U.S. Markets closed

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

Q4 2018 Carolina Financial Corp Earnings Call

CHARLESTON Jan 28, 2019 (Thomson StreetEvents) -- Edited Transcript of Carolina Financial Corp earnings conference call or presentation Friday, January 25, 2019 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Jerold L. Rexroad

Carolina Financial Corporation - CEO, President & Director

* William A. Gehman

Carolina Financial Corporation - Executive VP & CFO

================================================================================

Conference Call Participants

================================================================================

* Blair Craig Brantley

Brean Capital, LLC, Research Division - SVP and Senior Equity Research Analyst

* Peter Finley Ruiz

Sandler O'Neill + Partners, L.P., Research Division - Director

* Stuart Lotz

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

* William Jefferson Wallace

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

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen, and welcome to the Carolina Financial Corporation 2018 Fourth Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Chief Financial Officer, Mr. Bill Gehman. Mr. Gehman, you may begin.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you, operator, and welcome to the Carolina Financial Corporation investor call. Please refer to Slide 2 regarding forward-looking statements and non-GAAP financial measures. And now, I'd like to turn the call over to Jerry Rexroad, CEO of Carolina Financial Corporation.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

I'd like to thank each of you for joining our fourth quarter conference call for Carolina Financial Corporation. Overall, I thought we had a very strong fourth quarter and very pleased with our results.

Fourth quarter 2018 net income increased 144% to $15.4 million, $0.68 per diluted share compared to $6.3 million or $0.33 per diluted share in the fourth quarter of 2017. On an operating basis, fourth quarter 2018 increased 52% to $16.9 million or $0.75 per diluted share. That's up from $11.1 million or $0.57 per diluted share in the fourth quarter of 2017.

Very strong loan growth in the fourth quarter. Loans receivable grew $67 million from September 30, 2018, an approximate annualized rate of 10.9%. And for the year, we grew almost $205 million or a rate of approximately 8.8% since the beginning of 2018. Provision for loan losses in the fourth quarter of 2018 were primarily driven by organic loan growth and amounted to $750,000 for the fourth quarter.

Total deposits decreased in the fourth quarter, $41.4 million. However, for the year, we increased $113.3 million. And the fourth quarter was primarily impacted by a number of events, one of which is the normal repayment of property taxes related to our impound funds or custodial accounts on our service portfolio that we have in the mortgage company.

In addition, we have normal seasonal activity in many of our markets because they're heavily tourism influenced, and the slow months of the year are September through February, particularly this year because of the storm that we experienced in September. It really had a fairly significant flooding event in the first part of this quarter. So many of the businesses that are in those tourism areas were significantly impacted by a lack of business, particularly in the months of October and November. So overall, I thought deposits were pretty much what we expected.

Tangible common book value per share ended at $19.36. That compares to $15.71 at the end of last year. In December, we announced that the Board of Directors had approved a plan to repurchase up to $25 million of shares of the company's common stock. During the fourth quarter, the company repurchased approximately 176,000 shares at an average price of $30.64. And subsequent to year-end, through January 22, the company had purchased an additional 87,000 shares at an average price of $31.42.

Also, I hope many of you saw that we announced our planned expansion to the Charlotte, North Carolina market. Charlotte represents the natural extension between the upstate and our Eastern North Carolina markets as well as just the natural eastward expansion of the markets that we have in North Carolina. Very excited about that, have an extremely strong leader to lead that effort and are very optimistic about our opportunities in the Charlotte market.

Our community banking segment, CresCom Bank, had an extremely good fourth quarter. Net income of $15.4 million, $0.68 per diluted share. That compares to $6.1 million in the prior year fourth quarter or $0.31 per diluted share. On an operating basis, $16.9 million in the fourth quarter, $0.75 per diluted share compared to the prior year fourth quarter of $10.9 million or $0.56 per diluted share. Diluted share earnings for the operating segment were up 33%.

Our segment return on leveraged assets was 1.67% compared to 0.79% in the prior year quarter. On an operating basis, probably as strong as we've ever had, 1.83% for the fourth quarter of 2018 compared to 1.43% in the fourth quarter of 2017, very, very strong results in CresCom Bank.

Our net margin, I thought, did very well. Yield on loans was up 20 basis points. Net interest margin increased 8 basis points. However, there were several significant items in the quarter that we felt that it was very important that we pointed out. We did have an approximate $900,000 increase to net interest income and interest income as a result of a payoff of a purchased credit impaired loan that did increase the yield on loans by approximately 15 basis points.

Our loan accretion income in the fourth quarter was $1.9 million. That was approximately 31 basis points. And in the third quarter, we had $2.2 million of accretion income, which increased income -- excuse me, increased yield by 37 basis points. In addition, in the fourth quarter, we did have some fairly significant loan payoff fees of $414,000. That compares to the third quarter of $620,000.

I would say that loan payoff fees are part of our normal operations, and we certainly do get them almost every single quarter. However, both the third and fourth quarter loan payoff fees were higher than we had expected. I had mentioned last quarter that we have had some fairly significant payoffs. And again, in the first part of this quarter, we had a large loan payoff. And so I think our loan growth, when you consider the payoff that we had at the beginning of the year, was extremely satisfying for our team.

Our yield on securities increased approximately 15 basis points on a tax equivalent basis, up to 3.74% in the fourth quarter of 2018. Cost of funds increased 12 basis points, and I think all of you are well familiar that we did have an increase to the fed funds rate at the end of the third quarter and again pretty much at the end of the fourth quarter of 2018. Overall, very, very pleased with how our margin did in the fourth quarter, really a period that's kind of seasonally difficult for us from a margin standpoint.

Bank segment operating efficiencies look extremely good. I will remind you that the 1.96% noninterest-bearing -- noninterest expenses to average assets, very, very strong quarter, but that was influenced by the fact that we did reduce our compensation accruals approximately $300,000 as a -- when you compare to the third quarter 2018, as a result of not achieving certain incentive targets.

The operating efficiency ratio for the bank, very strong, 45.1%. Again, that was influenced by the items that I mentioned on Page 6 related to interest income as far as the $900,000 that we had received as an early payoff as well as the $300,000 of reduction in compensation expense related to reduction in bonus accruals.

On Page 8 of the deck, loans receivable grew $67 million in the fourth quarter, overall for the year 8.8%. Deposits, $113 million. Feel very, very good about both of these. Deposits is something we're really going to focus on in 2019, but given the weather events that we had in our markets, I thought that overall we did very well.

Page 9 of the deck. Nonperforming assets, as divided by total assets, remain very good at 35 basis points, up a little bit from last quarter. Really nothing there that we see as any trends, but still that number, I think, compares very favorable to peer. We did book $750,000 in provision for loan loss, primarily driven by organic loan growth because we did have net recoveries in the fourth quarter.

For the year, we actually experienced net recoveries of $926,000. Our yield on loans at the end of the fourth quarter, 5.71%. Our cost of deposits on Page 10, 83 basis points. And again, our deposit composition remains very, very solid, with 64% being what we call core deposits.

Crescent Mortgage Company had a very, very good fourth quarter in what I think was a very difficult mortgage market. They did a great job of maintaining their margin. Just like I think most of our peers, our activity was certainly down in the fourth quarter. We only closed $168 million in loans, but pretty much what we expected based upon the rising interest rates, and also there is no doubt that we were impacted somewhat by weather, 2 hurricanes, one going through the Gulf obviously impacted those states and then, of course, North Carolina and South Carolina significantly impacted by Hurricane Florence.

So both of those had impact on mortgage volumes in this part of the country. But overall, no doubt that there was a decline in activity related to rising rates and probably a little slowdown of the mortgage market overall. But Crescent Mortgage Company did very well, making $599,000, $0.03 per diluted share. That compares to the fourth quarter of '18 (sic) ['17], $117,000 or $0.01 per share. The increase this year was primarily driven more by servicing results. If you remember in the third quarter, we invested approximately $1 billion in mortgage servicing. That certainly had a very positive impact on us, as well as a reduction in income taxes related to the application of the Tax Cuts and Job (sic) [Jobs] Act that was implemented at the end of last year.

Overall, operating results, I think, are just really, really strong. Return on average assets on a GAAP basis, 14.53%, on an operating basis -- that's return on average tangible common equity, excuse me, 14.53%, on an operating basis 15.92%. Return on average assets GAAP 1.67%, on an operating basis 1.83%. So really, really good results.

Diluted operating earnings per share $0.75, on a GAAP basis $0.68, up very strong from last year. And our tangible common book value, I should not fail to mention that we're up $3.65 from a year ago. That's up 23%. Obviously, that was influenced by the capital raise that we did in the second quarter of 2018.

I do really want to thank our team members. It was a challenging quarter, particularly at the beginning of the quarter with weather-related events, lots of flooding in many of our markets, and many of our team members would drive 2, 3 hours to get to work due to all the road closures. And we've rebounded very nicely.

Our commercial team had a very, very good fourth quarter in loan growth. We've been able to add some very, very talented and seasoned commercial loan officers and mortgage loan officers to our team and remain very, very optimistic about the future with very strong loan pipelines. And I just want to thank everyone. They worked very hard, and I'm very, very appreciative.

So with that, I'll open the lines for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from Peter Ruiz from Sandler O'Neill.

--------------------------------------------------------------------------------

Peter Finley Ruiz, Sandler O'Neill + Partners, L.P., Research Division - Director [2]

--------------------------------------------------------------------------------

I guess, just first on growth, just, obviously, a strong period in growth there for you guys. Just wanted to kind of get your thoughts on the sustainability here of maybe a high single-digit pace as we go into 2019 and maybe some of the moving parts there with the economic recovery, with the hurricanes and just maybe how paydowns are kind of shaping up now. Is there any sort of normalization as we head into 2019?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

That's a great question, Peter. I think our goals are to see very high single-digit growth or low double digit -- very low double digit, so I'll clarify that. But we mentioned that we had some fairly significant payoffs at the end of the third quarter, and we certainly had the one large one at the beginning of the fourth quarter. Since then, I would say prepayments have been fairly normalized. Our pipelines look really good. I think our teams are working very well, and we've been able to add some good team members to our team that have very, very strong influences in the communities that they serve. And I'm fairly optimistic. I think the one thing I would kind of always caution is, I think loan growth is not something that's purely linear, and it tends to be sometimes one quarter is better than the next. And our third quarter was kind of a tough quarter in loan growth. But quite frankly, I felt like we made it up in the fourth quarter. But we could have had a couple loans that didn't get closed by the end of the fourth quarter. In fact, we did have some. And they're still planned to close in the first quarter. And so it's sometimes hard for me to say it's going to be consistent, but I feel like by the time we get to the end of the year, next year, that we're going to look back and feel pretty good that we've been able to achieve loan growth next year in a pace very similar to what we did this year. And we were up 8.8% for the year, and I think that's really reflective of our markets and our teams.

--------------------------------------------------------------------------------

Peter Finley Ruiz, Sandler O'Neill + Partners, L.P., Research Division - Director [4]

--------------------------------------------------------------------------------

Great. And also maybe just on the net interest margin and just kind of funding pressures. How do you guys think about the margin heading into 2019? Taking out some of those nonrecurring benefits that you saw this quarter with the interest recoveries, is it still looking like you can maybe hold the core margin stable? And you kind of mentioned a focus on deposits in 2019. So does that kind of imply that we could see a ramp up in deposit betas as you compete more fiercely with other banks in your markets? Or how should we think about that?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Peter, I wish I had the crystal ball to answer that question because what I don't know is what the competition will do on deposit rates. It's obviously something that we're going to focus on. I think, quite frankly, we spent a lot of time at the beginning of the year getting through a conversion. By far, our largest acquisition was the acquisition of First South, and that really, really took a lot of attention, took a lot of our people out of our branch network, helping to train that team. And so we did not get off to as good a start as I would have liked to at the beginning of the year. And then, quite frankly, we hit -- at what often is a pretty good period of time, we hit some really bad weather event. And it was not the typical hurricane where you get all kinds of deposits. It was a huge flooding event where many, many of the people were not covered by flood insurance. And so to pay for the recovery, many of them have had to do it out of either their resources or their family's resources. And then, quite frankly, many of the businesses that we have in our communities almost missed a month of revenue. And so, it's hard for me to look back at last year and know exactly what the true impacts of all those items are. But we are going to work it, as I said we would, growing some of these smaller branches that we have. That will probably result in us being more competitive. But what's the overall impact? I don't know. I felt like our loan beta was extremely good. I think that's something that we have tried very hard to do, is to be very judicious on interest rates on the lending side. We've tried not to buy loans. We've tried to win them through great relationships and great service. And honestly, I think that's worked. And so, I think if you subtract all the accretion and then you subtract the unusual items and you look at what our increase in loan yield and what our increase in securities yield is, it outpaced the increase in the cost of deposits. And so, to kind of finalize what I think is a nonanswer to your question is, remember that we are extremely seasonal. And so, fourth quarter, I don't expect a real good deposit number. In first quarter, I don't expect a real good deposit number. But then by the time we get to the summer, our custodial balances start to really increase and as does our seasonal deposits. So we're a little bit unusual in the fact that, again, even on the deposit side, we're not linear because of the seasonality that we have in our markets. But as I look forward right now, I think the competition is not unreasonable, and I think we can compete very well. And as long as we can hold loan beta, then I think margin can do pretty well. But loan beta is the key. I mean, you've got to be able to increase your loans commensurate with what you increase your deposits. So far, we've been able to do that.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

I guess, maybe move on to the expense side of the income statement. Seemed like a pretty good fourth quarter relative to our expectations. You got the planned expansion into Charlotte. Maybe kind of help us think about how the expense line might move through '19, if you can hit your loan growth targets.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

We've typically said we think we would be up 5%-ish, and I think that still remains true. Obviously, we've got to hit our loan growth targets, and that would assume that our mortgage business stays where I think it's going to be. Obviously, that mortgage can kind of move your expense around because it's so commission related. But assuming a modest year in mortgage, I think that range is kind of where we would expect to be. Obviously, there will be some expense in going into Charlotte, but I think we planned for that. And I'm actually very, very optimistic about that team. I think they can become productive pretty quickly. So hopefully, that gives you some thought process. I would caution you to say that the one thing with us that does make expenses move a little bit is the mortgage business, and our mortgage volume in the fourth quarter was down a little bit and the margin was great, but the volume was down. So therefore, that does bring expense down a little bit.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Right. That was actually one of the questions I had written down was to talk about what your expectations were for mortgage in 2019. So maybe give us an idea what you mean by a modest year in mortgage. You were, on the revenue side, flattish in 2018. Is that a kind of a -- is that -- would modest be another flattish type year in '19?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

I think that's a good description. I think in the wholesale business, we had good margins throughout the year. And let's face it, our volumes came in short of where we would have liked them to be, but margins were good. I think as I look into next year, I expect a little bit of margin pressure, probably in the first quarter. That's typical as everybody is trying to struggle to stay afloat. At the same time, I think by the time we get to the summer, we -- I feel pretty good about where they end up. And I think they end up, I think, a little bit better than last year. We've been able to add some really good sales team members to that -- to the mortgage team in Atlanta, and I'm pretty excited about next year, but I certainly wouldn't want you to get overly optimistic. On the retail side, we continue to add people to our team that I think -- I think we are people who want to be in a community bank and operate with a community bank kind of mortgage culture. We -- I thought we had a good year last year. It was slow in the fourth quarter. We probably would have hit our internal goals had the fourth quarter not been so impacted by storms. But I thought we had a good year. I think for the year, we did about $220 million in our retail side, and we're hoping to do a little bit better than that next year. And again, don't -- not looking for 20%, 30%, but I do think that we should be able to see that increase by 10% or 15% because we've been able to add some really solid team members. Now that assumes interest rates remain kind of in this 4.75% to 5% range on a 30-year fixed. Obviously, if rates drop because of the significantly flattening yield curve, then I think that could be well better. On the other hand, if -- there's no doubt that the fourth quarter loan volumes for mortgage were impacted because rates at the beginning of the quarter were a little north of 5%, and that definitely had some impact on fourth quarter along with weather events.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Okay, great. Last question. As you think about your stock buyback, is there a price point where you feel like it's maybe not worth pursuing buybacks?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

I don't think we've given any color on that. We felt like it was an extremely good value at the points that we were buying it back. We've remained active throughout this quarter, as was mentioned in the article. But as far as giving any price targets as to where we would be repurchasing, I don't think that would be fair to give.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question comes from Stuart Lotz from KBW.

--------------------------------------------------------------------------------

Stuart Lotz, Keefe, Bruyette, & Woods, Inc., Research Division - Research Analyst [14]

--------------------------------------------------------------------------------

I guess, to start, one additional question on the margin. I know if we back out some of the onetime items from this quarter and ex the accretion, they held relatively flat. With the December hike and the lift we saw last quarter after the September hike, could we see a pretty similar move in that core margin in the first quarter? And any additional rate hikes you guys have modeled for 2019?

--------------------------------------------------------------------------------

Jerold L. Rexroad, Carolina Financial Corporation - CEO, President & Director [15]

--------------------------------------------------------------------------------

So we actually show ourselves on a core basis actually up a little bit more than flat. So I think if you look at all the items that we disclosed, the payoff of the credit impaired loan impacting it by 15 basis point; loan accretion, 31 basis points versus 37; really payoffs being 6 basis points this quarter and 10 last, we're actually showing that -- what we would call core NIM, when you exclude everything, is actually up -- I think up 4 basis points. So to answer your question, going forward, first quarter, I expect to be difficult from a deposit standpoint because it's just seasonally slow for us. And so, even though we've got the Fed increase, if we could get -- if we could hold flat next quarter, I'd be pretty pleased because I just know it's a tough quarter for deposits. But when you go to the second and third quarter, then we start to get some real help on the deposit side. So that's when we possibly could actually catch up a little bit and maybe get a little tailwind. We really did not budget any Fed increases. And I'm not here to prognosticate rates, but we felt like that the -- probably the greater risk was a flat -- well, to say it this way, no Fed increase, we felt like that was probably the more conservative way. Obviously, so far, we have benefited from the rising rates from the Fed. I think that would continue to be true. At the same time, falling interest rates probably do hurt margin a little bit, but on the other hand, they probably help our mortgage business. So we've tried to run a business that's got some balance in it, and we think the mortgage helps balance out changes in interest rates. And so, going forward, first quarter, with the Fed increase, obviously, that's some tailwind, but the headwind would be the fact that that's just a seasonally slow period for deposits. Second and third quarter, we'll get a lot better deposit growth just because of the markets that we're in.

--------------------------------------------------------------------------------

Stuart Lotz, Keefe, Bruyette, & Woods, Inc., Research Division - Research Analyst [16]

--------------------------------------------------------------------------------

Appreciate the color there. And then, I guess, one more on the margin as well. Accretion ran around, call it, $2 million, $2.25 million per quarter this year. Any -- what are your expectations for that number to look like in 2019? I think we have about $6 million in our numbers right now. Is that a pretty good ballpark?

--------------------------------------------------------------------------------

Jerold L. Rexroad, Carolina Financial Corporation - CEO, President & Director [17]

--------------------------------------------------------------------------------

That's certainly a pretty reasonable estimate because, last year, you're right, it was running more in the -- excluding the one payoff, it did run about $2.25 million. I would expect to see it slow. That's probably a fairly aggressive ramp on your part as far as the slowing, but it's going to slow. I mean, it's naturally going to tail off. And so I would expect, quite frankly, first quarter to have more accretion than the fourth quarter because it's just naturally going to tail off. When you look at this quarter, the $1.9 million, excluding the one event, I would be tailing that off over the year. Your number is certainly in the ballpark. Yes, and Bill says it's as good a guess as any. So I'd agree with that.

--------------------------------------------------------------------------------

Stuart Lotz, Keefe, Bruyette, & Woods, Inc., Research Division - Research Analyst [18]

--------------------------------------------------------------------------------

And then I guess my last question, just on the Charlotte expansion. Any background on how that -- how this conversation started? And any hires there? I mean, how big of a team has Robin brought on so far? And any additional hiring plans? I would appreciate any color there.

--------------------------------------------------------------------------------

Jerold L. Rexroad, Carolina Financial Corporation - CEO, President & Director [19]

--------------------------------------------------------------------------------

So we -- our approach has always been to try to hire people that fit into our culture and then let them build the teams slowly as they learn our culture. And we've never gone out and tried to hire 4, 5 people and just immediately build a team. That's just not who we are. It's not philosophically how we try to do things. And Robin, I think, fits in with us culturally just extremely well. He is a community banker. He helped to grow another banking organization in that market significantly, and I think he's just really, really pleased that he has joined our team. I would expect that over the course of the year, we add a couple people to that team, and then over time, we'll continue to add to it. But no immediate plans to try to hire up in a short period of time. We want to let him get to know us better, get to understand our lending culture, find the right locations and then add the right people to our team that fit into our culture. So I would expect that hopefully we have an additional team member in 3 to 4 months and probably then 6 months or so after that. So that kind of gives you some time line.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

And our next question comes from Blair Brantley from Brean Capital.

--------------------------------------------------------------------------------

Blair Craig Brantley, Brean Capital, LLC, Research Division - SVP and Senior Equity Research Analyst [21]

--------------------------------------------------------------------------------

Most of my questions have been asked and answered. But just going back to the capital front. Obviously, you still have some ample flexibility there. Just any update on M&A conversations and maybe any more mortgage servicing kind of thoughts?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

That's a good question. So on the M&A front, obviously, I think a lot of people got their expectations probably out in front of the market as, obviously, 6 months ago, we were trading 2.5x book, and I think everybody felt like that kind of increased their value at the same time. And so now that we're trading at some lesser amount of book, we have certainly seen less interest. We remain out talking. I think we've got good relationships with several different companies, should they decide to go this route, that hopefully we will be one of the first people they choose to call. And I think that given the liquidity in our stock, we certainly have a tremendous advantage from a liquidity standpoint, but expectations are pretty high. And so, we're going to be very disciplined in how we approach acquisitions, and it's got to be a win-win on both sides. And that's what we've always tried to do. And I think that's the reason our earnings this quarter were up 33% because, a year ago, a great company chose to partner with us. And back in March of that year, another great company chose to partner with us. We paid a price that we both won on. And as a result, earnings continue to grow, and, hopefully, over the long term, we provide value for our shareholders because we've done deals that make good sense. And that's what I want to tell you. We're not going to do a deal that doesn't make sense. Obviously, there's been a couple announced in our markets, and we just didn't feel like the pricing fit what we felt was appropriate for the franchise. So I can't predict where that goes into the future, but I can tell you we remain acquisitive. On the stock repurchase front, clearly, there was a huge opportunity for value there. And as we see value in the stock and still think it's very fairly priced, we're going to continue to just evaluate that on a day-by-day basis and work our rear ends off to try to get to organic growth to leverage that capital.

--------------------------------------------------------------------------------

Blair Craig Brantley, Brean Capital, LLC, Research Division - SVP and Senior Equity Research Analyst [23]

--------------------------------------------------------------------------------

And any thoughts on any more mortgage servicing purchases?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

I'm trying to avoid that. I would love to buy more, but I feel like the price right now is just higher than what we want to pay. And so, again, it's a disciplined process that we try to do. We felt like it was cheap when we bought it, and I feel like what we bought has really performed really well. I'm really pleased with the first quarter speeds on what we bought. And if we get an opportunity to invest at a value like what we got, you will absolutely see us buy servicing. But right now, given that the rates have fallen and the pricing is pretty stout, in our opinion, for servicing that's not quite as attractive, we're going to sit out and wait for a better opportunity.

--------------------------------------------------------------------------------

Blair Craig Brantley, Brean Capital, LLC, Research Division - SVP and Senior Equity Research Analyst [25]

--------------------------------------------------------------------------------

Okay. And then just one question on credit. Obviously, it’s been 5 years of pretty much no loss content. I mean, what's the view on credit cost going forward?

--------------------------------------------------------------------------------

Jerold L. Rexroad, Carolina Financial Corporation - CEO, President & Director [26]

--------------------------------------------------------------------------------

I mean, we're fairly optimistic. I mean, so far, credits remain good. It's certainly not going to be like it was last year. I don't expect another large recovery year of $926,000, I think is what it was. But I would expect that we would have some charge-offs next quarter. But to some degree, we don't see a whole lot of change in the credit front. But that doesn't mean there's not going to be small things crop up here and there. So, so far, nothing significant. Seems to be good activity. Prices still seem to be continuing to increase in our markets. But I would expect a little higher trend probably next year than we had in the fourth quarter, especially if we hit our loan growth numbers. So -- and also, we do have these loans that we purchased and purchase accounting, and they don't have any provisions. So as they are refinanced and put back into the portfolio, we have to put allowance on them. So I would expect a little higher run rate than what we had in the fourth quarter.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Jerold L. Rexroad, Carolina Financial Corporation - CEO, President & Director [28]

--------------------------------------------------------------------------------

Well, thank you all for joining the call today, and I appreciate those good questions. I think it always adds color to the presentation. And again, I want to thank our team members for a fantastic quarter and look forward to a very, very solid 2019. Thank you.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.