I will mention that at the end of the third quarter is the time that the servicing portfolio is valued. At that date, the 10-year treasury was 1.68%. Today, it's about 1.77%. So as we look forward, I can't really make projections, but what I can say is that if rates continue to be moderate as far as compared to that 1.68% on the 10 year, we would expect that there is a potential for a possible recovery, some of that temporary impairment, and we would also expect it would be possible as time goes on that we would slow our amortization. So overall, although, we did have the impairment, I must say that I still feel very good about the asset that we purchased, and believe that strategically it represents an opportunity in the Mortgage Company to continue to be profitable for us as we move forward.

Looking at Page 13. A couple of key shareholder metrics for the quarter. Return on our average assets 1.71%, operating return on a consolidated basis 1.91%. I mentioned earlier tangible book value per share. But if you look from a year ago, we were $18.69 a year ago. We're $21.68 at the end of this quarter. Almost a $3 improvement. 16% when comparing a year ago to now.

On an operating earnings basis, and this is shown on the slide on the bottom of Page 13. A year ago, we made $0.67 on an operating basis in the third quarter. This year, 83% -- $0.83 on the third quarter of 2019, a 24% increase in operating earnings. So really pleased with the third quarter and really pleased with our overall result.

Quick summary of the quarter, really good organic loan growth, almost $71 million. Margin, we mentioned earlier, I felt very good about. Really good Mortgage operations, both really in the bank and in the Mortgage Company. Overall, good expense control. And again, I would say both in the bank and in the Mortgage Company. Very pleased to say that we received our regulatory approvals to complete the merger with Carolina Trust. Tangible book value per share increasing 16% from a year ago. And of course, I'd mention that our operating return on tangible assets was 1.98% for the quarter ending September 30, 2019.

So I want to really thank our team members. It's been a really good quarter. Obviously, challenged by Hurricane Dorian for a couple weeks there. But I feel like the team has really done a great job, really want to say thank you to our people at Crescent Mortgage, they've been busy. I think they've done a great job, delivering great service as well as being able to really make an impact on our quarter.

So with that, I'll go ahead and open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Kevin Fitzsimmons with D.A. Davidson.

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Kevin Patrick Fitzsimmons, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [2]

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Just a couple of questions. First on the margin, if you -- excluding all the accretion and the recovery, so just looking at the core, how would you think about it reacting to just the current environment we have as well as further rate cuts in fourth quarter and first quarter?

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [3]

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Kevin, it's a really hard question for us to answer, particularly, given our seasonality and our deposit portfolio. So we -- and I think that seasonality actually happened quicker this year. I think we had a really good summer, particularly up and down the coast. And so I think people had to pay quite a bit in income taxes September 15. And then of course, that came right off of really not having a good first 2 weeks in September which -- September has actually become a very good part of the season along the coast. So having said that, deposits are always hard for us to project as we go into the fourth quarter, and particularly the noninterest-bearing deposits tend to shrink a little bit. But we also have quite a bit of CDs that are repricing in the fourth quarter, an unusually large amount in the fourth quarter. And it really just depends on when we get that next rate cut. Those rate cuts are immediate as far as impact to yield on loans. And of course, the impact on deposits tends to be a little slower in reacting. So I would expect some further help. If, let's say, we don't get it until December, it -- I think we could do fairly well on margin.

The other thing I'll mention, Kevin, and I mentioned this in my call, is when you have an extremely good loan growth month like we did in September and really August. August and September were really strong loan growth months for us. And those loan rates that we're putting on now, although, I think they're market for sure. And we're not giving away our loans like I do see some of our competitors still in the marketplace. But frankly, there are rates that are lower than our average rate. And so they really do pull down. They've pulled down our yield on loans a little bit, I'm guessing a little bit when I say this. But I think it's a pretty good guess. And that is, I think they probably hit us 2 to 3 basis points in this quarter on loan rate. So overall, that's probably going to continue, if we continue to have extremely good loan growth, but if loan growth moderates to be more like what we thought, it'll have a lesser impact. So I kind of look at net interest income and felt really good about the quarter as a whole because I think that's what you got to look about as growing revenue. But yes, if rates drop, I mean, we've made it very clear that we're going to lose a little bit of margin on a year-over-year basis. But so far, it seems to be pretty controlled.

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Kevin Patrick Fitzsimmons, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [4]

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Okay. Great. Very helpful. Can you remind us, as far as -- it was a very strong quarter for Mortgage. But now as we go into fourth quarter, is there -- on the one hand, is there typical fourth quarter seasonality, but is there also some kind of pent-up strength that -- not strength but the effect of the hurricane did seem like it got pushed a little later. So is there any activity that gets pushed in the fourth quarter that might not have normally?

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [5]

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So I will say -- I'll answer the hurricane question first and then I'll try to answer the second part. It's a good question. The problem with hurricanes is they keep people from coming to the coast. And those people are typically coming to buy. And it's amazing how much activity there is in our coastal markets. People looking for opportunities. So it may push some of those people back into coming in the fourth quarter. And I just can't predict that. What I do know is that really the first 2 weeks of September were really, really negatively impacted by Hurricane Dorian. And in all honesty, that is typically a good period for our Mortgage team on purchases. We just have to wait and see what the fourth quarter looks like. I will say that I'm pretty pleased with fourth quarter volume so far.

And on the Mortgage side, talking about our Wholesale Mortgage Company, that is -- that has been very sensitive to interest rates. So when we see the 10-year drop down at like 1.60%, our volumes increase significantly. When they go -- when rates go up towards, say, 1.80%, 1.90% on the 10 year, things slow down and then they kind of level off. So there is some real sensitivity to rates there. So far again, in the fourth quarter been good. But I can't tell you how much of that pent-up is related to people to finally just going ahead and refinancing or purchasing versus other things. Overall, you look at the fourth quarter, last year in our Wholesale Mortgage Company, we typically do drop, say, 15% in the fourth quarter and probably another 15% in the first quarter. So definitely the second and third quarters are definitely our better quarters. But as long as rates stay in this sub-2% on the 10 year, I feel pretty confident that Mortgage will continue to be a good driver for us. If the Fed decreases in the future and long-term rates go down, then obviously, Mortgage gets benefited significantly by that. So hopefully, I got -- hopefully, I kind of covered that in that long explanation there.

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Operator [6]

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And our next question comes from William Wallace with Raymond James.

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William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [7]

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I wanted to follow up on Kevin's margin question, if I could. Jerry, you said a lot, so maybe if I could just ask a very direct question. If the Fed does not cut next week, am I hearing you correctly, where you think you could hold net interest margin in the fourth quarter?

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [8]

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It totally depends on the seasonality of our deposit mix. And Wally, I always try to dance around that because it just is very, very unpredictable. And so the Fed not decreasing next week would be very good. I will mention -- and I think I've said this on previous calls, we have opened an office in Charlotte. We are being very aggressive on acquiring deposits there. We also have had some closures of competitors in a number of our markets, and we are being very aggressive in our attempted acquisition and deposits in those markets. And there's about 5 markets that that's the case in. That could have some impact, it just depends on how successful we are. So I always struggle to try to give guidance on where interest rates are going. But overall, Wally, no decrease by the Fed, I wouldn't be surprised just because it's fourth quarter, we're still going to have a little compression. But quite frankly, we'll get most of that back, probably in the latter part on the first quarter. It starts in March. And then by time April comes, we see pretty large increases in deposits starting to come back in. So when I look at it more over a year period of time is what I -- is what we try to do. So far we're pretty pleased with what margin has done considering seasonality.

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William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [9]

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Okay. All right. And then have you started to take down the rates you're paying on deposit yet, outside the CDs?

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [10]

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Yes. We have.

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William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [11]

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Okay. And if we do get another cut next week, would we expect that you would be aggressive on paying those costs again?

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [12]

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Yes. We would. Now we can have, like I said, 3 or 4 markets that we probably remain aggressive in. But we're even bringing our rates down in those markets. But -- yes, we're definitely bringing our rates down.

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William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [13]

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Okay. So it's fair to assume that the deposit costs likely peak in the third quarter understanding that a shift in the mix could change that equation?

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [14]

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I would think so. I mean we were down 4 basis points in the third quarter. And I -- even though there's -- no doubt there'd be some deposit mix shift in the fourth quarter. I definitely think your hypothesis there is correct.

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William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [15]

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Okay. And then I was wondering, if we could get a little bit more specific color on the one credit that you said drove the NPA increase? Can you tell us, one, the balance of the loan, the nature of the loan? And what drove the deterioration?

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [16]

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No. I can't give you that kind of detail. It was approximately $5.5 million in size. It's 1 relationship. And it's a relationship that's collateralized by real estate. And we feel, based upon the information that we have, it's fully collateralized. But it's the why it happened and that kind of stuff. It -- I can't really go there. But it's a customer that has been with us for a while. And quite frankly, just experienced some difficulties. But it is a CRE loan.

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William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [17]

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Okay. Did you say what industry it was in?

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [18]

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I did not.

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William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [19]

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Not. Okay. And you won't?

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [20]

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I did not.

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William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [21]

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Okay. All right. Fair enough. The -- as far as the loan pipeline goes, I'm curious if you guys are changing any kind of underwriting metrics, just given that we're late in the cycle. We're hearing some commentary from other bank management teams that they're seeing what would be consistent with late cycle behavior. I'm just curious, if you guys are seeing any questionable behavior and if you're changing some of your decision matrices as a result.

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [22]

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So Wally, it's a really good question. And it's frustrating to me because I tend to -- what we see in the marketplace and what you hear some of these banks say don't seem to be consistent because we are definitely seeing much more aggressive terms. And it's one of the things that's made it much harder for me to project what our loan growth is going to be because we're losing more loans that are in our pipeline than we traditionally have lost. And it's for 2 reasons: one, quite a bit more aggressive underwriting than we are willing to go; and two -- I'll actually add one, borrowers who think they can get away with more aggressive underwriting, who consequently are asking for things that you have to say no.

And sometimes you lose a deal and sometimes you keep it, but it delays the closing by a good while; and then three, rates that we just won't play at. And that may be something we just have to watch over time. But we're seeing some really aggressive long-term CRE rates that when you compare them to the swap curve are under 200 basis points. So very, very aggressive pricing in our opinion for properties that just don't deserve it. So having said that, one of the things that's making it hard on Bill and I is trying to project future growth numbers because we used to feel like we -- if it was in the pipeline and we had approved it, we had a pretty doggone good chance of getting it closed.

And today, that's just not as high a percentage. On our side, we have tightened in probably 4, 5 different areas. And so we are requiring more equity on certain kinds of loans. And we are in some cases requiring -- like, on start-up projects, we're requiring more upfront money to -- from a loan-to-cost standpoint. So yes, we have tightened a little bit. I wouldn't say it's overly material. But what we're seeing is that in some cases, on credit metrics of loans, not only rates, that we're seeing some pretty aggressive advance rates on construction that we've probably tightened a hair and others seem to have loosened a hair. That's just an outside observation, I can't say I'm right or wrong.

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William Jefferson Wallace, Raymond James & Associates, Inc., Research Division - Research Analyst [23]

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Okay. Fair enough. Well, yes, you seem to have demonstrated some pretty strong loan growth this year despite that fact. Is that a function of hires? Or like, what do you think is driving...

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [24]

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Quite a few things. One, hires. We have added a number of people, and I think a number of good people and they've been pretty successful. Two, I would suggest to you that we have less competition in our sized bank. If you go back 2 or 3 years, there was a number of banks that were $3 billion to $10 billion that were competing in our markets. And honestly, they're not there. And I think a lot of those customers have come to us because either we have -- we might have the person they used to deal with or they're looking for a community bank who's responsive and they can know the senior people in addition to just a loan officer. I think that's probably been our -- if I had to say what's the biggest thing that's impacted us, it would be that. And then the third thing is we're in fabulous markets. I think as you know, we're in 8 of the very best markets in the Southeast. 5 of the fastest -- top 25 in the United States as far as growth. And it just is a tremendous help to be in those markets and know the players in those markets. We are seeing some competition from outside forces in a couple of those markets. And so how long do we get the benefit? I don't know. But I do think that a lot of people want to do business with a community bank. And the beautiful thing is we are the community bank of size in a lot of these markets that I think people want to do business with. Certain markets have really lost a number of competitors. So I think we're in the right place. We're in the right markets. I think we've done a really good job of picking up people to help us grow. But needless to say, from a credit and from a rate standpoint, it remains very competitive.

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Operator [25]

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And our next question comes from Stuart Lotz with KBW.

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Stuart Lotz, Keefe, Bruyette, & Woods, Inc., Research Division - Research Analyst [26]

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Jerry, following up on your commentary there on just competition you're seeing on loans. On some of the deals you're losing, are you -- I mean who is winning some of these credits now? Is it larger regional competitors? Or is it -- they end up going to smaller community banks in your markets? Just curious who you're running up against the most right now?

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [27]

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I would say they are banks that are larger than us who are not super regionals. But that's about all I'll give you.

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Stuart Lotz, Keefe, Bruyette, & Woods, Inc., Research Division - Research Analyst [28]

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Okay. So nothing really from SunTrust and BB&T getting super defensive given the upcoming merger? It's mainly just -- so all these...

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [29]

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I mean they've always been great competitors. And -- but I haven't noticed anything increasingly from them, if that's what you're asking. But they've always been great competitors. They're good banks.

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Stuart Lotz, Keefe, Bruyette, & Woods, Inc., Research Division - Research Analyst [30]

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Got it. Appreciate the color there. And then in terms of, I guess, going back to the margin for a second, where did total interest-bearing deposit costs shake out this quarter? And I think last quarter -- or Q2, you're running at $125 million and total deposit costs were up 2 basis points 1 quarter. I'm just curious, was the increase for interest-bearing kind of in line with that 2 basis point increase?

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [31]

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You're going to have to give us a second. There's something I need to check here. Yes, I'm not sure what the question is. I'm going to have to get back with you on that one. I'm not quite sure I'm following the overall -- if you're comparing year-over-year. And I'm doing this from memory, our core margin actually dropped from third quarter last year about 3 basis points. The cost of funds was down about 4 basis points. Obviously, some of that does have to do with mix. And part of that does have to do with -- you wouldn't have a big broker portfolio, but it does fluctuate up and down 1% or 2% of the total liabilities that we have. But I -- overall, like I said, cost of funds for the quarter were down 4 basis points.

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Stuart Lotz, Keefe, Bruyette, & Woods, Inc., Research Division - Research Analyst [32]

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And I guess digging further into that. We got the cut in July, we got the cut in September. How quickly were you able to lower your various prices? Was there a bit of a lag? And then with the September cut, did we really see much benefit this -- in the third quarter? Or should we see more benefit going into 4Q?

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [33]

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Well, you're definitely right. There is a lag. I guess it's probably 1.5 week. We typically don't drop our money market rates until it actually happens. And then we get together and meet, and even though we kind of follow a pretty systematic process, we -- from an internal control standpoint, we always meet, we go through it, and then we have to communicate it and put it out system-wide. So there is a lag. So the third quarter Fed increase would not have given much impact. It would have given an immediate impact on prime and LIBOR. Those things, of course, happen pretty darn fast. But on the liability side, there's a slower process. And then on the CDs, it's even slower than that because, obviously, it takes about that same 10 days to change the rates. But then in all honesty, it -- there's -- our average CD period of time between repricing is drug out over 5 or 6 months. So definitely a lag on the deposit side of the liabilities. On the Federal Home Loan bank advances, which we have some, that's more immediate. But that probably represents around 12% of our total liabilities.

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Stuart Lotz, Keefe, Bruyette, & Woods, Inc., Research Division - Research Analyst [34]

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Okay. And where are these CDs are coming on? And if we do get a cut next week, how large is that balance that you said you have unusually large amount of CDs maturing in the fourth quarter?

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [35]

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I don't think we've ever disclosed that. And honestly, we do put repricing in the 10-Q. And that's where it will be. But as far as particular month-to-month, we've never disclosed that. And I really don't want to get into the habit of trying to do that.

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Stuart Lotz, Keefe, Bruyette, & Woods, Inc., Research Division - Research Analyst [36]

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Fine. I understand the competitive dynamics of that. All right, Jerry, last one for me, as it relates to the acquisition with Carolina Trust and CECL. Just any preliminary guess on the impact from CECL day 1 and then in terms of with this deal closing at year-end or early in the -- early in 1Q, what's the PCD marker, day 2 provision, any guidance around there that you're willing to disclose at this time?

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [37]

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No. We're not there yet. I will say that we do, at this point in time, intend to close the Carolina Trust transaction on December 31. But as far as specifics, obviously, there's a lot that will happen between now and December 31 in that portfolio. So obviously, you redo it right on the day that you acquire the portfolio. And interest rates will have some impact on part of the valuation metrics that go in for liquidity mark and that kind of stuff. So the answer is, no. We -- I think we're in very good shape. But we're going to -- we would intend to disclose that really in Q4, is that right?

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William A. Gehman, Carolina Financial Corporation - Executive VP & CFO [38]

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Yes.

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [39]

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Yes. Okay. So yes, Bill has got me pretty good muzzled on that.

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Stuart Lotz, Keefe, Bruyette, & Woods, Inc., Research Division - Research Analyst [40]

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So is that going to be coming with the 10-K? Or could we expect some type of either press release at deal close? I mean just in terms of timing.

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [41]

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Well, I don't think it would be at deal close, to be honest with you because in all Stuart -- in all honesty, Stuart, there's a lot of work that has to be done because you actually have to -- you're supposed to relook at all the work you've done in your purchase accounting work and update it, and of course, adjust for anything that you see that happens in that intervening 6-month period. So no, it would be included in the 10-K.

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Operator [42]

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And I'm not showing any further questions at this time. I would now like to turn it back to Jerry Rexroad, Chief Executive Officer, for any further remarks.

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Jerold L. Rexroad, Carolina Financial Corporation - President, CEO & Director [43]

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Well, thank you so much for joining the call today. And again, thank you, team members, for a great job. And look good -- look forward to a good fourth quarter. Thank you, and goodbye.

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Operator [44]

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Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.